79. Telegram From the Embassy in Saudi Arabia to the Department of State1

6009. Subject: Oil Policy.

Summary: According to Oil Minister Yamani, the Saudis had decided to hold the line for zero price increases in the September OPEC meeting. They had even gone so far as to point out to Iranian Oil Minister Amouzegar that the Saudis might even risk destruction of OPEC to prevent a price increase. In view of what the Saudis consider our “new hard line” toward them to be however, price policy is now undergoing review, and Yamani is not rpt not sure what position the Saudis will take. Although the Ambassador stressed to Yamani that arguments he had previously made about price increases had not changed, and said he knew of no “signals” of changed U.S. policy toward the Saudis, the outcome of the Saudis’ current policy review is in doubt. Any letter from President Ford or other U.S. leaders to King Khalid, Prince Fahd or Yamani should call attention to the Saudis’ public statements on oil policy and express hope that Saudis will be able to hold that line at the OPEC meeting. A tough letter on oil prices would almost certainly be counterproductive; it might tend to confirm their fears that U.S. policy toward Saudi Arabia had shifted. End summary.

1. Saudi Oil Minister Yamani told me Aug 27 that my approaches to him from April through July on oil prices had been discussed at length in the Saudi Cabinet and had finally been accepted. The Cabinet had agreed that at the OPEC meeting the end of September Saudi Arabia must hold the line against any price increase.

2. Prince Fahd discussed the matter with the Shah when he was there recently and with Amouzegar when the latter recently came to Saudi Arabia.2 The Iranian position was that prices should rpt should be increased by the full 35 percent increase in cost of imports, namely $3.50. Iran, however, would be willing to “compromise” on a price increase of “only” $2.00 or $2.50. Yamani said Fahd, unfortunately, [Page 274] had been rather weak in dealing with the Shah; Fahd had urged him to reconsider his position and to adopt a lower price, but he made no threats and he gave no indication of independent Saudi action if Iran refused to move. When Amouzegar was here, however, the Saudi position was much stronger. Amouzegar was told, Yamani said, that if Iran insisted on a high price increase Saudi Arabia would sell at the lower price and increase its production markedly even if this risks a split in OPEC. Yamani will be going to Tehran this afternoon (Aug 28) or tomorrow to discuss the matter with the Iranians.

3. Yamani said it was absolutely crucial that the United States understand this Saudi action was a result of the approaches I had made, and especially that the decision had been taken long before the “new hard American line” toward Saudi Arabia. We should not deceive ourselves into thinking they had yielded to pressure. There was ample evidence of this if we are willing to see it. He had made a statement to the Cairo press three weeks ago, which we surely had noted, on the necessity of keeping oil prices frozen and Prince Fahd, when in Paris, had said that oil prices had risen far enough. (Note: There had been several SRF reports on the same line.) Yamani was also quoted in Ukaz on Aug 12 as saying the Kingdom saw no justified economic reason for raising petroleum prices, and the interview published in Al Musawwar Aug 21 repeated this statement almost word for word.

4. Yamani said the situation had now changed. Assistant Secretary Enders in London at the opening of the Prepcon launched U.S. policy to “break OPEC.”3 The Saudis chose to ignore this but our new policy, Yamani said, had clearly been formalized in my dismissal4 and the adoption of a “new hard line” toward Saudi Arabia. Yamani said he was not rpt not now sure what position Saudi Arabia would take on oil prices.

5. I told the Minister that this matter was infinitely more important than the person of the Ambassador, that I had no idea what “signals” if any we were trying to send to the Saudis. Yamani said he had long suspected that some in the U.S. administration really wanted oil prices to go up. A number of the Saudis’ friends in the OECD and the oil industry have told him that Assistant Secretary Enders has said that the U.S. favored higher oil prices now as a means of uniting the consumers in economic or even military war against producers. Yamani knew that I had taken quite another position, that I had constantly fought, cajoled, [Page 275] persuaded the Saudis to keep the lid on oil prices and I had been successful in persuading them to do so. He also had no doubt that this was the policy favored by the Secretary and Treasury and very likely by the President of the United States, but others, he said, seem to be playing another game.

6. I told him that I did not know if anyone were playing a game at all. My instructions had been clear, but even if there were any taking such a devious position the Saudis should not rpt not play into their hands and agree to increased oil prices. Yamani said he understood this point but we should also understand that many of the Saudi Cabinet now felt that with the “new hard line” toward Saudi Arabia, the Saudi policy on oil prices must undergo a complete review.

7. Comment: Under the circumstances, I strongly urge that any letter sent by President Ford to King Khalid or any letter from any U.S. leader to the King, the Crown Prince or the Petroleum Minister prior to the OPEC meeting call attention to the statements made by Prince Fahd in Paris5 and by Yamani in Cairo; that the letter express the hope that Saudi Arabia will be able to hold its publicly proclaimed line on prices in the OPEC meeting. An expression of appreciation for the earlier actions of Saudi Arabia in restraining oil prices would also be well received here. In no circumstances should Saudi Arabia be lumped together with those countries which have publicly demanded higher oil prices.

8. The Saudis are already disturbed at what they have interpreted as a change of American policy and they are beginning to worry again about the invasion threat. If we send them a tough letter on oil prices—particularly given the fact that they had accepted the arguments I had earlier made and confirmed this by public statements—they will conclude that we are attempting to provoke them.

9. There can be no guarantee that the Saudis will not rpt not yield to OPEC pressures, particularly in face of what they interpret as an American challenge, but there seems no doubt that there is (or has been) a desire to hold the line on prices, with no increase or at most an increase of 50 cents per barrel. A word of appreciation and encouragement here would be much more effective than [Page 276] any threat or hard line we could and should take with other OPEC leaders.6

  1. Source: National Archives, RG 59, Central Foreign Policy Files, D750299–0620. Confidential; Immediate; Exdis. Repeated to Abu Dhabi, Algiers, Bern, Bonn, Brussels for the Embassy, USEC, and USNATO, Cairo, Caracas, Copenhagen, Doha, The Hague, Jakarta, Kuwait, Lagos, Libreville, London, Rome, Paris for the Embassy and USOECD, Tehran, Tokyo, Tripoli, Vienna, Brasilia, Kinshasa, New Delhi, and Quito.
  2. Fahd was in Iran July 1–3, and Amouzegar visited Saudi Arabia during the first week of August.
  3. Not further identified. Prepcon I was held in Paris not London.
  4. See footnote 4, Document 52.
  5. On July 22, Fahd told Giscard that if the industrialized countries stabilized currency rates, the oil producers did not plan to raise prices later in the year. (The New York Times, July 23, 1975, p. 6)
  6. Referring to this telegram and others, Sober sent a personal message to Atherton in which he wrote: “I believe we must assume that the SAG is genuinely concerned that we may be beginning a process of turning away from them.” Sober added that the Department “should not ignore the possibility that the SAG actually intends to fight for keeping the present line on prices.” “Most importantly,” he wrote, “I believe we need to get to the Saudis as quickly as possible and in a way that can best stem their current inclination to read strong negative political signals into our forthcoming change of Ambassadors.” Sober recommended a visit to Saudi Arabia by Kissinger, so that the Royal family could “hear the word directly” concerning U.S. intentions. Finally, Sober suggested modifying a previously proposed letter from President Ford to King Khalid on oil prices based on Akins’s advice, “if we are to believe Yamani.” (Telegram Tosec 100281/205854 to USDel Secretary, August 28; National Archives, RG 59, Central Foreign Policy Files, P850036–2606)