65. Editorial Note

On July 11, 1974, Secretary of the Treasury William Simon traveled to the Middle East and Europe to promote the reduction of oil prices. In a meeting prior to Simon’s departure, July 9, President Nixon instructed him to impress upon Saudi King Faisal that “the oil prices can’t go on. We want to explore what might be done, but they can do little if the Shah holds up the prices.” Later he added, “This oil thing is very touchy—getting prices down must be done very privately. Do it quietly, explain our situation and attitudes. Tell them we need a more healthy situation.” Simon asked if it were possible to put pressure on the Shah, noting that he would not be visiting Iran: “We thought we would let them sweat a bit while the others get the goodies.” To Nixon’s comment that, “He is our best friend,” Simon replied, “He is the ringleader on oil—with Venezuela. Otherwise the prices would be down.” (National Archives, Nixon Presidential Materials, NSC Files, Box 1029, Presidential/HAK Memcons, June 1, 1974–August 8, 1974 [2 of 3]) The memorandum of conversation is printed in full in Foreign Relations, 1969–1976, Energy Crisis, 1969–1974, Document 360.

On July 9, Under Secretary of the Treasury for Monetary Affairs Jack F. Bennett testified before the Subcommittee on International Finance of the House Banking and Currency Committee. According to telegram 150380 to Tehran and other capitals, July 11, the initial draft of Bennett’s statement read: “In my view, any new cutbacks in oil production by any government at this time should clearly be regarded by the United States and by all other consuming countries, both more-developed and less-developed, as an unfriendly act.” Although “counter-productive measure” was later substituted for “unfriendly act,” the original phrasing was picked up by news media. (National Archives, RG 59, Central Foreign Policy Files, D740186–0555)

On July 10, in telegram 5662 from Tehran, the Embassy reported widespread criticism from the semi-official Iranian press of Simon’s trip and Bennett’s statement. Bennett was denounced for making colonial-style threats that ignored the skyrocketing prices of Western goods, and Simon for trying to rally oil consumers, who were former colonial powers, against their oil-producing former colonies, as if Western empires could be regained. (Ibid., D740183–0569) In telegram 5716 from Tehran, July 12, the Embassy explained that this “emotional” Iranian press reaction was not unexpected, given divergent U.S.-Iranian views on oil prices and supply. Yet due to other common interests, Iranian officials had hitherto pursued overall close relations with the United States. The Embassy observed that, “as acrimonious public exchanges occur (Shultz, Simon and now Bennett), we believe they are becoming concerned, as are we, that overall fabric of our excel[Page 208]lent relationship may be damaged,” and urged that detailed U.S.-Iranian discussions be initiated to attempt to narrow the gap on oil. (Ibid., D740183–0569)

When Simon returned, he met with Nixon on July 30. He told the President that West German Chancellor Helmut Schmidt was worried about general international stability. “The oil prices are a problem everywhere. Faisal says he has gone as far as he can without our help. The Shah is threatening to cut production.” Nixon replied, “He is our good friend, but he is playing a hard game on oil.” Simon continued, “There is an internal fight in Saudi Arabia between those who want price cuts and those who wish to keep production up. Faisal really wants our help with the Shah. In discussions with other Ministers I said Saudi Arabia has probably 150 years of production left, whereas Iran has only 15 years. Maybe Iran will build its industry and then when the oil runs out, they can take you and get the oil back.” The President replied, “We have to see what we can do. I will have to meet and talk with the Shah.” Simon went on, “The Shah has us. No one will confront him. The producer nations are locking in the consumers and keeping them away from us. Schmidt said: ‘If the prices don’t move down, I have to move against the companies and deal with the producers myself.’ This issue will ultimately require strong action by the United States.” Nixon asked, “Like what? This should be developed. We need discussion with you, Ken, Henry and Brent. Keep it small.” (Ford Library, National Security Adviser, Memoranda of Conversations, Box 4) The memorandum of conversation is printed in full in Foreign Relations, 1969–1976, Energy Crisis, 1969–1974, Document 361.

In a meeting on August 2 with Secretary of State Kissinger, Secretary of Defense James Schlesinger observed: “Simon is talking about breaking the Shah. That’s crazy.” Kissinger agreed: “He is the one real element of stability.” (Ford Library, National Security Adviser, Memoranda of Conversations, Box 4) Meeting with Kissinger and other officials the following day, Simon asserted that the oil price situation was unmanageable and added: “If production doesn’t get cut, oil prices would drop by 30%. We would consider production cuts an unfriendly act, and for Iran, we could cut military supplies.” Kissinger demurred, pointing out that the Europeans could supply the Iranians with hardware, and suggested that the United States should disassociate Israel from the oil problem and organize oil consumers to confront producers. He noted that he was prepared to talk privately with the Shah. Chairman of the Federal Reserve Board Arthur Burns later weighed in: “We are heading toward economic disaster in the industrial world. Withholding arms from Iran won’t help. Getting the consumers together would work.” (National Archives, Nixon Presidential Materials, NSC Files, Box 1029, Presidential/HAK Memcons, 1 June 1974–8 Au[Page 209]gust 1974, 2 of 3) The memorandum of conversation is printed in full in Foreign Relations, 1969–1976, volume XXXVI, Energy Crisis, 1969–1974, Document 362.

On August 9, President Nixon resigned. Kissinger discussed energy with new President Gerald Ford on August 17, explaining that cooperation among consumers was critical: “Simon wants a confrontation with the Shah. He thinks the Saudis would reduce prices if the Shah would go along. I doubt the Saudis want to get out in front. Also the Saudis belong to the most feckless and gutless of the Arabs. They have maneuvered skillfully. I think they are trying to tell us—they said they would have an auction—it will never come off. They won’t tell us they can live with lower prices but they won’t fight for them. They would be jumped on by the radicals if they got in front. The Shah is a tough, mean guy. But he is our real friend. He is the only one who would stand up to the Soviet Union. We need him for balance against India. We can’t tackle him without breaking him. We can get to him by cutting military supplies, and the French would be delighted to replace them.” The President noted, “He didn’t join the embargo.” Kissinger replied, “Right. Simon agrees now, though. The strategy of tackling the Shah won’t work. We are now thinking of other ways.”

Kissinger continued by outlining plans to organize consumers and the bilateral commissions to tie the producers’ economies as closely to the United States as possible. “When the Shah sees us organizing the consumers—he will see, if we don’t do it in a way appearing threatening to him. I perhaps should visit him in October, in connection with the Soviet trip, and talk about bilateral arrangements.” The President asked if the Shah wanted higher prices, to which Kissinger responded, “Yes. He knows the profit is higher on petrochemicals and that the Saudis get more from the companies in everything. We won’t be in a position to confront the producers before the middle of 1975. We have got to get rolling.” (Ford Library, National Security Adviser, Memoranda of Conversations, Box 5) The memorandum of conversation is printed in full in Foreign Relations, 1969–1976, volume XXXVII, Energy Crisis, 1974–1980, Document 2.