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

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

Washington, July 25, 1975.

SUBJECT

• Oil Price Increase

As you know, there is increasingly heated controversy within this country over the price of oil and gas, and its consequences for the economy. This pertains to the programs proposed by the President and by Congress for domestic energy (decontrol, price levels, etc.) and to the price of foreign oil. There is a strong body of criticism that in the foreign field the Administration has made no effort to keep OPEC oil prices down, just as it is pushing prices up domestically.

In order to prepare for a possible OPEC price rise this fall (the informal interagency consensus is that it will be about $1.50 per barrel), the President needs to have a thorough analysis of the problem and the options open to him in dealing with it. Next week CEA will table a paper in the EPB on the economic effects of an OPEC oil price increase this fall.² In fact this is only a third of the work which needs to be done in preparing for this contingency. A second aspect is to identify those domestic monetary and fiscal policy options available to offset the economic impact of the increase. This task will almost certainly be given to CEA and their collaborators on the economic effects paper.

The third aspect of the problem—more basic and probably more important—is to examine what we can do to discourage or minimize the price increase. The President has stated that it would be “unacceptable,” but has not adduced any convincing arguments that it will not occur. Treasury continues to make threatening noises on its own, but is not thinking through what can actually be done. There have also been threatening statements from Defense, although the President has publicly ruled out the use of military force under present circumstances. State publicly follows the Administration line of concern, but internally seems rather indifferent.

In fact, there has been no systematic analysis of what possible actions might be taken to induce OPEC not to raise oil prices, the likely effects of such actions, and the desirability of undertaking them. In the absence of such a systematic study, there can be no firm guidance from the President and Secretary Kissinger to the rest of the Executive Branch on what to do and say about possible OPEC oil price increases. Moreover, we are open to accusations by critics like Senators Church and Stone³ that there has been no systematic study of the problem and that the Administration refuses to use its alleged “leverage” with the oil producers (e.g., cutting off or restricting arms deliveries, stopping the sale of food or manufactured products or raising their prices).

We intend to prepare a systematic study of available options for dealing with a possible OPEC oil price increase.⁴ This will form the third part of the package which the President needs, complementing the two being done by the CEA. Given the sensitivity of this question, we will use the same quiet approach we have used successfully in preparing Contingency Studies for a possible oil embargo.⁵ (There has been no publicity about or leak from this ad hoc NSC-chaired group⁶ in its six months of existence.) We will submit the draft study to you for review before circulating it to other agencies or the EPB. We will tell the EPB that the NSC will undertake such a study and will make it available to the EPB Executive Committee when it is completed.

1. Source: Ford Library, National Security Adviser, Presidential Files of NSC Logged Documents, Box 24, 7505097—Oil Price Increase. Secret. Sent for action. At the top of the page, Scowcroft wrote “OK” and initialed.
2. Not found.
3. Senators Frank Church (D–ID) and Richard Stone (D–FL).
4. See Document 93.
5. See Document 40.
6. No record of this group has been found.