Foreign relations of the united states 1969–1976 volume XXXVII energy crisis, 1974–1980 department of state washington
Memorandum From Timothy Deal of the National Security
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131. Memorandum From Timothy Deal of the National Security
Council Staff to the President’s Assistant for National
Security Affairs (Brzezinski)
Washington, October 18, 1977.
Oil Price Strategy
You are meeting today with Vance and Blumenthal to discuss oil
price strategy before Blumenthal leaves on his Middle East trip on
State has prepared a sound strategy paper (Tab A)
will use in the meeting. This is a vast improvement over earlier State
drafts; Bob Hormats’ hand is in evidence. In brief, this paper points out
—There is some flexibility in OPEC’s position on oil prices. Saudi
Arabia, Iran and Venezuela are the key players and should be the focus
of our efforts to induce OPEC to take a moderate stance. Representa-
tions by the President, Vance, Blumenthal and Schlesinger both here
and in Riyadh and Tehran will help to underscore our deep concern
Source: Carter Library, National Security Affairs, Staff Material, Middle East File,
Box 65, Subject File, Oil. Confidential. Sent for information.
Attached but not printed.
446 Foreign Relations, 1969–1976, Volume XXXVII
about the price issue. Presidential involvement will be particularly nec-
essary in Venezuela.
—Contacts with selected LDC’s and IEA members may also help
to build counterpressures against OPEC.
—The economic arguments for a price freeze are convincing in
view of the slow pace of world economic recovery, unsettled conditions
in exchange markets, protectionist tendencies in trade, and a tempo-
rary imbalance between supply and demand because of increased oil
production in the North Sea, Alaska, and Mexico.
Clearly, economic arguments should be the primary focus of Blu-
menthal’s presentations with Middle East Finance Ministers. Yet, there
is an important political element missing in the State strategy paper.
Political consideration must not be overlooked in our efforts to avert a
further round of price increases.
In that regard, the talking points for Saudi Arabia
specific reference to the special US-Saudi relationship and stress:
(1) our deep involvement in achieving a lasting Middle East settlement;
(2) the real danger to political stability in Spain, Portugal, Turkey, Italy
and several key developing countries if economic conditions deterio-
rate further; (3) our assistance to the Saudis on the security front, in par-
ticular, efforts to help them modernize their armed forces. Domestic
support for these efforts would be jeopardized by a price increase.
The State talking points for Iran are adequate. The Shah has not in
the past been convinced by arguments about the effect of oil price in-
creases on the world economy. But we may be able to appeal to him by
referring to the effects of such increases on the strength of the dollar
and US world power. In any event, to be effective we must make our
arguments forcefully and not simply “for the record,” as has been the
case so often.
Finally, before agreeing to high profile Presidential involvement in
the oil price issue, we must weigh the political costs of failure. That is,
how will the President’s image as a world leader be affected if he makes
a strong presentation on oil prices during his trip and then one month
later OPEC turns around and announces a major price increase?
These are some of the issues that we will need to explore in greater
depth in the days ahead. I know that Treasury shares our concern that
many of these political considerations are inadequately covered in the
State strategy paper.
Talking points for Saudi Arabia and Iran are attached but not printed.
February 1977–January 1979 447
One other tactical point. Dick Cooper mentioned in last week’s
PRC meeting on the Middle East
that Blumenthal might “play the
Heavy” on this trip by speaking out forcefully on the price issue. The
President could then follow up by stating that he fully supports those
views without his having to engage in an argumentative discussion on
oil prices. You might wish to encourage Blumenthal to play this role,
recognizing his reluctance to do so in his first meeting with many Mid-
dle East officials.
Gary Sick and Guy Erb concur.
The minutes of the October 13 Policy Review Committee meeting are in Carter Li-
brary, National Security Affairs, Brzezinski Material, Brzezinski Office File, Country
Chron File, Box 32, Middle East, 9–12/77.
132. Memorandum for the Record
Washington, October 18, 1977, 2:30 p.m.
Meeting on Oil Price Strategy
Blumenthal said he had asked for the meeting to consider several
questions: (1) Was the oil price issue a priority item in our relations
Source: Carter Library, National Security Affairs, Brzezinski Material, Subject File,
Box 48, Oil. Secret. The meeting was held in Brzezinski’s office.
448 Foreign Relations, 1969–1976, Volume XXXVII
with the Middle Eastern countries? (2) To what extent should the Presi-
dent become involved in our efforts to avert a price hike? And (3)
should we attempt to handle the matter bilaterally or multilaterally?
Vance affirmed that the oil price issue should be near the top of the
agenda. On the other hand, if, for example, we would have to approve
the sale of F–15s to induce the Saudis to be moderate on oil prices, we
would have to give greater weight to political considerations since such
sales could affect overall Arab-Israeli relations.
Cooper stressed that political concerns were key in the Middle
East. In the case of Venezuela, the President has twice raised the oil
price issue with Perez.
We should push harder with Venezuela.
Brzezinski said that oil would be an important item on the Presi-
dent’s trip. We intend to stress the oil issue in Venezuela, but put less
emphasis on it in Nigeria, because of our ongoing initiatives in Africa,
and in Saudi Arabia, because of Arab-Israeli concerns. It would be an
important issue with the Shah.
Blumenthal asked for practical suggestions. Reportedly, many
OPEC members favor a 10–15% price hike. The Saudis, for tactical pur-
poses, may propose a price freeze but in the end support a moderate
(5%) increase. He said that, if we make only a low-key approach to
OPEC, the likely outcome will be a 6–8% increase. Would that be bad?
Or should we do more now? In his view, the outcome would be serious.
The US trade deficit would probably increase by $3–4 billion. Thus, we
might face a trade deficit of $40 billion in 1978. That would have serious
economic as well as political ramifications. Consequently, we may have
to exert greater pressure to prevent even a “moderate” price increase.
Solomon said that [less than 1 line not declassified] indicate that the
Saudis cannot increase production over the short-term. Iran, Vene-
zuela, and possibly Kuwait were thus the real movers at this time. If we
emphasize oil in our dealings with these countries and present our case
in terms of a special political relationship, we might have some success
in holding the line on prices.
Brzezinski said these suggestions fit well into the overall scheme.
Blumenthal pointed out that we need a series of talking points tai-
lored to each country. In some cases, we might want to emphasize bilat-
eral issues; in others, multilateral topics. He asked whether in view of
former Secretary Simon’s past difficulties with the Shah he should be
tough in Tehran.
Vance said Blumenthal should certainly raise the issue but not
See footnotes 2 and 4, Document 128.
February 1977–January 1979 449
Brzezinski said a low-key approach would be odd considering the
importance of the issue to the US. A sotto voce presentation would
have little value. Blumenthal should base our argument against a price
rise on economic grounds. The President could then weave together the
political and economic considerations when he meets with foreign
leaders on his trip. Blumenthal’s meetings should lay the groundwork
for the President’s trip.
Blumenthal again reiterated that we needed an orchestrated ap-
proach to the OPEC countries.
Solomon said that the talking points proposed by State were inade-
quate and must be strengthened.
Vance said he would discuss oil prices with Saudi Foreign Minister
Saud and follow up later with Crown Prince Fahd.
Brzezinski noted that, in any event, the President should not “play
the heavy”. He should assume a statesman-like role pulling together a
compromise after some softening up by Blumenthal, Vance and others.
The President may, however, have to weigh in with Venezuela.
Vance added that Venezuela was the villain on oil.
Solomon said that our arguments will carry little weight if we only
talk in terms of price moderation. As he pointed out in a recent speech,
OPEC’s terms of trade have improved since 1974. The world monetary
system and the US dollar are under strain; our national interests are at
stake. Thus, the President cannot talk with OPEC leaders about modera-
on the contrary, we must stress the importance of a freeze on prices.
He then reviewed the positions of individual OPEC members on the
Vance said the Iranians might propose some sort of barter arrange-
ment involving arms for oil.
Solomon said we should not reject that proposal out of hand. We
might be able to build up our petroleum reserve in this manner.
Vance noted that a barter arrangement with Iran would cause
problems with Saudi Arabia.
Blumenthal added that barter deals can lead to trouble. In any
case, they were phony arrangements.
Brzezinski asked what are our realistic objectives with respect to
prices? Do we want to hold the line or are we prepared to accept a mod-
erate increase? Is a freeze attainable?
Cooper said he thought a freeze was definitely in order in view of
weak oil demand. Of course, the Saudis must maintain current produc-
See Document 131 and footnote 3 thereto.
450 Foreign Relations, 1969–1976, Volume XXXVII
Solomon said that technically this may be difficult because of re-
duced pressure in the oil fields. In any event, considering the demand/
supply picture and the present world economic situation, there was
really no valid reason for a price hike.
Blumenthal underscored the political effects in Italy and France of
another round of price increases.
Bergsten noted that in July the Saudis came out publicly for a
freeze; their position now was not clear.
Solomon stressed that we have moved towards the Arabs on a
number of issues, more so than in the case of Israel. Some effort on their
part was necessary. Perhaps we should try to link these issues more
Vance asked about Mexican oil production possibilities. Solomon
said they were limited; the prospects for natural gas are better.
Brzezinski said he had not focused on oil strategy previously but
agreed now that this issue was a crucial element in our Middle Eastern
Vance said we must get moving. We should let the Shah know that
we are serious about oil. He asked if we had given thought to an ap-
proach to non-oil producers. Perhaps, Mexico could take a leading role.
Jamaica, as head of the G–77, was also a candidate. We need a strategy
Bosworth questioned whether these countries could take the lead
on price issues. In any event, we do intend to approach India, other key
consumers, IEA members, etc.
The group agreed that we should move now to get the message
across that the US favors a price freeze. A message from Vance to his
counterparts in IEA capitals should be sent. State will draft it.
more radical OPEC states (e.g., Libya). In the meantime, Treasury
would rewrite the economic talking points on oil strategy; State would
supply political/security talking points.
February 1977–January 1979 451
133. Memorandum From the President’s Assistant for National
Security Affairs (Brzezinski) to Henry Owen and Samuel
Huntington of the National Security Council Staff
Washington, October 19, 1977.
Oil Price Strategy
The President desires that very serious thought be given on an ur-
gent basis to an orchestrated strategy, designed to strengthen the sup-
port of other key nations, both developed and under-developed, for an
effort to hold OPEC prices down. It is the view of Mike Blumenthal and
others that any price increase right now, and certainly any above three
or so percent, would be potentially most damaging to a variety of our
national interests. We intend to use the trip
in part to exercise our
leverage against such a price hike, but much more needs to be
done. Could you please consult, develop some initial thoughts, and—if
necessary—form a highly confidential group to develop the needed
Please consider this matter as urgent, although I am not setting a
Source: Carter Library, National Security Affairs, Brzezinski Material, Subject File,
Box 48, Oil. Secret. Printed from a copy that indicates Brzezinski initialed the original.
Blumenthal’s trip to the Middle East; see Document 134.
On October 26, Huntington received a memorandum from Robert Bowie, Director
of the National Foreign Assessment Center, Central Intelligence Agency, informing him
that he would “produce an intelligence evaluation of the impact of an oil price increase
on industrial and underdeveloped countries and of the attitudes of these countries
toward such an increase.” Bowie attached a paper, prepared earlier at Cooper’s request,
on the impact of a 10 percent OPEC price rise and added that the new paper would pro-
vide “a more pessimistic scenario” for the impact of such an increase. He also hoped to
include an evaluation of the views and attitudes of the OPEC countries with regard to a
price increase. (Carter Library, National Security Affairs, Staff Material, Middle East File,
Box 65, Subject File, Oil) Neither paper has been found.
452 Foreign Relations, 1969–1976, Volume XXXVII
134. Memorandum From the President’s Assistant for National
Security Affairs (Brzezinski) to the Cabinet
Washington, October 27, 1977.
Secretary Blumenthal has reported to the President that, in his con-
versations with Middle East leaders,
it has become clear to him that the
willingness of the oil exporting countries to cooperate with the U.S. in
their oil pricing policies will depend to an important degree on their
seeing evidence of our resolve to face up to this situation, specifically
by putting in place adequate energy legislation.
The President asked me to report the above to you. He further
asked that you make this point in your statements and speeches re-
garding our energy policy.
Source: Carter Library, National Security Affairs, Brzezinski Material, Agency
File, Box 8, Energy Department, 5/77–5/78. Secret.
Blumenthal’s Middle East trip began on October 22 in Egypt and included visits to
Kuwait, Iran, and Saudi Arabia. He met on October 27 with the Shah, who “volunteered
that it had been decided that Iran should not take a strong position in OPEC at this time”
because, as the Shah phrased it, “We don’t want to be known as hawks.” (Telegram 9505
from Tehran, October 27; National Archives, RG 59, Central Foreign Policy Files,
P850106–2279) In an October 28 meeting with Fahd, the Crown Prince confirmed that it
was “Saudi policy to try to convince other OPEC members to freeze prices—say for an-
other year.” (Telegram 1286 from Dhahran, October 30; ibid., P840081–1893) Blumen-
thal’s October 26 meeting with Kuwaiti Emir Sabah was reported in telegram 6086 from
Kuwait, October 27. (Ibid., D770394–1088) His October 28 meeting with King Khalid was
reported in telegram 1285 from Dhahran, October 29. (Ibid., D770399–0384)
February 1977–January 1979 453
135. Memorandum From the President’s Assistant for National
Security Affairs (Brzezinski) to President Carter
Washington, November 1, 1977.
Oil Price Strategy
In response to your question about what we are doing to recruit
consumer nations to help us hold down oil prices, here is a brief recap
of our current oil strategy efforts:
1. State has prepared cables to OPEC nations not visited by Mike
to major industrialized states, and to a long list of selected
consumer nations. In each case, the US Ambassador will make a
de´marche to the Foreign Minister, the Finance Minister or both, making
the same case which Blumenthal made so effectively during his visits.
2. In the case of consumers, we will inform them of the efforts we
are making with OPEC states, give them the economic arguments, and
solicit their assistance, using their own judgment of how they can be
most effective. We are not asking them to make de´marches to the OPEC
states, since to do so would risk giving the appearance of a heavy-
handed operation coordinated by Washington. In view of Saudi and
Iranian moderation, we need to avoid arousing resentment among our
friends in addition to persuading the price “hawks.”
3. We will, however, ask the Italians to approach the Libyans, since
they are the only Western nation with sufficient access and credibility
to make an effective approach.
4. State is also considering the possibility of calling in each of the
ambassadors of key consuming states to give them the same message,
though this should probably await initial reactions to our de´marche in
each of their capitals.
5. In addition, the NSC staff is working with State on a consoli-
dated strategy for your trip, for the public remarks in advance of the
trip, and the approach to be taken with consumers and producers along
Source: Carter Library, National Security Affairs, Brzezinski Material, Subject File,
Box 48, Oil. Secret. Sent for information.
See footnote 2, Document 134. For the cable, see Document 136.
In the course of his trip to Europe, India, and the Middle East December 29–
January 6, Carter visited Tehran where he met with the Shah and King Hussein and Saudi
Arabia where he met with King Khalid and Crown Prince Fahd.
454 Foreign Relations, 1969–1976, Volume XXXVII
136. Telegram From the Department of State to Selected
Washington, November 4, 1977, 0134Z.
264256. Subject: US De´marche on Oil Price Question; OPEC Meet-
ing December 20 in Caracas.
1. From now until a decision is made by OPEC, the highest objec-
tive of American international economic policy must be to obtain a
freeze on oil prices at least through 1978. In June, President Carter
stated his hope, shared by Crown Prince Fahd, that the end of the
two-tier system would be followed by such a price freeze.
economic and political developments have made price stability even
more critical. The world and the US economy would be damaged by
even a seemingly modest price increase such as 5 percent.
2. For the next two months, the primary concern in our relation-
ship with all OPEC countries, especially Venezuela and Iran, will be
their behavior on oil prices. (With Saudi Arabia, this concern will be
secondary only to the achievement of a durable Mideast peace.) We
will not hesitate to point out that the action OPEC members take on
prices affects their overall relationships with Congress and the Ameri-
can public as well as the executive branch. Secretary Blumenthal has
raised the oil price issue during his Middle East trip.
It was discussed
with Prince Saud in Washington on October 25.
The Shah’s visit to the
US in November
and the President’s visit to key OPEC countries later
in the month will provide additional opportunities to make our views
known. We are also informing key industrialized countries and LDCs
of our analysis of the impact of an oil price increase next year in an ef-
fort to encourage them to make approaches of their own to those OPEC
members with which they have especially close relationships.
Source: National Archives, RG 59, Central Foreign Policy Files, D770406–0164. Se-
cret; Immediate; Limdis. Drafted by Milam, Hart, and Rosen; cleared by Katz and Bos-
worth and in NEA, EA, ARA, AF, and the Treasury and Energy Departments; and ap-
proved by Cooper. Sent to Abu Dhabi, Baghdad, Doha, Jakarta, Libreville, Quito, Tripoli,
Kuwait, Algiers, Caracas, Jidda, Tehran, Vienna, Lagos, and USUN.
Fahd’s visit was in May. See footnote 2, Document 124.
See Document 134.
Excerpts of the minutes of the meetings with Prince Saud are in telegram 258396 to
Dhahran, October 28. (National Archives, RG 59, Central Foreign Policy Files, [no film
See Document 139.
The message to the LDCs, to be conveyed by Chiefs of Mission to the “highest ap-
propriate level as soon as possible,” is in telegram 264258 to Buenos Aires and other
posts, November 4. (National Archives, RG 59, Central Foreign Policy Files, D770406–
0390) Vance sent a letter directly to the Foreign Ministers of the industrialized countries
February 1977–January 1979 455
3. Chiefs of Mission of action addressees should, unless they in-
form the Department that it would be counterproductive, present the
US case against an oil price increase at the highest appropriate level as
soon as possible, drawing on the following paragraphs. Our estimates
of the effects of a 5 percent increase in oil prices in 1978 are included
primarily for your information. If in the course of discussion it should
appear appropriate to cite them, you should make clear that 5 percent
was chosen for analytical purposes only. We would not find any price
increase appropriate or acceptable.
4. The US would consider any oil price increase at the December
meeting as unwarranted by market conditions and harmful to the
5. The world economy is fragile. While efforts to reduce them are
beginning to pay off, inflation rates remain unacceptably high at over
8.0 percent for the OECD as a whole and 6.5 percent in the US. Unem-
ployment in the OECD is now at 15 million and the prospect is dim for
any significant reduction soon. US growth, which was running at 5.5
percent earlier this year, has fallen to under 4 percent. In addition, we
are experiencing a very large current account deficit which restricts our
ability to engage in stimulative action.
6. Under these conditions, any oil price increase in 1978—however
small in percentage terms—would have a large adverse effect on the
growth of both the US and world economies and on world financial
7. An oil price increase would fuel inflation, increase unemploy-
ment, and add significantly to our balance of payments difficulties.
These effects would be magnified for the other OECD countries and
would severely constrain both the growth prospects of the developing
countries and our ability to assist them (FYI: We estimate that a 5 per-
cent increase in oil prices in 1978 would raise the collective trade deficit
of the seven major industrial countries by over $3.5 billion, add over
one-third of 1 percent to their average rate of inflation, and in the ab-
sence of offsetting fiscal and/or monetary policies, reduce their collec-
tive GNP by over $10 billion. By 1985 the cumulative GNP loss of this
one-time price rise would be almost $150 billion. Certain developed
and developing countries would bear a disproportionate share of these
effects. For the LDCs as a group, a 5 percent oil price rise would result
in a $1.2 billion increase in import costs in 1978.)
on November 9 outlining the major arguments in favor of freezing oil prices, most of
which are contained in this telegram, that the United States would make to the OPEC
countries before the December 20 meeting in Caracas. (Telegram 267884 to London and
other posts; ibid., D770413–0990)
456 Foreign Relations, 1969–1976, Volume XXXVII
8. The US has accepted a large deterioration on trade and current
account, to which past oil price increases have heavily contributed.
This has significantly eased strains on the international payments
mechanism. However, the increased deficit resulting from an oil price
increase would make it considerably more difficult for the US and other
countries to resist public pressures for protectionist trade measures,
and could prejudice the stability of the international financial system.
9. If US ability to continue to lead world economic recovery and fi-
nancial stability is severely hampered by an oil price increase, there is
no other country capable of assuming this role.
10. The stake OPEC countries generally have in a stable world
economy is clear; increasing balance of payments imbalances and infla-
tionary pressures would threaten the future profitability of their cumu-
lated assets and reduce longer term demand for non-oil exports.
11. (If the argument is made that an oil price increase is justified by
world inflation rates and currency fluctuations, you should respond
along the following lines.) Arbitrary linkage of the prices of different
goods and services only serves to increase inflationary pressures and
misallocation of resources. Moreover, given the strong influence of oil
price increases on world economic health, it is clear that oil price deci-
sions must be made on much broader considerations than OPEC per-
ceptions of the current world inflation rate and recent currency fluctua-
tions. Even on narrow grounds, however, a price increase is not
justified. Our analysis indicates that the terms of trade of OPEC coun-
tries as a group have not deteriorated from the levels resulting from the
1974 oil price increases. Between the beginning of 1974 and mid-1977
export prices for US goods imported by OPEC countries rose by 22 per-
cent while the export price of OPEC oil, as measured by Saudi bench-
mark crude, rose by 27 percent, not counting the 5 percent increase last
12. For Abu Dhabi: We assume you will wish to preface any com-
ments to UAE leaders with acknowledgment of their responsible stand
on oil prices. You should also stress that in preparation for Caracas, the
US is making strong representations for a price freeze in other OPEC
13. For Jakarta (and Lagos pending receipt of further instructions):
Some key OPEC countries seem open to possibility of a freeze and
aware of the effect of a price rise on world economic recovery and thus
on their own well-being as well as that of the developing world. We
should make the case to these middle size OPEC producers that they
can exercise an independent and effective influence for restraint in
OPEC councils, and that we hope they will use this opportunity to act
in the common interest by supporting a freeze for 1978.
February 1977–January 1979 457
14. For Caracas, Jidda, Tehran, Lagos and Algiers: No action
should be taken at this time. Instructions will follow when status of
Presidential visit clarified and, in case of Algeria, decision made on
possible approaches in Washington.
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