22. Memorandum of Conversation1


  • Helmut Schmidt, Chancellor, Federal Republic of Germany
  • Hans-Dietrich Genscher, Vice Chancellor and Minister of Foreign Affairs
  • Berndt Von Staden, Ambassador to the United States
  • President Gerald R. Ford
  • Dr. Henry A. Kissinger, Secretary of State and Assistant to the President for National Security Affairs
  • Ambassador Martin J. Hillenbrand, Ambassador to the Federal Republic of Germany
  • Lt. General Brent Scowcroft, Deputy Assistant to the President for National Security Affairs
[Page 84]

[Omitted here is discussion unrelated to energy.]

Schmidt: Back to Giscard and oil. As I understand him, as a person—we have talked often over the last weeks—he is willing with you to bring about not only what looks like but really serves the purposes of consolidation. With his consent. I will sketch out a few ideas on which you and he might publicly agree.

We must avoid, if possible, a consumer-producer confrontation,2 because the consumers are weaker—Europe much more than the United States. Europe is very dependent on Middle East oil. No one thinks we should risk confrontation if it can be avoided. So we need government-to-government working relations with the producers. We think we can combine the proposals raised by OECD, the U.S. ideas, and Giscard’s carelessly launched ideas. (He consulted apparently no one).3

Why not a sequence of three phases?

(1) Giscard invites a February meeting of senior civil servants to Paris to set a date and invitations to a consumer-producer conference, maybe for June, and define what might be discussed. Then everyone will know a conference will happen and that consensus of consumers and producers (separately) must evolve.

(2) A consumer caucus, in which France then must join. And

(3) a consumer-producer meeting.

Giscard will buy this. Before all this, we should do something private—a small group of private citizens with access to their governments (12–15 people) to have a meeting of brains. You could send Shultz. Iran would send someone, and Saudi Arabia, and Algeria. There has never been a brainstorming conference like this in the economic area—it would be like Pugwash4—with the producers. The Shah is not capable of knowing what he has done to the world.

[Page 85]

This is a personal idea. Someone would have to host, but governments would be recipients of the ideas.

The governments of the producers don’t understand. The French Government doesn’t. Giscard himself may.

President: Let me think about it. We strongly feel there must be a higher unity among the consumers—not on the basis of a confrontation, but to know that we as consumers know our options, and soon. Without that, if we go even to a preparatory conference, we will get off on the wrong foot.

Schmidt: I agree. Secretary Kissinger knows I am trying to help.

Kissinger: Indeed, I told the President about your help at the Washington Energy Conference.5

Schmidt: But it may appear, if you attempt to do this first, before anything, it looks like a consumer cartel. If you wrap it as I suggest, it avoids this. You must defuse French policy in the Middle East. In response, the French would have to participate.

Kissinger: Aside from the merits, there are a number of phony arguments. What confrontation is there? Our relations with the producers are as good as anybody’s. The French are saying we want a confrontation.

Schmidt: And U.S. citizens traveling abroad.

President: Then they are ill-informed. But if consumers don’t have some unison, we could go down the path to ineffective results.

Schmidt: I agree. But you are viewed as seeking a confrontation.

Kissinger: If bilateral relations with the producers aren’t coordinated among the consumers before the meeting, a meeting will produce the same uncoordinated babble. We don’t want a confrontation. You could argue that if we aren’t coordinated, a conference would fail and then a confrontation would be inevitable.

Wise producers can’t want the destruction of the consumers. I agree with Giscard. But French diplomats are stimulating these ideas of the U.S. wanting a confrontation.

Schmidt: How would you do it?

Kissinger: Giscard is committed to a producers conference. We are not opposed, and we could even agree on a tentative date. But we would reverse stages A and B. We first need consumer unity. We had a letter from Sauvagnargues in Tokyo, in which he said a producers conference only makes sense if preceded by consumer cooperation.6 If we [Page 86] start preparation for a consumer/producer conference, maneuvering would start. We can save Giscard’s face by getting the President’s commitment to a producers conference. The basic point is whether a producers conference is one where the West continues its civil war or whether we can get a unified approach.

French diplomats are using the producers conference in an anti-American campaign. It actually helps us because it makes us look tough.

We worry about an unstructured conference. We want a long-term solution which avoids confrontation.

Boumediene said to me, “If you want a slight political price cut we can talk; if a deep cut, we can’t talk.”

Schmidt: A private meeting would help to get an understanding on this point.

Kissinger: A producers conference could accentuate the sense of impotence of the West that could offset all policies.

Schmidt: I am convinced.

President: The problem is to save France’s face and make it work. Let’s try to find a formula which will work and let me finalize it at Martinique.

Schmidt: There are two technical problems: (1) Indexing. I am totally opposed. But there is some validity for producers to want a guarantee of the real price of oil.

Kissinger: It depends on the price.

Schmidt: The second problem is the $25 billion fund, about which I am hesitant. It is an invitation for Britain and Italy to continue with inflation. It takes away from the Arabs the risks of investment and puts it on us. Third, I can’t commit my country to that amount. $4 billion is an enormous burden on our budget. It would explode my budget.

President: It gives us more freedom to have our own funds, so we are not then dependent on both the oil produced and the money invested.

Kissinger: It could be used to introduce discipline.

Schmidt: Italy wouldn’t fulfill the conditions.

Kissinger: If we borrow from the producers now, we have instituted a producers/consumers dialogue right away.

Schmidt: The U.S. economy is 5 to 6 times as strong as ours. We are just a medium-size economy. I couldn’t risk being called on to pay out billions. I would have to borrow from the Arabs.

Kissinger: Better you than the Italians.

Schmidt: Yes. But then I take all the bad risks and the Arabs get the good risks. I would have to get parliamentary approval.

[Page 87]

President: If we had the right kind of consumer unanimity, we could get Congressional approval.

Schmidt: If it wouldn’t be used, I could make it, but . . .7

  1. Source: Ford Library, National Security Adviser, Memoranda of Conversations, Box 7. Secret. The meeting was held in the Oval Office.
  2. During a conversation with the President and Scowcroft prior to the meeting with Schmidt, Kissinger asserted: “Schmidt will mumble about not wanting a confrontation. It is a false argument. We are not seeking one—but the key is the solidarity of the consumers. Schmidt will want a producer contribution to the fund. But that defeats the purpose and destroys our solidarity—they could contribute after the second year, after we get going. You must put this to him on the unity of the West. Schmidt worries that he and we will bear the burden and the others will relax. He is right. Tell him we will insist on a country putting its own house in order before it can borrow.” (Ibid.)
  3. Reference is to the October 24 press conference at which Giscard proposed a consumer-producer conference. See Document 12.
  4. The 24th session of the Pugwash Conference on Science and World Affairs opened on August 28 in Vienna. The meetings first began 17 years earlier in Pugwash, Nova Scotia, Canada.
  5. See footnote 3, Document 2.
  6. Sauvagnargues’s letter was not found. It was presumably a response to Kissinger’s letter in Document 18.
  7. Scowcroft’s handwritten notes and the typed transcript end here. Before Ford’s next meeting with Schmidt in the Oval Office on December 6, Kissinger told the President: “On a consumer-producers conference we must hold firm. We need to manage the energy thing for the political unity of the West. Military defense is not enough. We must have a big joint effort. The Japanese have in effect bit it. We can’t go to a preliminary conference. We can agree to it in principle and a target date. But tell him we won’t go to a badly prepared producers’ conference. The faster we get consumer cooperation, the quicker we can have a consumer-producer conference. If he wants to do something with Giscard, we can immediately work on the consumer efforts.” (Memorandum of conversation, December 6; Ford Library, National Security Adviser, Memoranda of Conversations, Box 7) In their meeting later that morning, Ford and Schmidt covered much of the same ground on energy cooperation that they had the previous day. (Ibid.)