CONTENTS

PAGE

<table><tr><td>Evolution of the Energy Crisis</td><td>2</td></tr><tr><td>International Consequences of the Energy Crisis</td><td>2</td></tr><tr><td>The Middle East and the Persian Gulf</td><td>5</td></tr><tr><td>- The Global Balance of Power</td><td>5</td></tr><tr><td>- The Contest Between the Moderates and the Radicals</td><td>9</td></tr><tr><td>- The Arab-Israeli Conflict</td><td>14</td></tr><tr><td>Response to the Energy Crisis</td><td>17</td></tr></table>

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

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

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[Lc]

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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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

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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 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--

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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.

These shifting strategic realities are bound to have

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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.

[L]

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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 strateg-
ically 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 expecta-
tion 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 com-
pounded the problem. The new dispensation is that our dif-
ficulties 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 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.

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 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.

MEMORANDUM OF THE CHAIRMAN

To Members of the Senate Committee on Energy and Natural Resources:

This is the second of two volumes of hearings on the Geopolitics of Oil. It contains the testimony of Dr. Henry A. Kissinger before the Committee on July 31, 1980. The Committee's 14 hearings on the Geopolitics of Oil represent one of the major undertakings of the Committee on Energy and Natural Resources in the 96th Congress. The purpose of the hearings has been to assess the political, social, military and economic factors which will determine the price and availability of oil over the next 10 years. The basic premise of the hearings is that oil is a political commodity and that any understanding of the world oil market and American energy policy must be predicated upon a solid understanding of the fundamental geopolitical forces which will determine the demand, supply and price of oil in the years ahead.

The hearings on the Geopolitics of Oil which are contained in these volumes were divided into two parts. The first part was devoted to assessing the most important factors influencing the world oil market. This group of hearings was organized around specific geographical regions or groups of states—the radical Arab producers, the moderate Arab producers, other producers, the Soviet bloc nations, the major industrialized free world nations and the less developed countries. Witnesses included representatives from the Central Intelligence Agency, the State Department, the Department of Energy, and experts from outside the Government.

Seven of the 11 hearings in the first group were held in closed session to protect the sensitive material which was discussed. The proceedings from those closed hearings will not be published. However, the proceedings of the April 22, 1980 hearing, at which Admiral Stansfield Turner provided a global assessment, are published in part 1. This hearing summarized much of the material which was discussed in greater detail in the closed sessions.

The second group of hearings concentrated on alternative policies for securing an adequate supply of oil for the United States at reasonable prices over the next 10 to 20 years. Foreign, defense, and economic policies as well as domestic contingency plans were the focus of these hearings.

The conclusions from the Committee's hearings on the Geopolitics of Oil will be published in a report before the end of this year. This report will analyze and summarize the hearings and make recommendations for future U.S. policy.

The hearings on the Geopolitics of Oil have been highly successful in educating members of the Committee, the press and the public about the major forces that will affect the world oil market in the coming

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decades. Credit for this success should go to all of the witnesses for their outstanding testimony. Witnesses from the Central Intelligence Agency and the Department of Energy deserve particular praise. Representatives from these agencies appeared before the Committee on nine separate occasions and responded to numerous requests by the Committee for supplemental information. Their presentations consistently lived up to the highest standards of professionalism. The Committee is grateful to them and to all the other participating witnesses who have made the hearings on the Geopolitics of Oil a success.

HENRY M. JACKSON,
*Chairman.*

The major forces that will affect the world oil market in the coming decades. The conclusions from the Committee's hearings on the Geopolitics of Oil have been highly successful. The hearings on the Geopolitics of Oil have been highly successful in educating members of the Committee on the basic and the public aspects of the subject. The hearings on the Geopolitics of Oil will be published in a report before the end of this year. The report will analyze and summarize the findings and make recommendations for future U.S. policy. The conclusions from the Committee's hearings on the Geopolitics of Oil will affect the world oil market in the coming decades. Credit for this success should go to all of the witnesses for their outstanding testimony. Witnesses from the Central Intelligence Agency and the Department of Energy deserve particular praise. Representatives from these agencies appeared before the Committee on nine separate occasions and responded to numerous requests by the Committee for supplemental information. Their presentations consistently lived up to the highest standards of professionalism. The Committee is grateful to them and to all the other participating witnesses who have made the hearings on the Geopolitics of Oil a success.

GEOPOLITICS OF OIL

THURSDAY, JULY 31, 1980

U.S. SENATE,
COMMITTEE ON ENERGY AND NATURAL RESOURCES,

Washington, D.C.

The committee met, pursuant to notice, at 2 p.m., in room 318, Russell Office Building, Hon. Henry M. Jackson, chairman, presiding.

Present: Senators Jackson, Johnston, Metzenbaum, Bradley, Hatfield, McClure, Weicker, Domenici, Stevens, Bellmon, and Wallop.

Also present: James Z. Pugash, counsel, and Howard Useem, professional staff member for the minority.

OPENING STATEMENT OF HON. HENRY M. JACKSON, A U.S. SENATOR FROM THE STATE OF WASHINGTON

The CHAIRMAN. The committee will come to order. This is the 14th hearing in our committee's inquiry into the geopolitics of oil. Starting in November of last year, the Committee on Energy and Natural Resources has been studying the geopolitics of the international world oil market. This study has included a series of in-depth hearings on the major oil producing and consuming nations of the world, and a comprehensive investigation of alternative policies for the future.

The conclusions emerging from our study have fateful implications for the United States and our friends and allies around the world.

First, the probability of a major oil supply disruption within the next decade is very high. Any one of a multitude of events could disrupt a major portion of world oil supplies for an extended period of time.

Second, the international world oil market has become intensively politicized. The major oil producers are no longer satisfied to receive only money in return for their oil. These countries now routinely want political and diplomatic concessions as well as nuclear technology, high performance attack aircraft, and other weapons in exchange for access to their oil.

Third, the consuming nations are increasingly willing to pay the political price for oil, often in reckless disregard for the consequences to their own security and that of their allies.

This process is worrisome enough now with the French and Italians selling nuclear technology with potential weapons application to the Middle East, but the prospects for the future when the Soviets may enter the world oil market are ominous indeed.

If and when the Soviets need to import oil, we can expect them to redouble their efforts to expand their influence and power in the Persian Gulf. If in one way or another they gain control of the oil tap,

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they will have the leverage to threaten our future and that of other free nations.

The dangers are immediate, and they are gowing, yet the United States remains vulnerable to a disruption and to political control over its supply of oil.

A fourth observation of our study goes a long way toward explaining why. The national debate over energy policy has been based largely upon a myth, a myth that energy independence for the United States is an economically and politically feasible achievement in the foreseeable future.

The truth is that energy self-sufficiency cannot be accomplished within this century, let alone within the next 10 years. Even if all the initiatives enacted by Congress succeed in meeting their objectives, the United States will still import several million barrels of oil per day at the end of the 1980's.

Moreover, our allies who are even more heavily dependent upon Middle East oil will need aid from the United States in a severe shortage.

The myth of energy independence has had a profound impact on U.S. energy policy. It has led the administration to focus on long-term policies for reducing imports, policies which will not sufficiently alleviate the dangers of the gathering energy crisis of the 1980's. It has also led officials to underrate the importance of near-term policies such as strategic stockpiling, contingency planning, and foreign policy initiatives which together can reduce the likelihood and impact of a supply interruption even though they cannot reduce the level of imports.

The United States needs a revolution in its thinking about energy policy. We must recognize that the geopolitical problems of oil are immediate and that they demand a response which will have an immediate impact.

We must recognize that the geopolitical problems are international and that foreign and defense policies are as much a part of the solution as programs to reduce oil imports. And we must recognize that all the oil consuming nations must confront these problems, regardless of the degree of their dependence on the Middle East. Independent efforts by any one nation to assure its access to oil or to exploit its own energy resources at the expense of the allies will only raise the stakes higher in the global contest for oil.

The purpose of our hearing this afternoon is to discuss in depth the role of foreign policy in dealing with the Nation's energy problems. We are delighted to have as our witness in the concluding hearing the former Secretary of State Dr. Henry Kissinger.

In 1974, Dr. Kissinger observed that the political implications of the financial power of OPEC were "ominous and unpredictable. Those who wield financial powers," he stated, "will sooner or later seek to dictate the political terms of new relationships between the producing and consuming countries."

Today, in 1980, 6 years later, we can see that the OPEC producers have indeed turned their greatest natural resource into a weapon for achieving political ends.

Dr. Kissinger, we are most appreciative to you for joining us this afternoon, and we are looking forward to hearing your views as one