Office of the Historian

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

Jidda, June 26, 1977, 1508Z

4503. Subj: Oil Prices: Message From the Secretary to Crown Prince Fahd. Ref: State 142372.2

1. We have received letter from Crown Prince in response to Secretary’s letter of June 18 (reftel). Text (our translation) follows:

Greetings:

We have received with pleasure your note dated June 18, 1977. While thanking Your Excellency for the kind feelings you expressed concerning our recent visit to Washington and its auspicious results, we share with you the hope that similar contacts be continued in the future to solidify the close ties between our two countries and in support of their common interests.

With respect to Your Excellency’s comments in the said note on oil prices, and the possibility that certain increases could take place in one state or another in the coming months, we would like to point out that Saudi Arabia has and is still following with concern the fluctuating (tadhabdhub in Arabic) oil prices in OPEC producing states. (Saudi Arabia) believes that such fluctuations do not serve the common interests of the producing states themselves; that wisdom and moderation call for an end to this situation, and thence for an attempt to create a positive dialogue in the light of which a single formula for oil prices might be reached during the coming period. I had already mentioned this to H.E. President Carter during the talks I held with His Excellency in Washington.3

In our opinion, coordination of oil prices within the framework of OPEC would achieve the following results:

First: It would end the current fluctuation in oil prices, and consequently put an end to the imbalance in the supply and demand of exporting countries.

Second: Protect OPEC unity and survival as a world body promoting the growth and stability of energy to the advantage of the entire community.

Third: Offer chances of stability and steady growth for the economies of states, developed and developing.

[Page 501]

As Your Excellency is aware, a unified price is definitely in the interest of consumers, even if this entails an increase in the price of oil exported from Saudi Arabia and the United Arab Emirates, for this (increase) is based on the absence of an oil price hike by the others as they had agreed to with effect next July.

If we take the weighted average of crude sale (prices) at an increase of five percent and at a fifteen percent increase, the average would be higher than ten percent, an additional burden on consumers which may be removed if the prices of Saudi Arabia and UAE were stepped up.

However, the prices—as Your Excellency is aware—are basically subject to the law of supply and demand. As long as the supply can be increased considerably beyond present levels only with difficulty, any increase in demand results in a price hike no matter to what degree we concentrate efforts toward the opposite direction. We greatly appreciate Your Excellency’s efforts in opposing increased consumption of energy, but we seize this opportunity to stress our concern that demand be reduced. Even if efforts to reduce consumption succeed, demand for petroleum will continue to be considerable, as a result of the building up of petroleum reserves of various kinds. This development came at a time when Saudi Arabia was striving to block unreasonable increases in prices, and (our) efforts have been and are still affected by this policy which increases demand for petroleum, dissipates the advantages of conserving energy, and weakens the results of Saudi Arabia’s efforts, perhaps fatally.

From all the foregoing, Your Excellency will realize that Saudi Arabia’s role vis-a-vis oil prices stems from its sense of international responsibility and communal responsibility for the sake of keeping this vital substance a source of prosperity for man, his growth and happiness. And thus we join Your Excellency in a common understanding of the necessity for further stability in the prices of energy so that it may continue to be a means for the good of man. And, lastly, we hope that forthcoming efforts may yield good results to the advantage of all.

In closing, I am pleased to reiterate my thanks and appreciation for the sentiments and valuable views contained in Your Excellency’s note. Please convey to H.E. President Jimmy Carter the greetings and wishes of H.M. King Khalid bin Abd al-Aziz, and it gives me pleasure to share His Majesty’s greetings and best wishes for H.E. the President and for Your Excellency personally.

Fahd bin Abd al-Aziz al-Saud

Crown Prince and Deputy Prime Minister

Riyadh, 9 Rajab 1397H

June 25, 1977 A.D. End text

2. Text of letter being pouched.

Wiley
  1. Source: National Archives, RG 59, Central Foreign Policy File, D770228–0548. Secret; Immediate. Sent for information to USLO Riyadh.↩
  2. See Document 152.↩
  3. See footnote 8, Document 149.↩