7/30/80

The energy crisis touches the lives of Americans in many direct ways: in the constantly increasing price--or even unavailability--of the fuel to heat their homes or in the inflation + recession which is underway and which is also driving their cars, But the energy crisis has also profoundly affected our national security by triggering a political crisis of global dimensions.

My topic is the international aspect of this crisis, which illuminates:

- how we reached this state of affairs;

- the threat to our national security that it entails; and

- the political dimension of any possible solution.

-2-

Evolution of the Energy Crisis

The last three decades have been a history of our in-
creasing 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, imports of foreign oil were still
only 16 percent of our requirements. Even this figure is
misleading because our domestic production was far short
of capacity; our imports represented a strategic decision
to leave part of our oil reserves in the ground undepleted.
In an emergency we could have done without oil imports.
Our surplus capacity helped stabilize the world oil market,
we were in a position to resist either exorbitant pricing
or the use of oil as a weapon by increasing our own production.
These conditions have now changed irretrievably.

By 1973, America's imports had reached 35 percent of

-3-

our requirements and, what was more important, we were
producing at the limits of our capacity. Henceforth,
increases in our consumption were bound to strengthen the
bargaining power of the foreign oil producers. The
world's rapid economic growth was spurring demand; OPEC
found it had the power to restrict world supply--and thereby
to drive up prices. The theoretical possibility of using
oil as a political weapon became starkly real 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 first price
explosion. The perverse twin effects of simultaneous inflation
and recession which have buffeted our economy since 1973
are in large part the result of the fact that the supply
and price of this vital strategic commodity are out of our
control.

-4-

Since 1973, America's dependence on imports 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 in 1979, OPEC demonstrated our helplessness anew, doubling prices again.

## International Consequences of the Energy Crisis

It is questionable whether even OPEC realized in 1973 the full extent of its bargaining power. Nevertheless its actions, triggered by a global economic and political crisis that is still with us.

In less than a decade, the total annual oil bill paid to OPEC by all other countries has risen to $270 billion, or over one quarter of a trillion dollars. This represents a systematic impoverishment of the industrial democracies. In addition, these enormous surplus earnings of the oil producers now overhang the world economy and threaten financial catastrophe. They are a factor of instability even when not manipulated for political motives.

-5-

The world's existing financial institutions simply cannot handle surpluses of this magnitude indefinitely. In unfriendly hands, the combined power to restrict production and manipulate vast financial resources becomes an ever more dangerous weapon, a growing threat to the world economic and financial system. Our ability to conduct a responsible foreign policy according to our values and our choices is circumscribed.

If the consequences are serious for the United States, the impact on other countries even more dependent on imported oil has been correspondingly greater. Economic crisis has been a rude shock to the peoples of the industrial democracies whose aspirations had been raised dramatically by the prosperity which since the Second World War had come to be taken for granted. For most of the industrial democracies, the political problem of the postwar period has been 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. In some countries, political and social
tensions that were already at the margin of governments'
ability to manage have given impetus to nondemocratic forces
and subjected democratic institutions to severe strain.

The consequences for the cohesion of the democratic
world have been grave. Atlantic solidarity has been severely
tested. The open economic system that
ensured prosperity in the postwar period has been threatened
by a vicious spiral of shrinking trade, and economic deterioration.
Likewise, in the diplomatic sphere, the energy crisis has
undermined the political unity of the democracies as some
allies, pursuing preferential arrangements in energy, have
been tempted to pay in the coin of allied cohesion. Separate
approaches on such vital issues as the Arab-Israeli dispute
demonstrate disarray and complicate the pursuit of peace.
Undertaken for the purpose of easing the pressures in the

-7-

Middle East, such approaches, in fact, do the opposite.

For if once the premise is accepted that oil producers can impose political terms, radical forces will see to it that the political price will escalate with the price of oil.

The oil crisis has its most devastating impact on the nations of the developing world. They have suffered most from the massive balance of payments drain caused by the tenfold oil price rise since 1973. The most severe blow to the economic development of new nations has come not from the "imperialist exploitation" so fashionably assailed in international forums but from an arbitrary price gouge by their Third World brethen. The developing countries do not possess the means, as the industrial nations have to some extent, to pass on the price rises to other nations in exports of manufactures. Their hopes of feeding their burgeoning populations depend on agricultural modernization, which has always relied on petrochemical

-9-

and stability, but the fall of the Shah of Iran has tipped
the balance within OPEC in the direction of more radical
sympathetic to us. OPEC's pricing decisions are now driven
by radicals eager to destroy the international order. Each
OPEC meeting is a stylized drama that opens with the
moderates opposing a price increase; the radicals then insist
on one; a two-tiered system is created as a compromise;
then over the succeeding months the lower tier gradually
drifts upward to the radicals' higher price. At the next
OPEC meeting they go through the same process again--
demonstrating that the geopolitical pressures on the moderate
producers are now uncontrollable, that the objective conditions
enabling them to pursue what is in their own long-term
interest--and ours--simply do not exist. We are on a roller
coaster to disaster. 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.

-10-

With this as a background, let me turn to my principal theme: the political future of the Middle East and the Persian Gulf, which are today the focus of the world's concern not only for energy, but for the precarious conditions of international security and peace.

## The Middle East and the Persian Gulf

The Middle East and the Gulf encompass 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 religions had their origins there--as well as several of the world's recent wars. Even beyond the crucial concern for oil, it is a cauldron of political and strategic conflict.

There are three aspects to the region's political turmoil: the impact of the global balance of power; the contest between the moderate and the radical forces in the area; and the Arab-Israeli conflict. It is not possible

-11-

to deal with the region's problems by addressing one of
these aspects in isolation; they must be understood and
dealt with concurrently or the chaos will only multiply.

First, the global balance of power. History and personal experience both endow Middle East leaders with a highly-developed instinct for the nuances of the global balance of power. They may proclaim the conventional litany of nonalignment, but they understand perfectly well that their security depends on an overall equilibrium of military strength. A global imbalance of power enables expansionist countries to blackmail them, to interfere with diplomatic efforts for peace, to subvert domestic structures, or in the final analysis to repeat the pattern of Afghanistan: military intervention. They know that the only counterweight to these pressures is American power.

Understandably, some leaders who cannot themselves contribute to a global balance might wish to keep aloof from the day-to-day diplomacy by which the East-West contest is played out.

-12-

They would be horrified, however, if the West took their statements of self-reliance at face value.

Thus it is disturbing that proclamations of non-alignment by Middle East leaders are echoed by assertions of resignation in this country. We have been told for too long that the problems in the so-called "arc of crisis" have 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 such prophecies self-fulfilling. The Administration has already had to reverse its position in the Persian Gulf by 180 degrees, from announcing that the area did not need a policeman to proclaiming *ourselves* as the policeman.

The response to the crises in Iran and Afghanistan has illuminated the West's military vulnerability.

-13-

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, strategic equivalence is the
precondition of all security and it will require major
efforts to ensure. But it must not blind us to the
fact that we can never return to the conditions of the
1950's. Even if we succeed in maintaining strategic
parity, one of the most urgent military problems of
the next decade will be the vulnerability of vital regions
such as the Middle East. Unless determined efforts are
made to restore the regional military balances, by American
power and aid to allies, the pressure on countries close
to the Soviet periphery is bound to increase. The
already pervasive insecurity will deepen. Radicals
allied with the Soviet Union or backed by it will grow

-15-

These fears are heightened by the continuing Communist assault on the geopolitical balance. 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 at least two African conflicts, and from the Horn of Africa threatens the security of moderate governments in the Arabian peninsula. 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 as the direct result of Soviet pressures but with consequences devastating to the regional balance of power. In Southeast Asia the army of Communist Vietnam, stocked with Soviet weapons and backed by a Soviet friendship treaty, occupies

-16-

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.

Symptomatic is the lack of enthusiasm with which the so-called Carter DO doctrine has been received among the nations supposed to be protected by it. The principal obstacle is the pervasive conviction that we lack the means or perhaps the will to implement it. Leaders in the area understand from centuries of national experience the importance of the balance of power; they do not believe that their countries' security can be maintained by declarations of nonalignment or of solidarity with other countries equally unable to protect themselves. Their dissociation from us reflects, rather, their dismal assessment of the trend in the global balance.

-17-

These shifting strategic realities are bound to have
their effect on the price of oil. Even with the production
cutbacks dictated by OPEC, some moderate oil producers in
the Middle East are still producing more oil than their
own economic necessities warrant

and absorbing more revenues than their development programs require. The present exorbitant oil price would thus be even higher were not some OPEC countries willing to produce beyond their purely economic needs--as the price for Western and particularly American political and military protection. However, to the extent that the global balance of power is perceived to shift--to the extent that America's capacity to deter foreign aggression or domestic upheaval is perceived to decline--our persuasiveness on even seemingly purely economic decisions such as the price of oil is also profoundly eroded.

For all these reasons it is imperative for the United States to move urgently to restore its overall military strength. The President was correct to declare our strategic stake in the security of the Persian Gulf. Now that he has done so, we have a bipartisan obligation to create rapidly the forces needed to give effect to this inescapable commitment.

-22-

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.

Events in Iran have defied all Western liberal notions of progressive change. The assault on the Shah's rule did not come from those whom Western academics would have identified as the forces of progress: secular modernizing socialists or reformers. These existed, but ironically the decisive element in Iran turns out to have been the very process of modernization, led at a rapid pace by a ruler who, like his father, was perceived for years as a secular reformer in the mold of Ataturk in Turkey. The reaction came from groups threatened by social progress, such as the conservative land-owning clerics who resisted land reform and objected to mass

-23-

education and women's rights; they found fertile ground
for agitation in the peasants that migrated from the
villages to the industrial cities and felt rootless, isolated,
and restless, cut off from their traditional family ties.
They all found moral sustenance in a religious fervor
directed against the secular modernism of the West--and,
to some extent, also against the Marxism of the East. The
Shah clearly erred in not developing his country's political
institutions as Iran developed economically; he failed to give
the new middle class a political stake in the system. But
none—including eight American administrations—expected
that his opposition would be led by those who objected to
what he was doing right, as well as to what he was doing wrong.

We have thus been in need of a theory of political
change (for most of the postwar period), Unfortunately what
has been implemented in recent years in that name has compounded
the problem. The new dispensation is that our difficulties

-24-

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"/presumably of which is governments not subject to upheaval.
This has tempted us into hectoring and pressuring governments
around the world.

Reality is much more complicated. First, in many
so-called "progressive" regimes, domestic order is maintained
by more effective repression; by this standard the "right side"
becomes that which is not inhibited in its repression by
association with us, and is more successful at it. Totalitarian
forces have been increasingly exempt from human rights
strictures as currently practised.

More importantly, our human rights pressures can have
consequences exactly opposite to their intentions. What
we consider "normal"--constitutional democracy--is in fact
a rarity both in the sweep of history and on the breadth

-25-

of the planet. This is no accident. Constitutional democracy rests authority in an abstraction: obedience to law. But constitutionalism 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 the product of personal authority, not of constitutional arrangements; the political process has been viewed as determining who has the right to issue orders. Personal authority has been mitigated either by a concept of reciprocal obligation as in feudal societies, or by custom as that of kings who claimed to rule 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. Authoritariansim, in short, was usually quite precisely circumscribed.

I would put back in this sentence, to make clear what you mean.

NO ruler of eighteenth-century Europe could levy income taxes or conscript his subjects.

-26-

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 by elective assemblies or rulers in its name--were absolute. The growth of state power has gone hand-in-hand with the expansion of populist claims.

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--as in Spain or Portugal or Greece--have been able to complete the evolution into constitutional democracies. No totalitarian system has ever navigated that passage.

The American dilemma is that in most developing countries, ~~authority is personal~~, while totalitarian states hostile to us are ruled out of bounds for our interventionism, we ~~seem~~.

-27-

obsessed with "reforming" authoritarian governments
friendly to us. The tragedy is that we seem to have no
idea how to effectuate the delicate transition to consti-
tutionalism--a process that in most of the West took centuries.

What we do have is a predilection for harassing friendly
governments, the result of which has been to encourage not
the moderate constitutionalists but the radical totalitarians
who emerge in the form of terrorists or guerrillas. The
outcomes have been disastrous, We are in danger of making
the world safe not for democracy but for totalitarian radicalism.

A vicious circle is created. When terrorists or guerrillas
mark a society for assault, the government is tempted into
acts of repression which undermine its authority, and the chaos
polarizes 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 often the

-28-

ablest and most dedicated officials, leaving in place the
corrupt whose transgressions multiply as they attempt to
compensate for the peril of their station by accumulating the
benefits of maximum material compensations.

In recent crises of this sort, the American tendency
has been to force imperiled friendly countries to "save themselves"
by accelerating our notion of reform. But once matters have
reached the point of civil war--particularly if the assault
is externally supported--concessions are generally seen as a
sign of weakness. Nor, most often, do the radicals who
challenge authority by violence have any interest in constitutional
democracy. What they want is power for themselves, to install
their own brand of tyranny. The time for concessions is before
civil disorders break out, in order to preempt them--a lesson
often neglected in recent decades but which does not always work
when the insurrection is inspired, financed, and trained from
outside the country. The next occasion for reform is after

-30-

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 because they
have relied on our support.

The result of these tendencies has been a spread of
regimes hostile to us in the Third World. In many developing
countries Marxism has flourished, not because it fulfills
economic or moral necessities--which it clearly does not--
but because it provides a rationale for centralized
political power once traditional structures collapse. More
recently Islamic theocracy has emerged as a reaction
to modernization in all its forms, Western or Marxist. Its
long-term viability has yet to be determined. In the face of
these onslaughts, traditional friends of the United States,
and belonging to neither of these orientations, stand
bewildered, unsure of their future and confused about our purposes.

-32-

Thus, we must be clear in our own minds what our own survival responsibility interest requires, the scope of change we can advocate, and what countries we must defend in our own interest even if their institutions do not meet every democratic test.

Through this issue, 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. The impact on energy is immediate.

As the price of oil leaps and oil wealth multiplies, radical changes are needed in our economies. We must work together to prevent the world from going into a spiral of economic collapse. The solution lies in reducing our dependence on oil. We must also work together to prevent the spread of nuclear weapons. The only solution to these problems is to reduce our oil imports and use their new-found wealth against us while the American & Western world remains uninvolved.

Moderate regimes will have the paradoxical incentive to reduce production, since they fear the disruptive consequences (in turn) of the process of modernization that destroyed the Shah. We must stop the price of oil from going up. Both developments spell disaster for the West.

Our natural allies are not radical groups and forces but the moderate groups which affirm peaceful change and sympathize with Western goals. If the moderates are not to be doomed--

-33-

(1)

or to dissociate from us in self-defense--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. For their own survival, they must be
willing to develop their economy and to reform their
political institutions. At the same time, we must
understand the limits of our knowledge of their situation,
and the price we could pay for clumsy experiments. And we
must know clearly where we will draw our lines:
what community interests we will not sacrifice in the name
of reform and what privileges we will defend even if
there we may have to meet some very defining
virtue.

The Arab-Israeli conflict is without doubt a principal

factor in the turbulence of the Middle East. It does not
is not independent, but is connected with the factors that are
follow that resolving it is the sole key to peace. A dangerous
already clarified: the military balance + the relationship between
escapism has developed in the West, the illusion that solving
recent months.

the so-called Palestinian 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 settle-
ment, the auspices under which it is achieved, and who benefits
from it. The outcome must not be one that tempts constantly
escalating demands by radical forces; it must create incentives
for moderation rather than be seen as a reward for blackmail.

I do not believe that the status quo on the West Bank can
or should be maintained. I do not agree with Israel's policy
of continuing settlements on the West Bank during negotiations.
or other unilateral steps taken recently. But I am not impressed, either,
by the wisdom of the fashionable proposals that (seem to) amount

-35-

to finding some subterfuge for introducing the PLO into the negotiations on the optimistic assumption that it would then moderate its goals and help contribute to stability in the entire region.

Given my analysis of the strategic and ideological sources of the tensions in the area, it is essential that we show that pressures on us are not the road to success. A policy that is perceived as yielding to blackmail is bound to accelerate deterioration in the military and geopolitical dimensions of the Mideast crisis, leave our moderate friends even more vulnerable, 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 succeed. But should the stalemate prove unbreakable, the search for alternatives must avoid illusions.

I see no evidence that establishing a PLO state would lack any factual basis or contribute to the tranquility of the area; quite the opposite, I believe.

-37-

demilitarization provisions without which no Israeli withdrawal of any extent is conceivable. I see no sign that such a group, with its ideology and its affiliations, is waiting only to become agrarian reformers in a pacifist West Bank ministate. But the last thing the Middle East needs is another radical state in the region attacking all existing institutions. This is not merely against the interests of the United States; it is also against the interests of moderate Arab states in whose well-being we have a stake. These countries understand this perfectly well, whatever their public statements, but the flirtation with the PLO compounds their vulnerability.

For all these reasons Therefore, negotiations with respect to the West Bank should promote Jordanian participation, if only because any other route will lead to certain failure. Our European allies must learn that they encourage radicalism and stalemate. when they push schemes incapable of realization, our allies - as all industrial democracies, indeed have a stake in diplomatic progress; it is suicidal to but they must not identify progress with schemes that will in the

-38-

long run promote instability.

The effort to solve the West Bank issue in one grand negotiation, defining 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. If the current negotiations based on the Camp David autonomy scheme do not produce the desired outcome, I hope other avenues will be attempted, including a Jordanian-Israeli negotiation. These should aim at the rapid achievement of some interim partial step, for example returning Arab populated areas quickly to the jurisdiction of Jordan; further Israeli withdrawals and final borders would be the subject of continuing negotiations to which all parties would be committed. The relationship of the Palestinian areas to Jordan would then become an Arab, not a general international problem.

It is in the common interest that we not chase abstractions but begin a process that can lead to rapid results. In this manner progress can be made in the West Bank that contributes to

-39-

political stability in the area and contains, rather than un-
leashes, radical pressures.

## 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
adjustment; it is a grave challenge to the political and
economic structure of the free world. The world's postwar
financial institutions 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 financial imbalance be overcome by permitting
the debt of consumers to expand indefinitely, 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, for a consumer/producer
dialogue to be effective, certain objective conditions must be

met, which do not now exist.

There is no secret about what we must do. The industrial democracies must adopt stringent conservation measures, develop new supplies of oil and alternative sources of energy, strengthen collaboration among the consumer nations, address the plight of the poorest developing nations, and seek a more reliable long-term relationship with the producers. These objectives are easy to state in the abstract. It is devising programs to implement them which has proved to be the obstacle. I will not get into the domestic side of the problem here, except to point out the disastrous international political consequences of our continuing vulnerability, and to urge that the problem be dealt with as a matter of highest urgency. Aside from our military defense, there is no project of more central importance to our national security and indeed our independence as a sovereign nation.

The response to the energy crisis, of course, itself has an
I would like to return to the international aspects of the
international dimension.
energy crisis. For finally its solution depends on our fortitude
and bold leadership. We have been subjected to political pressures,
not only in the 1973 embargo but even more recently. We are now

threatened with production cutbacks if we seek to build up a
strategic oil reserve. But we cannot tolerate being forced
into a state of permanent vulnerability. No country has a
right to demand that we remain eternally subject to blackmail.
Building a strategic oil reserve is a sovereign decision of the
United States and an essential matter of survival; the attempt
to interfere with our doing it is a demonstration of why it is
essential. We should fill our strategic reserve and any country
taking retaliatory steps must know that it does so at the cost
of its good relations with the United States.

No area of policy has been more disappointing than consumer
cooperation. Since the establishment of the International Energy
Agency in 1974, cooperation among the industrial democracies has
not been adequate to the challenge. Instead of bold concerted
action, 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 in the Middle East conflict. But any special position

-43-

to develop a common approach is the plight of the developing
nations. These countries are caught in an impossible bind.
Higher oil prices absorb all their aid and export earnings;
the bill for other imports mounts because of the global inflation
fueled by the energy crisis; and their own capacity to export is
reduced because of the recession in the industrialized countries
which is another result of the energy crisis. Thus a reexamination
of the development needs of the new nations is imperative.
The devastation of the developing world's hopes for progress is
a grim omen for a world of peace.

Another subject requiring urgent attention on a common
basis is the recycling of 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 of many developing nations; it will overtax the
financial institutions of even developed nations. Recycling is
easiest precisely into those countries that need it least; it will

-44-

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.

Eventually the solidarity between the industrial democracies
will provide the basis for a dialogue between consumers and pro-
ducers. There is in fact a congruence of interests. The con-
sumer countries have a political stake in the independence of the
producer nations, even those whose domestic policies are
repugnant to us, such as 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. Both together
must find means to enable the developing nations to fulfil
their aspirations. But this cannot take place in an atmosphere
of chaos and blackmail. The producers cannot continue the practice
of periodically announcing decisions affecting the future of large
economic
or any apparent concern for their impact.
areas of the world without consultations (as a series of unilateral
proclamations, enhance their cohesion,
the industrial democracies must develop policies

if there is a consumer/producer dialogue that makes it possible to give expression to the reality of interdependence.

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. Therefore,

Decisive American efforts to implement an energy policy would transform the international environment--reducing the cartel's stranglehold on the world economy, restoring world prosperity, dispelling the clouds of political demoralization, and strengthening our security. Thus will freedom be vindicated and the democracies flourish, transforming crisis into hope.

irretrievably. In April 1973, six months before the embargo, I cited energy as a field in which cooperation among the industrial democracies has become imperative. By 1973, America's inputs reached dependence had doubled to 35 percent of our requirements and, what was more important, we were producing at the limits of our capacity. Henceforth, increases in our consumption were bound to strengthen the bargaining power of the foreign oil producers. The world's rapid economic growth was spurring demand; the OPEC cartels found it had the power to restrict world supply -- and thereby drive up prices. The theoretical possibility of using oil also as a political weapon became starkly real 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 first price explosion. The perverse twin effects of simultaneous inflation and recession which have buffeted our economy since 1973 are in large part the result of the fact

-5-

not The world's they threaten Existing financial institutions which simply cannot handle surpluses of this magnitude indefinitely.

With every passing year the vast accumulated petrodollars

become an ever more powerful threat to the world economic
with every passing year
and financial system. In unfriendly hands, the combination

power of the capacity to restrict production and manipulate vast
financial resources becomes an ever more dangerous weapon,

Our ability to conduct a responsible foreign policy according
to our values and our choices is circumscribed. Our freedom
of action in foreign policy--our own national sovereignty--
is compromised.

If the economic and political consequences of the energy
erisic are serious for the United States, the impact on
other countries, more dependent on imported oil has been
correspondingly greater. Economic crisis has been a rude
shock to large numbers of people in the industrial democracies
whose aspirations had been raised dramatically by the prosperity

since the Second World War. For most of the industrial

-7-

Undertaken with the claimed purpose of helping the moderates easing the pressures in the Middle East, such approaches, in fact, do the opposite. premise is accepted that the oil producers can For if once the democracies accept political dictates of unique political turns oil producers radical forces will see to it that the political price will escalate with the price of oil.

The oil crisis has its most devastating impact on the
nations of the developing world. They have suffered most
from the massive balance of payments drain caused by the
tenfold oil price rise since 1973. The most severe blow to history is that the economic development of new nations has fashibly come not from the "imperialist exploitation" so loudly assailed in international forums but from an arbitrary price gouge by their Third World brethen. The developing countries do not have the means, as the industrial nations

have to some extent, to pass on the price rises to other
nations in exports of manufactures. Their hopes of feeding
their burgeoning populations depend on agricultural
modernization, which has always relied on petrochemical
chemical, petroleum-based, fertilizers.

To the developing nations, the constantly rising energy costs represent a permanent, massive, and devastating threat to their aspirations for progress.

The increase in their energy costs in fact far exceeds 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 has placed at risk the
entire range of this nation's objectives in the world.

It has mortgaged our own economy and left our foreign
policy subject to pressures; it has weakened the industrial
democracies economically, and undermined the political unity on which ultimately our security depends.

It has undermined the world's economy and
frustrated the hopes for progress of most of the new nations.

-9-

The passage of time has made the crisis worse and the dangers greater. We are entering a period of pervasive instability, and we face potential catastrophe.

In the absence of effective countermeasures, the oil producers can sustain almost any high price simply by reducing their production. Ironically, move oil even the moderate producers are now caught up in an ominous vicious circle. Their power over price and production is undermining the structure of the Western societies on which they ultimately depend for their security and progress.

But the fall of the Shah of Iran has tipped the balance within OPEC in the direction of those less sympathetic to OPEC's pricing decisions are now driven by radicals eager to destroy the current international order. Successive OPEC meetings turn into a stylized play that opens with the moderates opposing a price increase; the radicals then insist on one; a two-tiered system is created as a compromise; over the succeeding months the lower tier gradually drifts upward to the radicals' higher price. At the next OPEC meeting they go through the same process again--demonstrating that the pressures on the geopolitical

are dragged along by radicals eager to destroy the current international order. Each successive OPEC meeting is a stylized play that opens with the moderates opposing a price increase; the radicals then insist on one; a two-tiered system is created as a compromise; over the succeeding months the lower tier gradually drifts upward to the radicals' higher price. At the next OPEC meeting they go through the same process again--demonstrating that the pressures on the geopolitical