56. Memorandum of Conversation1

SUBJECT

  • Energy Strategy

PARTICIPANTS

  • Honorable Henry A. Kissinger, Secretary of State
  • Honorable Robert S. Ingersoll, Deputy Secretary of State
  • Honorable Charles W. Robinson, Under Secretary for Economic Affairs
  • Honorable Helmut Sonnenfeldt, Counselor of the Department
  • Honorable Thomas O. Enders, Assistant Secretary, Economic & Business Affairs
  • Honorable Winston Lord, Director, Policy Planning Staff
  • Mr. Paul Bremer—S

Kissinger: My God, Enders, I thought you weren’t here and panic set in.

OK, let’s talk first about energy strategy. My own views are . . . I’m rather torn . . . In my opinion the outcome of the Prepcon was absolutely correct. I have seen an intelligence report indicating that Giscard is blaming the failure on us. In retrospect, perhaps we should have coordinated with the French before the meeting.

[Page 195]

Enders: We did do that. We met bilaterally with the French every 2 weeks and told them what we expected to happen.

Kissinger: I mean, with them especially.

Enders: That’s exactly what we did.

Kissinger: I am not being critical of you Tom, I’m just wondering if we should have coordinated with them at my level.

At any rate, the outcome was clearly correct. We could not have Giscard racing around Algeria trying to sell us out to Boumediene2 like the French did at the CSCE. On another level, I am somewhat upset at our refusal to discuss raw materials. I think we must agree to do this.

Robinson: We made clear during the Prepcon that we were prepared to discuss raw materials.

Kissinger: I don’t believe an energy conference can do anything but cause us a great deal of damage. For that reason I do not believe an energy conference would be in our interest. In any kind of conference like that, it is quite clear that the OPEC and LDC countries will stick together. The French will join them. The IEA countries will stay with us but only for a while and then collapse.

I wonder, as a question of strategy, whether it would be better to have a conference that can’t possibly succeed. If the French want a big conference, since our judgment is it can’t succeed, why not settle for a non-energy conference? Clearly our own interest in an energy conference is next to none.

Robinson: I would agree with your judgment.

Kissinger: So our only interest is to hold the IEA together . . . If the IEA is ready to stick with us—which I doubt. When the French and the Arabs press them they will fall away.

Enders: That’s OK. But let them come to us and make them give us something for our agreement to go to a conference.

Sonnenfeldt: The problem is if a multilateral effort fails too blatantly, the Europeans will go the bilateral route.

Kissinger: Chuck, what are your views?

Robinson: The process of multilateralism did . . .

Kissinger: We can’t be for bilaterals at this point.

Robinson: I agree. I think we should sit back on the multilateral process and move forward on our bilaterals with Iran and Saudi Arabia. The real problem is how to bring them around. I think if we [Page 196] work quietly with them along the lines suggested by Yamani,3 we could eventually have a conference.

Kissinger: What is your conception of the Yamani approach (to Robinson)? I understood Yamani to say that the producers could go along with discussion of energy in a first conference provided we agreed to have a second conference devoted to raw materials.

Robinson: Algeria wants to index oil and commodity prices. They expect in this way to revamp the free enterprise system. This would be a fundamental change—a basic revamping of the existing economic system. I believe we can work with Yamani. I believe Iran and Saudi Arabia are ready to take a realistic approach to this problem and bring this back to a manageable forum. But I think we should neither push nor block a multilateral dialogue.

Kissinger: Yes, but I need to take a position on this.

Robinson: I think you need to take the position that we are prepared to talk about commodities but not in a way that goes along the lines of the new International Economic Order.4

Kissinger: We need an idea now where we want to be at the end of this process.

Robinson: I think we want to be ready to discuss these issues.

Kissinger: I will have to take a position on the producer/consumer dialogue at the IEA Ministerial.5

Enders: That is what the Ministerial will be about.

Chuck, I have a somewhat different view . . .

Kissinger: Enders will end up as President of OPEC and Chairman of IEA.

Enders: I don’t think . . .

Kissinger: At least I am not surrounded by weak men.

[Page 197]

Enders: I don’t think we want to discuss commodities. Our ultimate strategy will be to define—in our own interest—to take a position unilaterally on the commodities problem. The ideas of the Saudis are counterproductive. We may want to push for a conference along the lines of the Special Session; that gave a result that discredited itself.

Kissinger: Well, what is your strategy?

Enders: In terms of the dialogue, to create conditions so that it becomes like the Special Session. In this way actions taken by us on commodities are taken unilaterally, coldly, in our own self-interest. We can do this bilaterally or multilaterally as appropriate. This would let the LDCs each lean as their own interests determine. As we move toward conference—we should keep a multilateral conference goal and agree to a producer/consumer conference—we should press for wider representation. The leverage on the US in a larger grouping would be reduced. We also want to give the IEA a sense of participation in the bilateral exercise and we may wish to consider small multilateral groupings.

Kissinger: Bilaterals between who and who?

Enders: They have shied away from bilaterals because of the position we adopted during and after the embargo.

Kissinger: The US has?

Enders: No, we have continued with our bilaterals.

Kissinger: My confidence in the IEA is zero. I have played with the idea of bilaterals with the producers because my confidence in the US is greater than my confidence in the IEA. I don’t think we should encourage them to proceed with bilaterals. They are too greedy and too undisciplined.

Enders: They’ll do it anyhow. Through the IEA we can impose collective discipline.

Robinson: I can’t see that.

Kissinger: Will you explain the scheme set out in your paper6 (to Enders)?

Enders: When oil supplies are short in the market, as was the case during the embargo, bilateral deals are dangerous because they are preclusive. They tie up oil for certain consumers and the rest are forced to compete for a smaller supply. But where there is excess capacity the situation is reversed. There is a large excess available now and there will still be relative ease in the market as demand picks up. If production can be increased substantially in Saudi Arabia, the radical states will have to compete for a smaller share of available demand.

[Page 198]

Robinson: Tom, we differ on that. I do think we need a coordinated policy in the IEA. However, if we try to do what you are proposing we can’t achieve it because IEA members will not confront the producers.

Kissinger: The Italians will go directly to the Libyans and tell them about it as soon as you propose it.

Lord: I sent Tom a memo7 outlining some of the problems I saw with his bilateral approach.

Kissinger: How many people in the Department know about this? 95? When did S/P become involved in this exercise?

Lord: We have been in on all aspects of energy policy since the beginning.8

Kissinger: Hormats sent me a memo saying he has done a paper on food reserves.9 Have you seen this Tom? I think you should look at it in connection with my speech.

Enders: No, I haven’t seen it. Should I ask him for a copy?

Bremer: I’ll take care of getting you a copy.

Kissinger: Have you seen these questions Tom? (referring to the Lord paper.)

Enders: Yes.

Kissinger: I assume all that they do is confirm your own views.

Enders: Well, I think I can answer them all.

Kissinger: Go ahead.

Enders: Well, on No. 1, concerning the shift among sources of crude supply, I think the answer is Yes, it is technically feasible to shift.

Kissinger: I want to understand what you want to do Tom. You want to have an agreement in IEA to target liftings in certain producer countries, is that right?

Enders: Yes. But camouflaged through a bilateral framework on a security of supply basis.

Kissinger: None of the producers will agree to this.

Enders: It’s worth a try. We can’t do it alone since a bilateral approach by the US only will not have much of an impact, only 500,000 b/d. But, if we can get the Europeans to go along we would have some pressure on the radical producers.

Kissinger: Unless Libya agreed to give them a security of supply guarantee.

[Page 199]

Enders: Yes, but if the Libyans give them better terms this would be a movement toward our goal.

Kissinger: Your strategy is to coordinate an IEA approach. I don’t think we can do this. It would be a good strategy if it could be implemented.

Lord: What kind of camouflage are you talking about, Tom?

Enders: If we want to lift only from Saudi Arabia, we could talk in surrogates, like bilateral deals.

Kissinger: What other kind of guarantees would you require?

Enders: That the producers put no artificial limitations on liftings.

Kissinger: Saudi Arabia will never agree to this.

Enders: They don’t have them now.

Robinson: I was talking to the Aramco people yesterday and they told me that liftings in Saudi Arabia in April would be down to an average of 4.5 million b/d.

Enders: I don’t think Saudi Arabia will put a limit on liftings. They never have done that except during the embargo.

Robinson: You are talking about the difference between what the US can do alone and what the IEA can do acting together.

Kissinger: But if the Saudis are down on production already by 50 percent, that’s the limitation on this strategy.

Enders: No, the Saudis say it is market forces which have created this.

Robinson: I am not sure of that. I think the Saudis are doing this deliberately. Based on my conversation with the Aramco people yesterday, I think the Saudis are reducing production to ease the pressure on the other producers.

Kissinger: Besides, Aramco is its own customer.

Enders: At the present time the cuts in production are being managed by the companies and we have not interfered with that process. The cartel is having an easy time managing the surplus in the market.

Kissinger: I think if this is proposed to the IEA it would be explosive.

Enders: I don’t think we should propose it that explicitly. We could just say that we think the time is right to reexamine our position on bilateral arrangements in view of the changes that have occurred in the market. There already are some bilateral deals under discussion, for example the German proposal with Iran for joint construction of a refinery with Iran having preferential access for product in the German market to harden the arrangement. I don’t think this would be explo[Page 200]sive. The real question is whether we can stop any deals between the consumers and Iraq and the other radical producers.

Kissinger: Why wouldn’t the IEA countries break when the time is right?

Enders: I don’t think they would. In any case we can add additional criteria besides security of supply to force the radical producers to absorb the additional cuts in production.

Kissinger: Another way to do this would be to force the moderates to absorb the cuts. They are already screaming about reduced production. The Shah would play along. The Algerians would too. I know the Moslems but I don’t know the Nigerians and other producers. Does Indonesia have excess capacity? The point is that when the moderates have to absorb the cuts they will reach a point beyond which they will not go. The radicals will do it for political reasons.

Enders: But the Libyans are already low, and are hurting. I would agree that the best way to approach this and add to the pressure on OPEC would be by targeting the moderates. But, I don’t think we can engineer that.

Kissinger: I don’t know if we can do this either. Do you think we can (to Sonnenfeldt)?

Sonnenfeldt: For the six months after the embargo we were successful in restraining bilateral efforts by other countries; perhaps we can do the same thing in the other direction. But, it will be a sharp turn-around from what we have been saying in the past.

Robinson: If we do anything like this it will have to be carefully coordinated.

Enders: We have an analogous situation in the trade field and were successful in getting the other members of OECD to sign the trade pledge. I think we can try to do the same for energy.

Sonnenfeldt: We must try to prevent a ruinous competition amongst consumer countries.

Lord: Yes, we could have bilaterals without the IEA.

Enders: That’s going on at present. Their self-interest has prevented it from getting out of hand.

Robinson: I think we also need to take account of a point made by the Aramco people—I think it was Hedlund of Exxon—who said that the substantial excess in capacity everyone is talking about now is not real.

Kissinger: Who said that?

Robinson: The Aramco people I met with yesterday. They pointed out that excess capacity is lost fairly quickly unless there is a continuing investment in the fields to keep production up. They do not think cur[Page 201]rent capacity is anything like 38 million b/d. For example, they do not believe that Libyan production can be raised much above 1.5 million b/d in less than 3 years.

Enders: I was referring to the level of their exports, not their capacity.

Robinson: Yes, but their point is that time is required, and fairly heavy investment as well, to maintain productive capacity at the levels we have been talking about.

Kissinger: Would there be any internal bureaucratic problem in the Administration in doing this?

Enders: No. We already have a $1.00 import fee in place. We could give a preference to preferred buyers to harden this.

Kissinger: We will have a $2.00 fee soon.

Enders: I hope we can move it from $2 to $3 also.

Robinson: Mr. Secretary, I think we need two decisions today:

—the first is the position Tom should take at next week’s Governing Board meeting;

—the second is whether I should go ahead with my proposed visits to Iran and Egypt.

Kissinger: I definitely think you should go to Iran. I think it is essential for psychological reasons before the Shah gets here. Egypt can wait for two weeks or so, but I think it is important that you do this, especially with the Israelis coming here.

Robinson: I will need something definite to discuss with the Egyptians. This will be our first high level contact with the new government.

Kissinger: Well, we could propose to build a dam along the Nile with stones from some of the pyramids. Personally, I’d like to see Enders over there talking to them.

Enders: At one time I was a student of Arabic, Malay, and other esoteric languages.

Kissinger: Did any of you ever see the movie “Sitting Pretty” with Clifton Webb? Tom, you were probably too young. He was hired as a baby sitter but in the film he could do everything. That’s how I see you sometimes Tom, and why I’d like to see you in the Middle East talking to the Arabs.

Enders: I no longer speak the language.

Kissinger: How would you do it? (to Enders)

Enders: The President already has the legal authority and we would only need a 50 cent preference to make it work.

Robinson: The real problem is how to get the IEA countries together on a coherent plan which will effectively undermine OPEC.

[Page 202]

Enders: I think OPEC is showing definite signs of strength politically. The deal on the Kurds10 is a good example.

Kissinger: That was not done in the OPEC context.

Enders: Yes, but it was at an OPEC meeting.

Kissinger: In my opinion that was just an excuse by the Shah to do what he wanted to do anyhow.

Enders: Agreed, but it is certainly an indicator that OPEC is holding together politically.

Kissinger: It is your view then that OPEC is getting stronger, and that we should attack before it gets too strong?

Enders: Yes.

Kissinger: What do you plan to discuss at the Governing Board next week?11

Enders: The discussions will naturally focus on why the Prepcon broke down. In my own view I think we should go back to your November speech on the need to establish the objective conditions for equilibrium in the oil market12 before any progress can be made. We need more time to implement our policies. We should continue to keep a multilateral meeting on energy as a goal, but some way off. What we need to decide is what to do between now and then. We may wish to consider the bilaterals. You have my paper on that.

Kissinger: I don’t think we are ready for that yet.

Enders: I didn’t mean we should lay the whole thing out this week, but I thought we might begin the process of exchanging information on bilaterals in the IEA.

Kissinger: We have the most contacts, why should we give this away?

[Page 203]

Robinson: I’m not sure what interest we have in doing this.

Kissinger: What is your conception (to Enders)?

Enders: I think we must give them some action in the producer/consumer field for the next few months.

Kissinger: They will get suspicious if we use the word bilaterals. It will trigger a frenzy of bilaterals on their part, and they are rapacious bastards.

Enders: I agree with you but I think we need to give them something to do where we can maintain some control.

Kissinger: Why can’t we just sit through the meeting? Give them our analysis of what happened at the Prepcon. It is not my impression that precision of thought is an IEA forte.

Sonnenfeldt: We could give them more on the accelerated development idea.

Kissinger: I think we need a low key meeting. If we decide to go the bilateral route with them I can float this at the Ministerial.

Enders: We also need to do more staff work. We may wish to talk to Treasury about it.

Kissinger: We don’t want another Prepcon quickly, but don’t dump all over the idea. I want the French to hear that we are talking about this in a conciliatory and favorable manner. But I don’t want you to say that you think we should be going the bilateral route now.

Enders: That is not what I am saying. I am saying only that the multilateral route seems to have been premature and for the immediate future we will have to return to bilaterals.

Kissinger: We can conduct our own bilaterals. We don’t need theirs and we are unlikely to have much effect on them. If we launch a big new initiative on bilaterals at this meeting I think it will trigger:

—The US is a son of a bitch and deliberately acted to blow up the Prepcon;

—This will permit the French to say that we didn’t want the Prepcon to succeed and deliberately sabotaged it;

—Once the other Europeans are convinced of this they will go the bilateral route as quickly as possible and eventually will be forced into a producer/consumer multilateral meeting, stripped of the solidarity we have been able to achieve.

Hal, what is your view?

Sonnenfeldt: We agreed to trade off solidarity amongst the consumers for our agreement to go to a multilateral conference. We need the multilateral umbrella to conduct our bilaterals or perhaps small multilaterals.

Kissinger: What do you mean by small multilaterals?

Sonnenfeldt: We need some compartmentalization.

[Page 204]

Enders: An obvious one would be to expand the Group of Five Finance Ministers to include Saudi Arabia and Iran for discussion on monetary issues.

Lord: That’s what the French want.

Sonnenfeldt: The IEA will look to us for a road map.

Kissinger: I don’t think we should mention bilaterals. It permits them to evade their responsibilities and they will gobble it up. Tom, talk like the Israelis. Say that a suspension is not a set back. Give them something not too intellectually rigorous to chew on.

(The Secretary received a telephone call.)

Kissinger: I only have 15 minutes left and then I have another appointment. Tom, play it low key. Don’t raise the bilateral approach at this time. I want to think about it.

Robinson: One subject which is sure to come up is how we relate to the commodities problem.

Kissinger: We want to make sure the LDCs get the word that we are taking a new look at this.

Enders: I think it’s too soon for that.

Kissinger: You should appear extremely conciliatory at the meeting.

Enders: We are. They got 95 percent of what they want.

Kissinger: I’m concerned with what gets to the French and what gets to the Arabs.

Enders: I’ll take a very serene posture. On the analysis I’ll focus on how to do it better.

Kissinger: You should say we are willing to look at this again. Yamani will get the word around to the producers. I told him to think about a link between an energy conference and a second conference on raw materials. I said that in principle we were willing to consider this.13

Weren’t you at the meeting (to Robinson)?

Robinson: Yes.

Kissinger: I said it was not beyond the intellectual capacity of man to resolve this.

Enders: I don’t think we will have a problem at this meeting. Our problem will be in deciding on a policy to dominate them.

Kissinger: Bilaterals won’t do that. Go through the countries.

Will the Germans give up their Libyan deals?

Will the Italians give up their special arrangements in Libya?

[Page 205]

What kind of bilaterals do you mean?

Enders: I was thinking about long term arrangements at market prices with a security of supply guarantee which are hardened by some sort of preferential access to our market, for example, so Iran can go to full capacity.

Kissinger: So, you would only discriminate against those countries who won’t give a guarantee on security of supplies? Suppose they all do it?

Enders: We will use other criteria to ensure that guarantees from the radicals are not acceptable.

Kissinger: Hal?

Sonnenfeldt: If we release them from the constraints now they will all run off. Schmidt wants to coordinate with us but if we signal that we are moving towards bilaterals, in effect they will go to the original French position. I don’t know about the UK; I have not seen their position on this. They are all making deals under the table.

Enders: They could do that now.

Kissinger: Tom, what would you have discussed if the Prepcon had succeeded.

Enders: The same thing.

Kissinger: Except that you would have done this without checking with me first.

Enders: No, I would have told you 24 hours beforehand.

We need a new concept . . .

Kissinger: Well, I want to reserve my position on this.

Enders: We need to do more staff work. We should get Treasury involved.

Kissinger: This must be closely held. If you discuss it with Treasury it will be in the newspapers the next day.

Enders: Would you have any objections to my raising this with Cooper?

Kissinger: Let’s discuss that after the Governing Board meeting but do not, under any circumstances, raise it there.

Enders: Meanwhile, the President is making a decision on energy policy this weekend. I think if he goes to $2 or $3 on the import fee we can implement the floor price without going to Congress.

Lord: Oh, victory with Vietnam! Can you explain that Tom?

Enders: It’s clear we cannot get Congress to agree to our floor price proposal because it won’t agree with any serious energy proposals. But if we had an import fee of $3 or even $2, when the price fell it would have to go below $4 or $5 before we would need additional authority from Congress. We could argue plausibly that we already had taken ac[Page 206]tion to ensure that domestic oil prices do not fall below a minimum price level of about $7. This would have an additional advantage by enabling us to renew our alliance with Treasury. They favor the tariff approach.

Kissinger: I like the idea of getting back together with Treasury. They’ve been useful at times in the past.

Robinson: I’m not sure the IEA will go along.

Kissinger: The President is sure to go for the second dollar this weekend. The Democrats want him to do it. They prefer to run against him than to run on their energy policy.

What do I do at the IEA Ministerial? I should not focus only on producer/consumer dialogue. My statement should include an analysis of consumer cooperation but I will not say the IEA is designed to produce consumer cooperation. It is the vehicle but not the mechanism for this. I need a document with some vista of consumer cooperation. We need to think further about producer/consumer relations.

Enders: I was thinking of a document that would be a ministerial laying on of hands on the work that has been done at the official level since November and that gives some forward perspective.

Kissinger: I think it should contain considerable forward perspective. Where is the document?

Enders: We have something in rough form you could see now, or we will have a more elaborated piece ready by Tuesday.14

Kissinger: I’ll wait until Tuesday. OK, let’s turn to the OECD Ministerial.

[Omitted here is discussion unrelated to energy.]

  1. Source: National Archives, RG 59, Records of Henry Kissinger, Lot 91D414, Box 11, Classified External Memoranda of Conversations, April 1975. Secret; Sensitive; Nodis. Drafted by Raicht on April 28. The meeting was held in the Secretary’s office.
  2. See footnote 4, Document 53.
  3. See Document 55.
  4. On May 1, 1974, the UN General Assembly adopted Resolution 3201 (S–VI), “Declaration on the Establishment of a New Economic World Order,” which proclaimed “the united determination” of the UN members “to work urgently for the establishment of a new international economic order based on equity, sovereign equality, interdependence, common interest and co-operation among all States, irrespective of their economic and social systems which shall correct inequalities and redress existing injustices, make it possible to eliminate the widening gap between the developed and the developing countries and ensure steadily accelerating economic and social development and peace and justice for present and future generations.” The Sixth Special Session, at the end of which the resolution was passed, studied “for the first time the problems of raw materials and development” and was “devoted to the consideration of the most important economic problems facing the world community.” The full text of the resolution is in Yearbook of the United Nations, 1974, pp. 324–332.
  5. Kissinger was scheduled to attend the OECD and IEA Ministerial meetings in Paris May 26–28.
  6. Not found.
  7. Not found.
  8. See, for example, Document 7.
  9. Neither found.
  10. Reference is to the Algiers Accord, signed by Iran and Iraq on March 6 during the March 4–6 OPEC meeting in Algiers. Iraq relinquished territory on the Shatt al-Arab River in return for Iran’s agreement to stop funding Kurdish insurgents in Iraq. Documentation is in Foreign Relations, 1969–1976, volume XXVII, Iran; Iraq, 1973–1976.
  11. At the April 28–29 IEA Governing Board meeting, the Board “blocked out” preliminary conclusions and proposals on a producer/consumer dialogue including: “As a result of the Prepcon the link between raw materials and energy is a political fact. But a single conference on the New International Economic Order is not rpt not in the interest of industrialized countries”; “one possible way out is to defer a new attempt at dialogue on energy, but for the OECD countries to take the initiative on raw materials at the OECD Ministerial”; “to give industrialized countries market power they need and cohesion, it is now more important than ever to carry through implementation of IEA energy program of conservation, alternative sources, R&D”; “at the same time, IEA must go on preparing and be seen to prepare new ideas on dialogue with producers, even though timing and efficacy are uncertain.” (Telegram 10921 from USOECD Paris, April 29; Ford Library, National Security Adviser, Presidential Country Files for Europe and Canada, Box 4, France—State Department Telegrams to SECSTATE–NODIS (3))
  12. See footnote 4, Document 17.
  13. See Document 55.
  14. April 29. The paper was not found.