49. Telegram From the Department of State to the Embassy in Iran1

252282. Subj: Oil Decisions at Tehran and Kuwait Conferences. Ref: Jidda 5715, Tehran 9083.2 For Ambassador from Secretary.

1. At earliest opportunity, you should call on Prime Minister, Court Minister or Foreign Minister, as you deem appropriate, making clear you are speaking for the President and ask him to convey to the Shah in Switzerland our deep concern over the decisions reached in Tehran on December 23 for drastic increase in oil prices. The Shah should also be informed that the President has communicated to King Faisal and President Sadat our dismay at December 25 OAPEC decision in Kuwait to continue the discriminatory oil embargo while easing production restrictions for other consuming countries.3 Following are the points you should make orally:

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A. The President is greatly concerned over the destabilizing impact that the price increases agreed to at Tehran for Persian Gulf crudes will have on the world’s economy and the catastrophic problems it could pose for the international monetary system. Not only will it result in raising the prices of manufactured products, but it will have severe repressive effect on the economies of oil consumers which could cause a worldwide recession and which eventually would benefit no one including oil exporters.

B. We believe this drastic price increase is particularly unreasonable coming as it does when oil supplies are being artificially restrained. If this decision is implemented, it is our preliminary assessment that the world’s oil bill in 1974 will more than double to about $100 billion and would be equal to one-fifth of the value of the Free World’s imports. For the U.S. alone it will add at least $10 billion to our oil import bill. The additional import costs will be at least $23 billion for Western Europe and $8 billion for Japan. For the developing countries it will be at least $9 billion additional. This mammoth rise in costs will place an intolerable burden on the economies of many major oil consumers and will prove even more harmful for those developing countries that do not have adequate energy resources.

C. The U.S. endorses the idea of greater consultation and mutual understanding between oil producers and consumers which was most recently reaffirmed in Secretary Kissinger’s initiative to establish an Energy Action Group.4 We strongly urge that (1) the recent decisions made in Tehran be reconsidered; (2) steps be initiated to hold the kind of consultations that we believe most consumer and producer countries endorse; and (3) the oil producer countries seriously examine the deleterious effect of these increases on the balance of payments positions of practically all nations in the Free World and the effect this will have on world trade in general and on the international monetary system in particular.

D. We are making these views known also to Arab oil producers. At the same time, the President is equally dismayed over the December 25 decision by the Arab oil producers in Kuwait. This decision singles out the U.S. for a continuing oil embargo, when the U.S. is the only country that is seriously trying to bring about the just settlement desired by the Arab world, while at the same time it allows oil production to increase for other countries which are unable to make any significant contribution to a peace effort. The President views this as undisguised discrimination against the U.S. and we are also conveying this point strongly to major Arab leaders. We are underscoring our views to our [Page 166] principal Arab contacts that it is absolutely essential that the oil embargo directed against the U.S. be ended immediately and not await the outcome of the current disengagement negotiations in Geneva.5

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 603, Country Files—Middle East, Iran, Vol. V, May–December 1973. Secret; Niact; Immediate; Nodis. Drafted by Dickman; cleared in draft by Donaldson and by Morton (NEA/IRN), Atherton, and Katz; and approved by Kissinger. Repeated Immediate to Jidda and to Kuwait.
  2. At the conclusion of the OPEC meeting in Tehran on December 23, Amouzegar announced a new posted price of $11.60 for Persian Gulf crude, an increase of more than 100 percent. Telegram 5715 from Jidda, December 27, reported Yamani’s charge that the Shah had forced the price increase on OPEC. (Ibid., RG 59, Central Foreign Policy Files, P750032–2376) Telegram 9083 from Tehran, December 26, contained the Embassy’s suggestion that OPECOECD talks be initiated to reform the international trade and payments system. Acknowledging that Iran might have been at the forefront pushing for the new posted price, the Embassy explained that the Shah believed that this was a step toward a rational solution of the oil problem, even a moderate one, given his need to satisfy nationalist opinion. (Ibid., [no film number])
  3. In telegram 4464 from Kuwait, December 26, the Embassy reported that the OAPEC Oil Ministers, meeting in Kuwait, pledged to increase oil production to 15 percent below the September level (up from October’s 25 percent reduction), ease export restrictions on Japan and Belgium, and continue the embargo on the United States and the Netherlands. (Ibid.) In a meeting on December 28 with Schlesinger, Colby, Moorer, and Scowcroft, Kissinger announced: “We sent a scorching letter to Faisal and Sadat and will send one to the Shah. We have said our ability to proceed in the peace talks depends on an end to the embargo.” Moorer observed: “Two can play this. Maybe we should raise the price of our stuff to the Shah,” to which Schlesinger replied: “We are. I am thinking of charging him 1.9 [million dollars?] for the F–15 R & D.” Colby added: “The oil increase to us is $10 billion.” Kissinger went on: “A production increase helps more than getting the embargo lifted, but it is a political issue.” To Colby’s comment that “we must teach them a lesson,” Kissinger replied: “Then we should hold up on the peace talks.” Everyone agreed that the United States should refuse to pressure the Israelis. (Ford Library, National Security Adviser, Memoranda of Conversations, Box 3) Nixon’s December 28 letter to King Faisal is printed in Foreign Relations, 1969–1976, volume XXXVI, Energy Crisis, 1969–1974, Document 274.
  4. Kissinger made this proposal on December 12 in London in a speech to the Pilgrim Society, in what became known as the Pilgrims Speech. See ibid., Document 264.
  5. Telegram 37 from Tehran, January 2, 1974, transmitted the Shah’s response that Iran would consider reducing its crude oil price only if Venezuela, Nigeria, Indonesia, Libya, and Algeria, which kept raising their prices, did the same. The Embassy commented: “You should not in our opinion read any significant degree of hope that Shah will reduce prices in the near term. However, door is still open to dialogue on fixing future prices provided consumers and producers can get together very soon.” (Ford Library, National Security Adviser, Kissinger–Scowcroft West Wing Office Files, Box 15, Iran (3))