23. Memorandum From the President’s Assistant for International Economic Affairs (Flanigan) to the President’s Assistant for National Security Affairs (Kissinger)1

  • RE
    • National Security Aspects of the Oil Import Quota Problem
General Arguments
The Task Force Staff study indicates that the National Security would be protected at $2.50 per barrel price for crude oil versus the current $3.30 price. To the extent that this position is generally known and accepted, any maintaining of a price above $2.50 per barrel based [Page 67]on the National Security argument (the only statutory argument for maintaining a price above the world price) undermines the strength of the National Security argument in future cases. There is a growing skepticism regarding the National Security argument which could make more difficult its effectiveness in the future even when the National Security is really endangered.
The President to date has projected a position of willingness to take the hard path where it is right. This position would be seriously undermined if in this instance it appeared he was avoiding the hard path for political gain. To that extent, it would diminish his ability to lead his country during the future down the hard path.
The oil industry is a major national industry. For 10 years it has made investments and developed resources on the basis of a national program to limit imports. To the extent that imports are increased and domestic prices decreased, these assets lose value. At $2.50 per barrel the loss of value is substantial and the effect on the domestic oil industry, particularly in producing states such as Texas, California, New Mexico, Wyoming and Kansas, severe.
It is generally agreed that the National Security interest demands an assured supply of petroleum. This in turn demands a decision as to which sources are assured—the lower 48, North America, the Western Hemisphere, or Eastern Hemisphere. The Task Force’s conclusions are conservative in that they assume no more than assurance of production in North America. Less severe and conservative assumptions (availability of some Latin American production, or no long-term denial of oil from all Eastern Hemisphere countries simultaneously) would lead to a less restrictive policy and even adoption of a free trade ($2.00) position.
The program being worked out gives preference to imports from Canada over imports from Venezuela, to imports from Venezuela over Iran, to imports from Iran over the balance of the Middle East. The National Security interest is affected by the international ramification of such governmental preferences.2
  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 367, Subject Files, Oil 1970. No classification marking. Kissinger wrote on the memorandum: “Put in Oil folder for next meeting with Flanigan.” Another copy of this memorandum bears the handwritten notation: “Per P. Flanigan this memo is to receive no distribution.” (Ibid.)
  2. In a December 2 briefing memorandum to Kissinger, requested by Haig, Bergsten itemized the various options the Task Force would recommend. He noted that the “rationale for controlling oil imports is national security and it is true that completely free trade in oil might expose us to blackmail by the Middle Eastern suppliers. However, the present level of control and all of the options under consideration by the Task Force do not raise serious security problems and are essentially protective devices for the domestic oil industry. Tremendous pressure is now being brought to bear on the President and all key officials involved in the study to minimize or avoid changes in the program.” Bergsten thought Flanigan supported the majority view within the Task Force for some liberalization of the program. (Ibid.)