124. Telegram From the Department of State to Selected Diplomatic Posts1

130415. Subject: Fahd Visit and Oil Prices. Ref: Abu Dhabi 1623; State 124499.2

1. The following is for your background information and guidance in dealing with the oil price question. Fahd’s visit provided an opportunity for highest level USG officials to express appreciation for the price and production policies being pursued by Saudi Arabia and to stress the importance of continued moderation. We and the Saudis agreed that energy price increases have a particularly damaging effect on poorer developing countries, on certain of the weaker economies among the industrialized countries, and on world economy generally. The Saudis affirmed their commitment to moderation and specifically assured us that they would not use price and production decisions to try to leverage the Middle East political process.

2. Our prime objective in bilateral dealings with Saudi Arabia and other producers remains that of discouraging future OPEC price increases. We gave no signal that we favor a price compromise within [Page 429] OPEC.3 Although the Saudis have been pressured by the upper tier producers to increase prices by five percent in July, they are holding their options open. We favor no price increase. If the Saudis raise their prices at all, we expect they would seek an understanding that would call for a period of stability in the prices of the upper tier producers beyond the end of 1977.

3. The President’s proposals to Congress4 to move US domestic oil prices toward world levels through phased-in tax and price increases do not constitute a shift in US policy toward endorsement of OPEC price increases. The purpose of the President’s plan is to promote conservation by charging oil and gas users more realistic prices, recognizing the reality though not the propriety of high world oil prices.

4. US acceptance of the need to conserve energy does not indicate a lessening of our concern about OPEC price decisions and their impact. On the contrary, the interests of industrialized countries, LDCs and the OPEC nations themselves, require world economic stability and thus stability in the price of oil.

  1. Source: National Archives, RG 59, Central Foreign Policy Files, D770201–0952. Confidential; Priority. Drafted by Donald F. Hart, Officer-in-Charge of Producer Country Affairs (EB/ORF/FSE), cleared by Cooper, Sober, Bosworth, and in S/P, ARA, FEA, and the Treasury Department; and approved by Katz. Sent to Cairo, Caracas, Dhahran, Doha, Jakarta, Jidda, Kuwait, Lagos, Libreville, London, Manama, Paris, Quito, Tehran, Tripoli, Tokyo, Baghdad, Algiers, and Abu Dhabi.
  2. In telegram 1623 from Abu Dhabi, May 31, Ambassador Dickman asked the Department to “promptly” give him “something to tell the UAE authorities regarding Fahd visit, particularly as it relates to energy.” (Ibid., D770193–0030) In telegram 124499 to Jidda, May 28, and repeated to other posts, the Department reported that Carter’s May 24–25 meetings with Fahd in Washington not only focused on “the Middle East problem,” but also on “a number of international and bilateral economic issues and matters affecting Saudi and regional security.” (Ibid., D770191–1151) The memoranda of conversation of their meetings are scheduled for publication in Foreign Relations, 1977–1980, volume XVIII, Middle East Regional; Arabian Peninsula. Vance’s May 24 luncheon with Fahd is described in telegram 122169 to Jidda, May 26. (National Archives, RG 59, Central Foreign Policy Files, D770189–0081) Schlesinger met with the Crown Prince on May 26 and expressed “his appreciation for the great contribution” that Saudi Arabia had made “to stabilizing the price of oil.” (Memorandum of conversation, May 26; Library of Congress, Manuscript Division, Schlesinger Papers, Box 1, Saudi Arabia)
  3. On May 20, the Embassy in Jakarta reported that Indonesia and “at least nine members” of OPEC agreed to freeze oil prices for the remainder of 1977 instead of raising prices by 5 percent on July 1 as had been decided at the December 15–17, 1976, meeting in Doha. According to Indonesian Director of Oil and Gas Wijarso, a recent visit by Venezuelan President Pérez had been the “chief catalytic agent” for the agreement. Wijarso added that Carter’s new energy policy persuaded some OPEC members to defer an additional price hike. (Telegram 6619 from Jakarta, May 20; National Archives, RG 59, Central Foreign Policy Files, D770180–0461) The Indonesian Minister of Mines, Mohammad Sadli, explained the rationale behind the price freeze as a “unilateral gesture by OPEC eleven to pave way for eventual price unity with Saudi Arabia.” He said that a compromise was necessary to “preserve OPEC solidarity, maintain Third World unity, and eliminate differences prior to Paris CIEC meetings.” (Telegram 6738 from Jakarta, May 24; ibid., D770184–0677)
  4. See footnote 3, Document 122.