Foreign Relations of the United States, 1969–1976, Volume XXXVII, Energy Crisis, 1974–1980

103. Memorandum From Robert Hormats of the National Security Council Staff to the President’s Assistant for National Security Affairs (Scowcroft)¹

Washington, September 15, 1976.

SUBJECT

• Your 5:30 Meeting on OPEC Price Increase

Zarb has called this meeting² (to include you, Greenspan, Richardson, and Robinson) to discuss an OPEC price increase.

[less than 1 line not declassified] Saudi Arabia, Iran, and Venezuela have already agreed to a 10–15% increase, to be formally decided in Doha, Qatar in December. Arguments supporting the increase include: greatly increased demand for oil in industrialized countries, increasing the market strength of OPEC; desire by some OPEC countries to make up lost purchasing power caused by inflation in industrialized nations; less fear of harming recovery in the West now that economic activity is increasing.

Pursuant to your instructions, I asked State last week to work with CIA and Treasury to prepare an options paper outlining the types of things which might be done to prevent a price increase.³ This will be completed by the end of the week. After having examined a number of options, the working group concluded that the following steps should be taken:

—Porter should be instructed to follow-up his recent conversation with Prince Fahd⁴ and indicate US appreciation of his position opposing a price increase this year.

—A letter to King Khalid, along with letters applying pressures on the Shah and Perez of Venezuela, later in the fall.

—US Ambassadors should make démarches in other OPEC countries.

—Delegates to CIEC should speak up publicly and in the corridors against a further price increase.

A number of other “hard-ball” options were considered and rejected. These include: more support for Congressional actions on the boycott; an export surcharge by industrialized countries on sales to OPEC countries; and threats not to help non-oil LDCs to overcome difficulties which would be caused by a new oil price increase. In addition, some incentives to be more responsible—expansion of the activities of the corps of engineers, indexation of Saudi reserve access in the US, and facilitation of Saudi investment in American agricultural and other commodities—were also considered and rejected.

What this all boils down to is:

—It is likely that a decision has already been made to increase the price of oil from 10% to 15% next year.

—[less than 1 line not declassified] such a decision has not been reached, our leverage (given the substantial increase in demand for oil by industrialized countries) is very weak.

—To the extent that the only undecided element in the minds of the OPEC countries is whether the price should be increased 10% or 15%, we might have some marginal influence.

—The Saudis are keyed to equation, but the key to insuring Saudi help is pressure on the Iranians and Venezuelans to oppose a price increase (which could, at best, result in their moderating the presently extreme demands for a large price increase).

—In any case, the US must put forward its best case against an increase lest we appear indifferent to an impending development which will be highly costly to us, to our allies, and to the developing countries. (We should, however, avoid investing too much prestige if we believe this to be a losing cause.)

Tactics

—The first step is a letter to Khalid attempting to lock him into Fahd’s recent statements on his behalf opposing a price increase (Tab A).⁵ If we wish to be tougher, we could send a high-level American official to Saudi Arabia to indicate the enormous problems which could result for American Presidents wishing to support the Saudi dynasty if the price of oil is increased. The emissary could also point out the still fragile condition of a number of developed country economies.

—Strong letters to the Iranians and Venezuelans arguing against a price increase on grounds that it would be politically disruptive and economically unjustifiable.

—Démarches in other OPEC capitals.

—Gentle reminders in key non-oil LDCs as to the likely impact of a price increase on their economies and on the will and ability of other developed countries to assist them.⁶

1. Source: Ford Library, National Security Adviser, Presidential Subject File, Box 5, Energy (15). Secret. Sent for action.
2. No record of the meeting has been found. A September 23 memorandum from Hormats to Scowcroft briefed him for a meeting he would attend later that day on the potential for an OPEC price increase. (Ibid.)
3. The paper, “Strategy Paper for the President on December Oil Price Decision,” undated, is attached to Hormats’s September 23 memorandum.
4. According to telegram 6094 from Jidda, September 8, Porter met with Fahd on September 7 at the former’s request to discuss a September 2 letter from President Ford to the Crown Prince on arms sales. (National Archives, RG 59, Central Foreign Policy Files, D760339–0131) The letter was transmitted in telegram 217223 to Jidda, September 2. (Ibid., P850071–2596)
5. Not attached and not found.
6. President Ford met with Prince Saud on September 17 and told him that “any increase this December or for ’77 would be extremely damaging, not only for the United States, but even more so for our industrial colleagues who are in a much more fragile situation.” Ford added: “We plan to discus this not just with you but also with Iran and Venezuela. It would be disastrous to push the world economy back to the recession of last year. So we hope His Majesty’s views will prevail.” Saud replied: “His Majesty is just as determined as last summer not to have an increase. But it will be difficult, and it will depend heavily on what you can do with Iran and Venezuela. His Majesty has said at least he will refuse more than a modest increase, and will categorically refuse anything beyond 5 percent.” (Ford Library, National Security Adviser, Memoranda of Conversations, Box 21)