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

180. Conversation Between President Nixon and Members of the Cabinet¹

Washington, April 20, 1973, 8:39–10:35 a.m.

Shultz: And, of course, the reason why it’s so dramatic, as far as Finance Ministers are concerned, is that while we have in dollar reserves of the oil producing company—countries, now, about $10 billion, which is not an unmanageable sum at all. We—when we get to 1980, as present trends can be extrapolated, take varying assumptions about the price of oil, but you can very readily see the flow of revenues to the oil producing countries on the order of $60 billion of 1973 dollars. And you can see net reserves, that is after they have exported and received money, and then they’ve imported things that they want, because we’ve set out of, say, $20 billion per year accumulated in their hands in the form of reserves for investment or other purposes. And it’s startling to realize that half of that is likely to flow into the hands of Saudi Arabia. With that much concentration of resources in that one country, which has a relatively small population and a limited, in a sense, need for this money, as they bring out to us.

Unidentified speaker: It means they can all afford more wives [unclear]—[Laughter]

Unidentified speaker: 30 wives.

[Unclear exchange]

Nixon: They’ll have to import more women. [Unclear exchange] I wouldn’t want to take them to Saudi Arabia.

Unidentified speaker: That sum they can’t afford paying. [Laughter] Shultz: There’re all sorts of uncertainties built into these projections, and I think when you project numbers like that, you say to yourself: “Well that is a projection that we have to avoid. We have to do something about it. We have to have some policies that are going to make sense of that problem.” We have to turn it around, and this is, I think, where the President’s energy message² hits and basically has another strategy. It says, “Let us do things that will build up our ability to use the domestic resources we have through an integrated set of policies involving prices, or et cetera, involving how we go about the environmental problems, and involving our upholding research and development.” So we do that. And then, second, we meet our immediate needs, and the only way they can do that thing is through imports. There’s no other way. So, that necessitates examining the conditions of import, so that we can bring the flow in that we want, but also to construct our import system in such a way that it encourages our ability to develop ourselves domestically. So, we work those two things together. And this basically aims toward a much greater element of self-sufficiency in our picture, which, as it emerges, and as we are able to, makes that possibility credible through our R&D or other efforts. That, I think, puts tremendous bargaining leverage in our hands against the prices of oil, which have been going up very rapidly, but which are not going up on the basis of cost. Cost is minimal for most of this oil. There’s a gigantic economic rent, or profit, or whatever you want to call it that has been captured by the oil companies in the past, and is now being captured by these countries, but which represents something that can be gotten out of the system under the proper kinds of conditions.

Well, so, the energy message treats with the problem of imports of oil. It eliminates the quantitative restrictions on imports.³ I think it’s a fair statement that the alterations in this program, and the annual realignments of the program, led to a sort of a patchwork quality, and to a sense of uncertainty about what, what would happen, and provides the underpinning for making—the rationale for making changes. So, what has been done is to eliminate quantitative restrictions, to move toward a license-fee system—and we call it a license-fee system rather than a tariff. It can be described either way, but for legal reasons, apparently, it’s better to describe it as a license-fee system, which has fees in two tiers. That is, a fee for crude, and a fee for product. And the reason for having the two is to encourage the development of refining capacity in the U.S. from the standpoint of our own balance of payments, from the standpoint of our own jobs, and from the standpoint of our own control over as much of the total energy flow as we can get. Now, we have transition problems that we have tried to take care of in developing the system. We have the immediate price problem; that is, we don’t want to do anything that raises prices unnecessarily. So, that has been handled. I didn’t work this out. Bill Simon worked it out, and his associates, and I think they did a clever job. The way that’s been handled is that the present tariff that affects all oil imports has been removed, and the license fee is applied only to imports that take place without a quota ticket. Now, we have lots of quota tickets out under the old system. There are more tickets, probably, than there is need to import, which means that this year, and the excess use of these tickets, we will have tariff-free oil, in effect. But, as time moves along, and as we gradually phase the quota tickets out of the picture, the tariffs will take hold and will be producing the incentives that we seek for the development of oil here and for the development of refining capacity, and so on. So, there’s a time transition involved in how this all works. And for those of you who are students of this, yes, there are special arrangements worked with petrochemical problems, and so on, and so on, and so on. We know about it. I think, as a connected matter, suggesting sort of the integrative nature of the President’s message here, it’s important to get these deep-water ports that we don’t have, which are necessary, if we’re going to import oil in the cheapest possible way and in the environmentally most considerate way.

[Omitted here is conversation unrelated to U.S. foreign policy and energy.]

Shultz: It’s a big move, a big change in a system when I think it is important to notice that the oil companies were very strong for the Mandatory Oil Import Program. Now, they have swung—many of them—against it. Exxon, for example, came out for the total abolition of it. Our posture here is a change in it to suit the conditions of the future as we see it, but not abandon it, though, because we think that the concept can still be useful in encouraging domestic production and exploration, and encouraging the developing—development of refining capacity here. It may also be a useful agreement as we move down the road in dealing with other countries, because it gives us an element of control over the situation that we wouldn’t have if we just abandoned it.

Well, going on to the subject of developing our own resources, 40 percent of our estimated reserves are in the outer continental shelf, and we are developing there, but slowly. And in the message, the President sets a goal of tripling the annual leases by 1979, which involves expanding the leasing beyond the 200–meter depth in the Gulf, resuming leasing in the vicinities beyond the Channel Islands based on individual environmental assessments, by studying in the Atlantic and the Alaska Gulf, forming the Council on Environment Quality, a one-year study that we hope will show us how to, how to exploit resources in those areas.

Also, we have gigantic reserves in Alaska. The proven reserves are already such that they would supply a third of our current imports, if we had access to them. And I have yet to run into a knowledgeable person in the oil industry who doesn’t think that there’s a lot more oil there than the so-called “proven reserves” where we’ve checked, particularly if one were to consider the naval petroleum reserve there. There’s a gigantic amount of oil and gas in Alaska, so, we must have that pipeline. And it has been delayed, and delayed, and delayed. The capacity of the courts, and the environmentalists, and so forth, to delay, makes this astounding. And the latest is this right-of-way problem, which a statute is addressed to, and which the President is supporting.

[Omitted here is conversation unrelated to U.S. foreign policy and energy.]

Nixon: We come to the situation here, now, on the coal. Now, the coal situation is that, frankly, if we’re really interested in the environment we would never have done coal at all. Never. Why not? I mean, it’s such beautiful country where you’d have it to spoil it at all. And then, yet, if you look at nature in the raw—I’ve seen an awful lot of it in Africa, and I sure don’t want to live there. I’d like to see it [coal] developed just a little bit. And so, the point is: are we going to have the coal that allows us to develop the other things we have? Are we going to develop it, and develop it in a sensible way which protects the environment? Or, are we gonna to do without it? We’ve got to make the choice.

You come, too, to the whole question of nuclear power. Now, here, you really have a mess. You have a combination of nuts involved. First, you’ve got the science—scientists who have a guilt feeling about ever letting the genie out of the bottle, and they don’t want to develop the nuclear power. I mean the fears with it and all that. And they create fears among many people that if you got a nuclear power plant nearby that it might blow up one day and atomize the place. Incidentally, I live within one mile of one in San Clemente in case any of you are planning to stay there. [Laughter]

[Omitted here is conversation unrelated to U.S. foreign policy and energy.]

Nixon: It is the kind of thing that will give—will provide a lot of ammunition for the loudest and nosiest people, the environmentalists. And that’s what the Alaskan pipeline is about. “The Alaskan pipeline,” they say, “don’t build the bastard.” Now, why? “Because, well, the caribou or something can’t live, or something happens to the ice up there.” I don’t know. [Unclear] Well, anyway [coughs], I don’t see how they could spoil the landscape there, but whatever the case might be, they say, “Now, don’t go that route through Canada. We ought to be concerned about that, folks.” Now, here you get into foreign policy. So, you’re going to build that through Canada? First, it costs a lot more. Second, the Canadians may not want it. Third, the Canadians, even though they are supposed to be a relatively friendly government, they would have us right by the throat in terms of our future supplies running through Canada, and we can’t allow any nation to be in that position. It’s bad enough to have to have the Mid-East, where not much, but about 3 percent of our present supply comes from. I just throw in these points here, as George goes through the numbers, to indicate how this cuts across the whole, the whole—the mix of the policies.

[Omitted here is conversation unrelated to U.S. foreign policy and energy.]

Nixon: And, also, in addition to that, there’s nuclear energy. We’re in the lead in nuclear energy in developing it. We’re the people that started it all. And now, who’s ahead in the development of nuclear power plants, in terms of actually having ‘em on stream? The Soviet Union! Even the British. Why? Why are they ahead of us? Because, we have so many—I mean in terms of getting one done, and so forth and so on—because, of all of the—all of the whole wrap of red tape that is required to get one through, and, again, our environmentalist friends. So, what we’re trying, what we’re saying to the American people, “Look, we are the most creative, inventive people in the world, but now, and as far as we’re concerned, whether it’s in coal, whether it’s in oil, whether it’s in nuclear, we’re going to go out and get it, and we’re going to develop it, and we’re going to grasp these problems, and we’re going to—and if it’s going to cause problems to some, let’s debate it out, but let people take their choice as to which they want.”

One final thing that should be said before we go to the other subject is the effect, why foreign policy has always been important in here. To many in the Mid-East—Mid-Eastern oil, of course, is absolutely essential for Japan; 90 percent of their oil comes from the Mid-East. It’s—it’s absolutely essential for Europe; 80 percent of theirs comes from the Mid-East. And, of course, as you know, the Europeans are furious in developing the North Sea. That’s where they’re pumping for that gas out there, exploring for it. For us it’s important, but a very—a relatively small amount comes from us, because we get ours from Venezuela, and from the United States. [Unclear] It’s important, but could be, very soon, very essential, because it’s—you can’t really separate the United States from Europe and Japan, the great industrial nations. Now, the point is that here the need for a foreign policy that will be such that those countries upon whom we depend for imports will not be able to, first, blackmail us—in effect, play one against the other, is important. To have relations so that we don’t have that happen, and also the need to recognize that in dealing, for example, with the Soviet Union on that great pipeline that they’re talking about, that we have to make that decision based not only on our energy needs, but, also, on the effect that that may have on the total relationship with the Soviet Union at this time. So, it isn’t all we need to know. All I’m gonna say is, “Look, we need them on gas and so forth.”

Now, that brings me to another point that has to do, Dick, with your field. At the present time, in the international field, the United States is a giant, practically eminent, dealing with a bunch of pygmies. And the reason we are is that we are a—in the international field, have a number of great, large oil and gas companies, and when we go out and deal with the Mid-East, or when we deal with the Soviet Union, and so forth, all of our companies that have—go out and compete with each other. And so what happens? Take the Soviet: they play one off against the other, with the result was that we, we have a pretty hard time then. And the anti-trust laws they’re, they’re connected. You take, for example—you take, for example, the Mid-East. Let’s suppose—let’s take a deal with Iraq. The Iraqis—the Iraqis toss out the British, and what happens there? The French walk in. That shows you what’s happened there. Each of these European companies, and Japan, is in business for itself. But only, each of the American companies is in business for itself. I mean, when they talk about Exxon, Exxon coming in and saying, “We’re for—we bought this whole bid through, because the interest of the nation must be served, rather than the interest of the selfish concern, because we believe that the oil import quota should be lifted.” Baloney! [Laughter] Let me tell you why. I mean, I like the Exxon people, great people [unclear], and I like the people from [unclear]. All these guys sit down, they say, “How much do we get? Do we need imports abroad? How much in the interest do we have abroad? How much do we have at home? What’s in it for us?” And that is the basis of their decisions. And it should be. We wouldn’t want it any other way. But, what we come down to is that the United States in this area will not in the future be able to deal effectively, unless there is significant change in the antitrust laws.

Kleindienst: Correct.

Nixon: Do you agree?

Kleindienst: I’ve said that publicly, and it couldn’t have shocked the traditional anti-trust people in this country—

Nixon: Because—because we, you know, otherwise they—we, via Kissinger, for example, called them down to something where they said, “And, well, we will have to call—we’ll have to meet me informally and sort of behind—sort of as a top secret thing, or something like that.” That’s just nonsense. I mean, if we’re trying to make a—at the present time—at the present time you have a situation with the Mid-Eastern countries. Take the crazy Libyans: they’ve got a lot of oil underneath ‘em, but the Libyans—the Libyans are playing one off against the other and it’s just, just madness for the United States to have one of our companies go in, have its throat cut, and another go in and pick up the pieces. More madness for the United States in foreign policy, Bill, for us to go in to Algeria, after the Algerians throw the French out, and then [unclear] pass the natural gas bill and pick up the chips for ‘em. That’s wrong too. The attitude of all of the free nations for expropriation, and the rest—in fact, you need the free nations together in a combine to deal with it. That’s what we’re really talking about here. Well, I mention this to—

Kleindienst: If you look at it, though, it’s easier to defend the National Labor Relations Act⁴ than it is the anti-trust laws, but it’s impossible to amend [laughing] the national labor laws. [Laughter; unclear exchange]

Casey: This issue will become very clear [unclear], in my opinion, when the Europeans bring out their energy policy.

Nixon: Yeah.

Casey: They’re going to require the companies [unclear] ask the companies to come in, submit five year plans, report the [unclear]—

Nixon: To whom? To the European—to the whole European thing? [Unclear exchange] So, the European Community will speak as one voice—?

Casey: Yes.

Nixon: Now, where’s that leave Japan?

Casey: Well—

Nixon: It’ll be outside?

Casey: [Unclear]—

Nixon: That’s rough. [Omitted here is a largely unclear segment on the Japanese energy policy.]

Nixon: Listen, let me just say the purpose of all this is not to indicate to you that we have terrible problems [unclear]. The purpose of this is to indicate this is a very exciting problem that is solvable because there is oil out there, and there is gas out there, and there is coal that can be used, and there is nuclear energy that we ought to get going on and fast.

1. Source: National Archives, Nixon Presidential Materials, White House Tapes, Conversation 123–2. No classification marking. The meeting occurred in the White House Cabinet Room and the tape recording begins after the meeting commenced. This transcript was prepared in the Office of the Historian specifically for this volume.
2. See Document 177.
3. A reference to the Mandatory Oil Import Program.
4. The National Labor Relations Act, adopted in 1935, protected the right of workers to organize into labor unions and engage in collective bargaining.