Foreign relations of the united states 1969–1976 volume XXXVII energy crisis, 1974–1980 department of state washington
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Memorandum of Conversation
Washington, August 17, 1974.
Dr. Henry A. Kissinger, Secretary of State and Assistant to the President for
National Security Affairs
Lt. General Brent Scowcroft, Deputy Assistant to the President for National
Kissinger: On the energy situation, we have to find a way to break
We can’t do it without cooperation with the other con-
sumers. It is intolerable that countries of 40 million can blackmail 800
million people in the industrial world.
We have to get into position carefully so we don’t get out ahead
and our allies don’t move in to pick up the pieces and get an economic
advantage. That was the purpose of the Washington Energy Confer-
We are getting the IEP by the end of September. It is effective
only against a selective embargo and it creates a framework for com-
munication. The Europeans probably think we should use it only
Simon wants a confrontation with the Shah. He thinks the Saudis
would reduce prices if the Shah would go along. I doubt the Saudis
want to get out in front. Also the Saudis belong to the most feckless and
gutless of the Arabs. They have maneuvered skillfully. I think they are
trying to tell us—they said they would have an auction—it will never
come off. They won’t tell us they can live with lower prices but they
won’t fight for them. They would be jumped on by the radicals if they
got in front.
The Shah is a tough, mean guy. But he is our real friend. He is the
only one who would stand up to the Soviet Union. We need him for
balance against India. We can’t tackle him without breaking him. We
Source: Ford Library, National Security Adviser, Memoranda of Conversations,
Box 5. Secret; Nodis. The meeting was held in the Oval Office and lasted from 9:45 to
10:15 a.m. (Ibid., White House Office Files, President’s Daily Diary)
The Organization of Petroleum Exporting Countries (OPEC).
The Washington Energy Conference of the major industrialized nations, including
the United States, the United Kingdom, West Germany, Japan, and France—a reluctant
participant—was convened at the Department of State in February to develop common
energy policies in response to the Arab oil embargo precipitated by the Arab-Israeli war
of October 1973. At the conference, which revealed the extent of Franco-American dis-
cord over whether the European Community should even coordinate energy policy with
Washington, the United States proposed that a permanent organization of energy-
consuming states be created. See Foreign Relations, 1969–1976, volume XXXVI, Energy
Crisis, 1969–1974, Document 318.
August 1974–April 1975 13
can get to him by cutting military supplies, and the French would be
delighted to replace them.
President: He didn’t join the embargo.
Kissinger: Right. Simon agrees now, though. The strategy of tack-
ling the Shah won’t work. We are now thinking of other ways. First, we
have to get the IEP going. Second, we have to use the Library Group,
an informal finance group which is meeting on 7 September to raise the
problem of oil prices and work for a coherent structure to deal with it.
Third, there is a meeting of the IMF board at the end of September, and
the UN Foreign Ministers will be here. We thought of assembling the
Finance and Foreign Ministers then and put a more daring action pro-
gram to them. It will be refused—like the February Energy Conference.
France won’t go along. That is okay, because in six months they will be
eager to join. If there is a crisis, we will be out in front and can organize
it. We will get some cooperation, though.
But as a precondition, we need to get our own energy program in
hand. Conservation has gone by the board. If we don’t show a
shrinkage; our allies won’t. There is a forty percent chance of a Middle
President: There is no problem getting conservation started again,
but the coal moratorium is a problem. Maybe that gives us a lever to get
conservation going again.
Kissinger: If the public focuses on the fact this is not just a coal
strike but an energy crisis.
President: We don’t have to attack the workers but show it as an
illustration of the energy problems.
Kissinger: Everyone now agrees on the necessity of what we pro-
posed at the Washington Energy Conference.
President: The conservationists are launching an offensive and this
would give us a chance to fight against it on grounds the crisis
When the consumers get organized and we start dealing with the
producers—if it worked as you wish—what would you do?
Kissinger: We are organizing the consumers. Then we are orga-
nizing bilateral commissions to tie their economies as closely to us as
possible. So we have leverage and the Europeans can’t just move in in a
crisis. We want to tie up their capital.
When the Shah sees us organizing the consumers—he will see, if
we don’t do it in a way appearing threatening to him.
See footnote 4, Document 1.
14 Foreign Relations, 1969–1976, Volume XXXVII
I perhaps should visit him in October, in connection with the So-
viet trip, and talk about bilateral arrangements.
President: Does he want higher prices?
Kissinger: Yes. He has limited supplies. He knows the profit is
higher on petrochemicals and that the Saudis get more from the com-
panies in everything.
We won’t be in a position to confront the producers before the
middle of 1975. We have got to get rolling.
President: We have the Alaskan pipeline, and ERDA. I’m glad
Kissinger: We called him yesterday and he was conciliatory. You
might consider talking to him again next week. I told Dinitz he had to
help us here and that Rabin had to come in early September.
President: We have to give Scoop his amendment.
Kissinger: If you get waiver authority, that Congress would have
to veto, it’s okay.
President: What he wants is his amendment. The supporters don’t
understand the waiver authority.
Kissinger: The Soviet Union won’t buy going in every year for leg-
islation. They will complain about this, but will go along with it.
A Member of Congress last night said they want a compromise.
President: If we can pull it off and get the bill, it is the best thing we
Kissinger: Next week you will be hit with a recommendation for
export controls. I would like a chance to comment.
President: I notice the Japanese are buying heavily.
Kissinger: That is the problem. It leads to scare buying—like sur-
pluses. Commodities are one of our big foreign policy tools.
President: Who is for it?
Kissinger: Not Butz. I think OMB and Treasury.
I will have a paper for you on Monday.
I want to ensure it won’t
be decided on domestic grounds alone.
President: It won’t be.
Senator Henry “Scoop” Jackson (D–WA), Chairman of the Senate Committee on
Interior and Insular Affairs, which later became the Committee on Energy and Natural
Jackson wanted to attach an amendment on emigration from the Soviet Union to
the trade bill stalled in the Senate.
August 19. The paper was not found. An undated August memorandum from
Kissinger to Ford on “Oil Strategy” is in the Ford Library, National Security Adviser,
Presidential Subject File, Box 4, Energy (2).
August 1974–April 1975 15
Telegram From the Embassy in Saudi Arabia to the
Department of State
Jidda, September 3, 1974, 1000Z.
5074. Subject: Yamani’s Displeasure at Lack of U.S. Action on Oil
Auction. Ref: (A) Jidda 4431; (B) State 182093.
Summary: Minister of Petroleum Yamani believes it would be
worthwhile for Ambassador to visit Fahd in London or Cannes and
make a final appeal that oil auction be held. Yamani feels USG has not
tried hard to support Saudi Arabia’s efforts for a reduction in oil prices.
He wonders if we are in fact trying to provoke a consumer/producer
confrontation to better organize consumers against OPEC. Ambassa-
dor believes he should make approach to Fahd as recommended by
Yamani. Approach will probably not succeed and even if an auction
should be held its long-term effects might not be very significant. A
strong de´marche to Fahd, however, would at least harden Saudi re-
solve to keep oil prices constant, which would be of considerable help
in face of present inflation. End summary.
1. Ahmad Zaki Yamani, Saudi Minister of Petroleum, asked me
why I had not gone to London to try to convince Prince Fahd (Saudi
Minister of the Interior and Chairman of the Supreme Oil Council) to
hold the oil auction. He said he thought there was still a chance that the
decision to cancel the auction could be reversed and indicated I was the
only one Fahd would listen to (Ref A).
2. I told him Fahd was expected back from London vacation soon
and I would talk with him then. He replied that the decision on the auc-
tion must be made before the OPEC meeting September 8 and Fahd
Source: National Archives, RG 59, Central Foreign Policy Files, D740243–0333. Se-
cret; Niact; Immediate; Exdis. Repeated to London and Dhahran.
In telegram 4431 from Jidda, July 30, the Embassy reported that Yamani “was
having great difficulties” in getting an oil auction organized. He had hoped that the com-
petitive bidding process of an auction would lower the price of oil without reducing the
rents paid to producers but instead cutting into the profit margins of the major oil com-
panies. Yamani was opposed by the Abu Dhabi Minister of Petroleum, the Shah, and
Fahd, who wanted to sell oil directly to individual companies so that they could, as
Yamani phrased it, “get their hands on vast quantities of oil and cream off substantial
commissions for themselves.” (Ibid.) Telegram 182093 to Geneva and London, August 20,
noted that Yamani would probably soon unveil a proposal for a “‘mini-conference’ of oil
producers and consumers” and instructed the Mission in Geneva not to “solicit or en-
courage discussion of such a conference, but rather remain entirely in a reactive posture.”
16 Foreign Relations, 1969–1976, Volume XXXVII
will not be back in the Kingdom before the middle of the month. He
asked that we reconsider and that I make a special trip to London or
Cannes to see Fahd.
3. He then asked about our approaches to the King. I said I in-
tended to see His Majesty. I had briefed Congressman Wyatt
subject; Wyatt had raised it with the King, but the King did not re-
spond. I will raise it with the King when I see him—I hope during the
coming week. Yamani was pleased and asked if we had coordinated
this with Britain, France and Germany; would their Ambassadors be
making similar de´marches? I said the Europeans could, of course, do
what they wanted, but we had decided that it was probably premature
to make a strong joint approach (Ref B).
4. Yamani blew up. He said Saudi Arabia and he in particular had
done everything they could to reduce oil prices. He had asked me re-
peatedly for assistance and he had gotten very little. He had asked that
the USG make approaches to the other OPEC countries; he now had
full reports of these meetings. All the Americans did, he said, was to
say mildly to the governments how nice it would be if prices were to be
decreased; there were no threats, no intimations of affecting relations;
nothing, in short, that could convince any OPEC government, except
Saudi Arabia, that we were serious about prices. He referred to my
elaborate presentations and detailed analyses of what the oil costs
would do to the U.S. and other countries, and asked why we had not
made such presentations in “Iran or anyplace else”.
5. He said that in Quito the consensus was to raise oil prices by
$3.00/barrel, and only Saudi Arabia’s efforts frustrated this.
had been, indeed, several official U.S. expressions of gratitude to
Saudi Arabia for its work, but there had been no recognition in the U.S.
6. Now, he said, he was forced to conclude that we did not want
any decrease; we probably really wanted a further increase in prices in
order to provoke a confrontation between consumers and producers. If
prices jumped sharply again, he said, it would make it much easier for
us to organize the consumers in a bloc against OPEC.
Representative Wendell Wyatt (R–OR).
At the 40th OPEC conference, held in Quito June 15–17, the participants agreed to
raise the royalty rate on oil sales from 12.5 to 14.5 percent but not the price of petroleum
itself for the next 3 months. Those who advocated an increase in the royalty rate wanted
to prevent inflation from eroding the purchasing power of their revenues. (Skeet, OPEC:
, p. 112) The communique´ issued at the conclusion
of the conference was transmitted in telegram 4044 from Quito, June 17. (National Ar-
chives, RG 59, Central Foreign Policy Files, D740157–0952)
August 1974–April 1975 17
7. I told him he had flipped. We might not have handled the price
question as smoothly as he would have liked. And we certainly hadn’t
been as successful in other OPEC capitals as either of us would have
liked. But we did try and we would continue trying. And what possible
purpose could we have in provoking confrontation? The high oil prices
were ruining much of the world; this could scarcely benefit us. He said
he was sorry, but in light of the information I had just given him, he
doubted if we had tried or would try very hard to reduce prices. As for
our motives, he said, they had been suggested before; he hadn’t be-
lieved them then, but was forced to wonder. (He did not specify but
was referring to reports last winter that we were preparing US-
European invasion force to occupy the oil fields of Arabia.)
8. Comment: Yamani is obviously disappointed that his plan to re-
duce oil prices has been frustrated by Prince Fahd and probably others
in the Saudi Government. And he is angry that we appear not to be
giving him the support he thinks he deserves. But I do not believe that
the auction would really establish a new world market price for oil. It
would indeed have an important psychological effect; it would enable
us to tell other oil producers that a “correct” price for oil had been es-
tablished, but it wouldn’t have been effective very long.
9. I am inclined to believe Saudi Arabia is bluffing regarding the
auction. If it had its auction and if the new price is $8.00/barrel, I am
sure all other OPEC countries will say fine, we will continue selling
ours for $11.00/barrel. There is no doubt what would then happen; the
world would continue paying $11.00; Saudi Arabia could not increase
its production fast enough to take away markets (even if it wanted to)
and Yamani’s enemies in the country would point out that Saudi Ara-
bia had lost billions; the consumers had not profited and the buyers of
Saudi oil had seen their profits multiplied. There would not be a second
10. Nonetheless, bluffs frequently work; OPEC is quite clearly still
frightened of the Saudi potential. The rulers of Iran, Algeria and Ku-
wait and others would not have appealed to King Faisal not to hold the
auction, if they had been sure it would fail. Accordingly, I think we
must give Yamani as much support as we can.
11. Action Requested: (A) That I be instructed to see Fahd immedi-
ately; review the world’s financial problems, and ask him to do what he
can to hold the oil auction. A special trip to him would demonstrate the
depth of our concern.
(B) That we reconsider our position on asking the British, French,
and Germans to make supportive de´marches to the King.
18 Foreign Relations, 1969–1976, Volume XXXVII
(C) That we make a very strong approach to the Shah—not a lesser
official—and that I be authorized to give the details of this de´marche to
12. Conclusion: Assuming that all these efforts fail (and I would es-
timate their chances of success as small) we would have demonstrated
more fully our determination to reduce prices, and we could at least
hope that the compromise proposed by the Saudis of freezing oil prices
for a “long time” would be more generally acceptable to OPEC. In a pe-
riod when the cost of OPEC’s imports are increasing by 10–20 percent
per year, constant oil prices would be a considerable achievement.
The Department ruled against meeting Fahd in London, noting: “it could well be
embarrassing to SAG to be seen to have American Ambassador make such an unusual
visit against the background of current controversy over prices and the forthcoming
OPEC meeting.” Akins was also reminded that Ford had “recently written to King Faisal
and in course of that letter made certain remarks on the ramifications of the high level of
petroleum prices,” as Yamani had asked. (Telegram 193332 to Jidda, September 4; ibid.)
The August 29 letter from Ford to Faisal is in telegram 192483 to Jidda, September 1; Ford
Library, National Security Adviser, Presidential Correspondence with Foreign Leaders,
Box 4, Saudi Arabia—King Faisal.
Memorandum From Secretary of State Kissinger to
Washington, September 6, 1974.
Ambassador Helms Assessment of Situation in Near East and South Asia
When Richard Helms took up his post as our Ambassador to Iran,
we asked him to keep watch over developments in the entire region
stretching from Iraq, Iran, the Arabian Peninsula, Persian Gulf, and Af-
ghanistan, to India and Pakistan. Ambassador Helms has just sent me
Source: Ford Library, National Security Adviser, “Outside the System” Chrono-
logical Files, Box 1. Secret; Sensitive. Sent for information. Ford initialed the
August 1974–April 1975 19
his annual assessment of developments and prospects in this region. (A
reference map of the region is at Tab A.)
1. The Price of Oil: With oil selling at four times its October 1973
price, stabilizing the price of oil must be ranked as one of the critical
problems in the area. As Helms notes, the future of oil prices depends
on the success of our endeavors for a peaceful Arab-Israeli settlement.
We must stabilize the price of oil, Helms is convinced. We cannot
accomplish this by using the Saudis, he believes, because they probably
cannot be so used; we cannot achieve it by threatening the Shah, be-
cause this only makes him less willing to compromise. Helms, who
knows the Shah well, believes that the Shah is “not an unreasonable
man” and can see himself the calamitous consequences of an economic
collapse in the West.
We should therefore try to make clear to the Shah the ruinous ef-
fects of the excessive oil prices. We should also try, Helms suggests, to
get the Chinese to make the same point to the Shah. This is not a
far-fetched suggestion. The Chinese (who are good friends of the Shah)
should hardly welcome an economic collapse of Western Europe which
would free Soviet forces for redeployment in China’s direction.
[Omitted here is discussion of “India–Pakistan–Iran Relations,”
“The Indian Nuclear Test,” “The New U.S. Rapprochement with Egypt
and Syria,” “Persian Gulf and Indian Ocean,” “Iraq,” and “China’s
Helms’s assessment is in backchannel message 966 from Tehran, August 25. (Ibid.,
National Security Adviser, Backchannel Messages, Box 4, Middle East/Africa) Tab A is
attached but not printed.
20 Foreign Relations, 1969–1976, Volume XXXVII
Telegram From the Department of State to the Embassy in
Washington, September 16, 1974, 1551Z.
203063. Subject: Appreciation for Saudi Position at OPEC. Ref:
1. Ambassador should convey in manner he deems most appro-
priate to His Majesty King Faisal President Ford’s appreciation for the
courageous and statesmanlike position taken by Saudi Arabia at the
OPEC conference in Vienna.
2. The President quite understands the point made in His Maj-
esty’s letter of September 11 that other oil exporters are behaving in a
less responsible manner, and we have let our views be known both
publicly and privately. What is required is continuing understanding
that we live in an interdependent world and that the free world will
suffer if measures are taken to prevent market forces from determining
a fair price for oil. We fear that unless there is a statesmanlike approach
on oil prices, the alternative will be a confrontation between consumer
and producer countries, given the need for oil to help fuel the world’s
3. The President appreciates the burdens that are now being thrust
on Saudi Arabia because of the heavy responsibility it bears for the free
world’s economic health.
This is a responsibility, however, which Saudi Arabia derives from
the position of leadership which the Kingdom now occupies and from
the value it places in the prosperity, well being, and security of the free
4. FYI: We are not coming out publicly to pat Saudis on the back
because we know they are sensitive to charges of being an American
Source: National Archives, RG 59, Central Foreign Policy Files, D740258–1032. Se-
cret; Immediate; Exdis. Drafted by Francois M. Dickman (NEA/ARP); cleared by Ather-
ton, Katz, and Scowcroft; and approved by Kissinger.
Telegram 5305 from Jidda, September 13, transmitted a September 11 letter from
Faisal thanking Ford for his August 29 message and commenting: “all of the OPEC states
are standing against us with regard to lowering the prices which we have suggested—be-
cause they wish them to increase steadily. But after long discussions with Algeria and
Iran it has been agreed to freeze the current price for a further period. We ask that you get
in touch with your friends from among the OPEC states and particularly Iran and Algeria
to support our position with regard to lowering the price.” (Ibid., D740256–0455) For
Ford’s August 29 message, see footnote 5, Document 3.
At the 38th OPEC conference, held in Vienna March 16–17, the participants agreed
not to raise the price of oil over the next 3-month period. Faisal informed Akins before
the meeting that he would instruct Yamani to try to lower prices and “to compromise
only to the extent of freezing prices.” According to the Ambassador, numerous reports
confirmed that Yamani “fought hard to carry out his instructions.” (Telegram 5411
from Jidda, September 17; National Archives, RG 59, Central Foreign Policy Files,
August 1974–April 1975 21
tool on oil policy matters. However, we are quite prepared to do so if
Embassy believes Saudis would welcome this.
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