184. Memorandum of Conversation1

MEETING ON U.S.-SAUDI ARABIAN ECONOMIC RELATIONS

  • SUBJECT
    • U.S.-Saudi Arabian Economic Relations
  • PARTICIPANTS
  • Chairman
    • B/Gen. Brent Scowcroft
  • State
    • William J. Casey
    • Rodger P. Davies
    • Francois Dickman
    • George Bennsky
    • Claus Ruser
  • Treasury
    • William E. Simon
    • William A. Johnson
  • CIA
    • James Critchfield
    • Samuel Hoskinson
  • CIEP
    • Deane R. Hinton
  • Energy Consultant
    • Charles DiBona
  • CEP
    • Kenneth W. Dam
  • NSC
    • Harold H. Saunders
    • Robert Hormats
    • John A. Knubel
    • Dennis N. Sachs
    • William Quandt
    • James Hackett
[Page 474]

SUMMARY OF CONCLUSIONS

It was agreed that:

  • —An inter-agency working group will be established under the chairmanship of Charles DiBona to consider this issue.2
  • —The working group will prepare the following papers for the next meeting:3
    a.
    A review of the issues involved in the visit of the EC energy representative and the OECD meeting.
    b.
    Lists of high energy use industries and potential investment opportunities in Saudi Arabia.
    c.
    A review of the financial and monetary issues.
    d.
    A review of the political issues influencing Saudi policy and attitudes.

Gen. Scowcroft: The purpose of this meeting is to focus on two issues of importance to our foreign policy interests. We have to give more attention to our economic relationship with the Saudis, particularly with regard to oil production, and we also have to consider the impact any step we take with them will have on our relations with Europe and Japan. We want to discuss the possibility of sending a team to Saudi Arabia to hold discussions with the Saudis, while keeping in mind the upcoming OECD meeting and the visit of the European Community’s energy representative. Part of the problem we face is that a lot of people are involved in these matters; energy is an issue that cuts across agency lines. I would like to put the issues on the table and discuss them in this forum, so that we can give them full consideration, after which the government will be able to speak with a single voice. I think we can all agree that we don’t have to discuss the unique position that Saudi Arabia occupies in the world oil picture. The question is, how should we respond to the oil problem as it relates to Saudi Arabia? What can we do that will give the Saudis some incentives, and make it in their interest, to expand their oil production? I believe you all have a copy of the agenda;4 does anyone have any problems with its general approach?

[Page 475]

Mr. Simon: You stated the situation very well here (in the agenda). I think a basic question is whether we should just consider Saudi Arabia in these meetings or instead consider the entire Persian Gulf area. I may add that George (Shultz) will be heading our delegation to the OECD meetings in June.5

Mr. DiBona: Actually, we will be having three separate meetings with the Europeans; first with the EC energy representative, then the OECD ministerial-level meetings and finally the high-level oil talks. In all of these meetings we will have to be careful how we describe what we will be doing in Saudi Arabia.

Mr. Simon: We don’t want to talk about negotiating with the Saudis.

Mr. DiBona: That’s right. What we want to do is discuss with the Saudis how they can best increase their production to help meet our needs. The team shouldn’t get involved in details or prices.

Mr. Simon: It should be a fact-finding, or exploratory mission.

Mr. Hinton: That’s a good word for it—exploratory. That’s what we should call it. There is a lot of activity on the oil front right now. Nakasone6 is going around seeing people, the French are trying to apply pressure, but we’re in pretty good shape so long as U.S. companies maintain control of Mid-East oil. We shouldn’t forget that.

Mr. Casey: We have to know what the preferential arrangements are that the Europeans have.

Mr. Hinton: Simonet’s instincts go the wrong way, so far as we are concerned. While he is here we should try to turn him around. (Si-monet is the EC energy representative)

Mr. Simon: I don’t want us to get into a long study of the situation while the market is taken away from us by the Europeans and Japanese.

Gen. Scowcroft: It seems to me that we should relate the timing of the fact-finding trip to the meetings with the Europeans.

[Page 476]

Mr. Casey: They are unrelated. The fact-finding mission is one thing and the European meetings are another thing.

Gen. Scowcroft: I meant the timing of the preliminary meeting only.

Mr. Simon: They can’t go off and just discuss generalities with the Saudis.

Gen. Scowcroft: That’s right, they have to do more than that.

Mr. Simon: I don’t know how much the Israeli situation is the key to all of this, but it certainly is an important factor. It can’t be ignored in any discussions with the Saudis.

Mr. Casey: The Saudis feel very strongly about it.

Mr. Simon: This should be strictly an economic discussion, but our people should be aware of the political factors.

Mr. Casey: We want the Saudis to increase oil production and we want to discuss with them means to achieve that result. We should stay out of the political issues.

Gen. Scowcroft: The Saudis may not want to stay out of it.

Mr. Davies: (Ambassador) Thacher wants to go see the King. It may be worth giving him some guidance on how to handle the issue.

Mr. DiBona: Would an announcement of the mission to Saudi Arabia be useful before the OECD meeting in June?

Mr. Simon: No, I think it could have a deleterious effect. I recommend against a public announcement.

Mr. Hinton: In our discussions with the Europeans and Japanese, it would be worth reminding them that the U.S. has other options and that we are prepared to play those options.

Mr. Davies: With regard to the timing, I would just remind you that Jidda is one of the most unpleasant places on earth in July. The Saudis themselves go up in the hills during July and August. The end of June is just about the latest it is wise to plan to stay there.

Gen. Scowcroft: Now that’s a very practical consideration.

Mr. Simon: We can be ready by then.

Mr. Davies: I don’t want to over-organize this effort. We should try to keep it exploratory. They want advice on the development of their infrastructure in Saudi Arabia, and also on their reserves.

Mr. Simon: An executive of Dow Chemical was in last week telling us they are prepared to put a petrochemical plant in there. Can we define some responsibilities for members of this group to start working on? Perhaps we should have some initial reports by next week.

Gen. Scowcroft: There are several routes we can take. At present, we have a NSSM study underway on the international aspects of the [Page 477]energy problem.7 We have a ready-made working group there that is already working on aspects of this problem. Or we could use you, Charlie (DiBona), and your group.

Mr. DiBona: If I were to do it, I would like to have some of the people here who have been working on this to work with me. As a matter of fact, I have a list here, which includes Claus Ruser, John Knubel, Bill Johnson and Sam Hoskinson. Can you all do it? (all concurred)

Mr. Casey: Is anyone here from Commerce? (no response) We need a list of the petrochemical industries that have a stake in this effort. We should have a list of the high energy users. That’s one paper that should be prepared for the next meeting. Are there any others?

Mr. Simon: That information can be put together without much trouble. We can also do an investment and monetary paper.

Mr. Critchfield: The Saudis have a great deal of anxiety about their relationship with Iran, and also on a number of other issues. We may want to do a paper on the Saudi views on some of these points.

Mr. Simon: The most productive thing we can do right now is send a high level group to Saudi Arabia to discuss these issues. That’s the whole idea, to send a team to discuss the issues, not to study them.

Mr. Critchfield: Perhaps we should take some action to clear the air with King Faisal beforehand. There are a number of issues adversely affecting relations between the U.S. and the Saudis. If we could take some action to improve the atmosphere before the mission gets underway, it would be a big help.

Mr. Hinton: The situation you are referring to has existed for thirty years. We’ve always had disagreements with the Saudis. We can’t wait for an improvement in the atmosphere before starting these discussions. The mission itself will improve the atmosphere.

Mr. Davies: Actually, we’re in fairly good shape in our relations with the Saudis right now. We are being particularly helpful to them on the military side.

Gen. Scowcroft: One of our objectives is to be responsive to their interests and initiatives, and not just to our own interests.

Mr. Hoskinson: In Saudi eyes, the political and economic issues are the same and our team should be prepared to cope with that. I think we need an issues paper, to help us separate these things for the team.

Mr. Casey: We have one.

Mr. Critchfield: The King will have been in Cairo and also in France by the time our team gets there. His state of mind will be important. There is a myth that is current in the Middle East that things have [Page 478]changed dramatically in the last six to nine months. According to this view, we have given additional aid to the Israelis and the Palestine situation persists without improvement. So Faisal sits and listens to word that there is a U.S.-Israeli conspiracy in the Middle East and that the Saudis should keep their oil out of U.S. hands. We should try to dispose of this unhelpful atmosphere before we start talking with them about economic matters.

Mr. Davies: I don’t think it’s all that bad. We are being helpful to the Saudis in Yemen, where it’s very important to them, and also with our military posture. Sure, we can improve our political posture toward them, but the situation as a whole isn’t so bad.

Mr. Casey: We have to be prepared to respond to whatever the Saudis may raise.

Gen. Scowcroft: I agree, we have to be prepared to respond to them. Are we all agreed that DiBona should go ahead with the working group? (there was no objection) We want to leave you (DiBona) the flexibility you need to do what is necessary, so I don’t think we should schedule the next meeting until you’re ready for one.

Mr. DiBona: We have the OECD meeting early next month.

Mr. Hinton: We have to be sure that we have a position for that meeting. The Europeans are talking about sharing all continental oil, avoiding competitive bidding and other things that we don’t like. You should take a look at the policy statement recently issued by the European Commission. Some parts of it are very disturbing.

Mr. Simon: Do you have a copy?

Mr. Hinton: It’s in Brussels 21738 It’s an unclassified cable. The

Commission has been trying to establish a common energy policy for ten years and they are no closer now than ever. But we have to consider these issues before the OECD meeting. Some of the stuff in the EC policy statement is right out of our bible, while other aspects of it are pure socialism.

Mr. Casey: Will the NSSM working group address the issues to be considered at the OECD meeting?

Mr. Hinton: I doubt it. I think it will be a long time before they are ready to make any decisions.

Mr. Casey: The EC wants to manage the oil and establish tight control of industry in Europe.

[Page 479]

Mr. Hinton: They are talking of special arrangements with the Middle Eastern producers. We want to watch this and make sure it comes out right for us.

Mr. Critchfield: I don’t think this EC paper is so bad. The draft was very tough, while the paper actually issued has backed off considerably from the draft. The Nine are nowhere near an energy agreement.

Mr. Hinton: That’s right. The trend is in the right direction and we want to keep it that way.

Mr. DiBona: Our only involvement with the EC at this time is the Simonet mission to Washington.

Mr. Hinton: But we consult regularly with Brussels concerning EC policy.

Gen. Scowcroft: I assume the NSSM working group is involved in this.

Mr. Knubel: We are considering it, but the cable that Hinton is referring to is new. We’ll have to take a look at it.

Gen. Scowcroft: O.K., is that it?

Mr. Casey: O.K.9

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 1298, Saunders Files, Saudi Arabia, 1/1/73–5/31/73. Confidential. The meeting was held in the Roosevelt Room. Submitted to Scowcroft under a May 9 covering memorandum and a copy was sent to Saunders, Odeen, Hormats.
  2. See footnote 3, Document 187.
  3. The meeting was held June 20. The participants determined that the NSC Staff would seek a decision on the goals, timing, and sequence of the mission to Saudi Arabia, that the Department of State would determine the mission’s visiting schedule, and that preparatory work for the mission would begin. The participants also determined that a small working group would work on OECD related energy issues. (National Archives, RG 429, Records of the Council on International Economic Policy 1971–77, Central File 1972–77, Box 19, 52501 (Odeen).
  4. Not attached.
  5. The OECD Ministerial Council meeting was held June 6–8. (Telegram 16015 from USOECD Paris, June 8; National Archives, RG 59, Central Foreign Policy Files) The Ministers discussed energy on June 7. (Telegram 16028 from USOECD Paris, June 9; ibid.) The OECD Oil Committee meeting, held June 13–14, was characterized by a general willingness to move past discussion and intensify work on the practical aspects of international cooperation. (Telegram 17222 from USOECD Paris, June 22; ibid.) The HLG met on the evening of June 12; see footnote 9, Document 187.
  6. Yoshiro Nakasone became the Japanese Minister of International Trade and Industry in 1972.
  7. See Document 192.
  8. Not found. The text of the April 19 EC paper entitled “Guidelines and Priority Activities Under the Community Energy Policy,” is in telegram 2504 from USEC Brussels, May 7, which is partially garbled. (National Archives, RG 59, Central Foreign Policy Files) Additional information on the paper is in telegram 2198 from USEC Brussels, April 20. (Ibid.)
  9. In a June 25 memorandum, Odeen and Saunders wrote Kissinger that one or two missions to Saudi Arabia were necessary, but the actual configuration and intent of the mission was unclear. They suggested that the proposed mission(s) should discuss Saudi security concerns, the Arab-Israeli problem, and Saudi oil policy, the latter aimed at increasing Saudi production over the next five to ten years to meet U.S. and world needs. The copy does not bear any indication that Kissinger initialed a decision. (Ibid., Nixon Presidential Materials, NSC Files, Box 630, Country Files, Middle East, Saudi Arabia, Vol. III)