Foreign Relations of the United States, 1977–1980, Volume IX, Arab-Israeli Dispute, August 1978–December 1980, Second, Revised Edition

406. Memorandum From the President’s Special Representative for Economic Summits (Owen) to President Carter ¹

Washington, October 3, 1980

SUBJECT

• Oil Supply Agreement with Israel (U)

Our negotiations with Israel to define conditions for activating and operating the Oil Supply Agreement will resume Tuesday, October 7.² In addition to our negotiating team, Energy Minister Modai seeks to meet with Secretaries Muskie and Duncan to press them for an immediate, formal agreement. (C)

State and Energy propose a further liberalization of the US negotiating position for next week’s talks.³ This and related considerations are presented in the memorandum from Dick Cooper and Les Goldman (DOE) to me at Tab A.⁴ While the memorandum offers the option of standing pat on the position we took in the September 23–24 negotiations, none of your advisers recommends this. (S)

State and Energy propose in the attached memorandum that we amend both of our proposed market tests of Israel’s inability to obtain adequate oil:

(1) reduce from 75% to as low as 66% the required proportion of Israeli dependence on short-term, indirect purchases of oil (Israel wants a 50% test; in the tight market of 1979 it reached 53%);

(2) lower the price criterion (on Israel’s average oil import payments) from the highest 10% of US oil imports to the highest 20% (Israel proposes the top 30%);

State and DOE propose to make these concessions provided Israel agrees to a substantially longer period of meeting these tests than it has thus far. (We want at least a 90-day measurement period, Israel has moved up from 30 days to 60 days.) (S)

We would, under the State-DOE proposal, continue to insist that both criteria must be met. (Israel wants to be able to call for US supply when either criterion has been met; State and DOE believe Israel could manipulate the spot market test and trigger the agreement almost at will.) (S)

In addition, our present proposal assures Israel that its loss of a major supplier (Mexico or Egypt) would, in and of itself, create a “strong presumption” in favor of activation. (S)

Cooper and Duncan believe this offer would be a forthcoming, reasonable response to Israeli dissatisfaction with our present position. Coupled with the substantial concessions that we made in the September negotiations, it constitutes a fair interpretation of our supply assurance. It continues to protect us from Israeli triggering in other than critical supply situations; thus it incurs a relatively low risk of adversely affecting our current efforts to get increased Arabian oil production to offset the Iraq-Iran curtailment. (S)

This position falls short of what is likely to be required to get agreement. While we cannot be sure of how firmly Modai will cling to his prior demands, he almost certainly will insist that compliance with either market criterion, rather than both tests, should be sufficient, and he probably will demand softer price and spot market tests than the revised offer proposed by State and Energy. (S)

An intermediate position that would not jeopardize our principles or risk unwarranted triggering of the agreement would be to lower the spot market purchase percentage to 60% and, if this did not produce agreement, to indicate that we were prepared to review our position, so as to keep the negotiations going. (S)

State and DOE believe, as do I and others concerned, that key considerations involved in this issue cannot be adequately covered in a memorandum. I strongly recommend that you meet with the Vice President, Stu Eizenstat, Charles Duncan, Dick Cooper, and me before making your decision.⁵ (S)

Options:

1. Stand on our previous position. (No agency recommends)

2. Adopt the liberalized position recommended by State and Energy, as outlined above.⁶

3. Adopt the State-Energy proposal except authorize our negotiators to liberalize the spot market purchase criterion to 60% and, in light of Modai’s reaction, to indicate that we are prepared to review our position further in the course of continuing negotiations; direct our negotiators to seek your further instructions if it appears that this round of negotiations will end in acrimonious disagreement. (Owen recommends; State and DOE do not object.)

4. Direct our negotiators to begin with the positions outlined above, but then to bargain for the best compromise they can reach with Modai next week, consistent with the concept of a supply assurance, including acceptance of the Israeli position that either the price test or the spot market test must be met. (No agency recommends)

1. Source: Carter Library, National Security Affairs, Brzezinski Material, Brzezinski Office File, Country Chron File, Box 22, Israel: 5–11/80. Secret. A typewritten notation in the upper right-hand corner of the memorandum reads: “Last Day for Decision: Monday Oct 6, 80.” Below this notation, Carter wrote: “I’ll meet if necessary. J.” Attached to the memorandum is an October 7 note from Poats to NSC/S, stating that a contingency meeting with Carter has been arranged for the morning of October 8. (Ibid.)
2. This latest round of talks on the conditions for activating the U.S.-Israel Memorandum of Agreement on Oil began with meetings in Israel September 23–24. However, the meetings ended without resolution. The first day of discussions is summarized in telegram 3032 from Jerusalem, September 24. (National Archives, RG 59, Central Foreign Policy File, P870094–0497) The second day of discussions is summarized in telegram 3051 from Jerusalem, September 25. (National Archives, RG 59, Central Foreign Policy File, P870094–3051)
3. The U.S. negotiating position was initially laid out in a September 17 memorandum from Cooper to Owen. The memorandum stated that the U.S. intended to hold to the position that the Memorandum of Agreement would not be activated unless at least 75% of Israel’s oil was obtained on a short-term, indirect purchase basis and that the average price of Israeli oil imports was higher than the average price of the top 10% of U.S. oil imports. (National Archives, RG 59, Central Foreign Policy File, P860132–1018)
4. Attached but not printed.
5. See Document 407.
6. Carter approved options 2 and 3, though he crossed out the phrase, “Adopt the State-Energy proposal except authorize our negotiators to liberalize the spot market purchase criterion to 60% and, in light of Modai’s reaction, to indicate that we are prepared to review our position further in the course of continuing negotiations,” in option 3. Carter did not approve options 1 and 4.