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

143. Memorandum From the President’s Assistant for National Security Affairs (Brzezinski) to President Carter¹

Washington, January 24, 1978.

SUBJECT

• Secretary Schlesinger’s Talk with Fahd and Yamani

Jim Schlesinger talked at length with Crown Prince Fahd and Zaki Yamani last week.² Much of the conversation simply rehearsed well known Saudi and U.S. positions. The following points are of interest:

—Fahd expressed concern that major increases in Saudi production would damage the oil fields. Schlesinger stated this was a technical problem that required more study.

—Yamani said that predictions of Saudi production levels of 18 mbd or even 16 mbd were not realistic. He felt there could be an increase to 12 mbd by 1983. Schlesinger told Fahd he believed 14 mbd was the outer limit for production by Saudi Arabia, and “feasible reality” was between 12–14 mbd.

—Both Fahd and Yamani wondered if the Caracas price freeze³ may not have been a mistake. They felt that a series of small increases might be easier for the West to absorb than a single, huge price increase when demand catches up with supply. At that point no one will be able to prevent a major price increase. Yamani believed that there could be an increase of as much as 40 percent in the price of oil by 1980.⁴

—Yamani thought the current oil price freeze will last through 1978. He also felt the soft market for oil would last at least through the coming year.

—Yamani noted the critical role Iraq will play in the future in determining oil prices. He thinks they have the capability to increase their production from 1.7 mbd at present to 2.2 mbd.

—Yamani complained that tax problems, particularly the taxation of individual Americans, make it difficult for Saudi Arabia to structure joint ventures with U.S. firms. He felt that some restructuring of the Joint Commission could improve cooperation in technology transfer.⁵

—Fahd stressed the necessity of including Palestinians outside the West Bank and Gaza in any future plebiscite, citing the Palestinians in Kuwait as an example of the “terrible events” which could occur if they feel they are being ignored.⁶

1. Source: Carter Library, National Security Affairs, Brzezinski Material, Agency File, Box 8, Energy Department, 5/77–5/78. Secret. Outside System. Sent for information. A stamped notation on the first page reads: “The President has seen.”
2. A Department of State record of the January 14 and 15 discussions is in telegrams 453 and 454 from Jidda, January 19. (National Archives, RG 59, Central Foreign Policy Files, P850033–0080, P850071–2617) Memoranda of conversation prepared in the Department of Energy are in the Library of Congress, Manuscript Division, Schlesinger Papers, Box 1, Saudi Arabia.
3. See footnote 2, Document 142.
4. The words “40 percent” and “oil by 1980” are underscored and an exclamation point was written in the margin, presumably by Carter.
5. The Joint Economic Commission was one of the joint commissions established by the United States and Saudi Arabia in 1974 to develop and broaden economic and military cooperation. Documentation on the creation of the U.S.-Saudi joint commissions is scheduled for publication in Foreign Relations, 1969–1976, volume E–9, Documents on Middle East Region; Arabian Peninsula; North Africa, 1973–1976.
6. On January 25, Stansfield Turner sent Schlesinger a memorandum informing him that the Saudi officials with whom Schlesinger had met on January 14 and 15 “were impressed by the reasonableness of the Secretary’s position and his understanding of the constraints with which the Saudi Government is faced in its oil policies.” They were also “pleased with the Secretary’s position on moderate increases in the price of crude oil.” (Library of Congress, Manuscript Division, Schlesinger Papers, Box 1, Saudi Arabia)