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

16493. Subject: Energy: Crude Oil Prices. Ref: Tehran 560.2

1. Very much appreciate your thoughtful exposition of factors that should be borne in mind as we attempt to formulate a rational and constructive approach to key oil producers such as Iran. We share your feeling that for the time being we should continue to pursue the multilateral course of action we have mapped out and that a Presidential envoy or message to producer countries would be premature and possibly counterproductive for our efforts to lay ground work for a [Page 170]producer-consumer conference. We agree that if our dialogue with producer countries is to be constructive we must in some manner deal with producer concerns about the interrelationship of oil prices with the prices of other goods, particularly those needed by oil-producing countries. FYI. Our own preliminary calculations indicate that while industrial raw material and agricultural products have increased by an average of 75 percent in the past year, crude oil has increased 350 percent. End FYI.3

2. While we welcome Saudi recognition that present prices excessive, we do not wish to imply that price reduction suggested by Yamani would satisfactorily deal with problem.4 We do not wish therefore to become engaged in any further representations to OPEC producers at this time. We think more effective approach is multilateral one which we will seek to obtain at February 11 meeting in Washington among key consumers. USG will in the meantime continue point out how oil prices are causing economic dislocations to consumers and relevance of escalating oil pricing to cost of other commodities in international trade.

3. We welcome further comment from all addressees.

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 603, Country Files—Middle East, Iran, Vol. VI, January 1974–. Secret; Exdis. Drafted by Miklos; cleared by Dickman, Davies, Katz, and Maynard W. Glitman (T/IEP); and approved by Donaldson. Repeated to Abu Dhabi, Beirut, Caracas, Jakarta, Jidda, Kuwait, London, Rome, and Tripoli.
  2. In telegram 560 from Tehran, January 22, Helms argued that the United States should pursue a multilateral course of action in its oil negotiations and show understanding of producers’ concerns about rising commodity prices: “The oil producers indeed live from a basic commodity which, being in short supply, has given them economic power to alter the terms of trade to their increasing advantage, at least for a period of years. They will not be deflected from using this power, but if we show them that we recognize it, they may indeed be induced to use it more responsibly.” (Ibid., RG 59, Central Foreign Policy Files, P750004–0091)
  3. The Embassy responded in telegram 872 from Tehran, January 31, with a chart of price increases averaging about 288 percent in foodstuffs, which Iran bought in quantity from the United States. (Ibid., [no film number])
  4. In telegram 5715 from Jidda, December 27, 1973, the Embassy reported Saudi willingness to reduce oil prices. (See footnote 2, Document 49.) According to telegram 755 from Tehran, January 29, the Iranian press attacked Yamani for advocating lower crude oil prices, in line with Secretary of the Treasury Shultz’s proposal that producers should reduce their price to $5 per barrel. (National Archives, RG 59, Central Foreign Policy Files, [no film number])