267. Letter From the President’s Consultant (Anderson) to the President1
Dear Mr. President: I was glad to learn from Governor Adams’ call of June 28, confirmed by your letter of the next day,2 that you felt I might be of service to you in a consulting capacity on the problem of crude oil imports.
As you know, I have given rather intensive study to the subject these past few weeks, and have participated in several meetings with the Cabinet Committee you named to consider the problem.
It seems to be appropriate to present at this time and in this manner some views which I hold. They are not in any sense inconsistent with the Committee’s report; rather they supplement one part of it. They relate to the aspects of the subject on which you named me as consultant, viz., the impact of crude oil imports on the national security. And I have a procedural recommendation which if adopted would seem to give a better dimension of time to our policy, while in no wise interfering with the committee procedure now under way.
I am convinced that the security of the Nation is closely related to the availability of oil, and that the complex problem of maintaining an appropriate balance between imports and domestic production is one which will be with us in more or less acute form for a long time. In view of these circumstances, it has occurred to me that you might want to see certain long term national objectives in this field spelled out and formalized perhaps in the National Security Council, with the Departments of Commerce and Interior participating, in addition to the regularly constituted Council membership.
Let me recount here a few basic facts.
Oil is the source of well over half the energy generated and used in the United States. It has had, along with other energy [Page 718] sources, its highly material bearing on the development of our agricultural, commercial and industrial strength—all in tandem with national security needs. Yet the mobile and flexible qualities of oil have made it much more than merely another source of energy. It is so peculiarly suited for delivery, and for energizing weapons—land, sea, and air—used in modern warfare, that it has come to be a weapon itself.
Since oil became a significant source of energy less than fifty years ago, we have had ample supplies from indigenous sources.
We have also had enough oil for substantial and profitable exports—both crude and petroleum products.
In two major wars in this century we have had sufficient indigenous production that neither our own cause nor that of our Allies suffered from lack of available oil production.
We had enough excess capacity during the Korean war, when domestic production increased by over 1,000,000 barrels per day.
During the Suez crisis we had enough; albeit with some limits well in sight. Our export-import position was flexible enough to absorb in a short period a net change of nearly a million barrels per day; we increased exports by 700,000 barrels while imports were cut 200,000.
It is significant that, during not one of the four critical periods named, did we produce all the oil involved. With each crisis, of the four named, increasing proportions of the oil supply came from elsewhere—the Middle East, Venezuela, Canada, etc. The salient fact seems to be that in each instance we were in a position to produce and we did produce the difference which counted. We had, in a healthy domestic industry, the excess capacity which made the difference.
It seems clear that we should never let ourselves get into a position where we would find this critical difference unavailable to us in time of emergency. No nation can do for us what we did for the European nations three times in this century.
From the foregoing considerations, I believe we can derive two basic general assumptions upon which NSC consideration might proceed.
- First, the United States must have an assured source of energy (including oil in the measurable future) for continued sound economic growth and development as well as the strengthening of our military capabilities. Without such assured sources we can be checkmated in time of peace or denied victory in war.
- Secondly, an assured supply of energy—including oil—to our Western Allies is essential to the survival of the Free World as we know it. I believe this latter requirement approaches parity with the first in our strategic concepts.
Where is this oil and what are the salient facts about it? The sources may be roughly classified.
There is Western Hemisphere oil (U.S., Canada, Caribbean, other South America) where supplies are likely to be available to us under emergency conditions. Though the quantities are not unlimited, vigorous exploratory activities, for the most part by U.S. companies, have continued to build up reserves and productive capacity.
There is Eastern Hemisphere oil (chiefly Middle East) where for all practical purposes, productive capacity and reserves are unlimited. (It is doubtful that limits as to quantity there will be encountered in this century.)
There are other sources and other methods whereby, at least in theory, additional oil supplies could be made available. Vast amounts of crude oil apparently exist in Rocky Mountain shale, but they are far from competitive with oil (or other available energy sources for that matter) and could be developed only at staggering public expense. This course would presumably be rejected. Another alternative which I believe likewise would be rejected is that of accumulating from domestic or foreign production and at public expense, a static hoard of crude oil in overhead storage or in depleted fields. I believe that these and other possible avenues, such as the refining of coal into oil, will continue to prove to be impractical and unacceptable.
Such methods are seemingly ruled out by the vigorous oil-finding and oil-producing free enterprise mechanism operating throughout the Free World—an international oil industry in which American concerns are predominant. It is apparently clear that much oil remains to be found and the vitality of the industry has been demonstrated in its ability to find and produce oil at a rate sufficient to meet security needs, without requiring large government expenditures.
The determination of the extent to which governmental intervention may be necessary to preserve the vigor of that portion of the industry essential to national security involves the resolution of policy issues and the balancing of political, military, and economic considerations—within the overall framework of basic national security policy. The long term implications of the problem of oil imports are, I believe, disclosed by the following brief analysis:
The economics of the world oil situation are such that for the time being and for the foreseeable future, foreign oil will, unless restricted, flow into the United States in increasing quantities. Oil can be produced in the Middle East (and elsewhere) and laid down in U.S. ports at figures below the cost of finding, producing and transporting it in the United States. This flow of cheap foreign oil at an appropriate level can serve to supplement the domestic supply, [Page 720] facilitate domestic conservation practices, and enhance our friendly relations with foreign producing countries. On the other hand, such an unrestricted flow can become a glut to choke the domestic industry and kill the initiative to explore for more expensive oil in the United States. Additionally, it seems fairly certain that a glut of cheap oil from the Middle East would remain cheap and remain a glut only so long as we do not become dependent upon it.
What then, in general terms, should our objectives be?
We should welcome, it would appear, the importation of oil from the Middle East and other foreign sources, not to displace, but rather to supplement our own domestic supply, and facilitate the use of sound conservation techniques in this country.
At the same time our object should be to ensure that our economic and military strength do not become so dependent on the continued flow of Middle East oil that in time of crisis we would face the unacceptable alternatives of (a) resort to force to hold the source, or (b) suffer the crippling effect of its loss.
We should seek, in the concurrent pursuit of the two foregoing objectives, to achieve a balance, reflected in a permitted level of imports which will preserve the climate of incentives under which a healthy and vigorous domestic industry can continue to develop.
We should foster and encourage in all other ways the development of greater productive capacity and reserves throughout the Western Hemisphere, with first emphasis on the development of indigenous reserves and productive capacities.
I have discussed the matter of possible N.S.C. cognizance of this subject with Secretary Weeks and General Cutler, and for that reason I am taking the liberty of sending a copy of this letter to each of them.
I appreciate, Mr. President, your inviting me to participate in the study of this vital subject and I hope the foregoing ideas and suggestions will be helpful.
Faithfully,3