281. Telegram From the Department of State to the Embassy in Saudi Arabia1
238781. Subject: New Presidential Correspondence: IMF/IBRD and Oil.
1. (Secret—entire text)
2. This telegram transmits in para 4 below a letter from the President to Prince Fahd that you should deliver and amplify with respect to our concerns re an early cut in production.
[Omitted here is an instruction unrelated to oil.]
4. Text of oil letter:
Your Royal Highness:
I want to share with you recent evidence that the major industrial nations are now firmly committed to sustained efforts to reduce oil consumption and to curb inflation, as you have frequently advocated to all of us. These were our paramount objectives at the recent Economic Summit meeting in Venice. Subsequent reports from each of the seven countries indicate determined follow-up action and impressive progress.
I also wish to express my appreciation for your efforts to restore stability and establish greater predictability in the world oil market. I hope that you will not relax these efforts.
In adopting an ambitious plan to break the link between economic growth and oil consumption, the seven major industrial nations have undertaken to increase the production and use of substitutes for oil by the equivalent of 15 to 20 million barrels per day by 1990. Each country is adopting measures toward this goal. For example, on June 30 I signed legislation establishing the Synthetic Fuels Corporation,2 which will be committed to the financing of plants capable of producing an estimated two million barrels per day of substitute fuels by 1992. I have also intensified the campaign to increase U.S. domestic use of coal and to export more coal.
Recent progress in oil conservation by these seven countries has greatly exceeded our predictions. U.S. petroleum imports have dropped by more than two million barrels per day as compared with last summer; our imports through August were 17 percent below the [Page 885] same period of 1979. These nations, as a group, now estimate that their total oil imports in 1980 will be eleven percent below 1979.
The major industrial nations have also pledged themselves to effective policies to reverse the spiral of inflation. Recent reports confirm that the seven governments are maintaining both fiscal and monetary restraint; U.S. inflation rates have declined markedly since early this year. By increasing the efficiency of the U.S. economy over the longer term, the economic policy decisions that I announced on August 28 should lower inflation.3
In carrying out the energy policies described above, the industrial countries wish to work closely with Saudi Arabia for an orderly transition away from excessive dependence on petroleum resources, which must be preserved for future generations. We appreciate your government’s responsible attitude on oil production and prices.
I recognize that your representatives may face pressures at the forthcoming OPEC meeting in Vienna4 to reduce Saudi Arabia’s current oil production and that such pressures may occur before achieving dependable assurances of moderation in future oil pricing. I want to share with you my strong belief that action at this time by Saudi Arabia to reduce production or increase prices would be widely misinterpreted in the United States and could have a serious impact on our public opinion and on oil market psychology.
Recent international events give clear warning that the free countries will face growing challenges to their vital security concerns in the years ahead. The industrial powers have expressed determination to strengthen our military and economic capacity in order to defend our common interests. I believe that this will greatly benefit Saudi Arabia, just as your country’s growing capacity to meet emergency shortfalls in oil supply will be of great importance to the security of the industrial nations.
One of the lessons of the past year is that the Free World’s economic security depends heavily on the availability of a significant margin of oil production capacity to offset sudden disruptions of supply. Your margin of unused production capacity may well prove to be the Free World’s margin of safety and order.
Looking back over the last several years, I am pleased to see how the dialogue between our two governments has developed on a wide range of international economic, political, and security matters. In the context of this dialogue, I hope that you will write to me, fully and [Page 886] frankly, about your concerns. I look forward to developing our consultations further and to benefiting from your counsel. Sincerely, Jimmy Carter.
His Royal Highness
Crown Prince Fahd Ibn ’Abd al-’Aziz Al Saud
Riyadh
5. In delivering the foregoing letter you should add to penultimate paragraph the following two verbal points emphasizing that this is on instructions of the President:
—Saudi Arabia’s policy of raising sustainable capacity to 12 million barrels per day will thus be a major contribution to world order.
—As the future unfolds, you may find that a further increase in capacity beyond 12 million barrels per day would serve Saudi Arabia’s interest in a secure, stable international environment.
6. FYI: In making these points you should be aware that Aramco has confidentially informed the Department that Saudi plans to increase capacity to 12.3 MBPD are on track.5 See septel.6
- Source: National Archives, RG 59, Central Foreign Policy Files, P870094–0800. Secret; Nodis. Drafted in the White House; cleared by Owen, Miller, Duncan, Twinam, and Morse; and approved by Cooper. Repeated Immediate to the White House.↩
- This was part of the Energy Security Act signed on June 30.↩
- President Carter announced on August 28 a program of domestic measures to strengthen the economy. For the text of his remarks, see Public Papers of the Presidents of the United States: Jimmy Carter, 1980, pp. 1585–1591.↩
- The OPEC Ministers met in Vienna September 15–17.↩
- On September 14, West replied: “Crown Prince Fahd told me that he would instruct Foreign Minister Saud, Oil Minister Yamani, and Finance Minister Aba al-Khayl to make no rpt no statement or commitment with respect to Saudi Arabia’s decreasing production at the forthcoming Vienna meeting; that he would also instruct them to hold firm against any price increase, regardless of the pressure of other Arab OPEC countries. He stated that he would authorize them to negotiate an increase in SAG’s price from $28 to $30 per barrel provided other OPEC countries would agree to reduce their prices to that figure from the current $32 per barrel. Fahd stated that Saudi Arabia would not go beyond that concession, which he pointed out would create a unified price system and would result in an overall price decrease from OPEC oil.” (Telegram 5545 from Jidda; National Archives, RG 59, Central Foreign Policy Files, P870094–0795) At the OPEC meeting, Saudi Arabia did agree to raise its price to $30 per barrel and other OPEC members agreed to decrease their price to $30, achieving a unified price for OPEC oil. Saudi Arabia also agreed unofficially to decrease production to 8.5 million barrels per day beginning in 1981. (The New York Times, September 18, 1980, p. A1)↩
- Telegram 238899 to Jidda, September 9. (National Archives, RG 59, Central Foreign Policy Files, D800428–1040) On October 3, Owen sent the President a memorandum informing him that King Khalid “ordered an increase in Saudi oil production of at least 500,000 b/d” and “asked other Arabian Gulf producers similarly to help offset the curtailment of Iraqi and Iranian exports.” A “reliable US source” said the figure was actually 900,000 barrels per day. (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) Carter sent a thank you letter to Khalid on October 7. (Telegram 268622 to Jidda; National Archives, RG 59, Central Foreign Policy Files, D800480–0144)↩