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# POLITICAL DIMENSIONS OF THE ENERGY CRISIS

## Evolution of the Energy Crisis

The last three decades have been a history of our increasing dependence on imported energy, until today our economy and our well-being are hostage to decisions taken by a group of nations thousands of miles away.

In 1950, the United States was virtually self-sufficient in oil. In 1960, our reliance on foreign oil was still only 16 percent of our requirements. During this period, our domestic oil industry was producing far short of capacity; our imports represented a strategic decision to leave our oil in the ground undepleted while buying foreign production; in an emergency we could have done without oil imports.

Our surplus capacity overhanging the world market helped keep the price low; we were always in a position to reduce the world price by increasing our own production.

So long as these conditions existed, the United States not only had a major influence over the world oil price;

we were also invulnerable to production cut-offs abroad.

We could go far toward ensuring that the world economy had available to it adequate supplies of oil at reasonable prices. OPEC's power as an effective cartel developed only in the early 1970's--as those conditions were changing irretrievably.

By 1973, America's dependence had doubled to 35 percent of our requirements. What is more important, we were producing at the limits of our capacity. Henceforth, increases in our consumption would strengthen the bargaining power of the foreign oil producers. Supply and demand would drive up prices; if there were restrictions prices would skyrocket. The possibility of using oil as a political weapon became real. This theoretical possibility grew into stark reality in 1973, when in response to the Middle East war the Arab oil producers embargoed the United States and certain West European countries and simultaneously restricted supply. Panic buying combined with a real shortage led to the

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first price explosion.

Since then, our dependence has grown, not diminished.

In the winter months of 1977, oil imports for the first time reached a rate of 50 percent of our oil consumption, and I understand the figure is increasing.

In April 1973, six months before the embargo, I emphasized that cooperation among the industrial democracies in the field of energy had become imperative. There was no serious response to this initiative. Insofar as any comments were made in Europe, it was dismissed as a device by which the United States sought a preferred position among the Mideast suppliers.

I seriously wonder if even OPEC realized in 1973 what power it had: that in less than a decade the total annual oil bill paid to OPEC by all other countries would amount to $270 billion, or one quarter of a trillion dollars.

This is a collossal drain on the world economy and a collossal shift in the world balance of power.

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Now the enormous surplus earnings of the oil producers
overhang the world economy and threaten financial catas-
trophe. They are a factor of instability even when not
manipulated for political motives, simply because they
represent a systematic impoverishment of the industrial
democracies and because financial institutions simply cannot
handle flows of this magnitude. With every passing year
the vast accumulated petrodollars add to instability and
become an ever more powerful weapon against the world
monetary and financial system.

## International Consequences of the 1973 Crisis

The energy crisis since 1973 had enormous and damaging
consequences for our goals and interests in the world.
It means that until decisive remedial action occurs, the
well-being of all non-oil producing countries--and of many
oil producers such as the United States--depends on decisions
in which they do not participate.

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Even those oil producers which behave responsibly and seek to be moderate, make their decisions on the basis of *their* conception of their interests, priorities, and political choices, and not by ours. Our ability to conduct a fair and responsible foreign policy according to *our* values and *our* choices is constrained by the reluctance of allies to jeopardize their supplies of oil. Our country's freedom of action in foreign policy--our own national sovereignty-- is to that degree circumscribed.

If the economic and political consequences of the energy crisis are severe for the United States, the impact on other countries more dependent on imported oil has been correspondingly greater. Since the oil crisis began, simultaneous recession and inflation--stagflation--has created severe problems in many countries, including our own. In some countries, political and social difficulties that were already at the margin of governments' ability to manage,

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threatened in some cases to get out of control. Economic
crisis has been a rude shock to large numbers of ordinary
people in the industrial democracies whose aspirations had
been raised so dramatically by the prosperity since the Second
World War. For most of the industrial democracies the political
problem of the postwar period was the fair allocation of an ever
increasing social product. The energy crisis has transformed
this into an allocation of shortages, the management of a
declining standard of living.

The consequences for European unity and the solidarity of
the Western alliance have been grave. Nations in economic
travail are inevitably tempted to resort to protectionism
in a desperate effort to keep jobs and markets at home.
Cohesion has been threatened by a vicious spiral of shrinking
trade and economic deterioration for all nations. Even
as the industrial democracies gradually recovered
from the blow of 1973, protectionist pressures were still

mounting because the recovery was uneven and unemployment remained a problem almost everywhere. And then in 1979 the Western world suffered a second blow when Iran turned from a friendly country into a hostile one.

The energy crisis has undermined the cohesion of the industrialized democracies as well. Various allies have been tempted to pursue preferential arrangements paying in the coin of allied cohesion. Separate approaches to such issues as the Arab-Israeli dispute produce the illusion of flexibility while in fact weakening the position of oil-producing moderates. For if once the industrial democracies accept the political dictates of radical oil producers they undermine the position of moderates in the area. Once the use of oil for political pressure has been legitimized by allied nations, radical forces will see to it that the political price will escalate with the price of oil.

The impact of the oil crisis was not confined to the

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industrial nations. In fact, it was the nations of the
developing world that suffered most from the massive balance
of payments deficits caused by the oil price rises. The
most severe blow in history to the economic development of
new nations came not from the "imperialist exploitation" so
loudly assailed in international forums but from an arbitrary
price increase by their Third World brethren. The developing
countries do not have the means, as the industrial nations
have, to pass on the price rises to some extent to other
nations in exports of manufactures. If they are to be able
even to feed themselves they must achieve agricultural
modernization, which depends on chemical fertilizers which are
petroleum-based. The higher energy costs are to the develop-
ing nations permanent, chronic, and massive. The increase
in their energy costs in fact exceeded the total flow of
external economic aid they received. The entire world's
assistance thus barely enabled them to stand still,

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In short, the energy crisis has placed at risk the
entire range of our foreign policy objectives. It has
mortgaged our own economy; it has weakened the industrial
democracies economically, politically and potentially
militarily; it undermined the world economy, and it has
frustrated the hope for progress of most of the new nations.

In 1973 and 1974, after the first price explosion oc-
curred, it was considered axiomatic that the total oil bill--
it was then $30-40 billion for the industrialized countries,
at about $12 a barrel--was excessive and could not be
sustained for an indefinite period of time. The financial
problem seemed to be solved, however, largely through
recycling by commercial banks. But the second crisis, in 1979,
has caused the oil bill to more than double again. As
Walter Levy has pointed out in an illuminating article in
the spring issue of *Foreign Affairs*, the financial crisis may
not be soluble this time, and our future is now at the mercy

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of a precarious political status quo in what is probably the
most volatile, unstable and crisis-prone region of the
world.

The oil producers can sustain almost any price simply
by cutting their production. At the same time, their power
over price and production is undermining the structure of the
Western societies on which they ultimately depend for their
security and for their development. Thus, ominously,
even the moderate producers are now caught up in a vicious
circle. The moderate producers in OPEC, who for political
reasons have some understanding of our necessities and a
stake in our strength, are dragged along by the radicals.
Each OPEC meeting seems to be a stylized drama in which the
moderates oppose a price increase, the radicals insist on
one, a two-tiered system is created, and then afterwards, the
second tier gradually slides toward the radicals' higher
price. At the next OPEC meeting they go through the same

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process again--demonstrating that the pressures on the
moderate producers are now uncontrollable, that
objective conditions enabling them to pursue what is in
their own long-term interest simply do not exist.

Let me address myself now to the political environment
in which the world must seek to cope with the energy problem.
Then I will suggest what the energy-consuming nations, partic-
ularly the industrial democracies, can do to influence this
environment.

## The Middle East and the Persian Gulf

The focus of our concern is the political stability of
the Middle East and Persian Gulf.

This is not the first time in history that the Middle
East and Persian Gulf have been a focal point of world
affairs. The region has always been considered geopolitically
crucial. It is a region of profound passions, remarkable
personalities, and almost perpetual ferment. Its stark

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landscape and vast skies draw man to infinity; it is no
accident that three of the world's great monotheistic
religions had their origins there--as well as several of the
world's recent wars. Even beyond the crucial concern for
oil, it is today a cauldron of potential political and
strategic conflict.

There are three aspects to the region's political
future: the area's relationship to the global balance
of power; the interaction between the moderate and the radical
forces in the Middle East; the Arab-Israeli conflict and
the efforts to resolve it. I do not believe it is possible
to deal with the region's problems by addressing one of these
aspects in isolation, even one as seemingly central as the
Arab-Israeli conflict.

First, the global balance of power. It is important to
understand that Middle East leaders have a highly-developed
instinct for sensing the nuances of the global balance of

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power. They may clothe themselves in the conventional mantle
of non-alignment, but they understand perfectly well that
their security depends on an overall external equilibrium.

Those nations friendly to us know that America's ability
to prevent pressure by other major powers is crucial. A
global imbalance of power creates for them the danger that
expansionist countries are in a position to blackmail them,
to achieve peace,
to interfere with diplomatic efforts/ to subvert their
domestic structures, or in the final analysis to repeat
the pattern of Afghanistan outside intervention. Under-
standably, some leaders who cannot themselves contribute
a great deal to a global balance might wish to keep aloof
from the day-to-day diplomacy by which the East-West contest
is played out. They run the risk, however, that the West
might take their statements of disinterest at face value.

We have been told for too long by our own government
that the problems in the so-called "arc of crisis" have

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complex socio-economic causes, that they are not essentially
military problems, that not every upheaval is of direct
concern to us, and that we do not really have that much
influence over events anyway. Much of this is true but
irrelevant; a posture of abdication makes these prophecies
self-fulfilling. There is no denying the reality that
the crises in Iran and Afghanistan have illuminated the
West's military vulnerability; this has generated a pervasive
sense of insecurity, whose direct effect has already been
to alter political alignments and shape the course of events
to our detriment in almost every sphere, economic as well as
military.

We face at this moment a crisis of global dimensions
produced in significant degree by the fact that
the industrial democracies have neglected their defenses.
For too long the Soviet Union has been increasing its military
capacity at the steady rate of 5 percent a year, which

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compounded over 20 years means a tripling of that capacity,
while the West's defense efforts have been impeded by domestic
divisions or lassitude. And we have failed to uphold the
geopolitical as well as the military balance.

In the last five years, beginning with the collapse
of Indochina and the fiasco of Angola, almost every signif-
icant change in the world has been produced by Soviet
weapons, Soviet friendship treaties, Soviet proxy troops, or
outright Soviet invasion. The Cuban army has imposed solu-
tions in at least two African conflicts, and from the Horn
of Africa threatens the security of moderates in the Middle
East. There have been two invasions of Zaire from Communist-
held territory. Morocco is under pressure from Communist-
armed guerrillas; Tunisia has been threatened by Libya. A
strong pro-Western government collapsed in Iran, not directly
as the result of Soviet pressures but with consequences
nevertheless devastating to the regional balance of power.

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In Southeast Asia the army of Communist Vietnam, stocked with Soviet weapons and backed by a Soviet friendship treaty, occupies Cambodia and threatens Thailand. The resulting sense of insecurity has affected the perceptions of many key countries--slowing down the Mideast peace process, removing Soviet inhibitions to the point that it felt safe to invade Afghanistan, driving traditional friends like Pakistan to reject our assistance and to embrace neutralism.

It is not difficult to trace the impact of these shifting strategic realities on the price of oil. The key is the security of the moderate oil producers. Even while restricting production, several Middle East countries are still producing more oil than their own economic necessities warrant.

and absorbing more revenues than their domestic development programs require. Thus paradoxically the present exorbitant oil price would be even higher were it not for some OPEC countries' willingness to produce beyond their needs--for

essentially political reasons. This is the price they are
still willing to pay for Western and particularly American
military protection. To the extent that the global balance
of power is perceived to shift--or, to put it another way,
to the extent that America's

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capacity to manage events to deter foreign aggression
or domestic upheaval is perceived to decline--our
ability to affect even seemingly purely economic decisions
such as the price of oil is also profoundly eroded.

Therefore it is ominous that the so-called Carter
Doctrine has been received with such a lack of enthusiasm
among the countries supposedly protected by it. The principal
reason is the pervasive conviction that we lack the means
or maybe the will to implement it. Leaders in the area
understand from centuries of national experience the importance
of an unsentimental appreciation of the balance of power; I am
sure that they do not believe that their countries' security
can be maintained by declarations of nonalignment or of
solidarity with other (Islamic) countries equally unable to
protect themselves. Their dissociation from us reflects,
rather, their assessment of the trend in the global balance.

Therefore, it is imperative for the United States to

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restore its overall military capacity and to develop the
capacity to protect areas of the world essential to our unity.

The President was correct to declare our strategic stake in
the security of the Persian Gulf. Now that he has done
so, it is a bipartisan obligation of both Congress and the
Executive Branch to develop a concept for its implementation
and provide the means to do so.

The military posture of the industrial democracies is
still too much influenced by the strategic doctrine of
the 1950's when strategic nuclear weapons were considered
capable of preventing every foreseeable challenge including
attacks on such regions as the Middle East. Obviously,
we must ensure that strategic equivalence is maintained.

This is the precondition of all security and it will require
major efforts. But doing so will help us cope with only
one of our perils: the danger of an all-out attack on the
United States and perhaps on Europe. However, the over-
whelming military problem of the next decade will be the

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crucial vulnerability of other areas under conditions of
strategic parity. Unless determined efforts are made to restore
regional military balances, by American power or aid to allies,
the pressure on countries close to the Soviet periphery
is bound to increase. The already pervasive insecurity will
grow. Radicals allied with the Soviet Union or backed by
it will grow bolder and we will face new challenges. States
known for their traditional friendship with the West will
grow demoralized, frightened.

And in those circumstances it will be almost impossible
to conduct a responsible dialogue with even the moderate
oil producers. Restoring the military balance is not the
sole road towards a constructive policy; but no constructive
policy is possible without it.

The second dimension of the geopolitics of energy is
the balance between the moderates and the radicals in the
Middle East. In the area stretching from Morocco to Pakistan,
the past decade has seen great turmoil and upheaval.

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The process of change is inevitable and irrepressible, we are often told. We have to get on the side of the forces of change, is another standard argument. This is merit in these propositions. But we must never lose sight of our crucial stake in the success of those who support peaceful change and ties with the West, as opposed to the forces of radical change who are almost always anti-Western as a matter of ideology. And the balance between them affects crucially the diplomacy of energy. The collapse of the pro-Western government in Iran was the principal cause of the oil crisis of 1979: the gas lines and the doubling of oil prices that is still wreaking havoc with the world economy. Iran has sharply reduced its oil production, for many reasons: internal chaos, the withdrawal of foreign technicians, the abandonment of the previous government's development programs. And the fall of the Shah affected the calculations of other OPEC members, because the collapse of a friend of America's raised doubts in the minds

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of other rulers associated with us about the value of
American friendship. Many moderate oil producers know
only too well that their domestic practices are not better--
if as good--as Iran's. They fear the same fate from a
combination of domestic pressures and American disinterest.
OPEC meetings have increasingly seen the moderates hesitant,
on the defensive, fearful of exerting their power for
restraint. The definition of moderation has become the
minimum price radicals would accept.

There is no doubt that there are forces at work beyond
our capacity to channel. But the art of policy-making
consists of identifying the range of effective choice
available to us. The conventional wisdom, in some circles
at least, is that our difficulties arise because we have
always associated ourselves with the wrong groups, with
leaders who lack public support, and that we should make
an effort to ally ourselves with the "popular will."

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I believe the reality is much more complicated.

First, many so-called "progressive" regimes maintain domestic order--the test apparently applied to determine the loyalty of the population--by more effective repression; by this standard the "right side" to be on is that which is less inhibited in its repression by association with us, and more successful at it. Totalitarians therefore seem exempt from our human rights strictures.

What we consider "normal"--a constitutional democracy--is in fact a rarity both in the sweep of history or at any one point in time. This is no accident. Constitutional democracy places authority in an abstraction; obedience to law. But this can function only if law is believed either to reflect an absolute standard of truth or at least to grow out of a generally accepted political process. In most parts of the world and in most periods of time these conditions have not existed. Law has been what was declared

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by authority, not by constitutional arrangements; the
political process has been conceived as determining who
has the right to issue orders. Authority has been either
made bearable by a concept of reciprocal obligation as in
feudal societies, or limited by custom as in the case of
kings who ruled by divine right. In each/tradition was
a limiting factor; certain exactions were impossible not
because they were forbidden but because they had no
precedent. No ruler of eighteenth-century Europe could
levy income taxes or conscript his subjects; authoritarianism,
in short, was usually quite precisely circumscribed.

It was paradoxically the emergence of popular govern-
ment that expanded the scope of what authorities could demand.
The people by definition could not oppress itself; hence its
wishes--as expressed in elective assemblies--were absolute.
The growth of state power has gone hand-in-hand with the expansion
of populist claims.

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In this context, modern totalitarianism is a caricature, a *reductio ad absurdum* of democracy; modern authoritarianism-- a quite different phenomenon--is an aberration of traditional personal rule. This is why some authoritarian governments have been able to evolve into democracies--witness Spain or Portugal or Greece. No totalitarian state has ever navigated that passage. Authoritarian governments seem to leave their neighbors alone; Communist states follow a universalist ideology that almost guarantees expansionist impulses. Personal rule has inherent limits; government that claims to reflect a popular mandate knows no such restraint once it falls into the hands of a small group of rulers.

But for this precise reason, authoritarian governments are infinitely more susceptible to internal subversion than totalitarian ones. They are inferior in the means of repression; they usually lack the conviction to employ

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them ruthlessly. When the personal bond of reciprocal
obligation is broken, both rulers and subjects become
demoralized; the former because they have no legitimacy
for governing by naked force, the latter because once
the traditional criteria of obedience have evaporated, all
exactions seem oppressive.

The American dilemma is that in most developing countries
authority is personal. And yet we seem unable to distinguish
between authoritariansm and totalitarianism. Nor do we quite
know how to manage the delicate transition to constitutionalism
except by harassing friendly governments. These pressures
in turn tend to encourage not the moderate constitutionalists
but the radical totalitarians who emerge in the form of
guerrilla movements.

This creates another vicious circle. Evolution of
constitutional rule requires a period of tranquility and
of at least moderate economic progress. These are inevitably
thwarted when totalitarian forces succeed in organizing a

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guerrilla movement. The government is tempted into acts
of repression which undermine its authority, and
it divides the society so that the premise of the democratic
process--that the loser accepts his defeat and in return
is given an opportunity to win on another occasion--cannot
be realized. The victims of terrorist attacks are usually
the ablest and most dedicated officials, leaving the
corrupt in place whose transgressions multiply as they
attempt to compensate for the peril of their station by
accumulating the maximum material compensations.

The American tendency is to assume that the imperiled
authoritarian government can best maintain itself by
accelerating democratic reform. But once matters have
reached the point of guerrilla war, reform is often seen as
a sign of weakness. Nor do the guerrilla forces generally
seek democracy. What they want is power. The possibility of
compromise--the essence of democratic government--is the

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first victim of such a struggle; civil wars almost without
exception end in victory or defeat, never in coalitions--
our favorite recipe. The time for reform is *before* civil
wars break out, in order to preempt them--though this does
not always work when the insurrection is inspired, financed and
trained from outside the country. The next occasion for
reform is *after* victory, but Western inhibitions and
authoritarian incompetence usually combine to prevent the
testing of this hypothesis. This was the tragedy of Indochina,
as well as of Iran.

I have dedicated so much space to abstract reflections
to indicate only that American pressure for change more
often accelerates the process of disintegration than
arrests it. Convinced that our model is of universal
validity, we seek to implant it without regard to the historical
conditions necessary for its operation. We have little relevant
to say to most of the friendly governments in the oil-producing areas

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about how to navigate the tricky passage to more liberty without wrecking authority. Hard-pressed governments beset by an implacable domestic enemy are often reduced to paralysis by advice which they know is dangerous but which they dare not reject.

Certainly we must understand the process of change. But what we have lacked is a concept for its most complex aspect: the problem of political authority during the process of modernization. The West has a concept of economic development but no theory of political development. The assault in Iran did not come from acolytes of the Western liberal notion of progressives. Ironically the disruptive force in Iran was the very process of modernization, led by a ruler who, like his father, saw himself as a secular modernizer in the mold of Ataturk in Turkey. The reaction came from groups threatened by economic progress, such as the conservative land-owning clerics; they found fertile ground for agitation in

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the mass that migrated from the villages to the industrial
cities and found themselves rootless, isolated, and spiritually
threatened. They all found moral sustenance in a religious
fervor directed against the materialism of the West--and,
to some extent, also against the Marxism of the East.

Conventional Western academic wisdom has taken it for
granted that economic development automatically would
produce political stability as it had in Europe and Japan
after 1945. But in those societies political institutions
had a long history; the threat to stability was the gap
between economic expectation and reality. As this gap
was closed, the underlying political reality asserted itself.
In developing societies, by contrast, rapid modernization
undermines traditional social structures and patterns and
therefore produces political instability. Men and women
are uprooted from the countryside and find themselves in
depersonalized cities, resentful at one and the same time

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of the government that lured them into this cauldron
and the Western technology which symbolizes it. Marxism
has flourished in the Third World not because it fulfills
economic or moral necessities--which it clearly does not--
but because it provides a rationale for centralized political
power. Islamic theocracy seems to have emerged as a reaction
to modernization in all its forms, Western or Marxist.

The West has so far supplied no answers to this dilemma.
It oscillates between sentimental invocations of its good
intentions and the purely strategic analysis. Neither approach
is adequate. The upshot is that as the price of oil leaps
and oil wealth multiplies, radical countries use their new-
found wealth *against* us while all the incentives of the
moderate regimes will be to reduce oil production, since they
fear the disruptive consequences of modernization that de-
stroyed the Shah. Both developments spell disaster for the West,

The conflict between moderates and radicals within the

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developing world is thus a central issue of our time. Not
every radical regime is the same, of course. Some, like South Yemen,
are clearly pro-Soviet and de facto Soviet military bases. Libya,
while not pro-Soviet in its domestic
orientation, is operationally a Soviet ally in its foreign
policy; it supplies arms to every anti-Western country or
movement or terrorist group in the Middle East and Africa.
Iran is a radical regime with clerical bias; it is hardly
pro-Soviet but it is certainly anti-American for its own
reasons and a supporter of other radical groups in the area.
Then there are radical governments such as Iraq or Syria,
of more secular orientation.

The problem we face is that however different their
motives, whatever judgment one makes of their long-term
prospects or the degree of Soviet influence in any one of
them, the combined impact of the radical regimes is to
undermine all those forces in the region that have relied
on the West and believe in peaceful evolution. The consequence

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of radical ascendancy is to reduce our influence over events
and scope for creative action--as it has already hindered
the Mideast peace process.

Thus, we must be clear in our own minds what we can
responsibly advocate with respect to domestic change.

Friendly countries are now asking what we want them to do
in the face of pressures from the outside and the challenges
of modernization; they want to know whether the changes we press
on them are compatible with their history, and whether we
will back them up if liberalization generates more radical
domestic pressures threatening to accelerate out of anyone's
control.

This is not an easy responsibility for the United
States to undertake. If suddenly no friendly country in the
developing world is deemed worthy of our support, and if we
are unwilling categorically to oppose forces of radical
change hostile to us, then all we have done is to make the

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world safe for anti-American radicalism. What kind of
groups will take over from governments friendly to us who do
not meet Jeffersonian standards of virtue? What do we tell
some of the key oil-producing countries lies down the road
if they follow our reformist advice?

Until we have answers to questions such as these,
we have no possibility of a sensible dialogue with the
oil-producing countries, even those friendly to us, on either
oil prices or domestic reform. Our natural allies are not
radical groups and forces but the moderate groups which
affirm peaceful change and leave room for market economies.
They must know, first of all, that we understand the
realities of their situation. They must be given reason for
confidence that we are prepared to cooperate with them and,
finally, to stand by them. They must be willing to modernize
not only their economy but also their institutions. At the same time
they must understand the limits beyond which we will not push them.

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The Arab-Israeli conflict is without doubt a principal factor in the turbulence of the Middle East. It does not follow that it is the sole key to peace. A dangerous capitalism has developed in the West, the illusion that solving the West Bank problem is the *deus ex machina* that will defuse all the region's other tensions. A West Bank solution is important, but whether it contributes to the solution of other problems depends on the nature of the settlement and the auspices under which it is achieved. The outcome must not be one that tempts constantly new demands; it must create incentives for moderation rather than be seen as a reward for radicalism.

I do not believe that the status quo on the West Bank can or should be maintained; I do not agree with Israel's settlement policy. But, given my analysis of the strategic and ideological sources of the tensions in the area, it is essential -- as a matter of paramount principle -- that we *not* let ourselves be driven by radical pressures. Those hostile

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to us must not be given the message that we yield to blackmail.

On the contrary, it is healthy if they learn that such pressure
is self-defeating. A West Bank outcome that seems to reward
blackmail and anti-Western radicalism will only accelerate
catastrophe in the military and geopolitical dimensions of
the Mideast crisis, increase the vulnerability of our moderate
friends, and compound our energy problems.

I have consistently supported the Camp David process
and the Egyptian-Israeli peace treaty. I hope that the
Egyptian-Israeli autonomy negotiations will succeed. Nothing
I am about to say should be construed as a criticism of them,
because they deserve a reasonable chance. But it is important
for all of us to remember that the central dispute is over
political control of the West Bank and Gaza, not over the
allocation of technical functions such as land use, water,
transportation or other municipal services. Sooner or later
the central problem must be addressed, either in the Camp David
process or in some other context if the stalemate proves un-
breakable.

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Several principles must be kept in mind:

First, the PLO's chief disqualification as a participant
in the negotiations is not simply its rejection of U.N.

Security Council Resolution 242, but its radical anti-Western

orientation: its close affiliation with and occasionally leadership
of all forces hostile

to us in the Middle East; its leadership role in almost all
radical movements in the area; its training of terrorists on
a global basis, and its intimate cooperation with Soviet
intelligence organizations. The PLO in its present incarna-
tion is not simply an implacable enemy of Israel; it supports
all forces hostile to the United States.

Secondly, far from becoming moderate after its demands
are satisfied, a PLO state in current circumstances will have
every incentive to attempt to subvert nearby moderate govern-
ments, especially Jordan, if only to escape the inevitable
demilitarization provisions for the West Bank without which
no Israeli withdrawal of any extent is conceivable.

Thirdly, the last thing the Middle East needs is another
radical state in the region attacking all existing institu-
tions. This is not merely against the interests of the

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United States; it is also against the interests of all other
moderate Arab states in whose well-being we have a stake.
These countries understand this perfectly well, whatever their
public statements, but our flirtation with the PLO compounds
their vulnerability.

Fourthly, negotiations should be conducted by exist-
ing states. The United States should promote this not only by
inviting Jordanian participation but by demonstrating that any
other route will lead to the frustration of all hopes for
peace.

the effort to solve
Fifth, /the West Bank problem in one grand gesture, defin-
ing all frontiers and all relationships, is almost certain
to fail. And a prolonged inconclusive effort is bound, in its
turn to compound the tensions in the area.

Sixth, our European allies will encourage radicalism and
stalemate by pushing schemes incapable of realization while
erroneously/ implying
differences in vital interests between the
United States and Western Europe.

No doubt, if the current negotiations based on the Camp

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David autonomy scheme do not produce the desired outcome, I
hope other avenues will be attempted, including a Jordanian-
Israeli territorial negotiation. These should be pushed rapid-
ly towards some interim partial step, for example returning
Arab populated areas rapidly to the jurisdiction of Jordan;
further Israeli withdrawals and final borders would be the
subject of follow-on negotiations as part of a continuing pro-
cess. The political evolution of the Arab populated areas
from then on would be primarily an intra-Arab problem and not
an American, European, or Israeli problem.

It is in the common interest that we not chase abstrac-
tions but begin a process that can lead to some result. In
this manner progress can be made in the West Bank without fur-
ther undermining the political stability of the area and un-
leashing further radical tendencies.

## Response to the Energy Crisis

Since the first price explosion of 1973 we have learned
that the energy crisis is not a mere problem of transitional

-40-

adjustment; it is a grave challenge to the structure of the
free world's political and economic institutions. The world's
postwar financial system and mechanisms of cooperation were
never designed to handle so abrupt a price rise in so vital
a commodity or such massive shifts of wealth. The problem
will not go away by simply letting inflation proceed; on
the contrary, runaway inflation is part of the vicious circle
which drives up oil prices. Nor can the problem be solved by
permitting the debt of consumers to multiply, even though
this is what has been happening. The gradual impoverishment
of the industrialized world is certain to end in financial
catastrophe with grave political consequences. Finally, the
problem cannot be solved by an abstract consumer/producer
dialogue unless the objective conditions have been created in
which the bargaining positions of the two sides are more equal,
so that the dialogue can be fruitful.

There is no secret about what we must do. Since 1973
it has been evident that the industrial democracies must adopt

-41-

stringent conservation measures, develop new supplies,
establish collaboration among the consumer nations, devise means
to overcome the plight of the developing nations, and seek a
more reliable long-term relationship with the producers.

Conservation, which is essential to any energy program, is
painful and therefore not easy to bring about in a representa-
tive democracy. No matter how energically pursued it cannot
do the job by itself. Even if it should reduce our reliance
on imported oil to 1973 levels - a tall order requiring a
reduction of over 15% of our consumption - it would still
leave us highly vulnerable to embargoes and politically motivated
production restrictions.

Automobile fuel-efficiency regulations are important,
but they will take years to have a major effect. There is no
law of nature that says our domestic gasoline price must be
half of what it is in Europe. We thereby effectively subsidize
consumption and discourage domestic production. A higher price
for gasoline is inevitable. What is not imposed by taxation

-42-

will be inflicted on us by OPEC price increases.

But in the long run, an increase in supply is the most reliable answer. In 1975, Vice President Nelson Rockefeller proposed a hundred-billion-dollar facility to help finance new sources of energy. Something like it has just been passed five years later, in the form of a syn-fuels facility.

Decontrol of domestic oil prices has been favored by at least two administrations, but then runs into ideological objections to not only the burden on consumers but the possibility of profits for those who produce. At some point we have to sort out our priorities. Every delay increases our vulnerability.

I am not here to testify about a detailed domestic energy plan. I simply wish to point out the disastrous international consequences of our continuing vulnerability, and urge that the problem be dealt with as a matter of highest urgency.

Aside from our military defense, there is no project of more crucial importance to our national security and indeed our

-43-

independence as a sovereign nation.

The extent of our vulnerability is shown by the pressures to which we have been subjected. It is no country's business to forbid us to build a strategic oil reserve. This is a sovereign decision of the United States and an essential matter of survival, and the very attempt to interfere with our doing it is a demonstration of why it is essential. No country has a right to demand that we remain eternally vulnerable to blackmail.

But to overcome the vulnerability requires major diplomatic efforts as well. Since the establishment of the International Energy Agency in 1974, cooperation among the industrial democracies has not been adequate to the challenge. Too many of the industrial democracies have preferred currying favor with the OPEC countries, competing for some transitory special position, or dissociating from our negotiating efforts for the Middle East conflict. Positions on Middle East diplomacy which have no prospect of being accepted demonstrate irrelevance

-44-

as well as division. The process of competing for preferential
oil deals advertises vulnerability and invites new pressures.
Once the principle is admitted that political conditions can
be exacted for favorable consideration on oil, political de-
mands will accelerate. Any special position gained by one country
can be rapidly transferred to another that outbids it. It is
not even in the interest of themoderate oil producers to es-
tablish the principle that a political price can be exacted for
an economic relationship, because then they themselves will
become the object of radical pressures to raise the political
price. The moderates thereby doom themselves by undermining
the West on which their survival depends. Once the process
begins there is no logaical stopping place.

We thus return to the need for solidarity among the
oil-consuming nations. This has been my consistent urging
since 1973. I do not accept the proposition that it is
proper for the producers to organize but a confrontation
if the consumers seek to cooperate with each other.

-45-

Solidarity is needed to cope with the increasingly
unmanageable problem of recycling the financial surpluses.
By 1983 the financial claims of the oil producers on the
OECD countries will reach half a trillion dollars. That
amount cannot be recycled by the commercial banking system;
it will lead to the bankruptcy and instability fo many
developing nations; it will overtax the financial institutions
of developed nations. Recycling is easiest precisely into
those countries that need it least; it will not abate the
devastating impact of current prices on nations whose
export earnings and foreign assistance are now largely
absorbed by paying for their energy bill. The developing
countries are caught in an impossible situation; they are
caught by higher oil prices wich absorbe most of their
export earnings; the bill for other imports mounts because
of the infaltion bueled by the energy crisis; and their
own capacity to exprot is reduced because of the recession
in the industrialized countries which is another result
of the energy crisis. Thus a new approach to the development

-46-

of new nations is imperative.

All these factors underline the urgent necessity of
a dialogue between consumers and producers. The agenda
for such a dialogue is also obvious. The consumer
countries have a political stake in the independence
of the producer nations, even those whose domestic policies
are repugnant to us, such as Khomeini's Iran. The producers
in turn have a stake in a stable and growing world economy,
because many of them depend on it for their technology,
for their development and in a deeper sense for their
independence. (Obviously we have reasons of our own for
defending the global equilibrium even if some of them do
not feel a stake in it.) And the devastation of the
developing world's hopes for progress is a grim omen for
the future of international politics.

Unfortunately, while our political ideals and fore-
sight tell us what we must do, economic forces already unleashed
drive us toward catastrophe. Then, too, the time scale for

-47-

a solution to operate is longer than the term of office of most
democratic leaders, and therefore the temptation is
powerful to postpone sacrifice and hard decisions. With
all these qualifications the fact remains that we are now
running out of time. It is a daunting task, to be sure,
to mobilize collective action among scores of nations
on an issue of such domestic sensitivity for each, yet
global interdependence gives us no choice. History
does not judge statesmen by their alibis but by their
willingness to face their necessities.

Whoever is President of the United States next year
has the duty, and the opportunity, to lead the way out
of these dilemmas. The United States is better able than
others to regain some mastery over events. We have the
domestic resources, the technological skills, and the
creative genius to transform the world's energy market and
reduce the cartel's strangelehold on the world economy.

-48-

Decisive measures to surmount the energy crisis would
transform the international environment--dispelling the
clouds of political demoralization, reinvigorating the
world economy, and strengthening our security. Thus
will freedom be vindicated and the democracies flourish,
bequeathing to our children a world not of crisis but of hope.

Insert (cont'd)

as the industrial nations have, to pass on the price rises to some extent to other nations in exports of manufactures. If they are to be able even to feed themselves they must achieve agricultural modernization, which depends on chemical fertilizers which are petroleum-based. The higher energy costs are to the developing nations permanent, chronic, and massive. The increase in their energy costs now in fact equals the total flow of external economic aid they receive. The entire world's assistance thus barely enables them to stand still.

In short, the energy crisis ~~in 1978~~ placed at risk the entire range of our foreign policy. It mortgaged the prospects of our own economy; it weakened the industrial democracies economically, and potentially militarily; it undermined the world economy, and it frustrated the hope for progress of most of the new nations. And we now face a new crisis perhaps more deadly than the first.

-3-

I seriously wonder if even OPEC realized in 1973 what the implications would be: that in less than a power it had annual decade the total oil bill paid to OPEC by all other countries would amount to $270 billion, or one quarter of a trillion dollars. This is a collossal drain on the world economy and a collossal shift in the world balance of power. In 1973 and 1974, after the first price explosion occurred, it was considered axiomatic in our government that the total oil bill--it was then $30-40 billion for the industrialized countries, at about $12 a barrel--was excessive and could not be sustained for an indefinite period of time. Perhaps the industrialized world became then sank once again into a

complacent because the financial problem seemed to be solved, largely through recycling by commercial banks.

But the second crisis, in 1979, has caused the oil bill to more than double again. As Walter Levy has pointed out in an illuminating article in the spring issue of Foreign Affairs,

-4-

the financial crisis may **not** be soluble this time, and
our future is now at the mercy of a precarious political
status quo in what is probably the most volatile, unstable
and crisis-prone region of the world.

Let me address myself now to the international
environment in which the world must now seek to cope with
the energy problem, particularly the Middle East and
Persian Gulf. Then I will suggest what the energy-
consuming nations, particularly the industrial democracies, can do to
influence this environment.

¶ This is not the first time in history that the Middle East and Persian Gulf have been a focal point of world affairs. The region has always been considered geopolitically crucial. It is a region of profound passions, remarkable personalities, and almost perpetual ferment. Its stark landscape and vast skies draw man to infinity; it is no accident that three of the world's great monotheistic

-7-

that not every upheaval is of direct concern to us,
and that we do not really have that much influence over
events anyway. *This is true but irrelevant; the*

posture makes these prophecies. There is no denying the reality that attitude of abdication leads to self-fulfilling prophecies. The crises in Iran and Afghanistan have illuminated West's military vulnerability, *has been generated* a pervasive sense of insecurity, *whose direct effect has already been to alter* political alignments and *shape* the course of events to our detriment in almost every sphere, economic as well as military.

For too long the Soviet Union has been increasing its military
capacity at the steady rate of 5 percent a year, which
compounded over 20 years means a tripling of that capacity,
while the West's defense efforts have been impeded by
domestic divisions or lassitude. And we have failed to uphold
the geopolitical as well as the military balance.

-8-

In the last five years, beginning with the collapse
of Indochina and the fiasco of Angola, almost every
significant change in the world has been produced by
Soviet weapons, Soviet friendship treaties, Soviet
proxy troops, or outright Soviet invasion. The Cuban
army has imposed solutions in <u>at least</u> two African conflicts, and,
<u>from</u> <u>in</u> the Horn of Africa, threatens the security of moderates
in the Middle East.

A strong pro-Western government collapsed in Iran, not
as the result of <u>with consequences</u>
directly caused by Soviet pressures but, nevertheless
<u>devastating to</u>
profoundly <u> affecting</u> the regional balance of power. There
have been two invasions of Zaire from Communist-held
territory. Morocco is under pressure from Communist-
Tunisia has been <u>threatened by</u> Libya.
armed guerrillas; The resulting sense of insecurity has
affected the perceptions of many key countries, <u>slowing</u>

-9-

~~the point that it felt safe to~~
to ~~invade~~ Afghanistan, driving traditional friends

neutralism.

It is not difficult to trace
these
The impact of shifting strategic realities on
the price of oil, occurs on two levels. The first is the
security of oil producers. Even while
restricting production, several Middle East countries
are still producing more oil than their own economic
necessities warrant and absorbing more revenues than
their domestic development programs require. Thus
paradoxically the present exorbitant oil price would be
even higher if not for
being held down by some OPEC countries' willingness to
-- for reasons of political reasons.
produce beyond their needs. This is the price they
are still willing to pay for Western and particularly
American military protection. To the extent that the
global balance of power is perceived to shift--or, to
put it another way, to the extent that the American

-10-

affect even
ability to engage in a useful dialogue on seemingly

decisive
purely economic questions such as the price of oil is
also profoundly eroded.

Therefore it is ominous that
The second impact is the reverse side of the first.

The so-called Carter Doctrine has been received with
such a lack of enthusiasm among the countries supposedly

The principal reason is the pervasive influence
protected by it. because of a growing doubt that we have lack
the means or maybe the will to implement it. Leaders in
the area understand from centuries of national experience
the importance of an unsentimental appreciation of the
balance of power; I am sure that they do not believe that
their countries' security can be maintained by declarations
nonalignment of (Islamic)
of goodwill or solidarity with other countries equally
unable to protect themselves. Their dissociation from us
reflects, rather, their assessment of the trend in the
global balance. Therefore it is imperative for the United

This is really
part of the first
point, but not
directly linked
to the price of
oil except
from the first
point.

-11-

States to restore its *military* capacity and, above all, to
make it relevant to the relevant areas of the world *military* to
*posture*

The President was right to declare our strategic

stake in the security of the Persian Gulf. Now that he has
of both Congress and the Executive Branch to develop a
so, it is a bipartisan obligation to contribute to a
concept for its implementation and to provide the means
to do so.

The military *posture* of the industrial democracies is
still too much influenced by the strategic doctrines of
the 1950's when strategic nuclear weapons were considered
capable of preventing every foreseeable challenge including
attacks on such regions as the Middle East. Obviously,
we must ensure that strategic equivalence is maintained. This is the
precondition of all security and *defence* if we wish to
*stall* major efforts. But henceforth it will
help us cope with only one of our perils: the danger of an all-out
*homework* attack on the United States and perhaps on Europe. The
overwhelming military problem of the next decade

Dangling
participate

-15-

absolute standard of truth or at least to emanate from a generally accepted political process. In most parts of the world and in most periods of time these conditions have not existed. Law resulted from authority, not from justice; the political process has been conceived as determining who has the right to issue orders. Authority has been made bearable by a concept of reciprocal obligation as in feudal societies, or (as) limited by custom as was the case with the kings, by divine right. In each case tradition was a limiting factor; certain exactions were impossible not because they were forbidden but because they had no precedent.

No ruler of this century Europe could levy income taxes or conscript his subjects; authoritarianism, in short, was usually quite precisely circumscribed. It was paradoxically the emergence of popular government that expanded the scope of what authorities could demand. The people by definition could not oppress itself; hence its wishes--as expressed in

-16-

In this context, modern authoritarianism is an aberration of traditional personal rule. modern totalitarianism is a caricature, a reductio ad absurdum of democracy. This is why some authoritarian governments have been able to evolve into democracies--witness Spain or Portugal or Greece.

to reflect a popular mandate knows no such restraint. once it falls into the hands of a small group of rulers.

But for this precise reason authoritarian governments are infinitely more susceptible to internal subversion than totalitarian ones. They are inferior in the means of repression; above all they usually lack the conviction to employ them ruthlessly. When the personal bond of reciprocal obligation is broken, both rulers and subjects become demoralized; the former because they have no legitimacy for

-17-

governing by naked force, the latter because once the additional
criteria of obedience have evaporated, all exactions seem
turn to The American

oppressive. Our dilemma is that in most developing
and yet we seem unable to distinguish between
countries authority is personal. But the transition to
accept by borrowing fivorily governments.
the notion of

constitutionalism is a delicate process; the notion of
These premises in turn tend to encroach not only on the
accepting electoral defeat is no more natural in traditional

unlimitedabs but the radical totality of society conveys the
to the forms of fivorily movements.
societies than of registering political views at the ballot

This creates another activity which
& evolution & institutional mile
box. That transition requires a period of tranquility and

least
of at best moderate economic progress. These are
it is inevitably

thwarted when a totalitarian movement succeeds in organizing
a guerrilla movement. This forces the government into acts
of repression which undermine its authority and demoralize it;
it divides the society so that the premise of the democratic
process--that the loser accepts his defeat and in return
is given an opportunity to win on another occasion--cannot
be realized. The victims of terrorist attacks are usually
the ablest and most dedicated officials, leaving the corrupt

progressive secular modernizer in the mold of Atatürk in Turkey. The instability came from groups threatened by economic progress, this process, such as the conservative land-owning clerics; they found fertile ground for agitation in and from the mass that migrated from the villages to the industrial cities and found themselves rootless, isolated, and spiritually threatened. They found moral sustenance in a religious fervor directed against thematerialism of the West and, to some extent, also against the Marxism of the East.

Conventional Western academic wisdom has taken granted that economic development automatically would produce political stability as it had in Europe and Japan after 1945. But in those societies political institutions had a long history; the threat to stability was the gap between economic expectation and reality. As this gap was closed the underlying political reality asserted itself. In developing societies, by contrast, rapid modernization undermines traditional social structures and patterns and

-23-

The problem we face is that however different their
motives, whatever judgment one makes of their long-term
prospects or the degree of Soviet influence in any one of
them, the combined impact is to undermine those forces
in the region that have relied on the West and believe in
peaceful evolution. Their impact is to reduce our scope
for creative action--as their apparent ascendancy has
already hindered the Mideast peace process.

We must be clear in our own minds what we can responsibly
advocate with respect to domestic change. Friendly countries
are now asking what we want them to do in the face of

-24-

(H)

pressures from the outside and the challenges of modernization,

they want to know whether the changes we press on them are compatible with history, and their own image of themselves, whether we will back them

more up if liberalization generates radical domestic pressures accelerate

threatening to go out of anyone's control.

suddenly no friendly

States to undertake. If no allied country in the developing

A

categorically

A

to oppose forces of radical change hostile to us, then all we have done is to make the world safe for anti-American radicalism. What kind of groups will take over from governments friendly to us who do not meet Jeffersonian standards of virtue? What do we tell some of the key oil-producing countries lies down the road if they follow our reformist advice?

Until we have

such

no possibility

With answers to questions as these, we can have a

A

of a

sensible dialogue with the developing oil-producing countries,

even though to us, on either oil prices or domestic reform.

-26-

# The Arab-Israeli Conflict

in the West, the illusion
A dangerous escapism has developed → creating the impression
that solving the West Bank problem is the *deus ex machina*

all
that will defuse the region's other tensions. → Whether this
is *vitally important*, but whether it contributes to the solution or other problems
is *in fact* the case → depends on the nature of the settlement
and the auspices under which it is achieved. → The outcome
*negotiation* → be one that
*of the West Bank problems* → must not → tempts constantly new
demands; it must create incentives for moderation rather
than be seen as a reward for radicalism. √ I do not believe
that the status quo on the West Bank can or should be
maintained; I do not agree with Israel's settlement
policy. →

But, given my analysis of the strategic and ideological
*sources* → origins of the tension in the area, it is essential → as
*paramount* → a matter of *principle* that we *not* let ourselves be driven

-31-

The problem will not go away by simply letting inflation proceed; on the contrary, runaway inflation is part of the vicious circle which drives up oil prices. Nor can the problem be solved by just increasing the debt of consumers even though this is what has been happening. The gradual impoverishment of the industrialized world is certain to end in with grave political consequences. For sooner or later a

financial catastrophe will be inevitable. Much of the political instability in Europe we witnessed five or six years ago, particularly in Southern Europe, was undoubtedly exacerbated by the economic drain caused by the 1973 oil crisis.

Finally, the problem cannot be solved by an abstract consumer/ producer dialogue unless the objective conditions have been created in which the dialogue can be fruitful.

> We are now in the position that the oil producers can sustain almost any conceivable price by simply cutting their production. At the same time, when all is said and done, their power over price and production is undermining

Rep (see insert)

To p.4

(This is part of the problem, not part of a response to the problem.)

-32-

the structure of the Western societies on which they
ultimately (will) depend for their security and for their
development. Thus, ominously, Paradoxically, even the moderate producers
are now caught up in a vicious circle, that may doom them.
The moderate producers in OPEC, who for political reasons
have some understanding of our necessities, are dragged
along by the radicals. Each OPEC meeting seems to be
stylized drama in which the moderates oppose a price increase,
the radicals insist on one, a two-tiered system is created,
and then, the second tier gradually slides toward the radicals'
higher price. At the next OPEC meeting they go through
the same process again, demonstrating that the pressures
on the moderate producers are now uncontrollable, that
objective conditions (to) enable them to (pursue what is in
their own long-term interest) simply do not exist.

-35-

currying favor with the OPEC countries, outdoing each other for some special favored position, or collectively negotiable efforts adopting the radical negotiating program for the Middle East conflict. In the process of taking a one-sided position in the Mideast diplomacy, they render themselves irrelevant. In the process of competing frantically for preferential oil deals, they only dramatize their joint and individual vulnerability. Once the principle is admitted that political conditions can be exacted for favorable consideration on oil, political demands will accelerate. Any special position gained by one country can be rapidly transferred to another that outbids it. It is not turn to establish the principle that a political price can be exacted for an economic relationship, because then they themselves will become the object of radical pressures to raise the political price. Indeed the process has already begun, and there is no logical stopping place.

The moderates hope by demonstrating to the West that their survival depends.

-36-

Not only our allies have been subjected to political
pressure, ~~it is no country's business to tell us whether~~
or not we will build a strategic oil reserve. This is

We thus return to the need for solidarity among the
oil-consuming nations. This has been my consistent
urging
position since 1973. I do not accept the proposition that
it is proper for the producers to organize but a confrontation
if the consumers seek to cooperate with each other.

Solidarity is needed at the very least to cope with
the increasingly unmanageable problem of recycling the
financial surpluses. By 1983 the financial claims of the
oil producers on the OECD countries will reach half a
trillion dollars. That amount cannot be recycled by the
commercial banking system; it will lead to the bankruptcy

-38-

and instability of many developing nations, and even developed nations. Recycling is easiest precisely into those countries that need it least; it will not abate the devastating impact of current prices on nations whose export earnings are now largely absorbed by paying for their energy bill.

Once the consumers have developed a common program, all these factors undertake the urgent need of a dialogue between consumers and producers is essential.

The agenda for such a dialogue is also obvious. The consumer countries have a political stake in the independence and stability of the producer nations, even those whose domestic policies are repugnant to us, such as Khomeini's Iran. The producers in turn have a stake in a stable and growing world economy, because many of them depend on it for their development and in a deeper sense for their independence. (Obviously we have reasons of our own for defending the global equilibrium even if some of them do not feel a stake in it.) And the devastation of the

transform the world's energy market and reduce the cartel's stranglehold on the
genius to respond vigorously to the challenge. This
world economy.

is an opportunity for America to show once again
that it is capable of leadership and worthy of leadership.

More than ever we need to summon again the American
optimism and can-do spirit that sees problems as an
invitation to creative effort.

Decisive measures to surmount the energy crisis
would transform the international environment—dispelling
the clouds of political demoralization, reinvigorating
the world economy, and strengthening our security. Thus
will freedom be vindicated and the democracies flourish,
bequeathing to our children a world of hope.