You recently asked for an analytical paper on the security implications
of the energy crunch2 that might be sent to Under Secretary Newsom, along with the cover memo at
Tab A.3
Attached, next under, is a draft memorandum prepared by Don Goldstein
that builds on your earlier thoughts on this issue.4
We have coordinated the draft with Major General Boverie.
Attachment
ENERGY AND SECURITY
Summary
The global energy squeeze poses multiple threats to the security of
the United States and the maintenance of international order. It
contributes in a major way to international economic problems such
as inflation, balance of payments deficits, slowed growth, and
rising unemployment. In addition to the social and political strains
they cause, these effects impair the ability of the US and our allies to marshall the
resources necessary for the defense of the non-communist world. The
impact of rising energy prices and the concomitant economic slowdown
is burdensome enough in the industrialized countries, but it is even
more serious for the developing countries. The resulting
instabilities constitute a danger to the entire Third World,
including the major oil producers.
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More profoundly, the dependence of most of the non-communist world on
access to Persian Gulf oil affects the way we must think about our
security relationships. Because only the United States can even
attempt to guarantee the security of the free world’s major oil
supplies, new demands will fall on us. Because we cannot do that job
alone, new demands will also be placed on others. We must convey the
mutual responsibilities growing out of the energy crunch in a clear
and consistent way to our allies, the countries in the Persian Gulf
region, and our friends in the Third World. Our basic message must
be that we intend to assume much of the additional burden of
safeguarding access to Persian Gulf oil, but we expect others to
share in these burdens as appropriate. We especially hope that those
who will benefit from our acceptance of new responsibilities will
not pursue separate courses of action that make our efforts more
difficult.
The Threat to Supply
Both the importance and the vulnerability of Persian Gulf oil can
hardly be overstated. The eighteen million or so barrels of oil that
flow out of the Persian Gulf every day comprise nearly forty percent
of non-Communist oil production. This figure is roughly equal to the
total crude oil imports of the seven largest OECD consumers. Some states, like
France and Japan, depend on the Gulf for over two-thirds of their
crude imports. Despite intense efforts by consumers to diversify
their sources of supply, no other region could substitute totally
for the loss of Persian Gulf oil. While some individual oil
importers, such as the United States, may not currently depend on
the Gulf for the bulk of their supplies, it would be impossible for
them to insulate themselves from the direct or indirect effects of a
major cutoff for any great period of time.
Dependence on Persian Gulf oil is not new. What is new is the graphic
and continuing demonstration of the vulnerability of access to that
oil. The Soviet invasion of Afghanistan, whether or not it was part
of a conscious strategy to increase influence in the Gulf,
constitutes fair warning. The Soviets showed that they are willing
to use military force in the pursuit of their interests in a region
of vital importance to the West. The boldness of their action is
especially sobering when considered in the light of the very real
prospect that the Soviets may also face a substantial oil shortfall
in the coming decade. We can hardly count on the Soviets to pass up
opportunities in Southwest Asia which may help improve their
situation or worsen ours. Indeed, the evolving situation in Iran may
provide a pretext for a new “phase” of Soviet policy in this part of
the world.
The shocks set off by the Iranian revolution have not yet been
contained and still reverberate throughout the region. Perhaps the
greatest effect is the heightened awareness of the fundamental
weaknesses of
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the Persian
Gulf regimes. They are susceptible to both internal
challenges—religious, tribal, and factional—and external
threats—regional rivals and external powers. Their domestic
weaknesses hamper their ability and willingness to seek the aid we
can provide to help meet foreign challenges. This makes it difficult
for us to prepare to meet threats originating within the region or
arising from outside of it. Even those states that are willing to
cooperate with us do so in a cautious and tentative manner.
The Threat of Rapidly Rising Energy Costs
We all recognize that higher energy costs are inevitable. Indeed,
some have gone so far as to argue that higher oil costs may even be
desirable over the long term. More specifically, it is suggested
that high priced oil eventually will lead us to alternative fuels
and more efficient energy use, and will provide additional
incentives to reduce current levels of dependency on imported oil.
Whether or not one accepts these propositions, it is true that
increasing prices are one factor contributing to the transition away
from oil—including that from the Persian Gulf. The nature of this
transition is critical, however. If it does not take place smoothly
(i.e. without sudden interruptions of production or jumps in price),
the economies of both the developed and the developing world could
sustain severe damage. The major oil producers must concern
themselves with this damage since it has direct and serious
consequences for their security.
The rapid increases in oil prices (some 130 percent) over the last 18
months, far in excess of what economic conditions could justify,
poses a very real strain on the global economy and ultimately
international peace and security. In the first place, the economic
foundation on which our defense effort rests has been hard hit by
slowed growth and high rates of inflation spurred in part by surging
oil prices. According to the IMF,
about one-third of the total inflation affecting the major
industrialized nations is directly attributable to higher oil
prices. The indirect effects on related prices is believed to raise
that fraction even more. A number of strategically important LDCs
find themselves in even more desperate straits. A major cause of the
economic difficulties of South Korea, Thailand, Pakistan, and
Turkey, for example, is the huge growth in their oil bills.
Non-OPEC
LDC debt as a whole is predicted to
surge in 1980 to $109 billion, up from $58 billion in 1979. In 1981
the strain will be even worse. Even though we may be able to scrape
through the enormous recycling difficulties presented—if OPEC countries are cooperative—it is
clear that politically destablizing belt tightening will be
necessary in many LDCs.
The economic problems caused by the surge in oil prices and the
accompanying wealth transfers affects international security in
several ways. First, it reduces the sum of resources available to
meet the Soviet
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challenge.
It is difficult to devote increasing amounts to defense when the
overall economies of the West are constrained by a rapidly rising
energy tax. Also, because of inflationary effects partly derived
from oil, not to mention the higher cost of fuel itself, we simply
get less military strength from the nominal defense dollar. The net
result is that the West’s
defense effort falls short of what it should be in the face of the
long-term buildup of the Warsaw Pact and more immediate crises such
as Afghanistan. This is not the only reason, of course, why our
military strength is not what it should be, but it helps explain the
difficulties in redressing our problems.
Secondly, the worsening economic plight of the non-oil producing LDCs
increases the likelihood for internal instability and perhaps
regional conflicts. The trade and finance aid efforts of the West
are more than offset by rising oil import costs. As an illustration,
Turkey’s oil bill in 1980 is estimated to be $2.7 billion, totally
overwhelming U.S. ($295 million) and other OECD ($866 million) 1980 economic aid pledges. The
entire fabric of international trade, aid, and finance is being
stretched to the limit by the effects of oil price increases. It is
impossible for the West, itself transferring enormous amounts of
funds to the oil producers, to underwrite the oil bills of the LDCs
as well. To some extent the gravity of this problem has been
recognized by OPEC in the creation
of recycling facilities. But much more needs to be done if
instability is to be contained in the Third World.
The Response of Consumers
A concerted response is required to meet the challenge presented by
vulnerable supplies and surging energy prices that includes the
industralized democracies, the major producers, and the threatened
LDCs. The OECD countries have
taken some effective steps forward in the energy economic area, as
the Venice communiqué shows. We have adopted measures aimed at
reducing our energy consumption. We have established mechanisms to
mitigate the effects of market disruptions. We have agreed to
coordinate oil stock policies, and the US is moving toward renewed fill of the SPR. We are seeking to diversify
energy sources, including greater use of coal. But more needs to be
done in the energy security arena, especially if the military
dimension becomes paramount.
The United States is committed to defending the oil producing region
of the Persian Gulf. We have increased our presence in the region
and will do more as time goes by. What is required is an equivalent
commitment on the part of our allies in Europe and Asia. This means
we need to urge our allies to shoulder more of the burden of
European and Asian defense. Our European and Asian allies should be
queried about what economic and security assistance responsibilities
they could take on. Increased host nation support for regional and
South
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west Asian
contingencies is also required. Cooperation and understanding
regarding the measures we may need to take to prepare to fight in
Southwest Asia, if need be, is also necessary. For example,
overflights for ourselves or in support of our friends in the area
should not be a matter of contention. Independent diplomacy on the
part of our allies that pretends that their access to Middle East
oil can be divorced from our ultimate guarantee of Western security
should be discouraged. In other words, we must impress upon our
fellow industrialized democracies that the burden of protecting the
West’s oil supplies must be responsibly shared.
The friendly oil producers, particularly in the Persian Gulf, also
must be constantly reminded of the mutuality of our interests and
our vulnerabilities. As the Secretary of Defense has noted, it is
not reasonable to believe that the oil producers could continue to
profit from their most precious natural resource if the Soviet Union
succeeded in using its massive military power to envelop the Persian
Gulf. Given the weakness of the regimes there, they must realize
they could not withstand even serious regional threats without our
help. Only the United States is equal to the task of providing for
their security. No other non-Communist power or combination of
powers could provide the sustained support that they would need if
seriously threatened. However, we need their cooperation if we are
to protect them. We must prepare sufficiently in advance so that our
efforts will be quick enough and massive enough to deter, if
possible, and defend, if necessary. This means we need access to
facilities, prepositioned supplies, assurances of military
coordination, including assured local fuel supplies, and a general
tolerance of our activities related to providing an effective
defense.
As for the LDCs, we want to work with them to minimize the economic
damage they are suffering. We wish to join with them and the oil
producers in finding new ways to cope with the taxing effects of
higher oil bills and the accompanying panoply of economic problems
growing out of the energy crunch. The LDCs can help here by more
forcefully bringing home their plight to the oil exporting
countries. Additionally, the LDCs must realize that a Persian Gulf
crisis precipitated by a regional conflict would have devastating
effects on them. Oil prices would explode and the LDCs would be the
first pushed out of the market. They have a very real and direct
stake in our guarantee of the free flow of Persian Gulf oil.
Therefore, they should at least show forbearance for our efforts to
secure free access to that oil and tolerance of our attempts to
maintain the necessary military presence in the area.
