Foreign Relations of the United States, 1969–1976, Volume XXXVII, Energy Crisis, 1974–1980

109. Memorandum of Conversation¹

Washington, November 8, 1976, 2:30 p.m.

SUBJECT

• OPEC Meeting on Oil Price and CIEC Ministerial

PARTICIPANTS

• The Secretary
• The Deputy Secretary
• Under Secretary Rogers
• Assistant Secretary Atherton
• Paul Boeker, EB
• Richard Vine, EUR
• Robert Hormats, NSC
• Stephen Bosworth, EB/ORF (Notetaker)

[Omitted here is discussion unrelated to energy issues.]

The Secretary: All right, on OPEC . . . what are we trying to accomplish?

Rogers: We want at a minimum to eliminate any OPEC price increase or even to have the current freeze extended. The issue has enormous significance. A 15 percent price increase will reduce the GNP of the seven largest industrialized countries by $32 billion.

The Secretary: Why?

Rogers: That is assuming no offsetting policy measures. It will happen because . . .

The Secretary: How did we keep Joan Braden² out of this meeting?

Rogers: I am having another meeting on this subject. She will be included. Do you want her here?

The Secretary: No.

Rogers: A 15 percent increase for the US will impact on our trade balance by $11 billion. It will reduce GNP growth from 5½ to 4½ percent.

The Secretary: How do we answer the Shah’s point when he asks why he should pay the price of our lousy policy?

Rogers: In fact, the increase of his import costs is only 4 percent. He has no case for price increase.

Robinson: This is basically correct. But the Shah and the rest of OPEC feel that the best [last?] price adjustments were not adequate. The LDCs will be the hardest hit. A 15 percent increase would raise the oil bill by $3.2 billion. And exports would also be hit, but in effect, the total cost would be perhaps $5 billion. The LDCs’, of course, strongest argument is for holding down prices. But the OPEC also claim that we are not reducing oil consumption and that they will be helping us to do that by raising prices.

The Secretary: This is just an elegant way of saying that market conditions are favorable to an increase.

Robinson: We must bring every effort to bear on this.

The Secretary: Another round of bleeding argument won’t work. What does Porter say about this?

Robinson: Saudi Arabia has already said it won’t support an increase.

The Secretary: But that is what the Saudis always say.

Hormats: We must also pressure Iran and Venezuela.

The Secretary: What is our pressure?

Rogers: We have the arms supply point, the bids to fill the strategic oil reserve, and our imports of the LNG.

The Secretary: The SOR is no longer of interest to them. They are now selling as much as they can produce. The SOR is now bidding up the oil price. This is a classic example of why we are in this mess. We had a 15-month window in which we could have had a $1 price cut. The geniuses wanted $3. It is a classic horror story of what happens when we subordinate strategy to bureaucracy.

Atherton: It is not typical of the Shah to react favorably to a threat on the arms issue. It would be more likely that he would call our bluff and go elsewhere.

The Secretary: It is not viable unless we get French cooperation. I am more inclined to get the IEA together and say what we are going to do.

Rogers: That is important, but it doesn’t impact on the decision.

The Secretary: I think we ought to meet with the IEA at as high a level as possible.

Rogers: Why not at your level? We could call urgently for a meeting to discuss the price increase.

Robinson: Some of these things are better pursued bilaterally.

The Secretary: We can arrange that in the context of an IEA meeting.

Hormats: The IEA might be somewhat too public. Bilaterals with key Europeans followed by emissaries to key OPEC countries might be more suitable.

The Secretary: Who would we send?

Hormats: It could be Bill or yourself.

(Secretary leaves briefly and then returns.)

Rogers: Mr. Secretary, I think we have an idea to propose. First, we will have Jules Katz make a statement in the IEA meeting, which is going on today and tomorrow, about the OPEC price issue saying that we want to consult.³ We will then get the Ambassadors of four major countries (UK, Germany, France, and Japan) in here and say we want to begin urgent consultations. We will stress that we should make coordinated démarches to the OPEC countries on arms. We will need to know whether we can talk from a common front.

The Secretary: You can’t have the Japanese. They will go immediately to the Arabs and tell them everything.

Robinson: Do we know for sure that the UK doesn’t favor a price increase?

Vine: Yes, they are sweating a possible increase.

The Secretary: OK, so we have a statement by Jules Katz.

Rogers: We will try to draft something right after this meeting.

Robinson: Shouldn’t we also have a public statement?

The Secretary: Yes, we have to do something publicly.

Rogers: First, we have to level with the public on the impact of a price increase. We have the CIA analysis.⁴

The Secretary: We can’t talk tough unless we say what we are willing to do.

Rogers: We can then say we are consulting with the Europeans and make démarches to OPEC on possible consequences of price increase. Would it be appropriate for you to say that?

The Secretary: When?

Rogers: As soon as possible.

The Secretary: Who will talk to the Ambassadors?

Rogers: You could do it, or I could do it.

The Secretary: You do it. Let’s get the Saudi Ambassador in here. I want him to understand that this is not a minor matter. It could affect the whole US attitude toward the Mid East.

Robinson: We should also do the Iranian.

The Secretary: Let’s get them both in here.

Atherton: I think a good argument is the one about getting off to a good start with the new US Administration.

The Secretary: But the problem is that they would like to stick the old Administration rather than the new one. I want to tell them that if they increase the price, I’ll make sure they pay a heavy price themselves.

Hormats: Another point is the international financial system. A price increase could topple it. We have already massive LDC debt.

The Secretary: That is how we got Downey released from China. We said his Mother was dying. They let him go and his Mother has never looked better. We can try that argument, but I don’t think it’s too strong. OK, within 48 hours I want the French, German, and British Ambassadors in here. We want to talk about what coordination measures they would be willing to take. We will send letters from me to their foreign ministers setting out the problem, indicating what might be done, and asking for urgent consultations.⁵ We want to know their attitude toward particular items. In the meantime, I’ll see the Iranian and Saudi Ambassadors.

Hormats: I think you should also include the Venezuelans.

The Secretary: OK. I don’t think anyone should visit these countries until we get some answer on the consultations with the Europeans.

Rogers: I don’t see what Simon can do.

Robinson: He is PNG in Saudi Arabia from his last visit.

The Secretary: Why?

Robinson: He threw his weight around and aroused a lot of antagonism.

Boeker: The political argument might be more effective. The Vice President might be a more appropriate emissary.

The Secretary: You go and then have them turn us down; that will cost us.

Hormats: But the only way to make these points is with a personal visit.

Robinson: There is a problem in the Saudi Government on this issue. With Yamani on one side and the King and others opposed.

Hormats: Fahd is the key.

The Secretary: There are two reasons to send someone—to see that they are doing something and to see what, if anything, we can achieve.

Atherton: I like the idea of the Vice President.

The Secretary: That is out of the question.

Atherton: But they will listen to . . .

The Secretary: What about Ford?

Rogers: It won’t hurt his political future.

The Secretary: I have no problem with the Vice President, but let that issue wait until we do the other things.

Boeker: There is one other issue which is related to this. The Europeans are having trouble getting themselves together on CIEC, and they may try to get it postponed and blame it on us.

The Secretary: I’m strongly in favor of postponing the CIEC Ministerial. Who’s been saying it should not be postponed?

Boeker: It may well happen, but that does not fit well with our plan with oil price increase. If it is possible, OPEC will raise prices in December and then face us with a second price decision after a postponed Ministerial. They will set us up for a double dip.

The Secretary: I don’t understand how anyone cannot favor a postponement. I don’t understand what this Administration could produce with only four months to go.

Robinson: That is right. The G–77 has asked Perez Guerrero⁶ to go to Carter. We also have a report that Kuwait wants a postponement.

The Secretary: That is fine.

Boeker: But can we accept the possibility that it is postponed because of us?

The Secretary: CIEC would be a disaster. We have no Administration that can take any decisions. Who is talking about our wanting a December Ministerial?

Rogers: All we are saying is that we not take the initiative for postponement.

The Secretary: Why don’t we take the initiative?

Robinson: I have already discussed with the French, the Dutch and Australians.

Rogers: The problem is the Europeans would like to postpone it and blame it on us. We should maintain our current position through the November session.

The Secretary: I don’t see what the advantage is of having it. If, by the end of November, it is not postponed, then we should take the initiative. We won’t deal and we shouldn’t give the impression that we can.

Boeker: But we have to be careful that we do not pay a price for postponement. We don’t want to raise LDC expectations.

The Secretary: But what can we possibly produce. If the election had gone the other way, I was willing to use CIEC to make a step forward. But now it is senseless to try and do that. It would be irresponsible for us to try to take a major step in December. Nothing can come out of the meeting four weeks before a change in Administration.

Robinson: A December CIEC meeting certainly won’t satisfy the LDCs.

The Secretary: If it hasn’t been postponed by November 20, we should take the initiative. I don’t know what I would do at the December Ministerial.

Rogers: We can wait through the November commission session.

The Secretary: We can’t possibly get a good package by December—only a bureaucratic deal.

Boeker: If we take the initiative on postponement we may have to pay.

The Secretary: Why should we pay? Just tell them. Tell the Europeans that on the whole we think postponement is in the interest of the dialogue.

Hormats: It gives the LDCs a pretext. They can say we are dragging our feet.

The Secretary: But we can’t go forward now and should just tell them. They are not children.

Rogers: It is really their problem. That is, to decide whether to terminate CIEC to take the chance of going forward.

The Secretary: They’d be nuts to break it off. Carter is likely to be more forward. CIEC is not a way out of an oil price increase. If the Administration were not changing we could have used the CIEC to head off a price increase. Our position on the whole is that we prefer to defer the Ministerial. If it is not deferred by the twentieth, then we must actively work to defer it. If we have it, I’ll send you (Robinson). There is no function that I would have, and I could play games and make a great speech, but so what? Tell MacEachen that this is our view. We won’t say anything useful there. What can we possibly get out of Treasury now?

Rogers: They will go for increasing ODA. We have a proposal on your desk.

The Secretary: Fine.

Hormats: We also need strategy for the LDCs.

The Secretary: Who do we approach?

Rogers: The moderate LDCs.

The Secretary: OK. We want letters to the Germans, French, and British Foreign Ministers. Call in their Ambassadors and give them to them. Get the Saudi and Iranian in for me, and the Venezuelan.

Robinson: Do we try to contact MacEachen before he meets with Perez Guerrero?

The Secretary: Yes, tell him our views.⁷

1. Source: National Archives, RG 59, Central Foreign Policy Files, P820118–1904. Secret; Nodis. Drafted by Bosworth on November 19. The meeting was held in the Secretary’s office.
2. Consumer Affairs Coordinator and Special Assistant, Bureau of Economic and Business Affairs.
3. Katz’s statement in the November 8–9 IEA meeting is in telegram 33245 from USOECD Paris, November 9. (National Archives, RG 59, Central Foreign Policy Files, D760417–0660) A summary of the meeting is in telegram 33428 from USOECD Paris, November 10. (Ibid., D760419–0298)
4. Not further identified. On November 12, The New York Times reported that a Department of State spokesman said that the Department had told OPEC of U.S. opposition to a price rise.
5. Telegram 280066 to Londaon, Bonn, and Paris, November 13, transmitted the text of Kissinger’s letter that Rogers gave to U.K., West German, and French Embassy officials in Washington. The letter to the Foreign Ministers proposed “consultations on possible common elements of approaches to the oil producers.” (National Archives, RG 59, Central Foreign Policy Files, D760425–0190)
6. Manuel Pérez Guerrero of Venezuela and Canadian Foreign Secretary Allan MacEachen were co-chairmen of the CIEC.
7. Telegram Tosec 320162/299942, December 10, informed Kissinger that MacEachen and Pérez Guerrero announced the postponement of the CIEC Ministerial until the “first part” of 1977. (National Archives, RG 59, Central Foreign Policy Files, D760455–1196)