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

131. Memorandum From Timothy Deal of the National Security Council Staff to the President’s Assistant for National Security Affairs (Brzezinski)¹

Washington, October 18, 1977.

SUBJECT

• 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 October 21.

State has prepared a sound strategy paper (Tab A)² which Vance 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 that:

—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. Representations by the President, Vance, Blumenthal and Schlesinger both here and in Riyadh and Tehran will help to underscore our deep concern about the price issue. Presidential involvement will be particularly necessary 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 temporary 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 Blumenthal’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 Arabia³ should make 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 deteriorate further; (3) our assistance to the Saudis on the security front, in particular, 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 increases 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.

One other tactical point. Dick Cooper mentioned in last week’s PRC meeting on the Middle East⁴ 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 Middle East officials.

Gary Sick and Guy Erb concur.

1. Source: Carter Library, National Security Affairs, Staff Material, Middle East File, Box 65, Subject File, Oil. Confidential. Sent for information.
2. Attached but not printed.
3. Talking points for Saudi Arabia and Iran are attached but not printed.
4. The minutes of the October 13 Policy Review Committee meeting are in Carter Library, National Security Affairs, Brzezinski Material, Brzezinski Office File, Country Chron File, Box 32, Middle East, 9–12/77.