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of the world's great authorities in the area of foreign policy, and that is at the heart of the problem we are facing.

Senator BELLMON. Mr. Chairman, I would like to make a statement.

## STATEMENT OF HON. HENRY BELLMON, A U.S. SENATOR FROM THE STATE OF OKLAHOMA

Senator BELLMON. Mr. Chairman, I can't let one of your statements go by without being challenged, and that is this statement that our national energy policy has been based on a myth, the myth that energy independence in the United States is economically and politically feasible in the foreseeable future.

The fact is that energy independence is not a myth. The myth is that Congress has followed too many shortsighted policies over the last 6 or 8 years, that we have never given this country a chance to achieve energy independence.

I refer to the fact that we have had price controls that have kept conservation from having a major impact. The same policies have kept the energy producers from making their maximum effort, and now we find largely as a result of the dramatic increase in the energy prices after Iran cut off their production, that we are making, finally, after all these years' delay, some sort of a conservation impact, and we have also now turned around our domestic oil production decline. Oil production is going back up. I am not one of those who feels that we cannot work our way out of this problem if we adopt a wise policy and I hope our witness here today can help give us some guidance in that direction.

The CHAIRMAN. Senator Hatfield.

## STATEMENT OF HON. MARK O. HATFIELD, A U.S. SENATOR FROM THE STATE OF OREGON

Senator HATFIELD. Mr. Chairman, thank you very much. Dr. Kissinger, I would like to take this opportunity to say that while I am sure that you will provide us with sound advice, I am not sanguine it will be taken at least until next year.

The accumulation of zooming petroleum prices and an unstable supply situation have rocked the economies of both industrialized and developing countries, leaving many of the latter on the brink of economic ruin.

The situation has also altered fundamentally the balance of power and colored the foreign policies of every petroleum importing nation in the world, of the United States included.

It is my opinion, Dr. Kissinger, that the U.S., foreign policy over the past 3½ years has been one of the key contributors to our current energy predicament.

Middle Eastern producing countries, once very friendly to the United States, no longer feel that they can rely on us as an ally, depend upon us for their security.

The administration's vascillating foreign policy has angered and alienated many of our closest allies. The destabilized world geopolitical and energy situation has encouraged adventurism by the Soviets.

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I believe that it is time that we recognize an inexorable link between foreign policy and energy policy. We simply cannot expect to obtain stable supplies of petroleum at reasonable prices in a politically unstable world.

Similarly, we cannot expect to have a politically stable world when the ability of the United States to fulfill its responsibilities as a leader of the free world is compromised as a consequence of its excessive dependence on foreign petroleum.

In summary, it is clear that a strong U.S. presence is paramount to global stability, and its absence will necessarily engender repeated energy, political and military crises.

I thank you for coming here today.

The CHAIRMAN. Thank you very much. Are there any other statements?

## STATEMENT OF HON. HOWARD M. METZENBAUM, A U.S. SENATOR FROM THE STATE OF OHIO

Senator METZENBAUM. Mr. Chairman, I would like to commend you for your statement, particularly that part of it where you zero in on the problem that this Nation has with its own allies.

We are members of the International Energy Agency, an agency that our distinguished guest who is with us today was instrumental in causing to come into being, and that agency was apparently an effort to weld together the efforts of the consuming nations in dealing with OPEC nations.

In theory, it has attempted to act, when in reality it has been quite a failure, and as a matter of fact, the thing that I particularly noted in your opening statement, Mr. Chairman, was your zeroing in on the problems of certain of our allies who have been more concerned with the immediacy of their own concerns and their problems than they have with the long-range oil policies of the consumer countries of the world.

France has been particularly indifferent, and I think that although France is not a member of the IEA, it has served to cause it to be less effective than it might otherwise have been.

Since the IEA operates only by reason of our country's providing by legislation an exemption from the antitrust laws for the oil companies to join together at the IEA, I hope that the testimony of our witness today will shed some light on the validity of the continued operation of the IEA in its present form and whether it performs a useful purpose, but I am particularly pleased that you saw fit to point out in several places in your opening statement the failure of our allies to be as resolute in their determination to solve this problem as we have been in this Nation.

The CHAIRMAN. Thank you very much. Are there further comments?

Dr. Kissinger, you have received some advice from all of us. You may proceed in your own way now.

## STATEMENT OF HON. HENRY A. KISSINGER

Dr. KISSINGER. Mr. Chairman, gentlemen of the committee, first let me express my pleasure at the opportunity to testify before you.

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The chairman has played a leading role in national security policy, foreign policy, and energy policy, and many of us have been students of his in these fields. And I think your committee is again playing a major role in calling the attention of the American public to what I agree is one of the key elements of the energy crisis, namely, its relationship to geopolitics and foreign policy.

Now I have prepared a rather lengthy statement of which I will read only portions, but I stand by the entire statement and I will be prepared to answer questions on it.

The CHAIRMAN. The entire statement will be placed in the record.

Dr. KISSINGER. My statement concentrates on the international implications of the energy crisis and not on its technical aspects or its domestic aspects.

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, imports were still only 16 percent of our requirements, and this figure is misleading because our domestic production was short of capacity so that we could always have substituted an increase in our domestic production for foreign imports.

It was not until 1973 that we reached the fateful conjunction of increasing imports at a time when domestic production had reached the limits of existing capacity. Henceforth every increase in consumption improved the bargaining position of foreign producers.

The Middle East war in 1973 provided the opportunity, when the Arab oil producers for the first time successfully embargoed the United States and the Western European countries. Panic buying, shortages, and a dramatic increase in prices have led to a tenfold increase in the price of oil between 1973 and 1980.

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 nations. The enormous surplus earnings of the oil producers now overhang the world economy even when not manipulated for political purposes. But in unfriendly hands, the combined power to restrict production and manipulate vast financial resources becomes an ever more dangerous weapon, and a growing threat to the world economic and financial system. The open economic system that insured prosperity in the postwar period has been threatened by a vicious spiral of recession, shrinking trade, and protectionist measures.

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. 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 the 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

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nations has come not from the imperialist exploitation, so fashionably assailed in international forums, but from an arbitrary price gouge by their Third World brethren.

By a cruel irony, even the more moderate oil producers are now caught up in a vicious circle. Their power over price and production is undermining the structure of the very societies on which they ultimately depend for their security and their progress. They have a stake in Western strength and stability, but the collapse of the pro-Western government in Iran has tipped the balance within OPEC in the more radical direction. 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 6 months later 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 does not exist.

With that as a background, let me now turn to the geopolitical implications of this situation, addressing primarily the situation in the Middle East and the Persian Gulf.

There are three aspects to the region's political turbulence—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 to deal with the region's problems by addressing one of these aspects in isolation, even an issue as important as the Arab-Israeli conflict. They must be understood and dealt with concurrently or chaos will 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 nonalinement, but they understood 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. The administration, after much vacillation, has 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. The tendency in the field of strategic weapons is toward parity, which inevitably means that the Middle East becomes more vulnerable to the growing Soviet capacity for regional intervention.

Our military buildup in these categories has been hesitant and ambivalent, much of it a redesignation of existing forces instead of the creation of additional ones. And the pace of it is to slow, in the face of

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the relentless Soviet armament program increasing at the rate of 5 percent a year over the last 18 years. Among the surviving moderate regimes in the area, this has generated a pervasive sense of insecurity that threatens to alter political alinement and further undermine the forces for restraint within OPEC.

Even if we succeed in maintaining strategic parity, or even a slight edge, 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 and friendly countries—the pressure on countries close to the Soviet periphery is bound to increase. States known for their traditional friendship with the West will become demoralized, frightened, isolated.

These fears are heightened by the continuing Communist assault on the geopolitical balance. In the last 5 years, almost every significant change in the world has been produced by Soviet weapons, Soviet friendship treaties, Soviet proxy troops, or outright Soviet invasion. The resulting sense of insecurity has affected the perceptions of many key countries, slowing down the Middle East 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 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. Their dissociation from us reflects the dismal assessment of the leaders in the area regarding the trend in the global balance.

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 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 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 these reasons, it is imperative for the United States to restore first its overall military strength. The President has declared 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 commitment.

The second dimension of the instability in the Middle East and the gulf is the contest between the moderates and the radicals.

We are often told that domestic change is inevitable and irrepres-
sible, that we have to get on the side of the forces of change. There is
merit in these propositions, but we must never lose sight of a crucial
distinction. We have a vital stake in the nature of that change and in
the success of those who support peaceful change and ties with the

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industrial democracies. We must not attempt to appease anti-Western radicals who are driven by ideology and will not be charmed out of their hostility to us by professions of our good will. At stake in the contest between these two groups is, among other things, the world's energy future.

The disintegration of the pro-Western government in Iran was the principal cause of the oil crisis of 1979. The fall of the Shah has affected the calculations of other OPEC members historically associated with us. Our vacillating reaction to the collapse of a friend of four decades and the shabby personal treatment of him inevitably raised doubts in their minds about the value of American friendship.

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.

The art of policymaking is to identify the range of effective influence available to us. No doubt we have sometimes underestimated that range. Your chairman deserves great credit for insisting throughout his public life that American foreign policy must be related to American values—and I can say that I have welts on my back testifying to that situation. [Laughter.]

This is not always an easy matter. There is an inevitable reluctance to upset the apparent stability in strategically vital areas, even if inaction risks storing up trouble for the future. But another obstacle has been a lack of understanding of the nature of political evolution.

Conventional Western wisdom has taken it for granted that economic development would automatically produce political stability as it did 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 expectations and reality. As this gap was closed, the underlying political cohesiveness asserted itself.

In developing societies, by contrast, rapid modernization undermines traditional social structures and therefore produces political instability.

Events in Iran have defied all Western notions of progressive change. The assault on the Shah's rule did not come from those whom Western pundits 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. The reaction came from groups threatened by social progress. 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 values.

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 no one—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.

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We have thus, for most of the postwar period, been lacking a theory of political change. Unfortunately, what has been implemented in recent years in the name of political change has compounded the problem. The new dispensation is that our difficulties arise because we have always associated ourselves with the wrong groups, with leaders who lack public support—the test of which presumably is governments not subject to upheaval. This has tempted us into hectoring and pressuring and contributing to the overthrow of friendly governments around the world.

Reality is much more complicated. First, in many so-called progressive regimes, domestic order is maintained by effective repression. There are no upheavals in Vietnam or other Communist countries. The "right side" becomes that which is not inhibited in its repression by association with us.

More importantly, our human rights pressures can have consequences exactly opposite to our intentions. What we consider normal—constitutional democracy—is in fact a rarity both in the sweep of history and on the breadth of the planet. Constitutional democracy derives authority from an abstraction, obedience to law, but constitutionalism can function only if law is believed either to reflect an absolute standard of truth or to grow out of a generally accepted political process.

In most parts of the world, 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 often been mitigated either by a concept of reciprocal obligation or by custom as limiting factors.

It was paradoxically the emergency of popular government that expanded the scope of what government could demand. The people by definition could not oppress itself, and hence its wishes, as expressed first by elected assemblies and later by self-appointed rules, were absolute.

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 either personal or totalitarian. The tragedy is that we seem to have no idea how to effectuate the delicate transition to constitutionalism, a process that in the West took centuries.

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

I have dedicated so much time to these theoretical reflections to point out that while America has sometimes settled too readily for the status quo, recently the American pressure for change has more often accelerated the process of domestic disintegration than arrested it. And the end result has been both more oppression domestically and greater

10

international instability. The result of these tendencies, contrary to our intention, has been a spread of regimes hostile to us in the Third World. The successor regimes to those we have criticized have usually been more, not less, oppressive.

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 existing traditional structures collapse. More recently, Islamic theocracy has emerged as a reaction to modernization in all its forms, Western or Marxist. In the face of these onslaughts, traditional friends of the United States belonging to neither of these orientations stand unsure of their future and confused about our purposes.

The inevitable result of radical ascendancy, regardless of its origins, is to threaten the survival of all pro-Western governments that remain in the Third World, and especially in the Middle East, with obvious geopolitical consequences.

The impact in energy is immediate. Radical countries seek to drive up the price of oil to obtain resources to achieve their international objective of undermining American and Western influence around the world. Moderate regimes have the paradoxical incentive to reduce production since they fear the disruptive consequences of the process of modernization that destroyed the Shah. Both developments push up the price. Together they 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 or to disassociate from us in self-defense, they must know that we understand the realities of their situation. For their own survival, they must be willing to develop their political institutions. At the same time, we must understand the limits of our knowledge, and the price we could pay for clumsy experiments. And we must know clearly where we will draw our lines, what security interests will not sacrifice in the name of reform, and what positions we will defend even if those who man them do not meet every definition of virtue.

Let me now turn to the Arab-Israeli conflict. The Arab-Israeli conflict is without doubt a principal factor in the turbulence of the Middle East, but its solution is closely connected with the factors that I have already discussed—the military balance and relationship between moderates and radicals in the area—and it cannot be solved in isolation.

A dangerous escapism has developed in the West. The illusion is widespread that solving 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 settlement, the auspices under which it is achieved, the goals achieved, and who benefits from it.

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 the Camp David negotiations. Other unilateral steps taken recently seem to me ill advised. But I am not impressed, either, by the many fashionable proposals that amount to finding some subterfuge for introducing the PLO into the negotia-

11

tions on the optimistic assumption that it would then moderate its goals and contribute to stability in the entire region.

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.

The proposition that establishing a PLO state would contribute to the tranquility of the area lacks any factual basis. Quite the opposite is likely to be true. I question the obsession with introducing the PLO into the negotiations not simply because of its rejection of UN Security Council Resolution 242, but above all because of its radical anti-American, anti-Western policy: its close affiliation with and occasionally leadership of all radical forces hostile to us in the Middle East, including those Iranians holding our hostages; its training of terrorists on a global basis; and its intimate cooperation with Soviet intelligence organizations.

In its present incarnation, the PLO, beyond its implacable enmity to Israel, supports all forces assaulting the present international structure. As long as its pursues such a course, it deserves Western opposition, not encouragement.

The prevailing theory is that the PLO would become more moderate after its demands were satisfied. I see no evidence for this. Indeed, all evidence is to the contrary. An independent PLO state in current circumstances will have every incentive to attempt to subvert nearby moderate governments, especially Jordan, if only to escape the inevitable demilitarization provisions without which no Israeli withdrawal of any type is conceivable.

The last thing the Middle East needs is another radical state in the region attacking all existing institutions.

For all these reasons, negotiations with respect to the West Bank do not depend on finding a gimmick for a fashionable negotiating forum. If another forum is developed, it should promote Jordanian participation. Any other route will lead to failure.

Our European allies must learn that when they push schemes incapable of realization, they encourage radicalism and guarantee stalemate.

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 effort is bound 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 specifically 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 in which all parties would be participants. The relationship of the Palestinian areas to Jordan would then become an Arab, not a general international problem.

It is in this manner that the moderate forces in the area will be encouraged, and that would go to the stability of the region.

Let me make a few final observations about other international aspects of the energy problem. We have been subjected to political

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pressures not only in the 1973 embargo, but even more recently. We
are now threatened by OPEC with production cutbacks if we seek to
build up a strategic oil reserve. But we cannot tolerate being forced
into a state of vulnerability. No country has a right to demand that
we remain eternally subject to blackmail. Building a strategic oil re-
serve is a sovereign decision of the United States and an essential mat-
ter of survival. The attempt to interfere with our doing it is a demon-
stration of why it is essential.

We should proceed with filling our strategic reserve promptly, 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 co-
operation. Since the establishment of the International Energy Agency
in 1974, cooperation among the industrial democracies has not been
adequate to the challenge. Instead of concerted action, too many of
the industrial democracies have preferred to curry favor with the
OPEC countries, competing for some transitory special position or
dissociating from our negotiating efforts in the Middle East. But once
the principle is established that a political price can be exacted, the
moderates will become the target of radical pressures to raise the poli-
tical price. The moderates cannot stand fast if the industrial democra-
cies do not.

There are many subjects requiring common action. One is help to
developing countries to meet the crisis produced by rising prices. An-
other 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.

Eventually, on the basis of the solidarity of the industrial democracies, a dialog between the consumers and producers must be established. There is in fact a congruence of interests. Consumer 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. But this cooperation cannot take place in an atmosphere of chaos. The producers cannot continue the practice of periodically announcing, as a series of unilateral proclamations, decisions affecting the economic future of the entire world without any consultation or any apparent concern for their impact.

The indurial democracies must enhance their cohesion if the con-
sumer/producer dialog is to give expression to the reality of their
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 crea-
tive genius to transform the world energy market.

Thus will freedom be vindicated and the democracies flourish, trans-
forming crisis into hope.

Thank you.

[The prepared statement of Dr. Kissinger follows:]

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STATEMENT OF

THE HONORABLE HENRY A. KISSINGER

ON THE GEOPOLITICS OF OIL

BEFORE THE

COMMITTEE ON ENERGY AND NATURAL RESOURCES

OF THE

UNITED STATES SENATE

THURSDAY, JULY 31, 1980

2:00 PM

Embargoed until delivery, scheduled for 2:00 P.M. EDT.

Not to be previously published, quoted from, or used in any way.

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CONTENTS

PAGE

Evolution of the Energy Crisis...................... 2

International Consequences of the Energy Crisis......... 2

The Middle East and the Persian Gulf.................. 5

- The Global Balance of Power...................... 5

- The Contest Between the Moderates and the Radicals.. 9

- The Arab-Israeli Conflict.........................14

Response to the Energy Crisis.........................17

There are many subjects requiring common action. One is help to developing countries to meet the crisis produced by rising prices. And other is the receding of financial surpluses. By 1988, 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.

Eventually, on the basis of the solidarity of the industrial democracies, a deal between producers and producers must be established on a political basis. But it is not possible. Yet, there is a deal. In 1988, the oil producing nations agreed to form a political state in the independence of the product nations, even though 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. But this cooperation cannot take place in an atmosphere of chaos. The producers can not continue the practice of periodically announcing, as a series of unilateral proclamations, decisions affecting the economic future of the entire world without any consultation or any apparent concern for their impact.

The industrial democracies must enhance their cohesion if the consumer/producer dialog is to give expression to the reality of their 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 energy market.

This will freedom be vindicated and the democracies flourish, transforming crisis into hope.

Thank you.

[The prepared statement of Dr. Kussinger follows]

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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 drive their cars; in the seemingly endemic inflation and recession to which it has contributed. 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.

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## Evolution of the Energy Crisis

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. This figure actually overstates our vulnerability 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. By increasing our own production we were in a position to resist either exorbitant pricing or the use of oil as a weapon. These conditions have now changed irretrievably.

By 1973, America's imports had reached 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; 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.

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 it

17

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soon grew used to it and triggered 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, the enormous surplus earnings of the oil producers now overhang the world economy and threaten financial catastrophe. Even when not manipulated for political purposes they are a factor of instability, because 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 recession, shrinking trade, and protectionist pressures. 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 Middle East, such approaches, in fact, do the opposite. For if once the premise is accepted

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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 brethren. 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 fertilizers. The increase in their energy costs in fact far exceeds the total flow of external economic aid they receive. To the developing nations, the constantly rising energy costs represent a permanent, massive, and devastating threat to aspirations for progress.

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 unprecedented pressures; it has weakened the industrial democracies economically and undermined the political unity which is the foundation of the security of free nations. It has stymied the world's economic growth and frustrated the hopes for progress of most of the new nations.

By a cruel irony, even the more moderate oil producers are now caught up in an ominous vicious circle. Their power over price and production is undermining the structure of the societies on which they ultimately depend for their security and progress. They have a stake in Western strength and stability, but the collapse of the pro-Western government in Iran has tipped the balance within OPEC in the more radical direction. 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

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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.

With this as 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 to deal with the region's problems by addressing one of these aspects in isolation--even an issue as important as the Arab-Israeli conflict. 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

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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.
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. The
present turmoil in the Middle East has many causes; but
central to it is the growing doubt that we possess either
the military capability or the strategic doctrine to defend
friendly governments in the area. The tendency in the
field of strategic weapons is towards parity, which inevitably
means that the Middle East becomes more vulnerable to the
growing Soviet capacity for regional intervention. Our
military buildup in these categories has been hesitant
and ambivalent--much of it a redesignation of existing
forces instead of the creation of additional ones. And
the pace of it is too slow, in the face of the relentless
Soviet armament program increasing at the rate of five
percent a year over the last 18 years. Among the surviving
moderate regimes in the area, this has generated a pervasive
sense of insecurity that threatens to alter political
alignments and further undermine the forces for restraint
within OPEC.

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 msut not blind us to the fact that we can never
return to the conditions of the 1950's. Even if we succeed
in maintaing strategic parity--or achieve a slight edge--

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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 bolder. States known for their traditional friendship with the West will become demoralized, frightened, isolated, and threatened.

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 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 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, based on centuries of national experience, 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.

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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 bi-partisan obligation to create rapidly the forces needed to give effect to this inescapable commitment.

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The second dimension of the instability in the Middle East and the Gulf is the contest between the moderates and the radicals in the area. From Pakistan to Morocco, the region has seen a decade of turmoil and upheaval.

We are often told that domestic change is inevitable and irrepressible, that we have to get on the side of the forces of change. There is merit in these propositions. But we must never lose sight of a crucial distinction: We have a vital stake in the nature of that change, and in the success of those who support peaceful change and ties with the industrial democracies. We must not attempt to appease anti-Western radicals who are driven by ideology and will not be charmed out of their hostility to us by professions of our goodwill. At stake in the contest between these two groups is, among other things, the world's energy future.

The disintegration of the pro-Western government in Iran was the principal cause of the oil crisis of 1979: the long 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 departure of foreign technicians, the abandonment of the previous government's development and defense programs. And the fall of the Shah has affected the calculations of other OPEC members historically associated with us; our vacillating reaction to the collapse of a friend of four decades and the shabby personal treatment of him inevitably raised doubts in their minds about the value of American friendship. Many moderate oil producers in the area 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 radical pressures and American disinterest. No wonder that 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 policymaking is to identify the range of effective influence available to us.

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No doubt we have sometimes underestimated that range. Your chairman deserves great credit for insisting throughout his public life that American foreign policy must be related to American values.

This is not always an easy matter. There is an inevitable reluctance to upset the apparent stability in strategically vital areas even if inaction risks storing up trouble for the future. But another obstacle has been a lack of understanding of the nature of political evolution. Conventional Western wisdom has taken it for granted that economic development automatically would produce political stability, as it did 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 cohesiveness 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 pundits 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 landowning clerics who resisted land reform and objected to mass 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 no one--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, for most of the postwar period, been lacking a theory of political change. Unfortunately, what has been implemented in recent years in that name has compounded the problem. The new dispensation 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

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"popular will"--the test of which presumably is governments not subject to upheaval. This has tempted us into hectoring and pressuring friendly 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 our intentions. What we consider "normal"--constitutional democracy--is in fact a rarity both in the sweep of history and on the breadth of the planet. This is no accident. Constitutional democracy derives authority from 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 often 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. 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 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 either personal or totalitarian. While totalitarian states hostile to us are ruled out of bounds for our interventionism, we have recently been

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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 constitutionalism--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 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 maximum material benefits.

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 generally compound the disorder because they are 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* tranquility has been reestablished, but Western inhibitions and authoritarian incompetence usually combine to prevent the testing of this hypothesis. Concessions *during* a crisis only encourage the radicals and accelerate the assault.

I have dedicated so much space to these theoretical reflections to point out that while America has sometimes settled too readily for the status quo, recently the American pressure for change has more often accelerated the process of domestic disintegration than arrested it. And the end result has been both more oppression and greater international instability.

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Convinced that our model is of universal validity, we have sought to implant it without regard to historical circumstance or the likely consequences. In truth, we know next to nothing of the dynamics of other societies, perhaps least of all those in the oil-producing areas; for all our tinkering with "reform," we have given little useful advice on how to navigate the tricky passage to more liberty without wrecking authority and increasing the scope of tyranny. 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--contrary to our intention--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, belonging to neither of these orientations, stand bewildered, unsure of their future and confused about our purposes. Governments that have traditionally relied on us know that the various radical regimes, however different their origins and motivations, all agree in their all-out opposition to peaceful evolution, Western values, and the survival of the world economic system. The inevitable result of radical ascendancy--regardless of its origins--is to threaten the survival of all pro-Western governments that remain in the Third World, and especially in the Middle East, with obvious geopolitical consequences.

The impact in energy is immediate. Radical countries seek to drive up the price of oil to obtain resources to achieve their international objective of undermining American and Western influence. Moderate regimes have the paradoxical incentive to reduce production, since they fear the disruptive consequences of the process of modernization that destroyed the Shah. Both developments push up the price; together they spell disaster for the West.

The West has so far supplied no serious answer to this challenge. Clearly we have fully analyzed neither the dynamics of political change nor our interest in relation to it. We must be clear in our own minds what our own survival requires, the scope of change we can responsibly advocate, and what countries we must defend in our own interest even if their institutions do not meet every democratic test.

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Until we have thought this through, 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
sympathize with Western goals. If the moderates are not
to be doomed--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 political institutions. At the
same time, we must understand the limits of our knowledge,
and the price we could pay for clumsy experiments. And
we must know clearly where we will draw our lines: what
security interests we will not sacrifice in the name of
reform, and what positions we will defend even if those who man
them do not meet every definition of virtue.

The Arab-Israeli conflict is without doubt a principal
factor in the turbulence of the Middle East. But its
solution is closely connected with the factors that I have
already described: the military balance and relationship between
moderates and radicals in the area. If the Soviet Union
emerges as the dominant outside power, moderate countries
will be reluctant to support peace processes that displease
it. In the face of a dominant radicalism, even more friends
will disavow schemes that are in fact in their own best
long-term interest.

A dangerous escapism has developed in the West. The
illusion is widespread that solving 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 settlement, 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 the Camp
David negotiations. Other unilateral steps taken recently
seem to me ill-advised. But I am not impressed, either, by
the many fashionable proposals that amount to finding some
subterfuge for introducing the PLO into the negotiations on
the optimistic assumption that it would then moderate its
goals and contribute to stability in the entire region.

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Given my analysis of the strategic and ideological sources of the tensions in the area, the prerequisite to progress is 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.

The proposition that establishing a PLO state would contribute to the tranquility of the area lacks any factual basis; quite the opposite is likely to be true. I question the obsession with introducing the PLO into the negotiations not simply because of its rejection of U.N. Security Council Resolution 242, but above all because of its radical anti-American and anti-Western policies: its close affiliation with and occasionally leadership of all radical forces hostile to us in the Middle East (including those Iranians holding our hostages); its training of terrorists on a global basis; and its intimate cooperation with Soviet intelligence organizations. The PLO in its present incarnation, beyond its implacable enmity to Israel, supports all forces assaulting the present international structure. As long as it pursues such a course, it deserves Western opposition, not encouragement.

The prevailing theory is that the PLO would become more moderate after its demands were satisfied. I see no evidence for this; indeed all evidence is to the contrary. An independent PLO state in current circumstances will have every incentive to attempt to subvert nearby moderate governments, especially Jordan, if only to escape the inevitable demilitarization provisions without which no Israeli withdrawal of any extent is conceivable.

Finally I see no sign that such a group, with its ideology and its affiliations, is waiting only for a pretext 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.

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For all these reasons, negotiations with respect to the West Bank do not hinge on finding a gimmick for a fashionable negotiating forum. If another forum is developed, it should promote Jordanian participation; any other route will lead to failure. Our European allies must learn that when they push schemes incapable of realization they encourage radicalism and guarantee stalemate. All the industrial democracies indeed have a stake in diplomatic progress; but it is suicidal to identify progress with schemes that will in the 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 political stability in the area and contains, rather than unleashes, radical pressures.

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## 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 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 international dimension. 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 by OPEC 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

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a demonstration of why it is essential. We should fill
our strategic reserve promptly 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
gained by one country can be rapidly transferred to another
that outbids it. Such a course is in fact against the
interests of the moderate oil producers, the claimed
beneficiaries. Once the principle is established that
a political price can be exacted, the moderates will
become the target of radical pressures to raise the political
price. The moderates cannot stand fast if the industrial
democracies do not.

A subject in which it is urgent for the industrial democracies 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 hope 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 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.

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The need for solidarity among the oil-consuming nations is plain. 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. Research into alternative sources of energy could be pooled; major resources could be allocated to some joint programs to develop alternative energy sources, with clear target dates, for the reduction of the common vulnerability. Above all, a joint approach should be worked out for a comprehensive dialogue with the producing nations.

Eventually the solidarity of the industrial democracies will provide the secure basis for a dialogue between consumers and producers. There is in fact a congruence of interests. 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 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, as a series of unilateral proclamations, decisions affecting the economic future of the entire world without any consultations or any apparent concern for their impact. The industrial democracies must enhance their cohesion if a consumer/producer dialogue is 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.

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The CHAIRMAN. Dr. Kissinger, I want to compliment you on an excellent statement dealing with a very complicated subject. I don't know of a subject that is as pervasive as this one. It includes all of the ancient problems of the Middle East and involves the survival of the Western World.

I would like to suggest to my colleagues that we limit each Senator to 5 minutes of questions at a time in view of the numbers that are here.

Dr. Kissinger must leave no later than 4:30.

Dr. Kissinger, we are, of course, disturbed by the events in Afghanistan. Do you see further Soviet military moves in the region or do you believe that the Soviets will use their strong power base in the area to achieve diplomatic and political objectives through Finlandization, hegemony, or primacy tactics that can give them a dominant position and achieve their specific goals without a military move. How do you view those possibilities?

Dr. KISSINGER. One has to look at Soviet strategy in the past 3 or 4 years. It seems to me it is part of a continuum. First the Cubans, under a Soviet general, were implanted in Ethiopia; then the Soviets, first through a series of coups and then through actual military occupation, moved into Afghanistan. So the moderate regimes of the area now find themselves confronted with a substantial Soviet military presence directly to the south and directly to the north of them. The Strait of Hormuz, through which 62 percent of the free world's oil supply imports move, is now within range of Soviet fighter planes from Afghanistan, and the Strait of Bab el-Mandeb, between Ethiopia and South Yemen, finds Soviet military forces or Soviet proxy forces on both sides.

The collapse of the largest military force in the area, that of Iran, has compounded this problem.

The preferred Soviet strategy is undoubtedly create such a sense of insecurity and to encourage so many of the disruptive forces within each society that physical occupation is not necessary. And I believe that if present trends continue, if we do not take adequate countermeasures, they can make major strides in establishing at least a degree of Finlandization of governments friendly to the West which will then be driven toward close cooperation with the Soviet Union, especially on energy matters.

The CHAIRMAN. What about a coup d'etat, Doctor? Many feel that in addition to a straight political move to achieve hegemony, primacy or Finlandization, there is the possibility the Soviets will promote or exploit a coup d'etat.

One country alone, Saudi Arabia, only for illustration, sends through the Straits of Hormuz about one-third of all the oil available for import to the Western nations.

How should we address the possibility of a coup d'etat in which a pro-Soviet force would take over and then invite either the Cubans or the Russians in? How should we respond to that?

Dr. KISSINGER. First of all, it is important to remember that this is how it started in Afghanistan. The Soviets did not just march into Afghanistan one December morning. There was a coup in Afghanistan in April 1978, which was followed by the introduction of 4,000 Soviet advisers into all of the ministeries, and a little later by some 5,000 Soviet troops technically to protect the advisers, so that the premise

35

had been established that this was a sphere of Soviet influence. Then
they moved in their army to protect their previous investment.

I would think that among the dangers that I should have listed,
the one you outlined is certainly not the least problem. How we should
react to it is a matter that requires the most careful consideration by
our Government, and by our Government together with our allies.

I don't think a public forum is the best place to advance theories on
how we should react, but it is not inappropriate to say that we cannot
be indifferent to such a development, and that we cannot ignore the
danger of strangulation of the industrial democracies as a result of
domestic developments then exploited and protected by outside forces.

Senator HATFIELD. Thank you. I have two questions. First, I would
like to followup on the present topic. Dr. Kissinger, how do you assess
the motivation of the Soviet Union's invasion of Afghanistan?

I ask that question in the context of an intelligence report we had in
1977 indicating that by the end of the decade Soviet production would
be in sharp decline. We have information today that perhaps indicates
that this decline is already underway.

Was it primarily an energy quest, an attempt to position themselves
to make a final thrust into Iran, the oil center? How do you assess the
relationship between energy and the Soviet political and military
action?

Dr. KISSINGER. I am not sure that the Soviet Union has a detailed
master plan in which every move is worked out for a very long period
of time.

What they do have is a highly developed sense of relative power.
and they are chess players. In chess if you can constrain the moves
of your opponent and magnify the opportunities open to you, even
if you do not have a detailed plan of how you are going to win the
game, gradually you wind up in a dominant position.

Now the immediate situation is undoubtedly the result of the oppor-
tunity that was presented in April 1978 for a Communist coup. When
we did not react to this—and we did not—they took the next step and
put in Soviet troops.

Senator HATFIELD. You mean a coup of their own Soviet public
system?

Dr. KISSINGER. In April 1978 they overthrew the neutralist government of President Daoud, whom we, when I was in office, considered really quite pro-Soviet, and who in fact carried out policies that never challenged the Soviet Union. Nor did we ever make an effort to bring him over to our side, because we recognized the reality of power; we recognized that he conducted a policy that can be compared to Finland's—somewhat more pro-Soviet perhaps. But even that was not enough for the Soviets, so there was a Communist coup that overthrew him which was backed up by Soviet advisers.

When our Ambassador was killed in Kabul in early 1979, the police
forces that were involved were demonstrably under the direction of
Soviet advisers. They had reached that point already 10 months before
the Soviets invaded.

Now what was their motive? Their minimum motive was to improve
their geopolitical position. If you look at the map, from Afghanistan
they can threaten the Strait of Hormuz more easily. They can threaten

36

it with fighter planes. From Afghanistan, they have the possibility of encouraging domestic upheavals in Baluchistan which is just south of Afghanistan. On both the Pakistan and the Iranian side they already have that capability with the Kurds.

So they have two options. They can either try to disintegrate Iran if it should move in a more hostile direction. Or they can try to force it into a cooperative posture—not to speak of the additional pressure it gives them against Pakistan. Nor can one overlook the option of Soviet pressure against the People's Republic of China using Afghanistan as a hinge. So, as I look at it, their motive was to improve their strategic position and to increase their options.

When all is said and done, we have to remember that up to now what has bothered them most in Afghanistan is not our actions, not the Europeans' actions; it is the unexpected resistance of the Afghan population. If it weren't for that, they would already have given a demonstration of superior strength to all surrounding countries that would make them pause before challenging the Soviets.

This is my interpretation.

Senator HATFIELD. It is strategic, rather than energy?

Dr. KISSINGER. Well, it is hard to separate them because I would not be surprised if in their thinking Iran were the country to which they would look to meet their energy shortfalls.

Senator HATFIELD. Thank you.

The CHAIRMAN. Senator Metzenbaum.

Senator METZENBAUM. Mr. Secretary, in your remarks you addressed yourself to the fact that too many of the industrial democracies have preferred currying favor with the OPEC countries.

I know that you provided the leadership in causing the IEA to come into being, and it is a fact that although in March 1979, the industrial nations or the participants in the IEA agreed to cut consumption by 5 percent, the Germans and the Japanese have both increased their consumption much in excess, that they didn't cut back.

The French have not been a party to it. They increased their consumption, as I understand it. My question is: Since we do provide an antitrust exemption for the oil companies to participate in the IEA, is there a valid reason for a continued effort to make the IEA work in view of the fact that the so-called cooperating countries are really not living up to their commitments and do seem more inclined to go on their own?

Dr. KISSINGER. To me it is a personal sadness, and I think it is a national sadness, that the consumer nations have not been able to work out a better joint program.

You are quite right. Few of the goals of the International Energy Agency have been met, and many other goals that should have been attempted were never even tried, such as developing common negotiating positions with OPEC, or joining in research and development on a substantial scale for new energy sources.

Nevertheless, I believe that we must make one more substantial effort to bring about cooperation among the industrial democracies, because I see no other solution to dealing with the oil cartel on an effective basis. And I am not yet prepared to give up on the IEA.

37

But I think we also have to make clear the present level of consumer cooperation is not adequate.

They will accuse us, perhaps also with some justice, that we have not done as much in conservation as we should, and that we are the worst sinners in that respect.

Senator METZENBAUM. We have lived up to our commitment and exceeded it, as a matter of fact.

Dr. KISSINGER. That is true.

Senator METZENBAUM. As a matter of fact, the IEA makes it possible for five of the seven producers who come from this country to really provide the allocation of the oil resources when a crisis arises.

Should the International Energy Agency or the oil companies be telling us how much we can or can't have since so much of the oil is really under the control of five American companies and one company that has a major role in Alaskan oil?

Dr. KISSINGER. I don't know what the latest status of the various plans are. When I was in office, an attempt was made to create an emergency sharing system for the contingency of another embargo, and I suppose this is what you mean by the IEA making allocations to various countries.

I don't know what the status of it is. Our judgment at the time was that we had to avoid the situation that we faced in 1973 and 1974, when we were being urged by allies who did not want to face energy shortages to make political concessions that we considered against our national interests—and that we did not in fact make. We thought they would be more willing to take common positions if there were an allocation, if one would know there was some assistance in case of an embargo.

Also if you have such a system, limited embargoes cannot work very effectively, and a general embargo involves such a major political risk that we thought that moderate oil producers would recoil from it.

This was the theory behind the emergency sharing plan that I was familiar with. I don't know exactly where it stands today.

The CHAIRMAN. Senator Wallop.

Senator WALLOP. Thank you, Dr. Kissinger, I want to compliment you on the statement you made.

You also spoke of the sphere of influence that the Soviets have obtained over the Strait of Hormuz and the Straits of Aden.

Could you speculate a little bit on the third most important oil strait in the world at Gibraltar and speak to that because there are some serious problems pending perhaps in Morocco?

Dr. KISSINGER. Senator, I have been greatly concerned by the conflict in the formerly Spanish Sahara which was acquired by Morocco and which now is under attack by the guerrilla forces armed by—again—Soviet weapons, from Libyan depots. And again, whatever one may think of the nature of the issue, one has to remember one is speaking there of a population of between 60,000 to 80,000 whose national consciousness could not have been extremely highly developed, and these guerrilla forces are all based in a neighboring country.

Now I think we have to face the fact that a victory of the Polisario forces, or even a continued drain on Morocco, could lead to the collapse

38

of the Moroccan political structure. And Morocco then faces us in the Straits of Gibraltar with exactly the sort of case we now have in the Strait of Hormuz.

If the same thing happened in the Straits of Gibraltar, and if the entire shore of the Mediterranean west of Egypt were in hostile hands, a serious question would arise as to what we would do with the Sixth Fleet in the Mediterranean. This is a classic example of why geo-political considerations ought to be taken seriously, and one should not wait until a catastrophe has occurred before addressing that problem with some seriousness.

There is no question that Soviet and to some extent Algerian weapons and training and bases are systematically attempting to undermine Morocco.

Senator WALLOP. It isn't a pretty picture, and I guess one hears the statement now that we don't want to fight, to spill American blood, for a barrel of oil in that light.

I appreciate the words that you said that by extending their sphere of influence, they may not physically have to occupy those places.

Would you just speculate for a minute on what the free world consequences of the loss of free access to its oil supply might be?

Dr. KISSINGER. I think if the oil supply of the gulf, of the Middle East, fell into pro-Soviet hands—even if not pro-Soviet, systematically anti-Western or even anti-U.S. hands—the consequence would be that tremendous pressures would be put on Western Europe, on Japan and on other countries associated with us to follow the preferred policies of those regimes.

Second, the impact of this on areas that are already in turmoil like Central America, and on such countries as Mexico, would be very profound. The United States could suddenly find itself substantially isolated in the world, with a Europe that will make its own accommodations to the new dispensation of the oil-producing area, in addition to whatever pressure it faces from the Soviet Union. Those are economic and security considerations which could severely jeopardize us. If present trends continue and nothing new happens, it is more likely that they will happen.

The CHAIRMAN. Senator Johnston.

Senator JOHNSTON. I would like to begin by digressing on a matter of great gravity. That is your recent book. I hope you will break your next volume down into three parts. I was reading it in bed the other night, got drowsy, and the book dropped and knock the wind out of me.

Some of us have tennis elbows, and as we carry it around, that aggravates that greatly.

Doctor, in your judgment, how long can Iran survive, and what next?

Dr. KISSINGER. Iran is in the classic position of many revolutions. That is, revolutions are made by a coming together of all sentiments opposing the existing order, and when they have achieved their negative objective of overthrowing the system that exists, it then turns into jockeying for who will dominate the situation.

It is in this sense that I have interpreted the hostage crisis. The hostage crisis was not an act, in my view, of irrational elements in Iran. It was an attempt to push the political spectrum in Iran toward the more radical direction, and to demoralize all those forces in Iran

39

that relied on or had confidence in the United States, because that
in itself would strengthen the radical forces. So now you have a con-
flict between various tendencies—radical Islamic tendencies, Com-
munist tendencies—and at the same time you have outside pressures.

At this moment, I would think that the Soviet Union probably
prefers chaos in Iran to any specific foreseeable outcome. But they
have the option either of trying to work with a pro-Soviet regime
or pushing the disintegrating tendencies in Iran that are inherent
in the fact that Iran is not a nation but an empire that has many
different nationalities grouped in it.

I think we are only at the opening phase of this revolution, that
in my judgment is tending right now in a radical direction; whether
or not it will wind up to be pro-Soviet, it is surely actively anti our
interests in the area. It works actively against all our friends in the
area.

Senator JOHNSTON. Doctor, we have to plan for such eventualities
as gasoline rationing and in putting together a program for that we
need to have in mind how much advance warning we might have, and
also what kind of a change there might be in the next 5 or 10 years
to require rationing.

First, how likely is a situation to cause gasoline rationing, say a
20-percent cutoff? Second, how much advance notice might we have
of some kind of disintegration in the Middle East?

Dr. KISSINGER. I would say if present trends continue, that is, if
there is not a re-establishment of American credibility, if our friends
do not regain their confidence and our adversaries some caution, I
would think that sometime in the next 4 to 5 years something will
happen that will have a serious enough impact on our energy imports
to make us consider rationing, and I think if it does happen, it will
happen very quickly.

Senator JOHNSTON. One final question—do I take it that you think
that the direction of OPEC production over say the next 5 years, 5 or
10 years, is down, and the direction of OPEC prices will be sharply
up in the next 5 or 10 years?

Dr. KISSINGER. Yes. I would say this. Economically OPEC has
almost no incentive to increase production. The countries that can
increase production are generally the moderate countries. They are
already producing more than they need, however inadequate it is,
partly out of deference to us.

In the present framework, their incentive to put pressure on prices
is relatively small, because they are afraid of the radical countries like
Iraq that advocate high prices; they don't know what to do with the
income; and they are afraid of modernization. So I feel that the
purely economic incentives are in favor of lower production.

It is up to us to provide foreign policy incentives that might in-
crease the production, but those circumstances do not exist at this
moment.

The CHAIRMAN. Senator Domenici.

Senator DOMENICI. I want to join with the other Senators in com-
mending you on your statement and your observations here today.

As a followup on Senator Johnston's question, the last one, you
indicated that unless America or the free world credibility in the
area we are discussing, producing nations that export, is changed,

40

that we can expect if I understood your answer, a major supply interruption?

Dr. KISSINGER. Yes. I don't know necessarily exactly where it will occur. I can just say that the probability of everything going well—

Senator DOMENICI. We have had previous experts tell us that in 10 years the probability of a major supply interruption, at least one and maybe more, are clearly in the cards, and I take it you are generally agreeing with that?

Dr. KISSINGER. Yes.

Senator DOMENICI. If it is America's credibility that is necessary to keep this gradualism that you have described from taking over, what are some steps for altering the credibility gap that you refer to that ought to take place? What are they?

Dr. KISSINGER. The conduct of foreign policy depends really on the accumulation of nuances. It is very rare that you can do one dramatic thing that totally changes the pattern.

One thing we must do is to establish a credible military balance, a military presence, hopefully together with our allies, in the Indian Ocean.

Second, we have to look for an opportunity to demonstrate that it pays to be America's friend, and that it is dangerous to be our adversary.

Now we will not lack such opportunities. They are inherent in the situation. And how we react to this, what determination and decisiveness we show, will then affect the overall pattern, and that affects everything.

Take a country like Jordan, which has been a traditional friend of the United States. One of its problems is that it cannot be sure that if it faces again a situation like 1970 when it was invaded by radical neighbors, the same degree of assistance would be physically there. So these are some of the directions in which we have to go. Above all, we need a steady, predictable American foreign policy so that other nations can orient themselves to an expectation of American conduct.

Senator DOMENICI. You indicated that you would not be surprised while the Soviets don't necessarily have some master plan for this whole area, that they might be looking to Iran as their supply because they, too, are going to have a shortfall.

Can you discuss with us how you think that kind of eventuality might occur?

Dr. KISSINGER. In the extreme case, we could have a repetition of the Afghan situation. You could have a coup in Tehran in which the Communists take over power—I think that is the least likely, but you can't totally exclude it—and they apply the Brezhnev doctrine whereby they claim the right to protect a Communist government once established against being replaced.

Another possibility is that they create such a sense of insecurity that whatever government is in power in Tehran purchases domestic tranquility by deference to the Soviet Union. They have many possibilities for bringing pressure, including encouraging revolts in Baluchistan, Kurdistan, the Arab region; and if worse comes to worse, they can promote a breakup of Iran and then pick up some of the pieces that will be relevant to their energy future.

41

Senator DOMENICI. Would you just quickly tell us in your opinion the pros and cons of the free world assisting the Soviet Union in developing its energy supplies?

Dr. KISSINGER. As a general proposition, I believe that economic relations between the Soviet Union and the free world should be made dependent on responsible Soviet conduct in foreign policy.

I do not believe that the trade should be on the basis of purely economic criteria. It should depend on the observance by the Soviet Union of certain rules of international conduct strictly demonstrated and clearly defined.

With respect to oil technology, however, I must say that I have been of two minds. The argument against it is the fact that they have certainly not behaved in a responsible manner in recent years.

The argument for it is that if the Soviet Union is going to be driven into foreign intervention by its need of energy, that we might have an interest in seeing to it that its own energy sources are developing.

Even if that is true, I would not think that the immediate future is the best time to do it. After the invasion of Afghanistan, whatever the reason and whatever the justification, until the Soviets give us some iron-clad assurance that the international structure has their support, until they adopt clear-cut rules of coexistence, I do not see how we can give them any assistance.

Senator DOMENICI. Thank you, Mr. Chairman.

The CHAIRMAN. Senator Bradley.

Senator BRADLEY. Dr. Kissinger, since 1973 we have been following a policy of energy independence. I wondered if you think that this really promotes U.S. strategic interests, and by that I want you to consider the collective strategic vulnerability that would still accrue to the United States if we did attain self-sufficiency because of our allies' continued dependence.

Dr. KISSINGER. Of course, the fact of the matter is that since the declaration of this objective, our vulnerability has increased from 33 percent imports to over 50 percent imports, so it would take a tremendous effort to get us back even to the situation of 1973, and while I don't want to get into a technical debate with Senator Bellmon and Senator Jackson as to whether it is in fact possible to do, I find the prospect of zero dependence hard to imagine, though I would welcome it.

Were it possible, it would certainly change the energy market in the sense that while our European allies would still be vulnerable, we would then be back to something like the conditions of the 1960's. People forget that as late as 1967 the Arab countries declared an embargo of the United States which had no effect because we were still not producing at capacity. And at that time, in fact as late as when I came into office in 1969, most of the Middle East oil producers were begging us to increase their sales to the United States because if we increased our own domestic production and forced them to export to European and Japanese markets, they would not be able to maintain the cartel, because then there would be such a surplus of oil that they would have to reduce prices. So I would think that energy independence could benefit the United States and would help our allies because it would take us out of those markets.

42

Senator BRADLEY. In several months we in the Congress are going to have to make a decision on the export of enriched fuel for a reactor.

I wondered what your view was about whether this is the time and
this is the manner to try to seek favor with India and whether you see
this decision as impacting on Pakistan and on China?

Dr. KISSINGER. Fundamentally here is a country that has now
bought a billion and a half dollars of Soviet arms at cut-rate prices
and concession terms. We have not managed to work out a relationship
with Pakistan, even though geopolitically it is central or at least
important to the defense of that area.

My instinct would be not to supply enriched uranium to India under
present circumstances.

Senator BRADLEY. What effect would the opposite decision have on
our relations with Pakistan and China?

Dr. KISSINGER. China is making an effort to improve its relations
with India, and in my mind what I have said might be changed if
somebody could convince me that India is making a serious effort to
move itself away from its relationship with the Soviet Union. But I
find it wrong for us to make a gesture of this type to India when we
have not managed to establish a relationship with Pakistan. And I
would be surprised if a gesture like this would not be looked at with
sobriety in China as well. So my instinct is against it, but I have not
studied it carefully.

The CHAIRMAN. Senator McClure.

Senator McCLURE. Thank you, Mr. Chairman. Dr. Kissinger, I
think that the statement which you made here is "must" reading for all
Americans because it lays the background necessary for understanding
many of the dilemmas in policy which we must confront over the
next few months: Indeed, it lays the groundwork for policies over the
next few years.

Without comprehension of the nature of the problem outlined in
your statement here today, I believe we cannot make the proper
decisions.

My question is in the context of the seriousness of the problems con-
fronting us, and I summarize them as three: Our energy vulnerability;
our economic instability, which is not unrelated to energy; and the
military threat which we are unprepared to meet, all of which have a
concurrence. How much time do we have to change these events?

Dr. KISSINGER. Very little. The longer we wait, the worse the problem becomes. I would like to emphasize the point you made. We have never before faced concurrent crises of this magnitude—a major military crisis, a geopolitical crisis, and an economic crisis—and the longer we wait to tackle it decisively, the more unpredictable events are going to occur, but basically we are out of time now.

Senator McCLURE. I appreciate the answer because I feel the same
sense of urgency which you just expressed. But those of us who try
to approach some of the problems with that sense of urgency are
accused of being irresponsible, we are trying to rush forward without
having laid the proper bases for each individual action. And
yet I look at what is happening, the Soviet Union increasing its military
capacity on almost a straightline basis ever since the Bay of
Pigs, irrespective of what we do. They have not changed their behavior on the basis of initiatives that we have taken.

43

The assessment we have made of their own energy vulnerability whereby they will become net importers of energy early in this decade—if not within the next year or so—the global military instability, our political instability, and the military threat to the region of the world which is the free world's mainstay of energy supply indicate a concurrence of events which tells me that no matter what we do, we are exposed to grave dangers over the next decade.

**Dr. KISSINGER.** I think the next 4 to 5 years will be a period of crisis. I think all the preconditions for that already exist. We can shorten the time. We can begin to get mastery over them.

One of my criticisms of our current military program is its leisurely approach in which most of the forces we are now talking about won't even exist for 5 years. Our crises are likely to arise in the next 2 to 3 years. The same is true in the geopolitical field and in the economic field.

I believe that we have a need for, in the next period, a sense of urgency, a conviction on the part of our public that we are approaching grave danger, that we must deal with major measures really greater than what we have already experienced in the last few years.

**Senator McCLURE.** Allow me, Mr. Chairman, to close on the note with which I opened. If possible, I would make this statement and your responses to our questions "must" reading for all Americans, Dr. Kissinger. It is expedient that it be made "must" reading for all Members of Congress, who, incidentally, may not exhibit a great deal more wisdom than do the American people generally regarding this subject. I want to commend you on a very fine statement, and Mr. Chairman, I thank you for having held this hearing this afternoon to focus on this problem and to again call Dr. Kissinger forward in order that we could draw from his experience and his wisdom.

**The CHAIRMAN.** Thank you, Senator McClure. Senator Bellmon.

**Senator BELLMON.** Thank you, Mr. Chairman. First let me just say I would join in welcoming our distinguished witness this afternoon. Thank you for the wise counsel you have given us. I might say parenthetically that some of us looked with interest upon the possibility of a Reagan-Ford ticket because we knew that the Constitution wouldn't let you be nominated, Mr. Secretary. It seems to me I heard that Jerry was running vice Henry Kissinger. I never quite got that straight from the horse's mouth. You might want to enlighten us.

At any rate in your statement on page 8, you have talked about the need to urgently restore our overall military strength. I think there is another myth our chairman talked about that I feel we ought to try to disabuse ourselves of, and that is the myth that somehow we can use military force to keep the oil flowing out of the Middle East.

There isn't any way you can fight a war and produce and transport oil on the same ground at the same time. Do you feel that, irrespective of how many billions we invest in defense or how many tanks or whatever we build that we can by military force keep the production from the Persian Gulf at a high level?

**Dr. KISSINGER.** It is a very delicate and difficult subject to discuss publicly. I think, of course, that the use of military force has to be always a last resort. At the same time the conditions in which the resort to force might have to be considered will be influenced by the exist-

44

ence of the force—so that paradoxically the weaker you look, the more likely you may have to resort to force.

There is no law of nature that says that if the Soviet Union attacks one particular area, we would have to fight it in exactly that place, but our capacity to fight it somewhere would crucially affect the decision on whether that military move would be made. I would say that military power is not the best way to promote oil production, but then there are circumstances in which we might lose the oil production anyway.

So the interplay of strategic considerations with the balance between moderates and radicals in the area depends on many factors. And I think the least likely circumstances, the most desperate circumstance for American military action, would be one in which we would directly intervene in the oil fields to assure oil supply. This is not the circumstance for which one would normally look to the use of American military power.

Senator BELLMON. One other question—we have all been terribly distressed about what happened in Iran and also by what happened as a result of the cutoff of Iranian oil production. World oil prices more than doubled. Inflation has been exacerbated, and recession now follows.

The question is—it is related not just to Iran but about other countries: Is there something the United States could have done to have retained stability in that area?

Before you give us the answer, do you have some guidance as to what we might do in other countries that might be similarly threatened?

Dr. KISSINGER. When you study the history of revolutions, there is always an interesting question: At what point did they become inevitable? At what point did they get out of control, and what was the interplay between psychological, economic, military, and other factors?

I think there were many factors that produced the Iranian upheaval. I mentioned in my prepared statement the process of modernization which on the one hand produced new classes for whom there was no political expression, which led to political unrest, and on the other hand it mobilized so many elements among the traditional groups whose status was being changed by the secularization of the country. That was certainly one factor.

Another factor was the loss of self-confidence on the part of the Shah, which was in part influenced by his viewing the Cuban move into Ethiopia and the Soviet move into Afghanistan without opposition by the United States. Since he had a very complicated mind, he figured the United States would have resisted had it not already made a deal which consigned Iran to a Soviet sphere of influence. To what extent our foreign policy actions affected the Shah's resistance is very difficult to say.

I think what was at a minimum lacking was a clear appreciation in this country of the catastrophic effect on us of the collapse of a pro-American government in Iran. Could we have guided a transition to a more benign regime, more benign for its population and for us? Was it possible to preserve the Shah? This is something that will be debated forever. But what cannot be debated is that we were dithering for a period of months and managed to find disadvantages in almost

45

every course of action which speeded his collapse without gaining the
favor of his successors.

Senator BELLMON. Is there a lesson there for us?

Dr. KISSINGER. The theoretical lesson is that you ought to take re-
form in time before there is a crisis.

Another lesson is that when a crisis occurs, you ought to try to over-
power it at the beginning and not let it develop. And I must add that
I believe the inhumane treatment of the fallen Shah is a blot on our
national honor, because whatever we may think of his actions, for
40 years he was our friend. Not to let him live here as a private citizen
when he was dying of cancer cannot inspire other friends in that area,
whose internal regimes are probably even less benevolent than the
Shah, with any confidence of what will happen to them if they face
problems.

The CHAIRMAN. Senator Metzenbaum. I will waive my time for the
time being and let Senator Metzenbaum ask questions.

Senator METZENBAUM. Dr. Kissinger, do you have a position with
respect to the question of sale of F-15's to the Saudi Arabians be-
cause they have to have an offensive capability? Do you have a
position on that?

Dr. KISSINGER. I have not taken a position. My instinct would be
that we should stick with the assurances that were given to the Senate
at the time that the sale was made.

I at the time advocated the sale. I don't remember my testimony
exactly, but it was certainly my understanding that there would be
certain conditions attached to that sale which would reduce the offen-
sive capabilities of these planes. And since any peace agreement that
we may want to promote in the Middle East will depend on American
assurances as well, we should be very reluctant to change assurances,
especially after such a short period of time. So my instinct is to stick
with the assurances of less than 2 years ago.

Senator METZENBAUM. Therefore, not to provide the offensive
capability?

Dr. KISSINGER. That would be my instinct, not necessarily on the
merits of the case, but simply on the basis of the fact that my recol-
lection is that firm assurances were given to all the parties concerned
at that time.

Senator METZENBAUM. As the chairman in his statement indicated,
and as I indicated in my opening statement, it is difficult to make
much progress as long as there is one country. France, whose policy is
to serve its own short-term interests vis-a-vis the oil producing nations.

In 1977, for example, the French police had apprehended the PLO
terrorists who engineered the massacre of the Israelis at the Munich
Olympic Games, and the French Government turned them loose in
order to curry favor with the radical Arab regimes.

France has refused to join the IEA. France has offered its most
advanced weapons, no questions asked, to countries like Libya and
Iraq. France is supplying weapons and nuclear fuel to Iraq. France is
obviously taking a "go it alone" policy in an area where cooperation
is vital.

If you were still in government, how would you propose to deal with
the French under these circumstances?

The CHAIRMAN. On this and all other matters.

46

Dr. KISSINGER. I think you are raising a hypothesis of grave things that shouldn't happen, but I must say that I had somewhat a more benign view of the current French Government.

In my dealings with French leaders, I have found the current French President relatively more receptive to the friendship of the United States than his immediate predecessors.

Now the French believe that they must pursue a visible demonstration of their national interest. They often engage in actions with which I disagree. Their argument would be that this gives them plausibility, so that when they do support us they can do so with a much firmer public base.

On their policy in the Middle East I have never agreed with them, and I believe that the attempt by individual industrial democracies to curry favor with individual Arab radical countries is bound to lead to disaster, because they set up the principle that anyone who gains a temporary advantage can always be outbid by somebody else, and they demonstrate collective weakness.

I think the only way to deal with the French is to make the IEA so strong that the French, being left out, would suffer in their relative bargaining position because all they can offer is what one country can do.

I must say I disagree with the French approaches on many of these issues, especially the sale of some of their advanced military technology and some of their nuclear technology into radical countries, and if that continues, it must affect our relationship to them.

Senator METZENBAUM. Thank you.

Senator HATFIELD. Dr. Kissinger, you have given us a very profound and yet very classical description here today of the events that led us into the concurrency of crises in three fields. You identified them as geopolitical, military, and economic.

I want to ask you whether or not you think one of our problems in dealing with these crises is that we are still viewing the world in the context of the classic concepts, theses, hypotheses?

Let me give you an example. Most economists have never considered an economic context other than a growth context. Perhaps we should be looking for an equilibrium or steady-state situation. More may not be better. Perhaps quality and not quantity should be the growth factor.

In energy we see this situation where more and more requirements for production are not necessarily economically and strategically to our advantage at this time, or to the world's. We have world-diminishing raw materials with increasing population.

In defense, the arms race certainly has not made the world safer.

So I would ask if you would care to comment on the modes and the contexts with which we have analyzed the world, with which we are still analyzing the world today. Should we begin to look for new modes of perception?

Dr. KISSINGER. I agree with you that we face a revolutionary world in many respects. Never before has foreign policy had to be conducted with 150 nations simultaneously. Never before has there been instantaneous communication. Never before have you been able to visually actually see what is going on in one part of the globe. In

47

fact, never before have all the regions participated in international politics simultaneously. In the 18th or 19th century you couldn't talk of China or Japan participating in world affairs because they and the world had no means of impacting on each other. This is a revolutionary situation.

The second important element that is now happening is—you spoke of growth. All our societies, all the industrial democracies in the postwar period, have really had as their essential political problem the allocation of an increasing gross national product, which is difficult, but it is a pleasant problem to have.

If the analysis we have discussed here is correct, we may well face in the next 10 to 15 years in all of the industrial democracies the problem of allocating a shrinking gross national product, which will involve tremendous political tensions and will change the nature of our politics.

Now here I would differ with you, Senator. Some people argue that this is a good thing and that no growth is preferable to growth. I believe that the no-growth philosophy will so stymie the essence of the American vision of itself that we will become a totally different people, and that every social and political problem we have will become more unmanageable, and that this will affect everything.

If you look at old societies, ancient societies, past societies, you will usually find a decline even in cultural and intellectual activity with the decline of its role, because you have to think that what you do matters in the world before you engage in great activity.

Now I think in any event, whether growth or no growth—this is not my special field of expertise—but when you look at our economy, when you look at the fact that American productivity is now falling significantly behind that of all other industrial democracies, that the average age of our industrial plant is something like 19 years while that of Japan and Germany and France is 10 years, that the productivity increases here are less than 1 percent while they are 5 percent in other countries, that many people tell you that the quality of American goods has so deteriorated that they are no longer competitive with foreign goods—when all of this happens, you know we need a new industrial revolution here, because when this country becomes a pure service industry, then social tensions will become major. We are living in a period which requires radical changes and rethinking and some of the traditional patterns no longer apply.

I, however, think that America, to be great, has to have a vision of growth and of building something new, and that it cannot draw back upon itself without denying its essence.

Senator HATFIELD. Would you delineate, though, between a quantitative growth and a qualitative growth?

Dr. KISSINGER. I think we probably need both, and something obviously has happened to the work ethic in America. I have been told that in one industry in which a lot depends on precision, the rejection rate of a certain product when it is made in the United States is 80 percent, while when it is made in Japan it is 10 percent.

Now this reflects on the morale of the workers. This is not a technical problem, and really this is a nonpartisan matter. If one wants to tackle this problem, one has to start now and allow 10 years for it. But this will also affect our foreign policy.

48

Senator BRADLEY. Dr. Kissinger, given what you have said about the probability of a significant oil supply interruption in the next 4 to 5 years and the basic instability in the region, and your prepared statement where you advocated filling of the strategic petroleum reserve, to what level would you suggest that that reserve be filled, given the dimensions of the threat and the probability in the short term?

Dr. KISSINGER. I think our goal is 90 days, isn't it?

Senator BRADLEY. We were talking about 100,000 barrels a day. The goal was a billion barrels, and there are 90 million barrels in storage now, so we are at less than 26 days' supply.

Dr. KISSINGER. I would move toward our goal as rapidly as we can, defy those who threaten us and see whether they are willing to go through with it, which I doubt.

Senator BRADLEY. Given the possible strain that might place on prices and the challenge that might put to our relations with our friends in the region?

Dr. KISSINGER. You see, I think that countries that do not want us to have a strategic reserve are really telling us we must remain vulnerable to their blackmail, which is an impossible demand for the United States to accept.

This must now affect relations with our friends, and any country whose relations it affects is not a real friend.

Senator BRADLEY. Would you suggest the rate of fill be 500,000 barrels a day and up?

Dr. KISSINGER. I haven't studied the level adequately enough to have a judgment. One would have to do it so that it doesn't drive up the price in an exorbitant manner.

Senator BRADLEY. We put together a package of aid to Pakistan after the Afghanistan crisis. The Pakistanis basically rejected that package.

Do you feel we should prepare a much larger package and that we should aid Afghan rebels, and what is your impression of those actions' effect on our relationship with Saudi Arabia?

Dr. KISSINGER. First, as I understand it, the level of military assistance we offered to Pakistan was ridiculous in relation to the danger they were facing. When they have eight Soviet divisions in Afghanistan, and they consider they have an Indian threat, and we offered them $100 million a year for 2 years, anybody can figure out for himself what you can buy for $100 million.

Now therefore, if military aid to Pakistan is worth doing, it must be effectively done or not at all. The worst position to be in is to do just enough to get yourself involved but not enough to be effective.

Now I can see arguments that the military problem in Pakistan is extremely complicated. It requires very large resources. Pakistan, as I understand it, offered to us to split the military from the economic package and accept simply the economic side of it. We rejected that, so we insisted on a military package in order for them to get economic assistance.

The impact on countries like Saudi Arabia that have close ties with Pakistan could not have been very fortunate, because the worst thing you can do is to convey the impression that you are not serious, that you are engaging in gestures that have no final meaning. And at the

49

time of the Pakistan consideration, I was urging that before we jumped into it, we analyze carefully what was needed, and to do either a serious effort or nothing. We fell somewhere between.

On aid to the Afghan insurgents, of course, anyone thinking back to Vietnam can note that the Soviet Union was pouring in military equipment into Vietnam in that situation, and that the Afghan freedom fighters have been doing without any significant Western support. It is a strange situation in which one is trying to bring pressure on the Soviet Union in Afghanistan but not aiding those who are fighting the Soviet invasion—especially since the Soviet Union is arming every anti-U.S. group throughout the world.

Having said all of this, I have not studied how you would go about doing this logistically. To do it through Pakistan without being willing to protect Pakistan would be a fairly irresponsible action. So I simply note the phenomenon, and I would really have to study more carefully than I have how one would do this on a substantial scale.

Senator BRADLEY. The principle?

Dr. KISSINGER. The principle is one that I find hard to reject.

The CHAIRMAN. Senator Wallop.

Senator WALLOP. Thank you, Mr. Chairman. Dr. Kissinger, would you expand a little on what you spoke of earlier in response to my question on how the expansion of the Soviet sphere of influence and the breakdown of commonality of purpose among the industrial democracies threatens our position in this hemisphere vis-a-vis South America, Mexico, and the isolation threat of which you spoke?

Dr. KISSINGER. Our position in this hemisphere is threatened by many things. One is the consequences of our actions in Nicaragua, in which we set in motion, in a way, tendencies similar to what happened in Iran, with the best of motives. We had one authoritarian government and replaced it with what looks increasingly like a totalitarian government like Cuba and is increasingly going toward the Soviet Union. This in turn, in sequence with El Salvador and Guatemala, will gradually drive Mexico into a more radical direction.

Now to the extent that the United States appears as if it has no clear view of the world, and to the extent that it appears as if it can no longer affect its interests, more and more movements hostile to us will take place. Such measures have been restrained previously by the conception that we could defend our essential interests, and governments have oriented themselves toward us because they thought that whatever their disagreement with our policy, we at least represented a significant security and economic interest for them.

As our security capacity and our economic influence decline, they will take more and more independent positions, as is to some extent already happening in this hemisphere. If that trend continues for many more years, then the Europeans looking at us and seeing our energies more and more absorbed in this hemisphere will become more and more worried about our ability to defend them against Soviet and Middle East pressures. So all of these things are related to each other.

Of course, all you gentlemen are asking me questions on the negative side. I want to stress that our resources and our capability are still far superior to those of any opponent, and these are not problems that are beyond our capacity to act upon.

Senator WALLOP. It is not inevitable?

50

DR. KISSINGER. I am describing dangers. I am not predicting events. I said previously that we are running out of time, but we still have time enough to reverse this situation.

Senator WALLOP. And we will because we have the ability.

Dr. Kissinger. And the resources.

Senator WALLOP. Thank you, sir.

Senator DOMENICI. Dr. Kissinger, you indicated in your description of revolutions, at one point you said if you study the history of revolutions, you will find that some revolutions are inevitable.

Could you just discuss this issue with me. While you use Nicaragua as an example of the demise of one regime and another takes over, and while you have been critical of just a broad human rights declaration as a national policy as if it would solve things by itself, how do we get, what are some of your ideas on how we move from being tied in with a dictatorial despot type regime when revolution is obvious and when the Soviets are in the ballpark it is almost certain to occur?

What does America do when it finds itself in a number of those situations in the world?

Dr. KISSINGER. As I said, many books have been written about revolutions, about when they are inevitable and when they are not inevitable. Once taken place, they all look inevitable, because you can never prove what would have happened otherwise.

Now I make a distinction between Nicaragua and the Shah. I do not consider the Shah and his rule inherently oppressive, and I do not think that his was a regime that was organically beyond the hope of a progressive evolution.

I think that probably was different with Somoza, but the United States has to make a fundamental decision. Do we have an obligation or duty or national need to change governments around the world? If so, we have to keep in mind two things. One, it will lead to increasing American involvement. That is not bad, but it is something we have to consider. We must restore the intelligence capability by which alone we can effectively weigh this.

Second, if we have an obligation to get rid of certain governments, we have an equal obligation not to just leave the field; we have to have some idea of what we want to put in its place.

Now I have no objection whatever to the removal of Somoza. I have nothing good to say about Somoza. All I am saying is that to overthrow an authoritarian government that was no foreign policy danger to us, and leave the field to a semitotalitarian government that is a foreign policy danger to us, is no improvement of the situation, especially when domestic conditions haven't improved much in Nicaragua. So if we want to replace Somoza, which is a laudable objective, we need the intelligence capability to do it and we have to be willing to go into the trenches to make sure that the successors represent moderate, democratic, peaceful evolutionary institutions rather than totalitarian extremist ones. If we are willing to do this, I think it is certainly a more moral position than the one that simply looks at their strategic importance.

Senator DOMENICI. It is not typically American.

Dr. KISSINGER. It takes a lot of effort.

51

Senator DOMENICI. I am not suggesting we shouldn't. I am saying it is a very onerous kind of thing for our kind of people.

Dr. KISSINGER. It is a very onerous kind of thing.

Senator DOMENICI. Thank you.

The CHAIRMAN. Senator Bellmon. This will be the last round of questions. We do have a commitment to Dr. Kissinger. I will waive my 5 minutes. I will talk to Dr. Kissinger later.

Senator BELLMON. Mr. Secretary, we worry a lot about the Soviet takeover of the Persian Gulf area by force of arms. I am curious whether they need to use force of arms in that area.

If the Oil Minister of the Soviet Union drops in tomorrow to see Sheik Yamani who presently doesn't sell any oil to the Soviet Union, only sells oil for hard currency, and the Soviet representative says I have come to buy oil. I want to pay for it with rubles, can Yamani send him away empty handed?

Dr. KISSINGER. Probably still, but I do not believe that the preferred Soviet position in the Persian Gulf is a military occupation. I consider what they did in Afghanistan at least as much directed against China as a prelude to an attack on the Persian Gulf. But I do believe that the contingencies that Senator Jackson mentioned, of either encouraging a coup or creating such a sense of insecurity that weak governments would be driven to do what you imply they might do, is very much in the Soviet mind.

Can Shiek Yamani send him away? Saudi Arabia is still pretty far away from the Soviet Union, but there are countries that are closer who would be in a much more difficult position.

Senator BELLMON. They are not far away from an area where Soviet influences are strong.

Dr. KISSINGER. No; and certainly you have indicated what we may see in the 1980's.

Senator BELLMON. If that is a possibility, I can't quite understand your answer to Senator McClure's question about our furnishing technology to the Soviets, helping to keep their domestic oil production high.

Dr. KISSINGER. He asked me to give the argument for and the argument against. I said I am not in favor of doing it now in the wake of a Soviet geopolitical offensive that has lasted at least 5 years.

There might be a time when one would be less stringent about that than about other aspects.

Senator BELLMON. The more rapidly Soviet domestic oil production declines, the more quickly—

Dr. KISSINGER. I hate to be in the position where the Soviets can blackmail us into giving them technology by the threat of military intervention.

Senator BELLMON. I am not suggesting we give it to them. Let's sell it to them high!

Dr. KISSINGER. I would put the technology with respect to oil development in a different category for consideration than technology in general. But in the present circumstance, I think, when the Soviets draw up the balance sheet after Afghanistan, they have really not paid much of a price except in the resistance of Afghan freedom fighters, not in the reactions of the outside world.

Senator BELLMON. That's all, Mr. Chairman.

52

The CHAIRMAN. I changed my mind. Senator Bellmon brought to
my mind one question that I want to ask.

Isn't it possible that unless we do something to address the military imbalances, especially in the Middle East the Soviets could go to one or more of the key Persian Gulf States and buy oil and then resell that oil at a higher price to Western Europe? They are already selling a large amount of natural gas in places like Italy and in Germany to create dependence. The dependence is running at about 20 percent.

It would be a form of aggression by mercantile agreement. I personally feel, exempting Iran for a moment, that a direct military move in the Perisan Gulf by the Soviets is unlikely. Instead the Soviets are apt to move indirectly, utilizing their strong military presence for straight blackmail pressuring the producers to enter into contracts that they can't turn down. The Soviets could use these contracts to deny the West oil or to make the NATO countries dependent on the Soviet Union for oil, thereby improving the strategic position of the Soviet Union.

Would you comment just briefly?

Dr. KISSINGER. It is inconceivable to me that the Soviet Union, if it retains a significant military advantage, will not use it for some foreign policy or foreign-economic policy purpose, especially since they know that the window they have is bound sooner or later to be closed, and especially as they will face serious domestic problems as time goes on.

The contingency which you described is a very plausible one.

The CHAIRMAN. Dr. Kissinger, I think I can speak on behalf of
everyone here in saying that we are deeply grateful for your excellent
presentation on the geopolitics of oil, especially as they relate to the
Middle East.

We are in your debt for taking time out to give us this wise counsel
and help.

Thank you very much.

[Whereupon, at 4:22 p.m., the hearing was adjourned.]

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
DRIVE THEIR CARS; IN THE SEEMINGLY ENDEMIC INFLATION AND
RECESSION TO WHICH IT HAS CONTRIBUTED. 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
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, IMPORTS OF FOREIGN OIL WERE STILL ONLY
16 PERCENT OF OUR REQUIREMENTS. THIS FIGURE ACTUALLY
OVERSTATES OUR VULNERABILITY 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. BY INCREASING OUR OWN
PRODUCTION WE WERE IN A POSITION TO RESIST EITHER EXORBITANT
PRICING OR THE USE OF OIL AS A WEAPON. THESE CONDITIONS
HAVE NOW CHANGED IRRETRIEVABLY.

By 1973, AMERICA'S IMPORTS HAD REACHED 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; 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,

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 IT
SOON GREW USED TO IT AND TRIGGERED 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, THE ENORMOUS SURPLUS EARNINGS OF THE OIL

PRODUCERS NOW OVERHANG THE WORLD ECONOMY AND THREATEN FINANCIAL
CATASTROPHE. EVEN WHEN NOT MANIPULATED FOR POLITICAL
PURPOSES THEY ARE A FACTOR OF INSTABILITY, BECAUSE
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 PEOPLE 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 RECESSION, SHRINKING TRADE, AND PROTECTIONIST PRESSURES. 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

-7-

AND COMPLICATE THE PURSUIT OF PEACE. UNDERTAKEN FOR THE
PURPOSE OF EASING THE PRESSURES IN THE 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 BRETHREN. 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 FERTILIZERS. THE
INCREASE IN THEIR ENERGY COSTS IN FACT FAR EXCEEDS THE
TOTAL FLOW OF EXTERNAL ECONOMIC AID THEY RECEIVE. TO
THE DEVELOPING NATIONS, THE CONSTANTLY RISING ENERGY
COSTS REPRESENT A PERMANENT, MASSIVE AND DEVASTATING
THREAT TO ASPIRATIONS FOR PROGRESS.

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 UNPRECEDENTED PRESSURES; IT HAS WEAKENED
THE INDUSTRIAL DEMOCRACIES ECONOMICALLY AND UNDERMINED THE
POLITICAL UNITY WHICH IS THE FOUNDATION OF THE SECURITY OF
FREE NATIONS. IT HAS STYMIED THE WORLD'S ECONOMIC GROWTH
AND FRUSTRATED THE HOPES FOR PROGRESS OF MOST OF THE NEW
NATIONS.

BY A CRUEL IRONY, EVEN THE MORE MODERATE OIL PRODUCERS
ARE NOW CAUGHT UP IN AN OMINOUS VICIOUS CIRCLE. THEIR
POWER OVER PRICE AND PRODUCTION IS UNDERMINING THE

STRUCTURE OF THE SOCIETIES ON WHICH THEY ULTIMATELY DEPEND FOR THEIR SECURITY AND PROGRESS. THEY HAVE A STAKE IN WESTERN STRENGTH AND STABILITY, BUT THE COLLAPSE OF THE PRO-WESTERN GOVERNMENT IN IRAN HAS TIPPED THE BALANCE WITHIN OPEC IN THE MORE RADICAL DIRECTION. 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 UNCONTAINABLE, THAT THE OBJECTIVE CONDITIONS ENABLING THEM TO PURSUE WHAT IS IN THEIR OWN LONG-TERM INTEREST--AND OURS--SIMPLY DO NOT EXIST.

-10-

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.

WITH THIS AS 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.

-11-

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 TO DEAL WITH THE REGION'S PROBLEMS BY ADDRESSING ONE OF THESE ASPECTS IN ISOLATION--EVEN AN ISSUE AS IMPORTANT AS THE ARAB-ISRAELI CONFLICT. 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

-12-

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.
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

-13-

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. THE PRESENT TURMOIL IN THE MIDDLE EAST HAS MANY CAUSES; BUT CENTRAL TO IT IS THE GROWING DOUBT THAT WE POSSESS EITHER THE MILITARY CAPABILITY OR THE STRATEGIC DOCTRINE TO DEFEND FRIENDLY GOVERNMENTS IN THE AREA. THE TENDENCY IN THE FIELD OF STRATEGIC WEAPONS IS TOWARDS PARITY, WHICH INEVITABLY MEANS THAT THE MIDDLE EAST BECOMES MORE VULNERABLE TO THE GROWING SOVIET CAPACITY FOR REGIONAL INTERVENTION. OUR MILITARY BUILDUP IN THESE CATEGORIES HAS BEEN HESITANT AND AMBIVALENT--MUCH OF IT A REDESIGNATION OF EXISTING FORCES INSTEAD OF THE CREATION OF ADDITIONAL ONES. AND

THE PACE OF IT IS TOO SLOW, IN THE FACE OF THE RELENTLESS SOVIET ARMAMENT PROGRAM INCREASING AT THE RATE OF FIVE PERCENT A YEAR OVER THE LAST 18 YEARS. AMONG THE SURVIVING MODERATE REGIMES IN THE AREA, THIS HAS GENERATED A PERVASIVE SENSE OF INSECURITY THAT THREATENS TO ALTER POLITICAL ALIGNMENTS AND FURTHER UNDERMINE THE FORCES FOR RESTRAINT WITHIN OPEC.

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--OR ACHIEVE A SLIGHT EDGE--

-15-

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 BOLDER. STATES KNOWN FOR THEIR TRADITIONAL FRIENDSHIP WITH THE WEST WILL BECOME DEMORALIZED, FRIGHTENED, ISOLATED, AND THREATENED.

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

-16-

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 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.

-17-

SYMPTOMATIC IS THE LACK OF ENTHUSIASM WITH WHICH THE SO-CALLED CARTER 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, BASED ON CENTURIES OF NATIONAL EXPERIENCE, 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.

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.

THE SECOND DIMENSION OF THE INSTABILITY IN THE MIDDLE EAST AND THE GULF IS THE CONTEST BETWEEN THE MODERATES AND THE RADICALS IN THE AREA. FROM PAKISTAN TO MOROCCO, THE REGION HAS SEEN A DECADE OF TURMOIL AND UPHEAVAL.

WE ARE OFTEN TOLD THAT DOMESTIC CHANGE IS INEVITABLE AND IRREPRESSIBLE THAT WE HAVE TO GET ON THE SIDE OF THE FORCES OF CHANGE. THERE IS MERIT IN THESE PROPOSITIONS. BUT WE MUST NEVER LOSE SIGHT OF A CRUCIAL DISTINCTION: WE HAVE A VITAL STAKE IN THE NATURE OF THAT CHANGE, AND IN THE SUCCESS OF THOSE WHO SUPPORT PEACEFUL CHANGE AND TIES WITH THE INDUSTRIAL DEMOCRACIES. WE MUST NOT ATTEMPT TO APPEASE ANTI-WESTERN RADICALS WHO ARE DRIVEN BY IDEOLOGY AND WILL NOT BE CHARMED OUT OF THEIR HOSTILITY TO US BY PROFESSIONS OF OUR GOODWILL. AT STAKE IN THE CONTEST BETWEEN THESE TWO GROUPS IS, AMONG OTHER THINGS, THE WORLD'S ENERGY FUTURE.

THE DISINTEGRATION OF THE PRO-WESTERN GOVERNMENT IN IRAN WAS THE PRINCIPAL CAUSE OF THE OIL CRISIS OF 1979:

THE LONG 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: IN-
TERNAL CHAOS, THE DEPARTURE OF FOREIGN TECHNICIANS, THE ABAN-
DONMENT OF THE PREVIOUS GOVERNMENT'S DEVELOPMENT AND DEFENSE
PROGRAMS. AND THE FALL OF THE SHAH HAS AFFECTED THE CALCULA-
TIONS OF OTHER OPEC MEMBERS HISTORICALLY ASSOCIATED WITH US;
OUR VACILLATING REACTION TO THE COLLAPSE OF A FRIEND
OF FOUR DECADES AND THE SHABBY PERSONAL TREATMENT OF
HIM INEVITABLY RAISED DOUBTS IN THEIR MINDS ABOUT THE VALUE
OF AMERICAN FRIENDSHIP. MANY MODERATE OIL PRODUCERS IN THE
AREA 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 RADICAL PRESSURES AND AMERICAN DISINTEREST.
NO WONDER THAT OPEC MEETINGS HAVE INCREASINGLY SEEN THE
MODERATES HESITANT, ON THE DEFENSIVE, FEARFUL OF EXERTING

-21-

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 POLICYMAKING IS TO
IDENTIFY THE RANGE OF EFFECTIVE INFLUENCE AVAILABLE TO US.
NO DOUBT WE HAVE SOMETIMES UNDERESTIMATED THAT RANGE.
YOUR CHAIRMAN DESERVES GREAT CREDIT FOR INSISTING THROUGH-
OUT HIS PUBLIC LIFE THAT AMERICAN FOREIGN POLICY MUST BE
RELATED TO AMERICAN VALUES.

THIS IS NOT ALWAYS AN EASY MATTER. THERE IS AN INEV-
ITABLE RELUCTANCE TO UPSET THE APPARENT STABILITY IN STRATEGICALLY
VITAL AREAS EVEN IF INACTION RISKS STORING UP TROUBLE FOR
THE FUTURE. BUT ANOTHER OBSTACLE HAS BEEN A LACK OF
UNDERSTANDING OF THE NATURE OF POLITICAL EVOLUTION.
CONVENTIONAL WESTERN WISDOM HAS TAKEN IT FOR GRANTED THAT
ECONOMIC DEVELOPMENT AUTOMATICALLY WOULD PRODUCE POLITICAL
STABILITY, AS IT DID IN EUROPE AND JAPAN AFTER 1945.

-22-

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 COHESIVENESS assertion 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 PUNDITS 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 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 NO ONE--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, FOR MOST OF THE POSTWAR PERIOD, BEEN LACKING A THEORY OF POLITICAL CHANGE. UNFORTUNATELY, WHAT HAS BEEN IMPLEMENTED IN RECENT YEARS IN THAT NAME HAS COMPOUNDED THE PROBLEM. THE NEW DISPENSATION 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"--THE TEST OF WHICH PRESUMABLY IS GOVERNMENTS
NOT SUBJECT TO UPHEAVAL. THIS HAS TEMPTED US INTO HECTORING
AND PRESSURING FRIENDLY 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 OUR INTENTIONS. WHAT
WE CONSIDER "NORMAL"--CONSTITUTIONAL DEMOCRACY--IS IN FACT
A RARITY BOTH IN THE SWEEP OF HISTORY AND ON THE BREADTH
OF THE PLANET. THIS IS NO ACCIDENT. CONSTITUTIONAL

-25-

DEMOCRACY DERIVES AUTHORITY FROM 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 OFTEN 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. NO RULER OF EIGHTEENTH-CENTURY EUROPE COULD LEVY INCOME TAXES OR CONSCRIPT HIS SUBJECTS. AUTHORITARIANISM, IN SHORT, WAS USUALLY QUITE PRECISELY CIRCUMSCRIBED.

-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 EITHER PERSONAL OR TOTALITARIAN. WHILE TOTALITARIAN STATES HOSTILE TO US ARE RULED OUT OF BOUNDS FOR OUR INTERVENTIONISM, WE HAVE RECENTLY BEEN 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 CONSTITUTIONALISM--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 OPPORTUNTY TO WIN ON ANOTHER OCCASION--CANNOT BE REALIZED. THE VICTIMS OF TERRORIST

-28-

ATTACKS ARE OFTEN THE 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 MAXIMUM MATERIAL BENEFITS.

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 GENERALLY COMPOUND THE DISORDER BECAUSE THEY ARE 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

-29-

THE COUNTRY. THE NEXT OCCASION FOR REFORM IS AFTER
TRANQUILITY HAS BEEN REESTABLISHED, BUT WESTERN INHIBITIONS
AND AUTHORITARIAN INCOMPETENCE USUALLY COMBINE TO PREVENT
THE TESTING OF THIS HYPOTHESIS. CONCESSIONS DURING A
CRISIS ONLY ENCOURAGE THE RADICALS AND ACCELERATE THE ASSAULT.

I HAVE DEDICATED SO MUCH SPACE TO THESE THEORETICAL
REFLECTIONS TO POINT OUT THAT WHILE AMERICA HAS SOMETIMES
SETTLED TOO READILY FOR THE STATUS QUO, RECENTLY THE AMERICAN
PRESSURE FOR CHANGE HAS MORE OFTEN ACCELERATED THE PROCESS
OF DOMESTIC DISINTEGRATION THAN ARRESTED IT. AND THE END
RESULT HAS BEEN BOTH MORE OPPRESSION AND GREATER INTERNATIONAL
INSTABILITY.

CONVINCED THAT OUR MODEL IS OF UNIVERSAL VALIDITY, WE
HAVE SOUGHT TO IMPLANT IT WITHOUT REGARD TO HISTORICAL
CIRCUMSTANCE OR THE LIKELY CONSEQUENCES. IN TRUTH, WE KNOW
NEXT TO NOTHING OF THE DYNAMICS OF OTHER SOCIETIES, PERHAPS
LEAST OF ALL THOSE IN THE OIL-PRODUCING AREAS; FOR ALL OUR
TINKERING WITH "REFORM," WE HAVE GIVEN LITTLE USEFUL ADVICE ON

-30-

HOW TO NAVIGATE THE TRICKY PASSAGE TO MORE LIBERTY WITHOUT WRECKING AUTHORITY AND INCREASING THE SCOPE OF TYRANNY.

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--CONTRARY TO OUR INTENTION--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, BELONGING TO NEITHER OF THESE ORIENTATIONS,

-31-

STAND BEWILDERED, UNSURE OF THEIR FUTURE AND CONFUSED ABOUT OUR PURPOSES. GOVERNMENTS THAT HAVE TRADITIONALLY RELIED ON US KNOW THAT THE VARIOUS RADICAL REGIMES, HOWEVER DIFFERENT THEIR ORIGINS AND MOTIVATIONS, ALL AGREE IN THEIR ALL-OUT OPPOSITION TO PEACEFUL EVOLUTION, WESTERN VALUES, AND THE SURVIVAL OF THE WORLD ECONOMIC SYSTEM. THE INEVITABLE RESULT OF RADICAL ASCENDANCY--REGARDLESS OF ITS ORIGINS--IS TO THREATEN THE SURVIVAL OF ALL PRO-WESTERN GOVERNMENTS THAT REMAIN IN THE THIRD WORLD, AND ESPECIALLY IN THE MIDDLE EAST, WITH OBVIOUS GEOPOLITICAL CONSEQUENCES.

THE IMPACT IN ENERGY IS IMMEDIATE. RADICAL COUNTRIES SEEK TO DRIVE UP THE PRICE OF OIL TO OBTAIN RESOURCES TO ACHIEVE THEIR INTERNATIONAL OBJECTIVE OF UNDERMINING AMERICAN AND WESTERN INFLUENCE. MODERATE REGIMES HAVE THE PARADOXICAL INCENTIVE TO REDUCE PRODUCTION, SINCE THEY FEAR THE DISRUPTIVE CONSEQUENCES OF THE PROCESS OF MODERNIZATION THAT DESTROYED THE SHAH. BOTH DEVELOPMENTS PUSH UP THE PRICE; TOGETHER THEY SPELL DISASTER FOR THE WEST.

-32-

THE WEST HAS SO FAR SUPPLIED NO SERIOUS ANSWER TO THIS CHALLENGE. CLEARLY WE HAVE FULLY ANALYZED NEITHER THE DYNAMICS OF POLITICAL CHANGE NOR OUR INTEREST IN RELATION TO IT. WE MUST BE CLEAR IN OUR OWN MINDS WHAT OUR OWN SURVIVAL REQUIRES, THE SCOPE OF CHANGE WE CAN RESPONSIBLY ADVOCATE, AND WHAT COUNTRIES WE MUST DEFEND IN OUR OWN INTEREST EVEN IF THEIR INSTITUTIONS DO NOT MEET EVERY DEMOCRATIC TEST.

UNTIL WE HAVE THOUGHT THIS THROUGH, 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 SYMPATHIZE WITH WESTERN GOALS. IF THE MODERATES ARE NOT TO BE DOOMED--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 POLITICAL INSTITUTIONS. AT THE SAME TIME, WE MUST UNDERSTAND THE LIMITS OF OUR KNOWLEDGE, AND THE PRICE WE COULD PAY FOR CLUMSY EXPERIMENTS. AND WE MUST KNOW CLEARLY WHERE WE WILL DRAW OUR LINES: WHAT SECURITY INTERESTS WE WILL NOT SACRIFICE IN THE NAME OF REFORM, AND WHAT POSITIONS WE WILL DEFEND EVEN IF THOSE WHO MAN THEM DO NOT MEET EVERY DEFINITION OF VIRTUE.

-34-

THE ARAB-ISRAELI CONFLICT IS WITHOUT DOUBT A PRINCIPAL FACTOR IN THE TURBULENCE OF THE MIDDLE EAST. BUT ITS SOLUTION IS CLOSELY CONNECTED WITH THE FACTORS THAT I HAVE ALREADY DESCRIBED: THE MILITARY BALANCE AND RELATIONSHIP BETWEEN MODERATES AND RADICALS IN THE AREA. IF THE SOVIET UNION EMERGES AS THE DOMINANT OUTSIDE POWER, MODERATE COUNTRIES WILL BE RELUCTANT TO SUPPORT PEACE PROCESSES THAT DISPLEASE IT. IN THE FACE OF A DOMINANT RADICALISM, EVEN MORE FRIENDS WILL DISAVOW SCHEMES THAT ARE IN FACT IN THEIR OWN BEST LONG-TERM INTEREST.

A DANGEROUS ESCAPISM HAS DEVELOPED IN THE WEST. THE ILLUSION IS WIDESPREAD THAT SOLVING 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 SETTLEMENT, 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 THE CAMP
DAVID NEGOTIATIONS. OTHER UNILATERAL STEPS TAKEN RECENTLY
SEEM TO ME ILL-ADVISED. BUT I AM NOT IMPRESSED, EITHER, BY
THE MANY FASHIONABLE PROPOSALS THAT AMOUNT TO FINDING SOME
SUBTERFUGE FOR INTRODUCING THE PLO INTO THE NEGOTIATIONS ON
THE OPTIMISTIC ASSUMPTION THAT IT WOULD THEN MODERATE ITS GOALS
AND CONTRIBUTE TO STABILITY IN THE ENTIRE REGION.

GIVEN MY ANALYSIS OF THE STRATEGIC AND IDEOLOGICAL SOURCES
OF THE TENSIONS IN THE AREA, THE PREREQUISITE TO PROGRESS IS
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.

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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.

THE PROPOSITION THAT ESTABLISHING A PLO STATE WOULD CONTRIBUTE TO THE TRANQUILITY OF THE AREA LACKS ANY FACTUAL BASIS; QUITE THE OPPOSITE IS LIKELY TO BE TRUE. I QUESTION THE OBSESSION WITH INTRODUCING THE PLO INTO THE NEGOTIATIONS NOT SIMPLY BECAUSE OF ITS REJECTION OF U.N. SECURITY COUNCIL RESOLUTION 242, BUT ABOVE ALL BECAUSE OF ITS RADICAL ANTI-AMERICAN AND ANTI-WESTERN POLICIES: ITS CLOSE AFFILIATION WITH AND OCCASIONALLY LEADERSHIP OF ALL RADICAL FORCES HOSTILE TO US IN THE MIDDLE EAST (INCLUDING THOSE IRANIANS HOLDING OUR HOSTAGES); ITS TRAINING OF TERRORISTS ON A GLOBAL BASIS; AND ITS INTIMATE COOPERATION WITH SOVIET INTELLIGENCE ORGANIZATIONS. THE PLO IN ITS PRESENT INCARNATION, BEYOND ITS IMPLACABLE ENMITY TO ISRAEL, SUPPORTS ALL FORCES ASSAULTING THE PRESENT INTERNATIONAL STRUCTURE. AS LONG AS IT PURSUES SUCH A COURSE, IT DESERVES

-37-

WESTERN OPPOSITION, NOT ENCOURAGEMENT.

THE PREVAILING THEORY IS THAT THE PLO WOULD BECOME MORE
MODERATE AFTER ITS DEMANDS WERE SATISFIED. I SEE NO EVIDENCE
FOR THIS; INDEED ALL EVIDENCE IS TO THE CONTRARY. AN INDEPENDENT
PLO STATE IN CURRENT CIRCUMSTANCES WILL HAVE EVERY INCENTIVE TO
ATTEMPT TO SUBVERT NEARBY MODERATE GOVERNMENTS, ESPECIALLY
JORDAN, IF ONLY TO ESCAPE THE INEVITABLE DEMILITARIZATION PRO-
VISIONS WITHOUT WHICH NO ISRAELI WITHDRAWAL OF ANY EXTENT IS
CONCEIVABLE.

FINALLY I SEE NO SIGN THAT SUCH A GROUP, WITH ITS IDEOLOGY
AND ITS AFFILIATIONS, IS WAITING ONLY FOR A PRETEXT 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.

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FOR ALL THESE REASONS, NEGOTIATIONS WITH RESPECT TO THE WEST BANK DO NOT HINGE ON FINDING A GIMMICK FOR A FASHIONABLE NEGOTIATING FORUM. IF ANOTHER FORUM IS DEVELOPED, IT SHOULD PROMOTE JORDANIAN PARTICIPATION; ANY OTHER ROUTE WILL LEAD TO FAILURE. OUR EUROPEAN ALLIES MUST LEARN THAT WHEN THEY PUSH SCHEMES INCAPABLE OF REALIZATION THEY ENCOURAGE RADICALISM AND GUARANTEE STALEMATE. ALL THE INDUSTRIAL DEMOCRACIES INDEED HAVE A STAKE IN DIPLOMATIC PROGRESS; BUT IT IS SUICIDAL TO IDENTIFY PROGRESS WITH SCHEMES THAT WILL IN THE 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 JURIS-
DICTION 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 INTER-
NATIONAL 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 POLITICAL STABILITY IN THE AREA AND CONTAINS, RATHER THAN
UNLEASHES, 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 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 INTERNATIONAL DIMENSION. 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 BY OPEC 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 PROMPTLY 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

GAINED BY ONE COUNTRY CAN BE RAPIDLY TRANSFERRED TO ANOTHER THAT OUTBIDS IT. SUCH A COURSE IS IN FACT AGAINST THE INTERESTS OF THE MODERATE OIL PRODUCERS, THE CLAIMED BENEFICIARIES. ONCE THE PRINCIPLE IS ESTABLISHED THAT A POLITICAL PRICE CAN BE EXACTED, THE MODERATES WILL BECOME THE TARGET OF RADICAL PRESSURES TO RAISE THE POLITICAL PRICE. THE MODERATES CANNOT STAND FAST IF THE INDUSTRIAL DEMOCRACIES DO NOT.

A SUBJECT IN WHICH IT IS URGENT FOR THE INDUSTRIAL DEMOCRACIES 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 HOPE 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 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 NEED FOR SOLIDARITY AMONG THE OIL-CONSUMING
NATIONS IS PLAIN. 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 CONSUEMRS SEEK TO COOPERATE WITH EACH OTHER.
RESEARCH INTO ALTERNATIVE SOURCES OF ENERGY COULD BE
POOLED; MAJOR RESOURCES COULD BE ALLOCATED TO SOME JOINT
PROGRAMS TO DEVELOP ALTERNATIVE ENERGY SOURCES, WITH
CLEAR TARGET DATES, FOR THE REDUCTION OF THE COMMON
VULNERABILITY. ABOVE ALL, A JOINT APPROACH SHOULD BE
WORKED OUT FOR A COMPREHENSIVE DIALOGUE WITH THE PRODUCING
NATIONS.

EVENTUALLY THE SOLIDARITY OF THE INDUSTRIAL DEMOCRACIES
WILL PROVIDE THE SECURE BASIS FOR A DIALOGUE BETWEEN
CONSUMERS AND PRODUCERS. THERE IS IN FACT A CONGRUENCE OF
INTERESTS. 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 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 FULFILL THEIR ASPIRATIONS. BUT THIS CANNOT TAKE PLACE IN AN ATMOSPHERE OF CHAOS AND BLACKMAIL. THE PRODUCERS CANNOT CONTINUE THE PRACTICE OF PERIODICALLY ANNOUNCING, AS A SERIES OF UNILATERAL PROCLAMATIONS, DECISIONS AFFECTING THE ECONOMIC FUTURE OF THE ENTIRE WORLD WITHOUT ANY CONSULTATIONS OR ANY APPARENT CONCERN FOR THEIR IMPACT. THE INDUSTRIAL DEMOCRACIES MUST ENHANCE THEIR COHESION IF A CONSUMER-PRODUCER DIALOGUE IS 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.

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. THIS FIGURE ACTUALLY
OVERSTATES OUR VULNERABILITY 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.] BY INCREASING OUR OWN
PRODUCTION WE WERE IN A POSITION TO RESIST EITHER EXORBITANT
PRICING OR THE USE OF OIL AS A WEAPON. THESE CONDITIONS
HAVE NOW CHANGED IRRETRIEVABLY.

-3-

By 1973, AMERICA'S IMPORTS HAD REACHED 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; 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