Office of the Historian

151. Memorandum of Conversation1

Washington, May 18, 1978, 1 p.m.

SUBJECT

  • Secretary’s Meeting with Saudi Foreign Minister Prince Saud: Luncheon Session

PARTICIPANTS

  • Saudi Arabia
  • His Royal Highness Prince Saud al-Faisal bin Abd al-Aziz, Minister of Foreign Affairs of Saudi Arabia
  • Ali Abdallah Alireza, Ambassador of Saudi Arabia
  • Sheikh Abdallah Alireza, Deputy Minister for Economic and Cultural Affairs, Ministry of Foreign Affairs of Saudi Arabia
  • Dr. Nizar O. Madani, First Secretary, Embassy of Saudi Arabia
  • United States
  • The Secretary
  • Andrew J. Young, Permanent Representative of the United States to the United Nations
  • Alfred L. Atherton, Jr., Ambassador at Large
  • Richard N. Cooper, Under Secretary for Economic Affairs
  • Lucy Wilson Benson, Under Secretary of State for Security Assistance, Science and Technology
  • Richard M. Moose, Jr., Assistant Secretary of State for African Affairs
  • Harold Saunders, Assistant Secretary of State for Near Eastern and South Asian Affairs
  • John C. West, American Ambassador to Saudi Arabia
  • William B. Quandt, National Security Council
  • William R. Crawford, Deputy Assistant Secretary of State for Near Eastern and South Asian Affairs
  • Joseph W. Twinam, Director, Office of Arabian Peninsula Affairs, Bureau of Near Eastern and South Asian Affairs (Notetaker)

[Omitted here is discussion unrelated to energy.]

Turning to the U.S. energy picture, Mr. Cooper noted that the President’s energy program has been before the Congress a year, that three of the five key sections of the package have been agreed to,2 and that the fourth, natural gas price controls, appeared to be within 48 hours of agreement. The final section is the very controversial proposal of a domestic crude oil tax designed to raise domestic oil prices to the world [Page 484] price level in order to encourage conservation.3 This may be worked out in the Congress in four to six weeks but we must think about alternatives if it does not pass. One alternative would be to impose an import fee on crude oil at a level which would raise the average weighted price for all crude consumed within the United States to that price which would have prevailed had the domestic crude oil tax been passed. Mr. Cooper noted that Saudi Oil Minister Yamani had publicly expressed reservations about U.S. imposition of an import fee and he stressed that this is only a second-best alternative to the crude oil tax and that it is being considered at the technical level with no Presidential decision having been taken.

Prince Saud said that Yamani obviously had been referring to the OPEC precedent that whenever industrial countries raised tariffs on oil, OPEC always increased oil prices. He cautioned that imposition of a U.S. tariff on oil to solve a domestic problem would be misinterpreted and misused abroad, that rather than solving domestic problems it would create other problems internationally. After Mr. Cooper had stressed that a U.S. import fee would not affect world price, in response to Ambassador Atherton’s question whether the imposition of a tariff by only one country would cause OPEC to raise the world price, Prince Saud said it would if that country were the United States.

The Secretary noted the importance to the international economy of our cutting down on oil consumption and the consequent need for the United States to raise the price of oil consumed in this country one way or another. Mr. Cooper noted that we are also looking at other alternatives and will want to consult closely with Saudi Arabia, recognizing that the OPEC reaction is very important.

Ambassador Young stressed that it is not certain how the President will finally act but that in an open society there is a need to discuss all options publicly.

Mr. Cooper added that there is of course a link between our problem of increased oil imports and turbulence in international financial markets.

Prince Saud noted that the Europeans are very anxious about what the United States is doing about its economic situation. Minister Alireza noted European concern about the dollar. Prince Saud asked if the Economic Summit can’t do something to deal with these problems.

The Secretary noted the importance of the Economic Summit, stressing that each of the industrialized countries must contribute in its own way to the improvement of the overall international economy. In so far as the United States contribution is concerned, the key issues are [Page 485] whether we can conserve energy and control inflation. We need to do both as our share in contribution to overall world economic progress.

[Omitted here is discussion unrelated to energy.]

  1. Source: National Archives, RG 59, Central Foreign Policy Files. Secret; Nodis. Drafted by Twinam. The meeting was held in the James Madison Room at the Department of State. The full text of this memorandum of conversation is scheduled for publication in Foreign Relations, 1977–1980, volume XVIII, Middle East Regional; Arabian Peninsula.↩
  2. These included measures dealing with public utility and regulatory policies, conservation policy, and power plant and industrial fuel use.↩
  3. Reference is to the Crude Oil Equalization Tax.↩