July 7, 1976
Memorandum for the President, 'Commercial Relations of Brazil with Petroleum Producing Countries'
This document was made possible with support from Carnegie Corporation of New York (CCNY)
INFORMATION FOR THE PRESIDENT OF THE REPUBLIC
Date: July 7 1976
Subject: Commercial relations of Brazil
with petroleum producing countries
As I had done in January last year, I have asked the President of PETROBRÁS, General Araken de Oliveira, to see me, together with his chief assistants, in order to have an exchange of ideas with me on the main topics of the Brazilian International Petroleum Policy. For reasons beyond his control, General Araken de Oliveira could not keep the appointment but sent instead Drs. Scholl Isnard, Carlos Sant’Anna and Plínio Junqueira, who held a meeting with me and some of my collaborators on Thursday July 30.
2. First of all, I had the opportunity to hear the evaluations from those important representatives of PETROBRÁS about the present status of the international petroleum market. Dr. Isnard, in particular, made a careful exposé about the principles that guide the oil purchase policy followed by our State company. He stressed the dominant concern with the assurance of supply, which inspires the initiatives of origin diversification and categories of suppliers that have been adopted lately. He gave as examples the recent purchases of Nigerian, Mexican and Algerian oil. As a counterbalance to the effects of the cost increases generated by this concern, Director Isnard stressed that PETROBRÁS has been increasingly interested in the existence of trade opportunities that may bring a better balance for the global Brazilian purchases.
3. What impressed me most after hearing those evaluations was that the price factor per barrel of oil is today a less determinant element than it was a few years ago. I believe, therefore, that while it is indispensable to endeavor to obtain the lowest possible price, it is even more important that, in the final analysis, the net balance for the Brazilian trade be the least negative possible. For this reason It seems to me essential that oil purchases always be made in parallel with the sale of Brazilian products to the suppliers of that fuel.
4. Accordingly, we evaluated each potential or real supplier of petroleum to Brazil. The following sums it up:
1) Saudi Arabia:
This is a key country in the international petroleum market, where it plays a role that might be compared to that of Brazil in the coffee market at the time it held the famous umbrella. Offer is controlled by the old companies associated with AMANCO and the participation of PETROMIN is little more that symbolic. Access to the financial market is very difficult for Brazil, especially in a direct way. Commercial opportunities are relatively modest in view of the features of the market and the massive North-American presence. In conclusion, from a global point of view it seems desirable to reduce our commercial relationship with Saudi Arabia.
In order to complete the overview of our relations with Saudi Arabia I intend to call a meeting with those responsible for Brazilian international financial policy, particularly Mr. Fernão Bracher.
From the point of view of the trade exchanges with Brazil, this country presents characteristics quite similar to those of Saudi Arabia, that is, it is almost merely a supplier of oil to Brazil. INTERBRÁS, however, is opening an office in Kuwait and hopes to make substantial progress in exports thereto. Regarding financial questions, while Kuwait is a partner of ABICO, until now it has not shown willingness to lend money to Brazil. It would be perhaps opportune also in this case to reduce oil purchases. Kuwait is responsible for a 303 million dollar deficit in 1975.
The importance of Iraq as a traditional and reliable supplier of oil to Brazil requires considerable effort from INOC to induce Iraqi companies to acquire goods in Brazil in order to consolidate the commercial exchanges. Until now the results have not been very significant but there are prospects for good development, of which the “pellets” contract may be the first landmark. Several important contacts with Iraqi authorities are in the offing, which will be useful to test the waters. On the other hand there are several important operations in the industrial and civil engineering fields which may generate an important flow of Brazilian exports. In 1975, Brazilian commercial deficit was of 595 million dollars.
Following the recent negotiations for the purchase of oil and sale of grains, the bilateral relationship seems at last to be on track. One must highlight the favorable conditions under which oil was purchased and the aceptance by Venezuela of the principle of parallel operations.
Brazil-Nigeria trade displays one of the highest rates of joint expansion of our international exchanges, and it is very much likely that during the current year we may reach 100 million dollars in exports. The multiple operations under examination in the area of services also point to an excellent trade potential. It is doubtlessly a very promising partner.
Despite its very incipient stage, also in this case there are advanced studies on operations based on oil, which may generate strong trade expansion.
(Signed) Antonio F. Azeredo da Silveira
Minister of State for External Relations
This internal memo describes Brazil’s relations with oil producers as of 1976. It highlights the importance of Iraq as an oil supplier and the necessity of expanding exports to reduce the deficit in bilateral trade.
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