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

229. Minutes of the Secretary of State’s Staff Meeting¹

Washington, October 26, 1973, 3:15 p.m.

[Omitted here are the Summary of Decisions and discussion unrelated to oil.]

Secretary Kissinger: Okay. That leaves the oil.

Bill, do you want to put forth what the problem is? Or who does?

Mr. Casey: There are two papers here.² For the five o’clock meeting,³ it seems to me there are three subjects of conversation. One is their posture. The other is what can be done about the embargo. I think one more subject here is what interest do they have in moving supplies around, keeping supplies moving. I think there is a very serious risk there. Because these international oil companies are American companies, some countries think we can tell them how to handle the shipments. I think we can only do that if we try to a very marginal degree. I think it would set up repercussions which would be damaging. It would not be worth what we get out of it.

Then the third part of what I have laid out here is the kind of questions you may want to raise with respect to re-examination of our ability to help them in fundamental price and supply problems after this current crisis.

There is the general situation of the posture of the oil companies, including embargo and where we go after the embargo is behind us.

Secretary Kissinger: Well, what is your view about the position I should take?

Mr. Casey: I don’t think we have any position.

Secretary Kissinger: Then what do I want from them? Why are they here?

Mr. Casey: You want three things. You want to get them squared away on their present behavior—to keep quiet and lay low. You want to get information from them as to the impact of the embargo as they see it. And we want to discuss—

Secretary Kissinger: Do we need that information?

Mr. Casey: Yes, I think we should have it. And we want to explore some points in handling the embargo.

On the embargo, I think we want to hear from them as to how they see its impact, what they can see as to how to minimize it.

I think we want to discuss with them the dangers of creating an impression that they are diverting shipments from other countries to maintain supplies to us. We want to get their views on the prospects of getting additional supplies from non-Arab sources.

Looking beyond the embargo, I think we want to ask for a reexamination of all the assumptions on which we have been operating, how we can support their position, how we can participate in handling the negotiations.

And I suggest here you suggest some of the questions on which we would like to have their advice. Is it still true that our best posture would be to let them negotiate and back them up, rather than deal directly with the governments. Should they be thinking about coming up with some new formulas and new initiatives in the change of ownership patters, as they have done with Iran and with Egypt.

Secretary Kissinger: What if I tell them they are no longer dealing with local sheiks but with international politics? Is that going to shake them?

Mr. Rush: They have realized that for a long time.

Mr. Casey: As to the future, I think their relationship—

Secretary Kissinger: Are you going to sit in, Joe?

Mr. Sisco: I haven’t been asked to. Do you want me to?

Mr. Rush: Yes.

Mr. Casey: This may move the European countries to squeeze them out of the distribution business, which is important to us from the balance of payments point of view, and important to them.

Secretary Kissinger: I don’t want to spend an hour or whatever time we have set aside for listening to their complaints, which are endless. I want to crystallize some solution or something we want them to do.

Mr. Casey: I think all we want them to do is keep quiet and advise us.

Mr. Rush: I think the best way to approach it is to outline to them, seemingly take them into your confidence on what are our foreign policy goals in the Middle East; bring them up-to-date on the crisis; ask for their support; and as a major part of asking for their support, request that they not muddy the waters.

Secretary Kissinger: You said “seemingly” take them into our confidence.

Mr. Rush: I think that would be the correct term.

Secretary Kissinger: But how about the negotiations? How about the relationship between the government and the companies, and between them and foreign countries apart from the producing countries, like the Europeans? What do we tell the British when they come over here? What do you think?

Mr. Katz: Well, Mr. Secretary, I think that the long-term problem really has to be looked at in terms of the demand-supply balance. We cannot affect supply except after a period of some years. The only way we can get a handle on prices, on ownership or any of the other subjects that have been dealt with in negotiations is to affect the demand balance, on the demand side of the equation. We can do that alone, to some extent, because we loom so large in the picture. We are the disruptive factor in the world market. Our demand is growing so large that we are taking up all of the increase in supply. We ought to do it, if we are going to do it at all, on a collective basis.

Secretary Kissinger: How?

Mr. Katz: We can do it by doing nothing. We can let price do it.

Price will serve as a rationing function. It will hit probably people we would rather not hit, and it may disrupt our own economy in a way we would rather not.

Secretary Kissinger: Whom will it hit?

Mr. Katz: Well, internationally, of course, it will hit developing countries very hard. We can afford to go in and pay high prices. It will hit the British economy very hard. It will hit the French to some extent. It will not hit the Germans, it will not hit the Japanese.

Secretary Kissinger: It won’t hit the Germans because they can afford it?

Mr. Katz: Because of the revaluation. They are not paying very much more for their oil internationally than they have previously.

Now, the other way we can do it is by physical controls. Essentially what this involves is an international rationing system. That is very difficult to negotiate. We would have to allocate supplies internationally. And of course other countries would look to us to take the largest part of the burden, since we represent so much of the increase in demand.

But stripped of all of its values, that is what it really comes down to. It is the only way we can really get a handle on this problem, is to do something about demand. We can let it happen in the market place. As prices go up to ten dollars or higher, it will have an effect on demand. Or we can try to stop it before it gets to that point by putting on some physical controls. We would have to put import controls back on in the United States, we would have to stop some of our people going abroad, buying oil at very high prices, or buying hot oil, which they are doing now. There is some chasing of them in the courts. That is not very effective. We have to deal with that problem.

The other part of it is perhaps to use the same system to work out arrangements with producers, to enter into quantitative agreements with them.

Secretary Kissinger: The thing that is driving me crazy in governmental discussions about the oil situation, that I have now had for a year, in every forum that I could construct, is we know certain things are going to happen. There are going to be oil negotiations. We know that other countries are going to come to us, asking us for cooperative action. We know the companies are going to come to us. We know there is going to be an energy shortage. All these things are absolutely predictable. We know we will have to take a position in these negotiations. There is no way of avoiding it.

Yet every time I get a group together, whether it is in the Department, whether it is interdepartmental, people say “We don’t know.”

I don’t know what the answer is. I don’t even know what the problem is. When people tell me we are consuming six million barrels a day, they might just as well say fifty thousand Coke bottles worth of oil. I don’t know what that means. And I have no fixed ideas. All I know is when the Prime Minister of Britain says he wants to send somebody over here to discuss the oil situation with one of us and I ask around the Department “What are we going to tell him?”—or we go up to Canada and I ask “What are we going to discuss?” and I am told we are just going to discuss—and every other department takes the same position. Interior Department hasn’t got a clue. Everyone agrees that if we can get more supply in this country, or cut down the demand—that this will improve the basic situation. That is clear. What I want to know is what the hell we are going to discuss in these negotiations. What do I discuss with these oil men this afternoon? I don’t know the answer to this. How do we get at this problem?

Mr. Katz: I think we know what the answers are. The trouble is that the answers are unpleasant.

Secretary Kissinger: They won’t become any more pleasant. As I understand it, the problem is going to get worse. Therefore the pressures on us are going to get worse. My philosophy is if you have to take a bite at a problem, take a huge bite immediately. Then at least you have a chance of getting on top of it.

Mr. Casey: You have to do three things. You have to have a strong program to cut back, to ration. You have to take over the market, by allocation, as Julius spells out. You have to step in and negotiate and throw the government’s leverage between the companies in their ownership negotiation. You have to get a decision to do that. There is no decision to do that.

Secretary Kissinger: I know what would have happened in the nineteenth century. But we can’t do it. The idea that a bedouin kingdom could hold up Western Europe and the United States would have been absolutely inconceivable. They would have landed, they would have divided up the oil fields, and they would have solved the problem.

Mr. Casey: That is what these fellows at five o’clock want you to do.

Secretary Kissinger: That would have been done. And I am not even sure that this is so insane. But that obviously we cannot do.

Mr. Katz: Mr. Secretary, all of the answers are terribly complex. But that is not the reason not to take action. I think the real reason that we have procrastinated and delayed—recommendations have gone forward, ideas have gone forward.

Secretary Kissinger: They never reached my office at the White House in any systematic form.

Mr. Katz: I can’t speak for that. But ideas have gone forward. They are tough decisions. You have to tell people—you can’t just ask them to turn down thermostats. You have got to have some mandatory actions. You have to cut down on driving.

Secretary Kissinger: Is my judgment correct, that the problem will be tougher next year?

Mr. Katz: Unquestionably.

Secretary Kissinger: And tougher still two years from now. So what the hell are we buying by not taking action? The problem will not go away.

Mr. Katz: There are certain things we can do right now. And the crisis really gives us the reason for doing it.

Secretary Kissinger: We will put out that emergency program.

Mr. Casey: That is the only way to keep the situation from getting worse.

Secretary Kissinger: That we will do next week.⁴

Mr. Rush: The problem is fairly simple. First you have a supply problem, and then a demand problem. You hit it at both ends.

Secretary Kissinger: With all due respect, those are just the overall parameters of the problem. Within these parameters of the problem, you have innumerable subparameters. You have the problem of the negotiations with the producing nations. You have the problem of the relationship of the companies to their home governments as well as to the producing nations. You have the problem of sharing among the consuming nations. To none of which we have a clue. And if it is true that we have more weight than the others, as you said, then we might even turn this crisis into a certain kind of an asset, if we could take a leadership position. But since we don’t know where we are going—that you solve the problem by bringing supply and demand in balance, that is clear. But since we are not going to be there for the next ten years, the question is how do we handle ourselves in a period of foreseeable shortages, when you are dealing with countries that have a monopoly position—which incidentally if Israel disappeared tomorrow, it would help a little but it would still not change the monopoly position of the Arabs.

Mr. Katz: I think if Israel were to disappear, or if we did not have the war, the choices would be somewhat different. I don’t think we would have the same strategic problem. And we would have more of a choice. The point is we could decide just to let the market do this function, and it will. But it will produce dislocations of a kind that we might rather not have.

Secretary Kissinger: That is perfectly agreeable to me.

Mr. Katz: That is a policy choice.

Secretary Kissinger: What I would like to know, at least for my own education—when Jobert comes in here and says he is now ready—in June, when I discussed energy with him, he said there was no energy problem.⁵ So I didn’t have anything to discuss with him. Jobert said it was a myth, there was no energy problem. So now he admits there is an energy problem, and he wants to discuss it, the relationship of the United States and France, the relationship of the companies to the government. And I have nothing to tell him, because I don’t know.

Mr. Katz: Well, there is an assignment on this with a fairly short due date. This will be a first crack at it.⁶

Secretary Kissinger: Will you do a paper of what you think is right, no matter how painful?

Mr. Katz: Yes, sir.

Secretary Kissinger: Because my impression is, from all I have heard, that it will be even more painful next year. I have been screaming about this for a year, starting at the White House. I am not blaming the Department, because no other department seems to be willing to tackle it either. Apparently the choices are just very tough.

Mr. Casey: Yes. But there are two fundamental choices. Either you let the price system do it, and it will do it, or you go in and control the market and try to allocate on a world-wide basis. I am not sure we can do that effectively. I am not sure that wouldn’t foul the system up.

Secretary Kissinger: If we say the price system does it, I would like to know what problems this will create with foreign countries; whether then we are in effect trying to squeeze them against the wall, which is all right with me. I just want to know what we are doing, and what our posture is towards other countries.

Also I would like to know how we could use this energy shortage, which all advanced nations face, if we wanted to, to get some political benefits for the United States, if we could.

Now, some things are obvious, like sharing research and development. The emergency sharing just doesn’t seem to me to work very well, because when the emergency exists, we need it less than they—but we are still short.

Mr. Rush: Politically, it is almost impossible to share when we are short ourselves.

Mr. Katz: One of our other complications—and I think this has probably inhibited our thinking—is that there is the problem of the companies. Now, our interests are not necessarily synonymous with theirs.

Secretary Kissinger: That doesn’t bother me. Why don’t we say that?

Mr. Katz: It is not that clear, because while in some respects you can say the companies are really excess baggage and they get in the way, they do perform a valuable function. To the extent I have looked at it, I frankly would rather have the companies not disappear. I think they are important. But it does complicate our thinking.

Secretary Kissinger: It certainly doesn’t clear our thinking for us to sit around an hour before the companies come in and literally—I know what I want from them politically. I want them to shut up. But since they are panicked, they are not likely to shut up.

Mr. Casey: We are not going to ease the panic by discussing these choices with them.

Secretary Kissinger: No. But it would help me to know what we want.

Mr. Casey: I think all you can get from them, outside of what you want to tell them, is their assessment of the impact of the embargo, what they think we can do in the way of finding additional sources to ease the pain, and what problems they see in handling it. And then tell them in a general way we are re-examining all our assumptions as to the relationships.

Secretary Kissinger: That’s fine. I can get through an hour with them. I just want to make sure we are re-examining all our assumptions. Give us one or two or three strategies, and if they are tough let the President decide whether he wants to pay the price or not.

Mr. Katz: Mr. Secretary, could I just ask a very immediate problem. The Interior Department proposes to call in the Foreign Petroleum Supply Committee, which is an institution that exists for dealing with emergencies. Has that come to your attention yet?

Secretary Kissinger: What would that do?

Mr. Katz: It really constitutes an anti-trust waiver. It permits them to call the companies in and talk about adjusting the supply lines to minimize the disruption. There are two issues. One is whether they should be called. I think they should be. And secondly, whether this should be done publicly. I don’t think it should be done publicly. But that requires a Presidential determination for an exemption on security grounds from the Freedom of Information Act.

Secretary Kissinger: We can get that, if that is the judgment.

Bill, when are they going with that oil message, do you know?

Mr. Casey: I believe early next week—Tuesday.⁶

You have a memo on this Emergency Committee. I think it should go ahead.

(Whereupon at 4:00 p.m. the meeting was concluded.)

1. Source: National Archives, RG 59, Transcripts of Secretary of State Kissinger’s Staff Meetings, 1973–1977, Box 720, Secretary’s Staff Meetings, 9/73–10/73. Secret. According to an attached list, the following people attended the meeting: Kissinger, Rush, Porter, Tarr, Kubisch, Casey, Sisco, Hummel, Ross, Springsteen, Pickering, Lord, Vest, and Katz.
2. Not further identified.
3. See Document 230.
4. See Document 237.
5. See Document 211.
6. See footnote 2, Document 233.
6. October 30. Possibly a reference to the President’s address of November 7; see Document 237.