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

75. Telegram From the Under Secretary of State (Irwin) to the Department of State¹

Kuwait, January 19, 1971, 2335Z.

69/UNSTO 14. OECD for Trezise. From Irwin. For President and Secretary.

1. This morning I had three meetings in Riyadh beginning with Minister of State for Foreign Affairs Saqqaf, then Petroleum Minister Yamani and concluding with an hour’s discussion with King Faisal. To all three I made essentially the same presentation of our concern about the upcoming Tehran discussions as I had yesterday to the Iranians. My stress was on the President’s concern about the free world’s economies and strategy and the effect on our countries as well as on friends of both countries. I conveyed our conviction that a solution reasonable to the interests of both producing and consuming countries and oil companies, as well as to the companies could be found.

2. The Saudis were quick to agree with the worldwide importance of these oil negotiations. Following delivery of the President’s letter² and regards to the King, he welcomed President’s concern with this problem and commented at the outset that Saudi Arabia has always worked for a reasonable solution in company-Saudi discussions. He noted that Saudi Arabia had taken the lead in Venezuela to draw a distinction between Gulf and Mediterranean producers.³ He stated it was a source of regret to him that oil companies did not sufficiently appreciate the importance of the Saudi initiative, in fact they had opposed it.

3. Re danger of whipsawing to which I had alluded, Yamani said he wished assure USG that this not SAG policy⁴ even though this may be that of Libya and Venezuela. He affirmed that countries in Persian Gulf are prepared sign agreement with oil companies and stick to it. Gulf countries consider themselves principal future source oil for free world. He emphasized that during OPEC meeting, Gulf countries managed to get one principle in OPEC resolution—that Gulf is unity by itself and has unique characteristics as far as oil is concerned. He thought this important point which meant a lot to future of free world. If OPEC is treated as one unit, then moderates in Gulf would have to associate themselves with radicals. However, if companies dealt with Gulf separately, there would be stability and assured supplies from the region which has by far the largest oil reserves in world. If Suez opens and tanker rates fall, Gulf states would ask that North Africans no longer be given special advantages due their geographic location or that Gulf states be given equal treatment. He hoped I would advise oil companies that now is time to cooperate with their friends in Gulf and not miss boat again. So often companies decide to act only when it too late or after damage has been done. If agreement not reached on commercial basis, then he warned that something will happen which will hurt producers, consumers and especially oil companies. He believes it was in USG interest to have SAG as strong friend rather than as weak participant in OPEC. Yamani said he had discussed these points during three-hour meeting January 17 at Tehran airport with Amouzegar. Re negotiating with Gulf group I told King and Yamani I thought the Saudi position seemed reasonable, that we had not known before yesterday of their willingness to enter into firm price agreement and that I was uncertain the companies understood it.

4. King said that for many years Saudi Arabia had been accused of neglecting its people’s interest and being “too easy” on the companies. He noted that “those with Communist goals” had stimulated this pressure on Saudi Arabia in accusing his regime of being a lackey of the companies and the Americans. Asserting that this did not bother him, he would nonetheless do all in his power to do the best for his people and his country.

5. The King said he understands that Iraq is determined to join forces with Algeria and Libya in upcoming talks. Yamani on the other hand expressed some confidence that he could keep Iraq in line with the Saudi and Iranian position. The Saudis are convinced that introducing Algeria and Libya into this negotiation will render agreement impossible or at least result in a settlement which will cost the companies much more heavily. Saudis were critical of Libya in trying to press for unrealistically high returns. Yamani described them as young officers ignorant on oil issues who were killing goose that laid the golden eggs. In turn, I pointed out we do not control the oil companies but have asked them to enter these talks with a reasonable attitude. I noted the companies understand that some upward price adjustment is necessary.

6. Yamani emphasized that he felt seriously disadvantaged by the position the companies had presented to him in insisting that oil negotiations be in the OPEC context. He warned that no one should expect the moderates to be able to influence the radicals in an OPEC negotiation. Indeed if negotiations are in the OPEC framework, the moderates would probably have to settle for the radicals’ demands. Changing the subject, he thought USG would eventually have to pay a price for “interfering” for first time in oil scene, perhaps not with Saudi Arabia but with Iran. He could foresee US Ambassador in Tehran being called by Shah to discuss price increases and obtain other concessions and having more difficulty claiming that this is oil company matter. This could create antagonism and he thought USG could not hereafter divorce itself from participating in producer government—oil company negotiations. I said USG careful not to interfere in negotiations, that our concern was broader interest because of the importance and context of these negotiations for the future and because of the threat of at least one OPEC member—Libya—to use negotiations for political purposes.

7. Yamani said and the King repeated that the Gulf producers’ demands will be moderate. They know that the companies have already increased prices in Europe and anything the Gulf producers now ask should be absorbed by the companies with no further price increases for consumers. He said this increase was all they were seeking. The King himself raised the only specifics on pricing which I heard from the Saudis. Referring to the question of excise taxes in Europe, King said that European governments get as much as $14 in taxes per barrel of refined petroleum whereas producers get no more than one dollar a barrel. He thought that this was an unnatural situation and producers should get a higher return.

8. I reviewed with all three the limited action taken last week by the Attorney General in regard to our anti-trust laws⁵ and emphasized that until this relief was given last Friday, companies could not compare data and it would now take some time for the companies to get their facts together. Yamani gave an excellent summary of our anti-trust laws to the King and then commented that while Saudi Arabia could be patient were it acting alone, it could not force others to follow along. They are working under a deadline and the Saudis were being pushed by some of their other partners. Thus the companies must cooperate with the Saudis and Iran to reach a timely agreement. Although I went over this question separately with Yamani he did not accept argument that recentness of anti-trust relief in itself relieved companies of obligation to negotiate expeditiously. The King himself at several points said it was important the companies not exploit what he termed the moderate Saudi-Iranian position and try to pressure these countries by delaying a new agreement.

9. Yamani departed immediately after our meeting with Faisal for Tehran where, given the reported illness of the Iraqi negotiator, he will be holding the next round with Amouzegar alone.

10. Referring to the subsidies paid by the Kingdom to UAR and Jordan, the King said this amounted to a tax the Kingdom was paying to avoid a halt in production. He recalled that Saudi Arabia at Khartoum Summit in 1967 led moderate forces in lifting boycott of oil deliveries to West. Thus he had acted in interest of companies and the West. I assured him that we were grateful for that Saudi position.

11. In closing, the King picked up my earlier point about the broad strategic questions involved in the upcoming discussions. The King stated that he much appreciated the President’s having sent me to reaf-firm the friendship between Saudi Arabia and the United States. He said he wished to assure the President he had committed Saudi Arabia to friendship with the United States not only for our mutual interests but for the whole world’s interests. He hoped other countries could have as strong a friendship with America. He was as concerned as we about anything which might hurt America because this would ultimately hurt the rest of the free world.

12. Comment follows by septel.⁶

Irwin

1. Source: National Archives, RG 59, Central Files 1970–73, PET 3 OPEC. Secret; Immediate; Nodis. Repeated to London, Jidda, Dhahran, Tehran, Tripoli, and Paris.
2. See footnote 1, Document 72.
3. Reference is to the OPEC meeting in Caracas; see footnote 5, Document 74.
4. In telegram 71 from Dhahran, January 13, the Consulate described Saudi oil policy as one in which “no radical initiatives are taken but Saudis are careful to avoid being isolated from other—particularly Arab—producers or looking as if they are stooges of oil companies.” (National Archives, Nixon Presidential Materials, NSC Files, Box 1271, Saunders Files, Middle East Oil, 1/1/71–2/1/71)
5. See footnote 6, Document 74.
6. Document 76.