126. Memorandum From the President’s Assistant for International Economic Affairs (Flanigan) to President Nixon1

    • Mid-East Oil Issues
The US now obtains a small percentage of its oil requirements from the Middle East; in 1971, imports from Middle East and Arab [Page 303] North African nations comprised 11.7% of total US oil imports and 2.9% of total US oil consumption. On the other hand, imports from these sources are rising and with 70% of known Free World oil reserves located in this region, it is obvious that long-range US energy policy must take account of the strategic importance of Mideast oil to the OECD nations including the United States.
Iran is both an important oil producing nation and a key political ally in this turbulent region, but the US has equally important oil interests in the Arab world, principally in Saudi Arabia and Kuwait. Based on 1970 National Petroleum Council data, total proved oil reserves were: Iran, 70 billion barrels; Kuwait, 67 million barrels; Saudi Arabia, 130 billion barrels; (United States, 37 billion; Venezuela, 14 billion; and Canada, 11 billion). The State Department believes these figures understate Saudi reserves and also notes that US companies have significantly greater oil investments in the Persian Gulf nations ($1.1 billion) than in Iran ($330 million). Future Iranian production would be limited to 8 million barrels per day, based on current proved oil reserves; while current projections of Saudi Arabian production do not reach a reserve limitation.
US oil policy while minimizing the dependence on Arab sources, relies most heavily on the friendly countries. Of total 1971 oil imports, Saudi Arabia supplied 3.25%, Iran 2.9%, Libya 1.3%, Kuwait 1.0%, and Iraq 0.3% (Canada 20%, Venezuela 30.7%). These figures do not include substantial residual fuel oil imports from Caribbean refineries which rely predominantly on Venezuelan crude oil.
Our policy has been to attempt to control the actions of the radical oil nations by denying them markets for their oil. The current mechanism for implementing this strategy is a consortium of international oil companies and companies owned by oil consuming nations such as France and Italy. The US has encouraged this consortium to take action designed to punish the radical Arabs economically and thus to stabilize oil politics throughout the Arab world. To this end, the Department of Justice has given the companies limited anti-trust immunity to negotiate collectively with the producing countries.
Regarding Iran, the oil companies and the Shah have reached an agreement on the future development of Iranian oil2 that is a major plus in our oil relations with the Middle East. This agreement, which is of course very beneficial to Iran, looks to the development of Middle Eastern oil in a direction diametrically opposed to that taken by the other oil producing countries. The new pattern of relationship with [Page 304] Iran does not include direct government ownership, but is sufficiently favorable in other ways to make unnecessary the granting of preferential treatment of Iranian oil under the US quota system.
  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 647, Country Files, Middle East, Middle East (General), Vol. IX, 1972–. No classification marking. According to a notation on the memorandum, a copy was delivered to Kissinger on July 10. A note on the memorandum indicates the President saw it. A handwritten notation by Nixon reads: “1) Return to me when I see Connally. 2) Give Connally a copy.” This memorandum is part of a briefing prepared by Saunders, July 12, for Nixon’s discussion with Connally after Connally’s meeting with the Shah. (Ibid., Box 1282, Saunders Files, Iran, 6/1/72–9/30/72) According to the President’s Daily Diary, the meeting with Connally took place on July 13 at San Clemente. (Ibid., White House Central Files) Both the briefing and the telegram reporting the discussion between the Shah and Connally are published in Foreign Relations, 1969–1976, volume E–4, Documents on Iran and Iraq, 1969–1972, Documents 211 and 213. No other record of the meeting was found.
  2. See Documents 117 and 124.