Foreign Relations of the United States, 1969–1976, Volume XXXVI, Energy Crisis, 1969–1974

150. Memorandum From Philip A. Odeen of the National Security Council Staff to the President’s Assistant for International Affairs (Kissinger)¹

Washington, January 3, 1973.

• SUBJECT
  • U.S. Energy Policy

You are scheduled to meet with John Ehrlichman and George Shultz to discuss energy today at 3:00 p.m., January 3, 1973.²

The Energy Problem

Current projections of both U.S. and allied energy needs through 1985 projects major increases in consumption from foreign sources:

• —U.S. oil imports will increase threefold with about 40% coming from the Middle East countries.
• —Europe and Japan will increase their imports even more sharply.

Since about half of the world’s reserves are in the Middle East and the Soviet Union, these countries will enjoy increased political and economic leverage. If we compete with our allies for these scarce resources rather than cooperate with these countries, influence will be enhanced. Moreover, increased U.S. balance of payments deficits and resulting changed world monetary flows could also have national security and foreign policy implications.

Domestic energy supply has not kept pace with demand for a variety of reasons:

• —Total demand has risen markedly (twofold) in the past ten years.
• —The regulated price of domestic gas has been kept artificially low, shutting off gas exploration and development.
• —Environmental concerns have shut off some sources of energy—particularly coal.

With the government already so deeply involved in the regulation of natural gas prices, oil and gas imports and environmental regulations, the future national security implications of the energy problem will be the direct result of USG policies that will be formulated over the coming couple of years. The key question is, how the growing demand for energy will be met and, in particular, the weight given to various elements of national concern (e.g., national security, environmental and economic) in the formulation of future policies.

The Bureaucratic Situation

The Domestic Council has established an Energy Subcommittee under Peter Flanigan composed of all concerned domestic agencies. The committee has not yet concerned itself on a large scale with major foreign policy and national security concerns, since their charter has been confined to the domestic problem. This will not continue, however, and already the committee has taken some initiatives relevant to foreign policy.

• —A CIEP decision memo (16) tasks the Secretary of Commerce with clearing the Interagency Task Force on Soviet gas projects.³
• —A recent subcommittee decision recommended that the USG pursue bilateral discussions with Canada and Venezuela to work out an oil import agreement that would guarantee future oil imports.

Although past involvement has been minor, a strong NSC initiative is needed now if national security and diplomatic concerns are to be adequately reflected in future policy formulation. Moreover, our diplomatic policies vis à vis the allies and other countries will not reflect adequately energy concerns unless we take action to ensure broad guidelines are established.

Moreover, in February, the President will make a public statement of national energy policy which will set the broad guidelines of our future energy policy. Peter Flanigan has agreed to coordinate the statement with us before it is published.

Finally, there are several individual proposals currently being considered which will increase imports of foreign energy supplies—e.g., the Soviet LNG deal⁴ which would develop (at a cost of about $5 billion) and import large quantities of Soviet natural gas costing at least twice the domestic prices. These decisions should not be made until the national security elements of the energy problem and alternatives are considered.

I have drafted a NSSM which will be forwarded within a day or so for your signature. A copy is at Tab A.⁵ At Tab B is a copy of the covering memo which you should read if time permits for more detailed information on the energy problem.⁶

The Meeting

At the meeting with Shultz and Ehrlichman, I recommend:

• —You stress your intention to become more involved in formulating future energy policy and, in particular, coordinating on the President’s coming energy policy statement.
• —Mention that an interagency study focused on the national security and diplomatic aspects of the energy problem will be published soon to provide a broad analysis of the national security and diplomatic implications of energy alternatives. The study has been coordinated with Flanigan, and although the study will not be completed by the time of the President’s statement, some results should be available.
• —You should also stress a desire to coordinate regularly on individual proposals which would increase energy imports (Peter Flanigan is now coordinating regularly on energy subcommittee matters).

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 250, Agency Files, National Energy Office, Vol. I, March 1972–February 1973. Secret; Outside System. Urgent; Sent for information.
2. It is possible this meeting was not held. According to Kissinger, Nixon had requested that he, Ehrlichman, and Shultz study “the relationship between energy policies and foreign and security concerns,” but that “before the study could be completed, events supplied the answer.” (Years of Upheaval, p. 869) No account of the meeting was found.
3. CIEP Decision Memorandum #16, October 24. (National Archives, Nixon Presidential Materials, White House Special Files, Subject Files, Confidential Files, Box 12, [CF] FG 6–20 CIEP 1971)
4. The proposals had been discussed within the NSC since early 1972. Flanigan and Peterson opposed the deals from the beginning, arguing that they were too expensive, that European financing was problematic, and the political costs too high. Documentation on the LNG projects is ibid., NSC Files, Box 214, Agency Files, Commerce, Vol. III and IV; ibid., Box 219, Agency Files, Council on International Economic Policy (CIEP), Vol. II, 1972; and ibid., Box 250, Agency Files, National Energy Office, Vol. I, March 1972–February 1973.
5. Attached but not printed. The final version of the NSSM is Document 171.
6. Memorandum from Odeen, Marshall, and Hormats to Kissinger, January 4; attached but not printed.