138. Memorandum From the President’s Assistant for National Security Affairs (Brzezinski) to President Carter 1

SUBJECT

  • Oil Price Strategy

I wrote you earlier about our strategy to avert an oil price increase in 1978.2 Below is an update on our efforts:

1. Cy Vance sent messages to Foreign Ministers in key consuming countries outlining the economic arguments against any price increase and urging those governments to make representations to OPEC members on their own behalf.3 We have also suggested that the French and Italians consider making a special approach to Iraq and Libya, respectively.

2. State instructed our Ambassadors in nine OPEC capitals and in selected developing countries to make similar démarches.4

3. Cy Vance presented our case personally to Algerian Foreign Minister Bouteflika.5

Foreign Responses—The developing countries contacted have expressed sympathy and support for our position but appear unwilling to approach OPEC states, citing political factors as their reason. Still, they are likely to provide some support in the form of press statements, corridor contacts in the UN, etc.; these are unlikely to influence OPEC decision-makers.

We have received no formal replies from the key industrial countries, but when Vance’s letter was delivered in Bonn, Paris, and Tokyo, officials there expressed agreement with our position and noted that they planned similar approaches.

Responses in OPEC capitals have been mixed. The Indonesians said that inflation justified a moderate increase in prices, whereas United Arab Emirates’ (UAE) representatives said they would continue to pursue a policy of price moderation and would, in any event, coordi[Page 460]nate their position with Saudi Arabia. Indonesia and Kuwait noted a seeming lack of concern on the part of other developed countries. In addition, a number of OPEC states believe Iran will seek a price increase, although we have no information that the Shah has changed his position since his meeting with Mike Blumenthal.6

OPEC countries have not yet reached a consensus on oil prices; and urgent consultations are currently underway. Saudi Petroleum Minister Yamani made quick trips this past week to the UAE and Qatar. Venezuelan Minister Hernandez is visiting three OPEC capitals. Reportedly, the Saudis are arguing for a price freeze, but there is no sign that they have won any converts. In the meantime, industry sources and intelligence reports indicate that a price increase of 5–7% is likely.

Next Steps—We are confident that the Saudis will do what they can within OPEC to lobby for a price freeze. But in the end they will possibly support a modest increase if the alternative is a two-tiered price structure as in early 1977. As we draw closer to the Caracas meeting, we may recommend that you communicate directly with King Khalid of Saudi Arabia to emphasize our position on prices.

We are less certain about Iran and Venezuela. The Shah has given us his commitment not to push for a price increase. But, that may not be enough, particularly since other OPEC states allege that Iran is still a price hawk. Consequently, it would be useful if the Shah would agree to support actively a price freeze in the next round. Your discussion with him next week will be crucial in that regard.

Venezuela will be a problem. Perez will listen to you, but perhaps to no one else. Venezuela’s role on the price issue is critical. If the Venezuelans take a hard line at the Caracas meeting, there is almost no chance for a freeze. Consequently, we may recommend dispatching a special emissary to Venezuela who would carry a personal message from you outlining our position. Cy Vance will be traveling to Argentina later this month and would thus be one logical candidate.7 We will forward our recommendations to you shortly.

  1. Source: Carter Library, National Security Affairs, Brzezinski Material, Subject File, Box 48, Oil. Secret. Sent for information. Carter initialed the memorandum.
  2. See Document 135.
  3. See footnote 6, Document 136.
  4. See Document 136.
  5. Vance urged Bouteflika “as strongly as possible” that “there be no price increases agreed upon at Caracas meeting.” A summary of the discussion is in telegram 270642 to Algiers, November 11. (National Archives, RG 59, Central Foreign Policy Files, D770418–0040) The telegram is scheduled for publication in Foreign Relations, 1977–1980, volume XVII, Africa.
  6. See footnote 2, Document 134.
  7. Vance met with Pérez on November 23 and delivered a letter from Carter on the subject of an oil price freeze. The Secretary said that the United States was worried about the impact of an increase in oil prices not only on the industrial world but also on the LDCs. He added that “any increase at all” would worsen inflation and unemployment and decrease investor confidence, thereby jeopardizing growth and affecting OPEC in the long run. Finally, Vance said that the United States had conveyed the same concerns to Iran, Saudi Arabia, Nigeria, Algeria, and Indonesia. A summary of the meeting is in telegram 11456 from Caracas, November 25. (National Archives, RG 59, Central Foreign Policy Files, D770438–0145) A copy of Carter’s letter to Pérez is in Carter Library, National Security Affairs, Brzezinski Material, President’s Correspondence with Foreign Leaders File. See also footnote 1, Document 141.