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

1. Memorandum of Conversation¹

Washington, August 13, 1974, 11:15 a.m.–12:15 p.m.

SUBJECT

• Oil Price Strategy

PARTICIPANTS

• Secretary of State Henry Kissinger
• Secretary of the Treasury William Simon
• Chairman Arthur F. Burns, Federal Reserve Board
• Deputy Secretary Robert S. Ingersoll, Department of State
• Under Secretary for Monetary Affairs Jack Bennett, Department of the Treasury
• Major General Brent Scowcroft, Deputy Assistant to the President for National Security Affairs
• Assistant Secretary for Economic and Business Affairs Thomas O. Enders, Department of State

Secretary Kissinger—Would everyone like coffee? Let’s see if we can get a real cup for the Chairman.

Have we all read the paper?²

Deputy Secretary Ingersoll—The paper was worked over six times before it got to you.

Secretary Kissinger—I take it you feel we should not make a political intervention until the IEP is passed on September 19.³ The meeting of Finance Ministers and Central Bank Chairmen would be deferred until October?

Secretary Simon—Yes, but I would go ahead and have the meeting of the Library Group.⁴

Assistant Secretary Enders—We could start discussing it in that group.

Secretary Kissinger—You noticed that I got Project Independence into the President’s speech last night.⁵ It was not in the right place but you can’t win them all. I feel President Ford will push it. But I don’t have any idea what we should do with it. Perhaps we should put it under you, Bill. It’s at too low a level as it is. It will never work.

Secretary Simon—I’m not seeking it. It will be a lot of work.

Assistant Secretary Enders—Bill should take the lead.

Secretary Kissinger—I’ll support you, Bill, if you promise to stay off TV.

Secretary Simon—Henry, I haven’t been on TV for months.

Secretary Kissinger—Let’s see if we all understand the analysis in this paper. The Europeans and Japanese are not now ready to go as far as the United States. The United States’ strategy should be first to preempt as much as possible in the bilateral field. We’ve got to get going on the Commissions⁶ in Saudi Arabia and get started in Iran. Second, we’ve got to get the IEP. And then in October we will move on the political level. My instinct is that this will achieve about as much initially as we did in February on the technical level. It will take 5 or 6 months for the others to respond. I will be in Iran in October and I will have something to talk to the Shah about.

The problem with the Shah is that there is a risk if we single him out for attack. If Saudi Arabia stands fast, I don’t believe they would do it, we need the Shah’s production. We need to lean on him. One problem here is that the Europeans may try to preempt us in the military equipment field.

Secretary Simon—Can the Europeans preempt us? Is their equipment as good as ours?

Major General Scowcroft—The Mirage is a very good airplane.

Secretary Kissinger—Of course, the F–14 plays the national anthem of the country over which it is flying. It can shoot down other planes at 80 miles. What is not yet proven is whether it is any good at 8 miles. For the Shah’s purposes the Mirage is a good plane. It gives him what he needs in the area of the Gulf.

Secretary Simon—Henry, you have said many things that I have remembered, but I remember one in particular. You have said that only the United States can make promises which other countries know will be kept. If this is true, and I think it is, then doesn’t the Shah think twice about his long-term relationship with the United States.

Secretary Kissinger—Yes, definitely. Our big card is that he needs our political and foreign policy support. Incidentally, let me tell you here in this room only that I am telling every Arab I see that the United States simply won’t accept another oil embargo. I told this to Fahmy. I hope you won’t circulate this all over EB. EB does not leak as much as my regional bureaus.

When I say I am telling the Arabs this in confidence, it means that it would be all around in short order. I have talked to the President about this. I simply don’t think we can take another embargo. It would lead to economic collapse in Europe. It would lead to the collapse of NATO. If it comes to that, [2 lines not declassified].

Chairman Burns—[1½ lines not declassified].

Secretary Kissinger—[less than 1 line not declassified].

Assistant Secretary Enders—[less than 1 line not declassified].

Secretary Kissinger—[1 line not declassified].

Assistant Secretary Enders—[less than 1 line not declassified].

Secretary Simon—Let’s review some of the scenarios regarding the use of the commissions. Suppose the Shah has announced a message dealing with the U.S. and there is no reaction.

Secretary Kissinger—My strategy with the Shah is to try to induce him to cooperate with us.

Under Secretary Bennett—The Shah is suggesting that there be no announcement until you come to Tehran.

Secretary Kissinger—Fine. Let’s not talk wildly about this. Let me handle it.

Under Secretary Bennett—What about the news report that the Kuwaitis are suggesting a 25 percent production cut? They recognize that there is excess production.

Secretary Kissinger—That is why it is a mistake to talk publicly about production bringing prices down.

Under Secretary Bennett—Is it safe to wait until October? Should we make a new move before then?

Secretary Kissinger—I am prepared to make a démarche. Can I see that news report?

Assistant Secretary Enders—That is part of the jockeying for the next OPEC meeting. Whether these reports are significant or not, we need to approach Saudi Arabia.

Secretary Kissinger—For what?

Assistant Secretary Enders—To get them to agree not to cut-back production.

Secretary Kissinger—I don’t believe in note sending. What I believe in is to have an overall strategy and then to make a series of moves. That is the only way to be effective.

Secretary Simon—We would tell them, one, that we welcome their decision to increase production, two, that we appreciate their opening up the area for new exploration, and, three, on the auction we encourage them to go forward. If we can also tell them we are leaning on the Shah, I think it would be very helpful.

Assistant Secretary Enders—Perhaps we could use Project Independence.

Secretary Simon—I’m sorry, Tom. I think they are more intelligent than that. Anyway, I don’t think we have anything to lose by leaning on the Shah.

Secretary Kissinger—Bill, we have plenty to lose. He is the one non-ephemeral political force in the area. The idea that Saudi Arabia will be our reliable source for the rest of 1974 is not reasonable. But we can’t announce it now and then give two months for it to develop.

Chairman Burns—My guess is that if we announce we are going ahead with Project Independence, conservation and the IEP, we will have a much stronger position with them.

Secretary Kissinger—I agree. That is what I propose to do. The Saudi Arabian Foreign Minister is coming here in two weeks. I could talk to him then.

Secretary Kissinger—The problem is what is the pitch on prices? I can draft any number of cables, in fact, if I want something in three weeks, I probably will have to write it myself. But we need a strategy. I tell you that by the end of October Saudi Arabia will not be playing political ball with us unless Israel makes some dramatic move. And, that is not very likely given the Israeli domestic situation. There is an Arab Summit at the end of October. Syria will impose an embargo and demand confrontation with Israel. Whether that sells or not, I don’t know. But unless we show plausible progress elsewhere, the others will organize—everybody but Saudi Arabia and then the Saudis will cave.

Deputy Secretary Ingersoll—There is no way now to put any pressure on anyone.

Secretary Kissinger—The President cannot start attacking the Shah now. But the Shah’s action is only key if Saudi Arabia brings on the auction and keeps production up.

Secretary Simon—They just have to keep production at current levels.

Under Secretary Bennett—Isn’t it easier to lean on Iran before a cut in production?

Secretary Kissinger—They are not going to cut production—only if there is an auction.

Secretary Simon—They will and they can. They are the only ones who can.

Assistant Secretary Enders—They can cut back up to two million barrels with no damage to the fields.

Deputy Secretary Ingersoll—We are not going to get prices down in two months.

Secretary Kissinger—Then let me repeat. Bill should have preliminary talks with the Finance Ministers in the Library Group. We must get the IEP, and I will consider a cable to the Shah about not cutting production.

Secretary Simon—Can we tell Saudi Arabia we are doing this with the Shah? This would help us.

Secretary Kissinger—The problem there is that Faisal is very suspicious of President Ford. He has been considered to be pro-Israeli. This is understandable in view of his past record. It is not important if Faisal is right. What is important is that that is what he thinks.

I think we must let the threats sink in. Then we’ve got to get the Europeans to begin to think along political lines. Then we will have a start. I will consider a cable. But I am very reluctant to take one move alone. I like to take five consecutively. Then you have something. In five months, I would like to bust a cartel.

Secretary Simon—Henry, you may find as we go along on this that it would be useful to have sort of a House Bastard. I would be glad to play the role of the House Bastard.

Secretary Kissinger—As long as we don’t tip our hand.

Secretary Simon—Well, I could always say something as the House Bastard and then Henry Kissinger could say he is mortified.

Secretary Kissinger—No. That’s wrong. We need to present a unified view to the rest of the world. It is very bad to appear to be split within the government.

Let’s talk about the concrete actions we’re going to take. One, Government action, and two pressure on the companies. This requires the IEP and a safety net. Can this be done?

Assistant Secretary Enders—We have the legal authority to do it now.

Secretary Kissinger—Then we should do it.

Secretary Simon—But what are we doing if we tell the companies they can’t pay more than 84 percent and the producers say they must pay 94 percent? Isn’t this confrontation? That would lead directly to a production cut.

Under Secretary Bennett—We might say that the consumer governments won’t let oil come in at over a given price. We could do that informally.

Assistant Secretary Enders—But we have to have the IEP first.

Secretary Kissinger—But the IEP won’t work against a total embargo.

Secretary Simon—How long will, say, Germany last if they lose their fuel oil. They are not going to do anything which would risk our supply during the winter.

Assistant Secretary Enders—Our purpose is to get the Europeans in a more combative mood.

Secretary Simon—We have a better chance of doing this in the Spring.

Secretary Kissinger—Can we stand it till then?

Secretary Simon—Oh, we can stand it till then.

Secretary Kissinger—What about the others, Arthur?

Chairman Burns—I think we can all get through till Spring.

Secretary Kissinger—Then we will use the next two months to create a political and psychological basis for tough action, but we will not get them to take tough action right away.

Secretary Simon—What can happen between now and Spring? We should be looking at the nationalization question.

Secretary Kissinger—What are our choices?

Secretary Simon—Nationalization will raise prices by $18 billion.

Secretary Kissinger—How?

Secretary Simon—Because we lose the low cost equity crude. Dorsey⁷ told me very confidentially that Kuwait will nationalize them by the end of this year.

Under Secretary Bennett—Yamani told Aramco that the USG doesn’t object to 100 percent.

Secretary Kissinger—Where did he get that?

Under Secretary Bennett—I don’t know.

Secretary Simon—Dorsey also said Kuwait is thinking about buying a 25 percent interest in Gulf.

Under Secretary Bennett—He asked that that be kept confidential.

Secretary Simon—I told him just the Department of State and Treasury will know that.

Deputy Secretary Ingersoll—Arthur, what will be the financial position by Spring?

Chairman Burns—Not so bad. I think Italy will have some problems. The UK has some problems but they seem to be handling them.

Deputy Secretary Ingersoll—We need some time for the pressure to build up.

Secretary Kissinger—But realistically, what are our choices? We can go for a quick move with Saudi Arabia. That requires much pressure and I am not sure it will work even if we bring pressure on the Shah. Our second choice is to build a framework.

Secretary Simon—What about the cable?

Secretary Kissinger—I don’t mind telling the Shah that the United States Government believes that any production cuts now would be very unfortunate in the light of our overall relationship.

Secretary Simon—If we did that and told the Saudis that we did it, it would be of great help to us.

Secretary Kissinger—Bill, my estimate of the Saudis is lower than yours. Who in this building is running the Commissions?

Deputy Secretary Ingersoll—We have got Joel Biller working on that.

Secretary Kissinger—And Joel Biller is a Deputy Assistant Secretary? By the end of the day I want responsibility for that assigned to the seventh floor. We need to preempt the goddamn Europeans out of there.

Secretary Simon—Henry, the Commissions are moving ahead. I think we have been making good progress. We came up with a lot of ideas during my trip out there and we have done a lot of follow up.⁸ I think our coordination with the Department of State is good. Would you agree Bob?

Deputy Secretary Ingersoll—It is improving. I had a meeting yesterday in which I got everyone together to get moving on this.

Secretary Kissinger—But I have told you you can’t do this. You can’t take this on. I don’t want to talk about any goddamn meeting. Is anything being built there that they won’t want to give up?

Deputy Secretary Ingersoll—Well, in Egypt we are trying to get some things started.

Secretary Kissinger—Egypt is not all that important but the others are. Until we can create a physical nexus for our relationship, we have nothing.

Deputy Secretary Ingersoll—You are just now beginning to roll.

Secretary Kissinger—No one seems to be able to come up with anything for Egypt. A nation of 200 million people must be able to come up with something concrete. Can you take another look at this Tom? I am going to talk to Butz but this is not a very good day to talk with him.

Chairman Burns—What about the private banks? Won’t they be helpful?

Secretary Simon—Well, that was one of the things we got done when I was out there. We got permits approved for several of the private banks to operate in Egypt.

Secretary Kissinger—We have a real problem with Egypt. We have to come up with something for them. The Soviet Union told them they could have $5 billion. And the Israelis are being very unhelpful.

Deputy Secretary Ingersoll—Opening the Canal will give them some real benefits.

Secretary Kissinger—But we didn’t do it. We can’t take credit for something we didn’t do.

Secretary Simon—Henry, when I was in Egypt, Sadat went on at great length about Henry Kissinger’s tremendous success in those negotiations.

Secretary Kissinger—Bill, I know I’m great, but you can’t continue to get payment for services already rendered. What we need to do is to preempt the structure of relationships in the area and to develop a flow of benefits which they won’t want to lose. At some point they are going to want another strip of the Sinai. The question of the Commissions is not so critical in the case of Egypt. That problem won’t basically be settled by a Commission. But in Saudi Arabia and Iran the Commissions can be useful. But not just by having meetings. They have to do something.

Deputy Secretary Ingersoll—But we are doing it. We have got a lot of activity underway.

Secretary Simon—We do have the development institute.

Secretary Kissinger—Whatever happened to the fertilizer idea that I have in my United Nations speech?

Assistant Secretary Enders—Well, the problem we have there is with AID. This is a case in which AID believes that to do something well means to do something slowly.

Secretary Kissinger—Look, isn’t AID under me? I simply can’t accept this. There is no reason why AID can’t respond when I want something done.

Assistant Secretary Enders—To get a multilateral institute on fertilizers set-up simply takes time.

Secretary Kissinger—But I need assets in Saudi Arabia. I don’t give a damn about a well distributed world fertilizer industry. In fact, a badly distributed industry is probably in our interest.

Assistant Secretary Enders—We are moving slowly at the level of the institute itself. But we are moving fast on bilateral levels.

Secretary Kissinger—Who does AID report to? This is not a university. If we can put a nuclear plant into Egypt in eight years and do something in fertilizers in Saudi Arabia, then we have a strategy. Then we have something they don’t want to lose. I want a confrontation, believe me. But I need chips.

Secretary Simon—We have no problems with the Commissions. There is a lot going on.

Secretary Kissinger—The problem with the Commissions is that in this building a Deputy Assistant Secretary simply doesn’t exist. If something is going to get done it has to have seventh floor direction. It’s like that memo I received the other day to call Senator Magnuson. The memo had to have six clearances and all it said was call Senator Magnuson.⁹

Deputy Secretary Ingersoll—Yes, and you haven’t called and now he’s mad.

Secretary Kissinger—You are right. I didn’t call. I didn’t call because I know that half of the six people who had cleared that memo had already called Magnuson’s staff people to tell them I was going to call the Senator. They do that to show how important they are.

Who understands what I want to do with these Commissions?

Deputy Secretary Ingersoll—I do. I had a meeting last week which got together all the people involved.

Secretary Kissinger—Once you get them all together you should execute half of them. Let us review again where we stand. First, the Commissions must be an integral part of our strategy. We have to emphasize the tangible assets—the things they need. Second, we need to get the Europeans and Japanese organized. Bill is going to begin this in the Library meeting. Third, I will send a letter to the Shah. I will also try one with Saudi Arabia. Perhaps we should send it to Prince Fahd. We could run through a number of issues in the context of the change in the Administration. But we shouldn’t hang it all on the oil price question. Also, I think we must have regular meetings of this group.

Deputy Secretary Ingersoll—I agree, and if you are not available, we should meet anyway.

Assistant Secretary Enders—What are we going to do about Project Independence?

Secretary Kissinger—Bill, could you do a paper on what is needed on Project Independence? I need something I can take to the President. I don’t know what to tell him.

Secretary Simon—Sure. I have already spoken to Morton and Rumsfeld. They understand that the energy thing is in bad shape. Of course, Rogers is head of an energy agency and we may be seeing some sort of initiative from him.

Secretary Kissinger—But didn’t Interior have this thing once before and fail at it? Interior is just not able to do it. They didn’t do it before.

Secretary Simon—Yes, that is right. I think we should just have the committee on energy structure honcho it.

Secretary Kissinger—OK. Do an unsigned memo setting it out. Make it unsigned so it doesn’t look like you are making a power grab.

Chairman Burns—What about conservation? That cuts across Project Independence and the international side.

Secretary Kissinger—We should aim for the UN on that. What is the timing on this thing? Bill, you will take everyone to Camp David, right?

Under Secretary Bennett—The Finance Ministers and Bank Chairmen will all be here around the end of September for the IBRD meeting.

Secretary Kissinger—Well then, we will aim for the following:

Bill, you will have your meeting with the small group on the seventh. Then I will get something organized on the 27.

Secretary Simon—The 28 and 29 might be better.

Under Secretary Bennett—We could have a meeting of the Ministers on the 28.

Secretary Kissinger—Yes. We can get the Foreign Ministers and Central Bankers to join. We can take them all up to Camp David. We can surface this political component. Their reaction will be similar to their reaction in February.¹⁰ But we will have to push and get them ready for action later. I like the timing on this.

Assistant Secretary Enders—If the IEP gets off schedule and we have to move it back to October, we can use these meetings to push it through.

Secretary Kissinger—Then we are all against pressuring the companies.

Secretary Simon—Yes, I think that just turns into a self-imposed embargo.

Under Secretary Bennett—How many countries are we talking about for this meeting?

Secretary Kissinger—Just five with Japan. Just the Library Group. We are using the Library Group as a pretext. This lets us leave out some of the others like the Italians.

Assistant Secretary Enders—I don’t think the Italians would be unhelpful, but they don’t have much to offer.

Secretary Kissinger—This lets us leave out Moro. Moro is an idiot. He will not be helpful. He will just stand around and leak all over the place. Anyway, the Italians will probably have a government crisis by that time.

Secretary Simon—Then we should start now with the Finance Ministers about coming early for the meeting.

Secretary Kissinger—How about the Foreign Ministers? The Japanese Foreign Minister will be here. I assume the French, UK, and Germany will come as well.

Under Secretary Bennett—The French have a Francophone meeting on the 27. They may use that as a reason to push this off.

Secretary Kissinger—We will aim for Saturday the 28.

Secretary Simon—Let’s reserve Camp David.

Secretary Kissinger—Brent, you can help with Camp David. I’m afraid you and your family won’t be able to use it that weekend.

OK, then early in September I will get to the Foreign Ministers. Get EUR and IO to find out if all the Foreign Ministers will be here anyway.

Also, let’s get a look at how the anti-cartel operation would work.

We should meet again next Monday or Tuesday.¹¹ (Secretary Kissinger received a phone call. Meeting broke up approximately 12:15.)

1. Source: National Archives, RG 59, Central Foreign Policy Files, P840156–0003. Secret; Eyes Only. Drafted by Stephen W. Bosworth and cleared by Enders. The meeting was held in the Secretary’s office.
2. Not found.
3. The United States proposed an integrated emergency program at the May 2 Energy Coordinating Group meeting. See Foreign Relations, 1969–1976, volume XXXVI, Energy Crisis, 1969–1974, Document 352.
4. Established in April 1973, the Library Group included the United States, the United Kingdom, France, West Germany, and, soon after, Japan. It was the precursor of the more formalized summits of the advanced industrialized nations, beginning with the meeting in Rambouillet in November 1975.
5. Ford delivered the August 12 speech to a joint session of Congress. For the text, see Public Papers of the Presidents of the United States: Gerald R. Ford, 1974, pp. 6–13. Project Independence was President Nixon’s domestic energy program.
6. The United States established the bilateral, joint commissions in 1974 to develop and broaden economic and military cooperation with strategically important countries.
7. Gulf Oil Chairman Robert Dorsey.
8. Simon reported to President Nixon on July 30 on his trip to the Middle East, Europe, and Bermuda July 16–27. See Foreign Relations, 1969–1976, volume XXXVI, Energy Crisis, 1969–1974, Document 361.
9. Senator Warren Magnuson (D-WA).
10. At the Washington Energy Conference. See footnote 3, Document 2.
11. August 19 or 20.