-28-

or in some other context if the stalemate proves
inbreakable.

In moving from the current situation to a new arrange-
ment several principles must be kept in mind:

a. The chief obstacle to participation in the negotiations by the PLO is not its rejection of Security Council Resolution 242 but its close affiliation with and leadership role in almost all radical movements in the area; its training of terrorists on a global basis and its intimate cooperation with Soviet intelligence organizations.

b. Far from becoming moderate, a PLO state in current circumstances is likely to attempt to subvert adjoining moderate governments, especially Jordan, if only to escape the certain demilitarization provisions for the West Bank without which no Israeli withdrawal of any extent is conceivable.

-29-

c. The last thing the Middle East needs is another
radical state in the region attacking all existing
institutions. This is not merely against the interest
of the United States; it is also against the interests
of all other moderate Arab states in whose well-being
we have a stake-whatever their public statements.

d. Negotiations should therefore be conducted by
existing states. For these reasons the effort to solve
the West Bank problem in one grand gesture, defining
all frontiers and all relationships, is almost certain to
fail. A prolonged inconclusive effort is bound, furthermore,
to compound the tensions in the area. Therefore, if the
current negotiations based on Camp David do not produce
the desired outcome, I hope other routes will be attempted,
including a Jordanian-Israeli negotiation. It might be best
to achieve rapid progress by some partial step, for example
returning the Arab population rapidly to the jurisdiction

-30-

of some Arab countries while keeping key strategic
unpopulated areas in Israeli hands for the time being.

The political evolution from then on would be primarily
an intra-Arab problem and not an American, European,
or Israeli problem. It is in the common interest that we
not chase abstractions, but begin a process that can lead
to some result. In this manner progress can be made in
the West Bank without undermining the political stability
of the area and encouraging all radical tendencies.

## Response to the Oil 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
existing political and economic structures. The world's
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

-31-

The problem will not go away by simply letting inflation proceed; on the contrary, runaway inflation is part of the vicious circle which drives up oil prices. Nor can the problem be solved by just increasing the debt of consumers, even though this is what has been happening. The gradual impoverishment of the industrialized world is certain to have grave political consequences. For sooner or later a financial catastrophe will be inevitable. Much of the political instability in Europe we witnessed five or six years ago, particularly in Southern Europe, was undoubtedly exacerbated by the economic drain caused by the 1973 oil crisis.

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

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

-32-

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

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

-33-

adopt stringent conservation measures, develop new supplies,
establish collaboration among the consumer nations, and
on that basis seek a more reliable long-term relationship
with the producers.

Since 1973, three American Presidents have submitted
energy programs to the Congress. The results have been
mixed. The Congress has seen fit to block President
Carter's gasoline tax just as it blocked President Ford's
import fee of a few years ago; nevertheless a portion of
each President's submission to Congress has survived.

The slowdown in the growth of our energy consumption
is encouraging but not good enough; it is partly the
byproduct of slower economic growth and in any case it
cannot possibly keep up with OPEC's ability to increase
prices. In 1975, Vice President Nelson Rockefeller proposed
a hundred-billion-dollar facility to help finance new
sources of energy. He was greeted with derision. Something

-34-

like it has just been passed five years later, in the form
of a syn-fuels facility. Automobile fuel-efficiency
regulations are important, but they will take years to
have a major effect. There is no law of nature that says
our domestic gasoline price must be half of what it is
in Europe, or that we thereby effectively subsidize
consumption and discourage domestic production.

I am not qualified to advise the Congress on what
steps must be taken and what domestic bargains must be
struck. But I can point out the profound international
consequences of our continuing vulnerability, and urge
that the problem be dealt with as a matter of highest
urgency. Aside from our military defense, there is no
project of more crucial importance to our national security.

Above all, since the establishment of the International
Energy Agency in 1974, cooperation among the industrial
democracies has not been adequate to meet the challenge.
Too many of the industrial democracies have preferred

-35-

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

Not only our allies have been subjected to political
pressure. It is no country's business to tell us whether
or not we will build a strategic oil reserve. This is
a sovereign decision of the United States and an essential
matter of survival, and the very attempt to interfere with
our doing it is a demonstration of why it is essential.

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

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

-37-

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

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

-38-

developing world's hopes for progress is a grim omen
for the future of international politics.

Unfortunately it is our political ideals and
foresight that tell us what we must do, while economic
forces already unleashed drive us toward catastrophe.
To be sure, it is a daunting task to mobilize collective
action among scores of nations on an issue of such
domestic sensitivity, yet our interdependence gives
us no choice. Then, too, the time scale for a solution
to operate is longer than the term of office of most
democratic leaders, and therefore the temptation is
powerful to postpone sacrifice and hard decisions. With
all these qualifications the fact remains that we are now
running out of time. History does not judge statesmen
by their alibis but by their willingness to face their necessities.

Whoever is President of the United States next year
has the duty, and the opportunity, to lead the way out
of these dilemmas. The United States is better able than

- 39 -

others to regain some mastery over events. We have
the domestic resources, technological skills, and creative
genius to respond vigorously to the challenge. This
is an opportunity for America to show once again
that it is capable of leadership and worthy of leadership.
More than ever we need to summon again the American
optimism and can-do spirit that sees problems as an
invitation to creative effort.

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

-5-

when the use of oil as a political weapon dramatized
how vastly the economic context had already changed.

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

seemed to be solved through recycling. Whatever the
evening press reported, a second crisis in 1979 seemed
reason the oil bill has now increased nearly tenfold after
a second crisis in 1979. The West is no less vulnerable.

and no closer to serious coordinated policies to
protect itself.

As Walter Levy has pointed out in an illuminating
article in the *most recent* *Foreign Affairs*, the
financial crisis may **not** be soluble this time, and
our future is now at the mercy of a precarious political
status quo in what is probably the most volatile,
unstable and crisis-prone region of the world.

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

## The Middle East and the Persian Gulf

This is not the first time in history that the Middle
East and Persian Gulf have been a focal point of world
affairs. The region has always been considered geopolitically

-9-

day-to-day diplomacy by which the East-West contest is played
out. Their danger, however, is that the West might take
their statements of disinterest at face value.

We have been told so for some time.

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. This attitude is苓 self-
people's
Afghanistan has dramatized the extent of the West's military
vulnerability in a vital region. This has produced a
pervasive sense of insecurity whose direct effect is to
shift political alignments and alter the course of events
to our detriment in almost every sphere, economic as well
as military.

Plus we face at this moment a crisis of global
dimensions produced in significant degree by the fact that
the industrial democracies have neglected their defenses

-18-

terrorist group in the Middle East and Africa. Iraq is a
radical regime with clerical preoccupations; it is hardly pro-
Soviet but it is certainly anti-American for its own reasons
and a supporter of other radical groups in the area. Then
there are radical governments such as Iraq or Syria, of
more secular orientation.

The problem we face is that however different their
motives, whatever judgment one makes of their long-term
prospects
orientation or the degree or lack of Soviet influence in
any one of them, their combined impact is to undermine those
forces in the region that have relied on the West and believe
in peaceful solutions. Their impact is to reduce our scope for
creative action--as their apparent ascendancy has already
hindered the Mideast peace process. We must be clear in our
own minds what we want with respect to domestic change,
and what we advocate. Friendly countries are now asking
what we want them to do in the face of pressures from the
outside and the challenges of modernization, and whether we
will be able to meet the challenge we pose an threat to.

-19-

will back them up if liberalization which we urge
upon them generates radical domestic pressures out of
anyone's control.

This is not an easy responsibility for the United
States to undertake. My fear is that we have already
launched ourselves upon a process of promoting domestic
change without having thought it through. If no
allied country in the developing world is worthy of our
support, and if we are unwilling to oppose forces of radical
change hostile to us, then all we have done is to make the
world safe for anti-American radicalism. What kind of
groups will take over from governments friendly to us who
do not meet our high Jeffersonian standards of virtue?
What do we tell some of the key oil-producing countries
lies down the road if they follow our reformist advice?

In this connection I have to say I am appalled by
the suggestion that the hostage crisis in Iran should be
solved by an act of American self-abasement. Some

-25-

or in some other context that will emerge from the

diplomatic efforts of various nations.

The transition on the West Bank from what is to what will be cannot be defined simply by some formula about who participates in the later talks. Nor can moderate countries nearby with a stake in the outcome be simply faced with a *fait accompli* premised on the hope that radical groups' attitudes will be defused by one dramatic gesture.

Moderate states in the area must be allowed the chance to help shape the political evolution that is to emerge, even if this means slowing down the process. We cannot afford to allow the West Bank to become another South Yemen, in which one authority is withdrawn so suddenly that radical forces step into the vacuum. The last thing the Middle East needs is another radical state in the region attacking all existing institutions. This is not merely against Israel's interests; it is against the interest of the United States, as well as against the interests of

-28-

We are now in the position that the oil producers
can sustain almost any conceivable exorbitant price by
simply cutting their production. And yet, when all is
said and done, their power over price and production is
undermining the structure of the Western societies on which they
ultimately will depend for their security and for their
development. Paradoxically, even the moderate producers
are now caught up in a vicious circle that may doom them.

The moderate producers in OPEC, who for political reasons have
some understanding of our necessities, are dragged along
by the radicals. Each OPEC meeting turns into a stylized
drama in which the moderates oppose a price increase,
the radicals insist on one, a two-tiered system is created,
and then the second tier gradually slides to the radicals'
higher price, then at the next OPEC meeting they go through

-29-

the same process again, demonstrating that the
pressures on the moderate producers are now uncontrollable,
that there are no objective conditions to enable them
to pursue what is in their own long-term interest. simply do not

There is no secret about what we must do. Since
1973 it has been evident that the industrial democracies
must adopt stringent conservation measures, development of
new supplies, established collaboration among the consumer nations, and
on that basis seek a more reliable long-term relationship
with the producers.

Since 1973, three American Presidents have submitted
energy programs to the Congress. (President Carter has the
distinction of having submitted two somewhat inconsistent
programs to the Congress.) The results have been mixed.
The Congress has seen fit to block President Carter's gasoline
tax just as it blocked President Ford's import fee of a few
years ago; nevertheless a portion of each President's submission
to Congress has survived. The slowdown in the growth of our
energy consumption is encouraging but not good enough; it is

-30-

partly the byproduct of slower economic growth and in any
case it cannot possibly keep up with OPEC's ability to
influence double prices, overnight. In 1975, Vice President Nelson
Rockefeller proposed a hundred-billion-dollar facility
to help finance new sources of energy. He was greeted with
derision. Something like it has just been passed five years
later, in the form of a syn-fuels facility. We have only
begun automobile fuel-efficiency regulations are important,
but they will take years to have a major effect. There is no
law of nature that says our domestic gasoline price must
be half of what it is in Europe, or that we thereby effectively
subsidize consumption and discourage domestic production.

I am not qualified to advise the Congress on what
steps must be taken and what domestic bargains must be
struck. But I can point out the profound international
consequences of our continuing vulnerability, and urge that the
problem be grappled with as a matter of highest urgency.
Aside from our military defense, there is no project of more
crucial importance to our national security.

-32-

Once the principle is admitted that political conditions
can be exacted for favorable consideration in oil, the demands
will only accelerate. Any special position gained by
one country can be rapidly transferred to another that out-
bids it. It is not even in the interest of the moderate
oil producers to establish the principle that a political
price can be exacted for an economic relationship, because
then they themselves will become the object of radical
pressures to raise the political price. Indeed the process
has already begun, and there is no logical stopping place.

Not only our allies have been subjected to political
pressure. It is no country's business to tell us whether
or not we will build a strategic oil reserve. This is
a sovereign decision of the United States and an essential
matter of survival, and the very attempt to interfere with
our doing it is a perfect demonstration of why it is
essential.

-33-

(N)

Whether this return to the need for
Solidarity among the oil-consuming nations, is
absolutely essential, particularly among the democracies.
This has been my consistent position since 1973. I do not
accept the proposition that it is proper for the
producers to organize but a confrontational outrage if the
consumers seek to organize, will call other
corporate will each other.
Solidarity is needed, at the very least, to cope with
the now nearly unmanageable problem of recycling the
financial surpluses. By 1983 the financial claims of the
oil producers on the OECD countries will reach half a
trillion dollars. That amount cannot be recycled by the
commercial banking system; it will lead to the bankruptcy and
instability of many developing nations and even developed
nations. Recycling is easiest precisely into these
countries that need it least, and will devastate those
nations whose entire export earnings are now absorbed by
paying for their energy bill.
It will not abate the devastations
largely
of the
summon
on
a
common
program
of the consumers and producers is
a dialogue between the consumers and producers is

-36-

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