U.S. INTELLIGENCE ANALYSIS AND THE OIL ISSUE, 1973-1974

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90-01137R000100050002-2
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 8
• Document Creation Date: December 12, 2016
• Document Release Date: April 8, 2002
• Sequence Number: 2
• Publication Date: December 1, 1977
• Content Type: REPORT

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9- th Congress
1st Session f
U.S. INTELLIGENCE ANALYSIS AND
THE OIL :ISSUE, 1973-1.974
STAFF REPORT
SENATE SELECT COMMITTEE
ON INTELLIGENCE
SUBCOMMITTEE ON
COLLECTION, PRODUCTION, AND QUALITY
ITNITED STATES SENATE
II.S. GOVERNMENT PRINTING OFVICE
40-456 WASHINGTON : 1577
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SENATE SELECT COMMITTEE ON INTELLIGENCE
(Established by S. Res. 400, 94th Cong., 2d sess.)
DANIEL K. INOUY FI, Hawaii, Chairman
BARRY GOLDWATER, Arizona, Vice Chairman
BIRCH BAYH, Indiana
ADLAI E. STEVENSON, Illinois
WILLIAM D. HATHAWAY, Maine
WALTER D. HUDDLESTON, Kentucky
JOSEPH R. BIDEN, JR., Delaware
ROBERT MORGAN, North Carolina
GARY HART, Colorado
DANIEL PATRICK MOYNIHAN, New York
CLIFFORD P, CASE, New Jersey
JAKE GARN, Utah
CHARLES McC. MATHIAS, JR,, Maryland
JAMES B. PEARSON, Kansas
JOHN H. CHAEEE, Rhode Island
RICHARD G. LUGAR, Indiana
MALCOLM WALLOP, Wyoming
ROBERT C. BYRD, West Virginia, Ex Officio Member
HOWARD H. BAKER, JR., Tennessee, Ex Officio Member
WILLIAM G. MiLLita, Staff Director
EARL D, EISEN80WER, Minority Staff Director
AUDRRY H. HATRY, Chief Clerk
SUBCOMMITTEE ON COLLECTION, PRODUCTION AND QUALITY
ADLAI E. STEVENSON, Illinois, Chairman
CLIFFORD P. CASE, New Jersey, Vice Chairman
GARY HART, Colorado RICHARD LUGAR, Indiana
DANIEL PATRICK MOYNIHAN, New York MALCOLM WALLOP, Wyoming
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"U.S. INTELLIGENCE ANALYSIS AND THE OIL
ISSUE, 1973-1974"
The Senate Select Committee on Intelligence recently approved a
66-page classified staff study entitled, "U.S. Intelligence Analysis and
the Oil Issue, 1973-1974." The statement of findings which follows is
drawn from that study, which was prepared by the Subcommittee
on Collection, Production and Quality, chaired by Senator Adlai
Stevenson.
The classified study was based on: overseas field reports from the
State Department and the intelligence agencies; finished intelligence
publications from the period from the State Department's Bureau of
Intelligence and Research and the Central Intelligence Agency; inter-
views with approximately 30 intelligence community analysts; 20
senior and middle-level policy officials; 10 oil company executives and
financial analysts; and public sources from the period, including
specialized petroleum publications, newspapers, congressional hearings,
and articles from foreign affairs journals.
The case study on the oil issue examined the intelligence com-
munity's.performance in three specific aspects of the oil question:
1. TEIE POSITION OF SAUDI ARABIA IN TI-IL SPRING AND SUMMER OF 1973
ON THE ISSUE OF USING OIL AS A POLITICAL WEAPON
Traditionally, Saudi Arabia anal, the United States maintained
strong ties. The mutual dependency created by the Saudis' position as
major suppliers of U.S. oil imports and the U.S. role in providing
military aid to Saudi Arabia made for a comfortable Saudi-American
relationship. Yet., by October 1973, Saudi Arabia was in the vanguard
among the Arab states in calling for the use of oil as a political weapon
against the United States.
How well did the U.S. intelligence community recognize the
distinct changes that were evolving in the Saudi posture?
II. Ti a SITSTAINABILITY OF PRICES FOLLOWING THE OIL EMSBARGO
Between October 1973 and January 1974, the Organization of
Petroleum Exporting Countries (OPEC) raised oil prices by 400 per-
cent.' With fluctuations in supply and demand and with little previous
knowledge of the relative elasticity of oil prices, long-term pricing
was difficult to gauge. Through 1974 and beyond, OPEC maintained
the price of oil at approximately $11 per barrel.
How well did the intelligence community gauge the ability of
the Arab states to sustain oil prices at unprecedented levels?
i OPEC was organized in 1960, and at that time, its member states included : Abu Dhabi,
Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, and Venezuela.
In November 1973, Ecuador became a member and Gabon an associate member.
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III. THE IMPACT OF OIL PRIC1; INCREASES ON TIIE WORLD ECONOMY
The initial problem of maintaining oil supply in the wake of the
October 1973 embargo and reduced production proved to be of far
less consequence than the disruption which escalating oil prices
caused in the international monetary structure and in the world
economy.
Ilow well did the intelligence community address the issue of
the effects of OPEC actions on the international economy?
The principal conclusions from the classified committee staff
study are as follows:
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CONCLUSIONS
A. THE PERFORMANCE OF SPECIALIZED PUBLIC SOURCES ON THE
THREE ISSUES ADDRESSED IN THE STUDY EQUALLED OR EXCEEDED
THAT OF THE INTELLIGENCE COMMUNITY'
On the issue of the Saudi use of oil as a political weapon, public
sources reported more consistently on changing intentions of the
Saudis over the period from April to August 1973 than did the intel-
ligence community. Although some pieces of finished intelligence
assessed the ongoing shift in Saudi attitudes, most of the intelligence
community's reporting did not do so. A policymaker could easily
have read this reporting without sensing the importance of Saudi
developments. On the question of price stability, following the October
1973 war and subsequent price increases, public sources concluded
in general that oil prices would remain at their new levels. In con-
trast, the intelligence agencies anticipated a fall in prices, and con-
veyed the sense that Saudi Arabia alone could and would reverse
the increases. On the issue of the impact of oil increases on the inter-
national economy, public sources and intelligence community sources
averaged the same in terms of breadth and depth of coverage; neither
gave extensive coverage to the issue.
B. THE ABSENCE OF EVALUATION OF SAUDI POLICY CHANGES WAS
NOT A FAULT OF INADEQUATE COLLECTION. ON THE CONTRARY,
DATA FROM THE FIELD, THOUGH UNEVEN IN QUALITY, GAVE
STRONG INDICATIONS OF ACTUAL SAUDI POLICY SHIFTS
A detailed study showed that the intelligence community produced
a wealth of raw intelligence data derived from a variety of sources.
That data provided information on foreign economic policy, political
intentions, and the internal dynamics of foreign governments.
C. DURING THE PERIOD PRECEDING THE OIL CRISIS IN OCTOBER
1973, ANALYSTS UNDERUTILIZED THE RANGE OF FIELD DATA
AVAILABLE TO THEM
Measured against the. scope and substance of collected data, anal-
ysis fell short. Analysts tend.ed to rely on embassy reporting, fre-
quently excluding other intelligence information. Given the nature
of such reporting, intelligence analysts were captives of the em-
bassies' own limitations.
Evidence suggests that disproportionate reliance on embassy re-
porting was not unique to intelligence related to the oil crisis. Com-
mittee staff interviews reveal that political analysts throughout the
community frequently regard embassy reporting as their principal
z Public sources included the Petroleum Intelligence Weekly, the London Financial
Times, and the Wall Street Journal.
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overseas source. When this occurs, it means that information derived
from other sources, for which a costly and complex apparatus exists,
is frequently relegated to secondary information-if it is used at all.
The reason for the preference derives in part from the form of
State Department reporting. State's cables are consistently presented
in coherent paragraphs as concise summaries of events or developp-
ments and rarely exceed two or three pages. By comparison, the
CIA's. Clandestine Service reports are often far more detailed and
require integration and assessment by the analysts. Likewise, other
forms of intelligence, which are by nature d'isaggregated and frag-
mented, also require sustained', independent evaluations by analysts.
Within the CIA, the longstanding tensions. between the. Directorate
for Operations (DDO) and the Directorate for Intelligence (DDI)
affected the interaction between the two components. Three basic
factors limited the exchange. between the DDO and the. DDI and
ultimately, impeded the full use of clandestine. data.: (1) problems .of
sources-the DDI's need to verify the credibility of sources and the
DDO's need to.protect the identity of sources; (2), fundamental dif-
ferences in mission-political. action and espionage. vs. the dissem-
ination of information;; and (3) negative perceptions-analysts' per-
ceptions of DDO case officers as "operators" and case. officers' per-
cepptions of analysts as "academicians." In large part these factors
reflect the CIA's institutional dichotomy.
D. AT No POINT DID THE INTELLIGENCE COMMUNITY PRODUCE
SERIOUS OR SUSTAINED DISCUSSION OF ALTERNATIVES TO THE
JUDGMENTS THAT EMERGED
The intelligence process is intended to encourage reconsideration of
widely held ideas, as analysts with varying specialties consider a
problem and transmit their analysis through the hierarchy via branch
chiefs and, division. chiefs. The committee's staff study of the oil issue
revealed that although information supporting different interpreta-
tions was readily available, fixed views dominated the intelligence
process. First, analysts stressed the continuation of the status quo in
Saudi policy toward the United States. Thus, the intelligence com-
munity's. identification of changing Saudi intentions was limited.
Second, the question of oil price levels was analyzed in the context of a
narrow supply-and-demand framework, which tended to overlook
both political influences and such economic factors as elasticities of
supply and demand. As a result, between January and June of 1974,
analysts adhered to the position that OPEC OR prices would fall.
These fixed.. views suggest that the system did not encourage airing
dissent or developing alternative views regarding either substance or
methods of analysis.
E. THE FINISHED INTELLIGENCE EFFORT EMPHASIZED PRODUCTION
RATHER THAN ANALYSIS
Committee staff interviews in connection with this study and re-
lated studies indicate that the character of routine finished intelligence
publications, which consist of daily and weekly classified reports,. has
created an independent momentum that closely- parallels that of a
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newspaper. With pressures to meet daily and weekly deadlines and
to be "current" in terms of coverage, an analyst is virtually compelled
to write a paragraph that describes an event rather than one which
interprets the event's importance. Clearly, the latter is more difficult
and requires more time. Analysts also produce a limited number of
nonperiodic memoranda addressed to selected policy officials. These
memoranda frequently have a greater analytic content. However, the
routine publications absorb by far the greatest proportion of analysts'
time and attention.
Measured in terms of the character and the volume of finished
intelligence on the oil question, events dominated evaluation. Descrip-
tions of what was happening-Arab investments in Western Europe,
increased costs to consumer countries, Saudi Arabia's assumption of a
moderate stance on prices after the war-were summarized and pre-
sented in a clear, consistent manner. However, the interpretation of
events, that is., whether the Saudis alone could determine OPEC
price levels or what .increased costs meant for the .long-term balance of
payments outlook was weak.
F. INTERNAL INCENTIVES CONTRIBUTED TO THE NATURE OF
THE ANALYSIS
Analysts are judged largely by their ability "to put out the work,"
that is, by the number of articles they submit for the daily and weekly
publications. In the words of one analyst, "My promotion depends
on the number of lines of type that I generate for my Branch Chief."
Incentives to produce contribute to the current intelligence orienta-
tion of the community's analytic effort. With a premium on quick
production, summarizing events predominates over analyzing de-
velopments.
G. INTELLIGENCE COMMUNITY ANALYSIS DISPLAYED LIMITED
INTEGRATION OF POLITICAL AND ECONOMIC FACTORS
Political aspects of relationships among OPEC nations and the in-
ternal dynamics of the Saudi Government had a significant bearing
on economic aspects of the oil question. Yet these factors were not
consistently integrated into the community's economic analysis.
The issue of integration was and is not limited to the oil question.
Organizational arrangements impeded the analytic process. The ana-
lytic components were organized around offices, each of which treated
a separate discipline, with only limited substantive interaction among
them. Such a structure and the consequent delineation of policy
issues did not easily accommodate those subject areas that cut across
several disciplines. Although there was frequent "coordination"
among political and economic analysts, this effort consisted primarily
of having articles "cleared." Obviously, the distinction between "co-
ordination" and real integration of political and economic factors is
substantial.
The select committee is pleased to note that constructive man-
agerial and organizational changes have been underway within the
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intelligence community in the last year which are directed at better
integrating political and economic analysis.
The select committee was pleased by the seriousness with which
the CIA treated this staff study and recognizes that issues like the
one addressed in the study are both difficult and subject to differences
in judgment. It is the committee's hope that studies such as this will
contritute to' the goal shared by the Congress and the intelligence com-
munity to improve intelligence production and analysis.'
elect community agenciies and torothereexecutivesbranch vsion departments. Followtn thelsubmission
of the committee staff report to the CIA, the Agency provided additional information to
the committee which had not been available earlier. The conclusions In this statement
reflect consideration of CIA comments and additional material.
The CIA's response to the committee's staff study included detailed examination of the
text and findings. The CIA response agreed with those findings in a number of ? areas :
underutilization of some intelligence sources ; inadequate integration of political and
economic analysis ; and organizational structures and Incentives which promoted intelli-
gence production at the expense of analysis. The CIA disagreed with the report's con-
clusions on the superior performance of public sources. The CIA response emphasized that
the reason for many of the CIA's estimates was that analysts did not anticipate the
Yom Kippur War and concluded that in the absence -of war, Saudi Arabia and the other
Arab nations would not employ oil as a political weapon.
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