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

274. Telegram From the Department of State to the Embassy in Saudi Arabia¹

Washington, May 31, 1980, 1808Z.

143707. For Ambassador. Subject: Text of Letter to Prince Fahd.

1. (S) Entire text.

2. You should review the following letter from the President to Crown Prince Fahd and get in touch with us immediately if you wish to withhold it or change it in any way.²

3. Begin text:

Your Royal Highness:

The events of recent months have reaffirmed the value of our remaining in close touch on matters of deep interest to both our countries. I have been gratified by the reports I have received from John West on his conversation with you.

As the time nears for the Economic Summit Conference in Venice, I am aware of just how critical the supply and price of oil are to the economic well-being of the world. Saudi Arabia plays a vital role in determining whether we will be able to dampen inflation, adjust to a world less dependent on oil, and still maintain satisfactory economic growth. This is a grave responsibility. Under your leadership, Saudi Arabia has carried out that responsibility in a farsighted, consistent, and statesmanlike way.

The counterpart to Saudi Arabia’s policies is effective oil conservation in the industrial nations. The United States is doing—and will continue to do—its share. The comprehensive energy policy I have fought so hard to put in place is showing results. U.S. oil consumption declined in 1979. That is unprecedented in a period of considerable economic growth. This decline, which included a marked drop in gasoline consumption, is continuing in 1980. Furthermore, we have taken the initiative in the International Energy Agency to encourage all industrial countries to conserve oil. Only last week, at the urging of Secretary Duncan, these countries agreed to develop measures for increasing their energy efficiency and to improve substantially upon their oil conservation goals for 1985 and beyond.³

The period immediately ahead, however, is of great concern to me. Last year’s oil price increases will ultimately add more than six percent to the level of world prices and will reduce world output by about five percent. As the world economy struggles to adjust to these losses, a new wave of oil price increases is taking effect—despite the sharp reduction in oil consumption. These increases will make it very difficult to control inflation and rebuild the foundation for sound economic growth. They pose a substantial threat to my personal effort to restore economic stability in the United States, while avoiding a deep recession—a difficult task at all times, but especially in an election year. The fact is that the resilience of the world economic system, which has so far proven to be considerable, is being pushed to a dangerous point.

In addition, security considerations are involved. I know you share my view of the importance of sustaining a strong U.S. and Western defense capability to maintain a global deterrence to Soviet pressures and aggression. I have made economically difficult decisions to increase U.S. defense spending, and I am encouraging our allies to do the same, but I am concerned that inflation, aggravated by rising international oil prices, is eroding our ability to maintain defense budgets at a level adequate to meet an increasing Soviet threat.

I was pleased to learn through John West that Saudi Arabia does not believe that additional price increases at the OPEC meeting on June 9 would be justified in present circumstances. A decision at that meeting to impose further price increases beyond those already in place would rekindle inflationary expectations and increase recessionary forces, developments you are helping to avoid by maintaining high production and by advocating price restraint.

I want you to know what great importance I attach to your efforts. I urge you to consider maintaining present production levels and prices through the end of this year. It would be extremely helpful in the current international situation if you could make such a decision public. An announcement to this effect at this critical time would make a major contribution to the health of the international economy and to public confidence in world financial markets.

At the Venice Summit on June 22, I will emphasize that Saudi Arabia’s price and production policies and its efforts to restore order and predictability in the world oil market call for commensurate action by the industrialized countries. I will seek effective measures to reduce oil consumption and increase production of alternative fuels during this decade of transition in the world energy system. Such medium-term measures by the Summit countries should make it possible to preserve orderly economic growth without requiring excessive production by the oil-exporting nations.

The health of the world economy and the common security are interests our two countries share to an extraordinary degree. I will welcome your views and advice on how we can continue to work together to advance these interests.⁴

With warmest regards,

Sincerely, Jimmy Carter.

His Royal Highness

Prince Fahd Ibn Abd Al-Aziz Al Saud

First Deputy Prime Minister of Saudi Arabia

Riyadh.

End text.

Muskie

1. Source: Carter Library, National Security Affairs, Brzezinski Material, Country File, Box 68, Saudi Arabia, 5/80. Secret; Immediate; Nodis. Drafted in the White House.
2. West replied that he had two concerns about the letter: 1) “It commits the President’s prestige when such a commitment is likely either to be unnecessary or unproductive”; and 2) “We should distinguish between our concerns about price and about production; the issues obviously are related, but they are not identical.” West concluded: “If the decision is made to forward the President’s letter, I strongly urge that Secretary Duncan discuss its content with Yamani in the context of U.S. support for the Saudi objective of price unification. This should serve to prevent Yamani’s feeling that we are in any way circumventing or undercutting him.” (Telegram 3432 from Jidda, June 2; National Archives, RG 59, Central Foreign Policy Files, D870094–0893) On June 5, Dodson wrote to Tarnoff that Carter reviewed West’s concerns, determined that the Ambassador should deliver the letter, and agreed that Duncan should contact Yamani. (Carter Library, National Security Affairs, Brzezinski Material, President’s Correspondence with Foreign Leaders File, Box 17, Saudi Arabia: Crown Prince and First Deputy Prime Minister Fahd ibn Abd al-Aziz Al Saud, 6–10/80)
3. Reference is to the decisions taken at the IEA Ministerial meeting held May 21–22. See Document 273.
4. On June 21, Fahd replied: “As Your Excellency is well aware, we here in the Kingdom of Saudi Arabia give great attention to your points of view and we sincerely wish to cooperate with you on all of the above mentioned considerations and strengthen the traditional friendship between our two countries. I find that the exchange of advice and opinions between our two countries on matters of common importance leads to achieving greater bilateral understanding an cooperation.” (Telegram 3859 from Jidda, June 23; National Archives, RG 59, Central Foreign Policy File, P870094–0872)