Foreign Relations of the United States, 1969–1976, Volume XXXVII, Energy Crisis, 1974–1980

101. Memorandum by Robert Hormats of the National Security Council Staff¹

Washington, July 19, 1976.

MEMORANDUM FOR

• The Secretary of Commerce
• The Deputy Secretary of State
• The Deputy Secretary of Defense
• The Administrator, Federal Energy Administration
• The Chairman, Council of Economic Advisors

SUBJECT

• Questions for Attention in Further Development of NSSM 237

The following is an effort to pose questions which merit attention in the further development of NSSM/CIEPSM 237. They reflect a consensus derived from the July 14 meeting² which you attended under Frank Zarb’s Chairmanship, and the papers you submitted pursuant to that discussion. These questions will be considered in light of the analyses, conclusions, and recommendations contained in the NSSM/CIEPSM at the Undersecretary level meeting to be chaired by Under-secretary Rogers later this week.³

1. Assumptions: Are the main assumption of the NSSM study valid; to wit: continued significant US, European and Japanese dependence on OPEC oil through 1985, inextricable linkage of interests between the US and its major allies and thus an unavoidable necessity to pursue joint international energy objectives and strategies, significant supply and price vulnerability of major US allies and thus the necessity for both a non-confrontational strategy with respect to OPEC and lower oil prices, and the critical role of Saudi Arabia as a moderator of OPEC pricing policies and a guarantor of supply.

2. What are US objectives and interests with regard to OPEC pricing? What level of international oil prices is in the US interest? Are short-term US price objectives consistent with US long-term interests? This should be explored in terms of the impact of the international oil price on U.S. efforts to accelerate energy conservation and develop alternative sources as well as on U.S. global interests. Is the same oil price which is in the U.S. domestic interest also in the interest of our economic partners? Is there a difference? If so, what are the implications for joint strategies, policies and actions with other industrialized nations? To what extent would a price increase affect U.S. national security interests?

3. Contingency Planning: To what extent can policies be developed during the present non-crisis period in order to strengthen the basis for U.S. counter-action in the event of various types of crises? What U.S. counter-actions would be most appropriate to deal with differing types of potential oil-related crises? What specific forms of economic leverage are available to the U.S. unilaterally, or with its IEA partners, for counter-action in the event of unacceptable price increases or supply interruption? How might such leverage be used as a deterrent? What considerations are likely to increase or decrease U.S. counter-leverage? Do longer-term supply contracts provide an improved basis for U.S. counter-action in the event of a disruption; for instance would the abrogation of contracts significantly improve the U.S. case domestically or internationally with respect to forceful U.S. counter-action? Would such arrangements thereby serve as a deterrent to the interruption of supplies?

4. How do the non-oil exporting developing countries fit into U.S. strategy? Is there any significant linkage between their interests and moderation by OPEC? What policies or actions should the U.S. undertake to support the developing countries’ position? What are the risks associated with attempts to split the LDCs from OPEC? What policies or responses should the U.S. consider in the event of a change in the developing countries’ position brought about, for example, by an OPEC decision to grant them lower oil prices?

5. How might the U.S. better diversify sources of energy supply? Are there ways of encouraging more production in non-Arab countries? What might the U.S. do to advance its oil interests in relation to potentially large and more reliable suppliers such as Mexico, the PRC, or Venezuela? What might such country-specific strategies include?

6. How might the U.S. better address the critical significance of Saudi Arabia to both U.S. and IEA supply security and price objectives? What are prospects for a significant shift in the internal Saudi political situation between now and 1980? What are the implications for US policy? What demands are the Saudis likely to make in order to continue to play a moderating role; what considerations are involved in their decisions? What US policies should be considered to support a moderating role for the Saudis? What policies or actions should the US consider in the event of a change in the Saudi policy?

1. Source: Ford Library, National Security Council, Institutional Files, Box 41, NSSM 237—U.S. International Energy Policy (1). Secret.
2. No record of the meeting has been found. See Document 99.
3. No record of the meeting has been found. A July 21 memorandum from Joseph A. Greenwald in the Bureau of Economic and Business Affairs provided Rogers with a general framework to address the issues raised in Hormats’s memorandum. (National Archives, RG 59, S/S Files: Lot 80D212, NSSM 237)