Fifth Draft

January 31, 1975

ENERGY: THE CALL TO ACTION

National Press Club, February 3, 1975

Ladies and gentlemen:

This week marks the beginning of a crucial time of decision for the American people and for the industrial democracies. The policies we and they adopt to resolve the crisis of energy will be crucially affected by the choices we soon must make:

- First, we are in the midst of an intensive national debate on the elements of our energy program. The next few weeks will determine whether the Administration and the Congress can reach agreement on the course we will follow.

- Second, this coming Wednesday the Governing Board of the International Energy Agency will meet again in Paris. The United States will again put forward additional proposals for cooperative

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action by the industrial nations in the fields of
conservation, research and development, and the
search for new sources of oil.

The national and international dimensions of this
effort are vitally linked:

-- No one country -- even the United States -- can
resolve the energy crisis alone. Unless the
major industrial nations remain determined
to pool our risks and manage our finances, every
consuming nation's vulnerability to pressure will
increase. Unless we adopt energy conservation
and development measures, the international structure
of supply and demand will not be reformed, and the
economic burden will grow worse. Unless we concert
our views, there will be no fruitful dialogue with
the producer nations.

-- And what the United States does -- or does not do--
is central to the hopes for any global solution.
The volume of our consumption, and its potential

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growth, is so great that without a vigorous
national conservation program our dependence
on oil imports will grow; our ability to master
our own fate will be eroded; and our friends
will be convinced that we cannot be counted on
to lead when it means that we, too, must sacrifice.
Without the application of American technology and
enterprise there will be no significant or rapid
development of new supplies and alternative
sources of energy. Without us the industrial
nations will go their separate and competitive
ways, growing ever more dependent on others, and
ever more responsive to their demands.

The measures we must take in our nationa and international
interest will be costly and complex; some clearly will be
unpopular. The American people have a right to know why,
in a period of recession and inflation, they are being asked to
undertake additional cost and additional sacrifice.

-4-

The answer is simply this: There is no other way to meet the challenge of energy which is fundamental for the health of this nation and the stability of the world.

Long before the oil embargo and the wild increase in prices, the experts knew that the world's demand for energy would soon outstrip the supply. And the wastefulness of energy use in this country -- which consumes ____% of all the world's energy resources -- was understood as a burden that could not much longer be tolerated. Even without the energy crisis of the past twelve months, the world faced the certainty it would soon be confronted by a massive demand for oil and rapidly dwindling resources.

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In 1950 we were largely self sufficient in oil.
In 1960, only 16% of our oil cause from imports. In 1973,
It had grown to 35%. If those trends are allowed to
continue, we will be dependent on imported energy for
50% of our needs in 1985. The reduction in volume of
imports in the last year is encouraging -- but a great
deal of it is due to our economic recession; in the
absence of conservation measures these gains will almost
certainly evaporate as our economy resumes its natural
expansion, which it is likely to do later this year.

Thus, energy scarcity had already become a fundamental
problem even before the oil embargo against the United
States and the 400% price increase that took place in
1973. Those actions -- by political decision -- compounded
an economic difficulty that had already reached serious
proportions. Merely by depriving the United States and
the other industrialized countries of 10 percent of
their oil supply for less than half a year, the embargo:

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-- Cost Americans outright half a million
jobs and over one percent of national output;

-- Added at least five percent points to price
increases in the United States in the year
of the worst inflation since World War II;

-- Set the stage for a serious recession;

-- Enabled the producers to increase their income
from $____ billion to $110 billion, thereby
engineering the greatest transfer of wealth in
history.

If we do not now bring our consumption under control,
our vulnerability will increase still further in the
future. This prospect has three meanings for us:

-- First, a future embargo would have a truly
devastating effect on American jobs and
output and employment would be at risk;

-- Second, the producers would indefinitely
retain the power to fix oil prices, imposing
on consumers a permanent penalty in higher
inflation and lower growth;

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-- Third, our national security would be impaired
as we risk stagnation and deepening debt to the
producers.

Vulnerability on this scale and with these implications
is totally unacceptable. America must have -- America
will have -- an effective program to overcome it.

But the challenge, us I have said, is not national
but global. We already face today a fundamental crisis of
the international system.

-- For 30 years the world generally enjoyed
stable economic growth based on institutions
and practices of trading and monetary cooperation.

On this prosperity rested the expectations of all
peoples, in industrial and developing countries
alike, for the progressive betterment of the human
condition. The growth and the structure which
supported it are now in grave jeopardy.

-- Profound political consequences inevitably

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flow from such an economic crisis. We learned this grim truth in the 1930's. Economic distress fuels social conflict and political turmoil; it erodes the confidence of men in democratic government and the confidence of nations in international cooperation. It is fertile ground for tensions, both social and international.

-- Underlying all of these difficulties, and compounding them, is the crisis of the spirit -- the despair of men and nations that they have lost control over their destiny. External and internal forces seem beyond the power of government and policy to direct.

The will to act is most eroded when it is most needed.

These are grave prospects. But, the message I want to convey today is one of hope not gloom. The energy problem is soluble. The United States -- which would suffer most from a shift from near self-sufficiency to severe dependence on imported energy -- is also in the best

position to make possible a solution. We are, indeed,
fortunate that political decisions by others brought on the
crisis before economic trends had made our condition
irreversible. A major effort now -- of conservation, of
technological advance, of international collaboration --
can shape a different future.

And the most powerful argument for action now is that
a failure to act will mean a greater burden and greater agony
a few short years from now. There is no escape. Either
we tackle our challenge immediately or we face it again and
agains in increasingly unfavorable circumstances over
the coming years.

Voices in the country and in the press over many months
have called for determined efforts for conservation as a
test of national will and political leadership. The
President and the Congress, and both parties, have now
taken up their responsibility to act. We must not
flinch from the necessity of decision, for only in the

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Let me review the strategy which we and our allies
are pursuing in this crisis, and the urgent steps we
must take next.

## The Strategy of Energy Cooperation

The strategy we have pursued has these major elements:

- **first**, to create new mechanisms to safeguard our economies against new emergencies: to deter and defend against future oil embargoes, and to provide financial security against monetary disruption,

- **second**, to accelerate and coordinate national programs of energy conservation,

- **third**, to develop alternative sources of energy to end dependence upon one fuel or one region for the world's prosperity,

- and **fourth**, to lay the basis for cooperation between consumers and producers, to create a new equilibrium of benefit among the nations of the world.

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At the heart of our strategy is consumer solidarity, without which neither the United States nor any other consuming nation can achieve domestic economic security or well-being.

Consumer solidarity is crucial:

- for economic security, to build up oil reserves and share them in emergencies to withstand any future embargo imposed by the producers.

- for financial solidarity, to build the new multilateral mechanisms needed to protect the international monetary and trading system.

- in conservation, to share techniques and share the burden, and to maximize the impact of our conservation effort on the price structure.

- for development of new energy sources, to share technology and coordinate effort.

- for the dialogue with the producers, to shape serious substantive positions for solutions that will

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truly serve mutual interests.

Most importantly, consumer solidarity represents the collective will of the industrialized nations to act to recover control over their own future. Its political and psychological importance thus underpins all our efforts, collectively and individually. It is the key to our self-confidence that the economic crisis can be overcome.

We have taken important steps in the past year.

- At the Washington Energy Conference of February 1974, the major consumers established machinery for regular consultation and the pooling of effort and technology.

- As a result, the International Energy Agency was established as a permanent institution to oversee the common effort in conservation, research, investment in new energy sources, and the elaboration of consumer positions for the

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dialogue with the producers.

--Through the International Energy Program, consumers have begun to create a system of oil reserves and oil sharing -- a vital safety net in the event of a new embargo.

-- The 25 billion dollar solidarity fund, which we proposed only two months ago, has been agreed upon in cooperation with the IEA. The fund will put the industrial consuming nations in political control of oil-money investments. The rapid creation of this fund is of great significance; it is a model for further cooperative effort.

-- And in his State of the Union address President Ford set out a national program of action to revigorate our economy and reduce our dependence on imported oil. In partnership with the Congress and with other nations, decisive steps can now be taken to achieve the goals we have set out.

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The international measures last year to protect against
new emergencies have put the safety nets in place. We
have strong safeguards now against financial disruption
and new embargoes. Our next, most urgent, concern must
be to fulfill our goals in conservation and the development
of alternative supplies. -- both of which are crucial to
our long-term success.

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Conservation
---

Just as our unconstrained consumption of
inexpensive oil has been the chief cause of our
present vulnerability, so a reduction in the growth
of future consumption is essential,

First, the U.S. cannot possibly reduce its
dependency on imports, by any program, unless we
bring our consumption under control. It is simply
impossible to generate in this country enough new
energy both to replace existing imports and to
satisfy the normal --wasteful -- growth of consumption.
If we fail to shift down now to a sharply lower trend
of consumption growth, we will never
approach self-sufficiency.

Second, alternative energy supplies will not be
available for five or ten years. Only conservation
in the next two or three years can enable us to carry

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the burden of high energy costs and shift the balance
of market power from producers to consumers in the
immediate future.

In the face of the reduction of consumption this
past year, OPEC has already -- in order to keep the
real price of oil constant -- had to shut down more
than a fourth of its capacity this winter, or nine million
barrels a day. A third of its capacity may have to
be made inactive before the year is out. The lower
that consumption levels go, the harder it will be for
OPEC to allocate among its members the further production
cuts that will be inevitable. Already, individual
OPEC members are shaving prices to keep up their market
share. As the pressure increases, there will be more
and more covert individual deals. OPEC will inevitably
lose its bargaining flexibility; then OPEC prices will

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fail to keep up with inflation', and finally, OPEC
prices will begin to fall.

Anyone country's conservation efforts are futile
unless they are matched by the efforts of other
consuming countries; together they reinforce each
other powerfully. No one country alone -- even the
United States -- can shift the balance of market power
through conservation. That is why we are proposing
to other IEA members, whose collective oil consumption
equals ours, that our respective conservation targets
be matched one-to-one. Together we can save two million
barrels a day this year; four million in 1977. And
the burden and responsibility will be fairly shared.

Unavoidably, conservation will have an economic
cost. And by definition it means sacrifice. It means
a vast restructuring of our economy away from production

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and consumption of energy-intensive goods. Even
with fully rebated taxation, this will cause some
inflation and dislocation of production -- with its
attendant economic cost. Rationing would cause
greater dislocations, and some unemployment. At a
time of recession, we must be particularly sensitive
to these effects -- but any measures to reduce energy
consumption will involve such costs.

But consider the alternative: The failure to
take decisive action will perpetuate the excessive
international energy prices which are at the heart
of the current problem. At present, the United States --
in the midst of recession -- is importing 6.7 million
barrels of oil a day. When our economy returns to
full capacity, that total will rise to 8 or 9 million
barrels a day, and continue to grow.

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If by that time we have failed to take serious conservation measures, our allies also will have done little. Instead of reducing our imports by two to four million barrels a day, we will have increased imports by a similar amount. In exchange for a brief respite of a year or two, we will have increased OPEC's market power and our vulnerability to a new and crippling blow from the producers. The American people will then be entitled to ask their leaders why we failed now to take the measures in our power to protect ourselves. One embargo -- and one economic crisis -- should be enough to teach us the implications of our dependency.

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The Importance of New Supplies

In parallel with national and international steps to conserve energy and use it more efficiently, our effort to reduce dependence on imported oil will require accelerated development of new energy supplies in areas which we control or can rely upon. Fortunately, the industrialized countries have major energy reserves which can be developed over the next decades.

North Sea oil, German coal, undeveloped coal and oil deposits in the U.S., and nuclear power in all countries are some of the resources from which we can draw. Beyond that, we have enormous potential for the development of synthetic fuels, fusion and hydrogen energy, and other non-conventional energy resources. To ensure that we will have these supplies available when we need them, new efforts of international cooperation are required.

We must recognize that these new energy sources will be relatively expensive. Although some of them eventually may cost less than the current world oil price,

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without exception they will cost more than we paid for our
energy prior to 1973. And they all will be much more
expensive than Middle Eastern oil, with which they cannot
be expected to compete.

In addition, we must recognize that the industrialized
countries are unequal in their potential. Some are rich
in the conventional fossil fuels of oil, gas and coal.

But others, such as Japan and some European countries,
lack fossil fuel resources and, even with major nuclear
programs, will remain dependent on imported oil for much of
their energy requirements over the next decade.

To promote the development of new energy supplies in this
situation, the United States proposes:

First, to provide assurance for investments. The
major oil importing nations should agree that, for
a fixed period of time, no one of us will allow imported
oil to be sold in our domestic economies at prices which

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could jeopardize the development of alternative sources
or restimulate import demand.

Countries could meet this commitment through a common
floor price for imports. Each country could implement this
agreement by instruments of its own choosing: import
tariffs, variable levies, or quotas. Each country could
thus receive the revenue and balance of payments benefit
of an eventual break in market prices.

Intensive technical work will be needed to determine
what the common agreed floor price should be. While it
will be less than the current world oil price, it must
be high enough to encourage the long-range development
of the new energy supplies.

Another way to reach the same objective would be
a common tariff on oil imports. Such a tariff might
substitute in some countries for existing taxation.

Thus, paradoxically, we must prevent prices from
falling too low domestically if we want them to fall

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internationally. For it is a fact that our national energy goals cannot be met without the development of substantial new conventional, nuclear and fossil power sources, and these must be given security against the possibility of competition from cheap foreign oil in the future.

Second, to assist new energy projects, The United States proposes that IEA develop broad and flexible means of direct assistance to select energy projects through investment guarantees, long-term purchasing contracts, and similar programs. IEA should, in addition, establish procedures to enable its members to participate in and draw upon each other's technological innovations. The United States for example, is committed to develop a synthetic fuel capability of one million barrels a day by 1975; other countries will establish similar programs.

Countries willing and able to provide capital and technology

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should be permitted to participate in other IEA members'
programs on a national basis, obtaining in exchange
access to technology and a call on a proportionate share of
products in an emergency.

Third, to develop new energy technology, The United
States has committed ten billion dollars to energy research
over the next five years. We are prepared to spend a
substantial part of this fund in joint efforts with other
IEA countries who are willing to contribute capital and
expertise on a basis of mutual advantage. A comprehensive,
cooperative research program already has begun within the
International Energy Agency -- with projects on coal,
nuclear technology, solar energy, and fusion. We wish
to expand this effort.

Fourth, to ensure that our energy goals are not
frustrated by shortages of uranium, The United States
will consider establishing a multinational system for
uranium enrichment, with full safeguards, through mechanisms

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of governmental and private action. Thus, this vital and
potentially most fruitful new source of energy will
be expanded on the widest possible basis.

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## Consumer-Producer Relations

Consumer solidarity is by no means an end in itself. In an interdependent world, our hopes for economic prosperity and political stability rest ultimately on a cooperative long-term relationship between consumers and producers.

This has always been our objective. It is precisely because we wish a dialogue with the producers to be substantive and constructive that we have insisted that consumers first put their own house in order and prepare common positions. Mutual support by the consumers will help restore balance to the international economic structure; their demonstration of common purpose will give balance to the dialogue with the producers. Without structure and purpose, the dialogue will be empty;

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a conference

will only echo in a multilateral setting

the many bilateral exchanges that have already

occurred.

On the basis of consumer collaboration, a cooperative
solution with the producers is not only possible but
imperative. There is no rational alternative:

-- The destinies of all countries are linked
in the world economy. Confrontation can
only lead to global economic collapse and
the unravelling of international stability.

-- The producers seek a better life for their
peoples and a future that is not mortgaged
to a single depleting resource.

-- The industrialized nations seek to preserve
the hard earned accomplishments of centuries

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and continue the growth that fuels so much
of the world's economy.

-- The poorer developing nations seek desperately
to resume their march toward a more decent
and hopeful existence.

Producers and consumers, developed and developing --
all have legitimate claims. The challenge is to
reconcile them in a new equilibrium of interest and
cooperation, to assure mutual benefit over the long-term
future.

What will be the contours of this new equilibrium?

We must begin with the recognition that we can
neither return to past conditions nor tolerate current
ones. Prior to 1973, market conditions were unfair
to the producers. But today they are intolerable for
the consumers -- and ultimately they will be for the
producers as well.

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Thus it is clear that a new balance must be shaped
by consumers and producers together.

First, we must slow down the massive accumulation
of surpluses. Such surpluses can be reduced somewhat
by more imports of goods and services by the producers,
giving them the physical counterpart of their new
wealth. But they do not have the capacity to absorb
new imports on the monumental scale of their new revenues.
At some point the real price of oil will be lowered
significantly:

- Either consumer decisions on conservation and alternative supplies will create market conditions in which prices are impossible to sustain;

- or the failure of consumers to take effective action will push the world toward financial collapse and political confrontation;

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-- or producers will bring prices down in their own self-interest, trading price cuts now for price stability in the future.

The second requirement of cooperative consumer-producer action is to manage the huge surpluses which have already accumulated. The oil producers understand that the volume of these new assets requires new mechanisms for recycling. At the same time, the industrial countries realize that the future of the international economic system requires the constructive participation of the producers. New arrangements, bringing together the largest industrial countries and the wealthiest oil producers, may be needed to manage the world financial system.

Third, we must help the producer nations find productive use for their wealth in their own development,

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and reduce *their* dependence on a depleting resource.

New industries can be developed, combining the technology of the industrialized world with the energy and capital of the producers, for their own benefit and that of the poorer developing nations.

Fertilizer and petrochemicals are two fruitful possibilities.

In sum, we are at a crossroads. We have the opportunity to forge new political and institutional relationships. Mutual interest should bring consumers and producers much closer together. The implications for the structure of world politics will be profound.

The long-term relations between the industrialized and developing nations can be shaped positively for the rest of the century.

These principles suggest the nature of the agenda for consumer-producer meetings.

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**First, investment.** Oil producers need to find productive uses for their revenues. Consumers need to retain control of essential sectors of their economies. Together we can reconcile these requirements and contribute to global growth and security.

**Second, the developing countries.** The oil countries and the developed consuming countries share a responsibility to ease the stark plight of the poorest, who are devastated by OPEC's price increases. There are many ways in which we can pool our strengths to help those most seriously affected by the current economic crisis.

**Third, security of supply.** Another attempt to use oil as a weapon would gravely threaten the industrialized economies and destroy the possibilities of cooperative solutions for consumers and producers. The oil-sharing agreement of the consumers would blunt

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its impact at first, but over time a strong response
to the producers would be inevitable. Thus some
understandings on future supplies are essential.

And *fourth, price*. It may be possible to identify,
and agree upon, prices for the long run which will
satisfy the needs of consumers and producers alike.
The near-term balance of payments crisis of the
consumers must be eased; at the same time the producers
are entitled to longer-term stability of income that
will not be threatened by the development of alternative
supplies. Compromise prices would be well below
current levels, but well above the historical average.
Clearly there must also be a relationship between
price levels guaranteed to investors in alternative
sources in consuming countries, and those which
producing countries receive in the world market.

- 35 -

The United States is ready to begin consultations
with the other major consuming nations on a serious
and detailed program for the producers. We will soon
have specific proposals, and we will welcome the
suggestions of our friends.

- 36 -

The Need for United Action

For ten years the United States and other
industrialized nations allowed their dependence
upon imported oil to grow. For nearly two years
the oil-producing nations have organized to bring
about the greatest transfer of wealth in history,
thereby creating the first truly global economic
crisis.

The United States and its allies have now begun
to pursue a common course to deal with this crisis.
Just as the producers have concerted in their own
interest, so are the consuming nations concerting
for mutual support -- to set the stage for a serious
and substantive dialogue with the producers.

Just as partnership is the key to a solution
internationally, so is partnership the key to a

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solution here at home. Now is the time for both
branches of government, both parties, and all
Americans, to show that they recognize their
responsibility to future generations.

The need for national action is urgent. Unless
we in America start now to control the pattern of our
energy use, and conserve our resources, we and the
world will continue in drift and crisis -- and the
crisis will only intensify.

The President has presented to Congress a coherent
set of proposals for decisive steps to end our
dependence. There must emerge from the collaborative
action of the Executive and Congress a determined
national program of action. If not, we have all
failed -- the blame will fall on us all -- and we
and the world will pay the price. Our children will

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look back at this moment as a tragically lost
opportunity and a failure of leadership.

But if America responds with foresight and unity,
we can continue to set an example and offer leadership.
This nation's principles, skills, technological
strength and resources impose upon us a special
responsibility -- and a special opportunity. History
will no longer permit us or any other nation to take
the limits of our own field of vision for the limits
of the world. If we, the world's largest consumer
of energy, will not make the necessary sacrifices, we
cannot expect others to do so. And there can be no
solution to this crisis without the collective efforts
of the industrial democracies, whose joint efforts
brought security and prosperity to the world in the
last quarter-century.

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The United States seeks cooperation with major consuming nations not from a sense of altruism or abstract devotion to the common good. We seek it in the cold recognition that America's jobs and prosperity -- and our hopes for a better future -- depend upon a unified effort with our partners abroad. Together we have the power to regain control over our own affairs; apart we are nothing more than hostages to fate.

Ralph Waldo Emerson said, "nothing great is ever accomplished without enthusiasm." The effort that is now called for means great exertion; it means burdens; it means change. But the essential strength of this nation has always been that challenge has called forth a new surge of optimism and creativity. The time for doubt and delay is gone. The challenge is becoming

- 40 -

a moral issue, not a technical issue. The sacrifices
which we must now ask of ourselves are trivial
compared to the sacrifices which otherwise will be
imposed upon us. If we understand that a prosperous
and just world is unattainable unless we exert ourselves
now, then I believe that enthusiasm is warranted and
success is within our reach.

So let us remind ourselves of our capacities.
Let us define our needs and recover our sense of
purpose. Let us show the world, and ourselves, that
men are masters of their fate.

-5-

to external disruptions would be grossly magnified. We would
be even more open to the manipulation of prices by the cartel.

Our economy would be hostage as well to new political decisions
~~The vulnerability of other industrialized countries~~ will
~~to impose an embargo.~~ This vulnerability will increase with
~~because of greater will~~ every passing year. A future embargo would have a devastating
impact on American jobs and production; more than 10% of national
employment and output would be at risk. A central element of
the price structure of the American economy would be subject
to external decisions over which our national policy would have
little influence. The continuing danger of stagnation and re-
cession, and increasing debt to the producers, would impair our
political and economic strength. At stake is our independence
~~of policy in other industrialized worlds.~~
of action, our prosperity, and the availability of resources
for national and social needs.

There could be no clearer demonstration that our domestic
well-being and actions by other are linked. For 30 years the
world generally enjoyed stable economic growth, based on inter-
national institutions and practices of trading and monetary

cooperation. On this prosperity were founded the expectations
of all peoples, in industrial and developing countries alike,
for the progressive betterment of the human condition. This
prosperity and the structure which supported it are now under
severe stress.

Profound political consequences <u>inevitably</u> flow from such
an economic crisis. We learned from this grim truth in the 1920's
and 30's. Economic distress fuels social conflict and political
turmoil; it erodes <u>the confidence of men</u> in democratic government <u>stet</u>
and the confidence of nations in international harmony. It is
fertile ground for tensions, both domestic and international.

Underlying all these difficulties, and compounding them,
is the crisis of the spirit -- the despair of men and nations
that they have lost control over their destiny. External and
internal forces seem beyond the power of government and <u>policy</u> <u>variety</u>
to manage. <u>The will to act</u> is most eroded when it is <u>most needed</u>.

Thus the entire industrialized world
Our fellow democracies in the industrialized world are

decisive impact on the domestic as well as the foreign policies
of the other industrialized democracies.

Thus it is clear that reducing vulnerability must be one
of our highest national priorities. And it is the nature of
the problem that no one country can solve it alone. Jobs,
inflation, recession in all these areas, national policy can
take hold only if reinforced by concerted international measures.
Unless we pool our risks and fortify the international financial
system, balance of payments crises will drain our resources
and leave all our economies prone to financial disruption. Unless
all consuming nations act in parallel to reduce energy dependency
through conservation and new sources of supply, the efforts
of any one nation will be made futile by the non-cooperation
of others, if vulnerability is not reduced
of the international price structure will not be reformed;
and the collective economic burden will grow worse. And unless
we concert our views and find common positions, there will be no
fruitful dialogue with the producers.

-9-

The action that the United States takes now -- or does not take -- is pivotal to any hope for a global solution.

The volume of our consumption, and its potential growth, is so great that without a determined national conservation program the era of excessive energy costs will continue to plague us and the rest of the world. Without the application of American technology and American enterprise, there can be no significant or rapid development of new supplies and alternative sources of energy. Our friends will be convinced that we cannot be counted on to lead when it means that we too must sacrifice.

And without our participation and our initiative, the industrialized nations collectively will continue to drift into greater and greater dependence and greater and greater vulnerability.

The measures we in this country must urgently take -- whatever steps are agreed upon between the Congress and the Administration -- will be costly, complicated -- and unpleasant.

But the most powerful argument for action now is that the failure

to act will mean a greater burden and greater agony a few short
years from now. There is no escape. Either we tackle our
challenge immediately or we confront it again and again in
increasingly unfavorable circumstances over the coming years.

If it is not faced in this Administration, the same crisis
will be faced in the next -- and with even more anguishing choices.

Voices in the country and in the press over many months
have called for determined efforts for conservation as a test
of national will and political leadership. The President and
the Congress, and both parties, have now taken up their responsi-
bility to act. We must not flinch from the necessity of decision.
For only in the solution to the energy crisis is there a reliable
long term solution to the economic crisis.

The problem is soluble, and we are in a position to take
the decisive steps. If we vindicate the confidence that others
have in us, we will not only bring solutions to our immediate
difficulties, but will help to restore the international economy,
the strength of all the major industrial democracies, and the
hopes of mankind for a just and prosperous world.

Fifth Draft

January 31, 1975

ENERGY: THE CALL TO ACTION

Ladies and gentlemen:

-- First, we are in the midst of an intensive
national debate on the elements of our energy
program. The next few weeks will determine
whether the Administration and the Congress
can reach agreement on the course we will follow.

-- Second, this coming Wednesday the Governing
Board of the International Energy Agency will
meet again in Paris. The United States will
again put forward additional proposals for cooperative

-2-

-3-

The measures we must take in our national and international
interest will be costly and complex; some clearly will be
unpopular. The American people have a right to know why,
in a period of recession and inflation, they are being asked to
undertake additional cost and additional sacrifice.

-4-

- 5 -

- 6 -

- 7 -

On this prosperity rested the expectations of all
peoples, in industrial and developing countries.
alike, for the progressive betterment of the human
condition. The growth and the structure which
supported it are now in grave jeopardy.

- 8 -

- 9 -

And the most powerful argument for action now is that
a failure to act will mean a greater burden and greater agony
a few short years from now. There is no escape. Either
we tackle our challenge immediately or we face it again and
again in increasingly unfavorable circumstances over
the coming years.

- 11 -

- 12 -

- 13 -

truly serve mutual interests.

- 14 -

dialogue with the producers.

-- And in his State of the Union address President Ford set out a national program of action to revitalize our economy and reduce our dependence on imported oil. In partnership with the Congress and with other nations, decisive steps can now be taken to achieve the goals we have set out.

- 15 -

The international measures last year to protect against
new emergencies have put the safety nets in place. We
have strong safeguards now against financial disruption
and new embargoes. Our next, most urgent, concern must
be to fulfill our goals in conservation and the development
of alternative supplies -- both of which are crucial to
our long-term success.

- 16 -

## Conservation

Just as our unconstrained consumption of inexpensive oil has been the chief cause of our present vulnerability, so a reduction in the growth of future consumption is essential.

- 17 -

- 18 -

fail to keep up with inflation; and finally, OPEC prices will begin to fall.

- 19 -

- 20 -

- 21 -

- 22 -

- 23 -

- 24 -

25 -

- 26 -

- 27 -

- 28 -

a conference

occurred.

- 29 -

- 30 -

-- Either consumer decisions on conservation
and alternative supplies will create market
conditions in which prices are impossible
to sustain;

-- or the failure of consumers to take effective
action will push the world toward financial
collapse and political confrontation;

- 31 -

- 32 -

- 33 -

- 34 -

- 35 -

- 36 -

The Need for United Action

- 37 -

- 38 -

- 39 -

- 40 -

January 30, 1975

Third Draft

# The Energy Challenge: Accelerating the Momentum of Cooperation

The United States and our closest friends face a challenge unprecedented in history. Our response will have a profound impact on the shape of the world for the remainder of this century.

I refer, of course, to the energy crisis and all its ramifications for the nations of North America, Europe and Japan.

There is the economic dimension. The global economic framework is under severe stress. The basic premise of our modern era -- the progressive betterment of the human condition -- is founded upon the sources of power which have enabled man to begin to master the forces of nature. And this foundation has been seriously shaken.

There is the political dimension. The ravages of recession and inflation could fuel frustrations and

- 2 -

erode stability. Countries could turn from moderate
solutions to radical departures, from cooperative
paths to narrow nationalism. New domestic and inter-
national tensions could engulf the world community.

And finally there is the moral dimension. In
the face of economic and political unravelling govern-
ments and people could lose their belief that they are
masters of their destinies. If we cannot restore a sense
of direction, an inner confidence, the momentum of
purpose, profound demoralization could set in, sapping
will and spirit.

But the energy challenge represents large opportunity
as well as danger. It could lead towards a new prosperity,
stimulate fresh acts of political cooperation, and
restore the conviction that man molds his fate. If we
act boldly and well, we can make the next few years an
era of great creativity.

- 3 -

We have the chance, indeed the necessity, to foster
a new awareness of mankind's common destiny, a new spirit
of cooperation among the world's nations.

America alone cannot possibly master this challenge.
But neither can the world master it without American
leadership and example.

What we do at home will vitally determine what we
can do abroad. And what we do with others will have
a profound impact on our own society. Without our
domestic discipline, international cooperation will
fail. And without international cooperation American
society will suffer.

A challenge of this magnitude demands national
unity. Our response must be shaped through a partner-
ship of Congress, the Executive and the American people.
Whether the short-term outlook is bleak or promising,

- 4 -

we must not plan solutions for a year or two, but for
the indefinite future; our strategy must be far-seeing,
steadfast and sustained. It will require the qualities
for which America is famous -- creativity, resilience,
perserverance. It will require that unique combination
of self-reliance and cooperative effort which was forged
on the American frontier.

Our response must not be conceived in a mood of
self-defense nor with the illusion we can return to the
status quo. The times require more of us. For we are
at the edge of a new age in which the fruits of mankind's
progress will have to be shared by all the world's
people in a framework of stability and with the aim of
mutual benefit. Without the well-being of all, a
peaceful and prosperous future is impossible.

This is the scale of the energy challenge. What
are we doing to meet it?

- 5 -

The Overall Strategy

We and the other major consumers have been
pursuing a long-term strategy that is beginning to
bear fruit.

In April 1973 the United States warned that energy
was becoming a problem of major proportions and that
collaboration among the nations of the West and Japan
was essential. In December of the same year, we proposed
a program of collective action. This led to the
Washington Energy Conference in February 1974, where
the major consumers established new machinery for
consultation and an urgent mandate to create institutions
for the pooling of effort, risk, and technology.

In April and September of last year before the
UN General Assembly, President Ford and I reiterated

- 6 -

the American philosophy that domestic discipline and
international cooperation offered the only long-term
solution and that our efforts were designed to pave
the way for constructive dialogue with the producers.

In September 1974 we convened a meeting of the Foreign
and Finance Ministers of the United Kingdom, Japan, the
Federal Republic of Germany, France, and the United States
to consider further measures of consumer cooperation.

Last November we proposed additional measures of
international cooperation. And this month President
Ford set forth a long-term national policy on energy
to reinforce our efforts with other countries.

Our strategy has the following major elements:

- first, to bring about consumer solidarity to
defend against future oil embargoes,

- second, to create institutions of financial

- 7 -

solidarity to prevent political and economic
domination by the producers,

-- third, to accelerate and coordinate national
programs of energy conservation,

-- fourth, to develop alternative sources of
energy to end dependence upon one fuel or
one region for the world's prosperity,

-- and fifth, to bring about cooperation between
consumers and producers with the aim of
creating a new equilibrium of benefit among
the nations of the world.

We and our allies have made significant progress
on much of this agenda. In recent months we put up the
safety nets for possible future embargoes and launched
consumer cooperation in the International Energy Agency.
In recent weeks we have made major breakthroughs toward

-8-

financial solidarity.

Our next, most urgent, concerns are in the areas of conservation and alternative supplies. We will approach these concerns with the aim of achieving both national self-sufficiency and solidarity with our consumer nation allies. When we have achieved this, we will be prepared for a productive exchange with producing nations, in the hope of bringing about a new equilibrium of benefit among all nations.

## National Self-Reliance

Our first task is to achieve national self-sufficiency in energy. President Ford's new [national] energy plan firmly meets this challenge. The President's plan requires two, simultaneous efforts:

-9-

-- first, to conserve energy to reduce our vulnerability to foreign oil supplies in the short-term; and

-- second, to develop alternative sources of energy to eliminate our dependence upon Middle Eastern oil over the next decades.

For over a decade we allowed our dependence on imported oil to grow. Then a handful of oil-producing nations organized to bring about the greatest transfer of wealth and power in history. The risk we face now is that our loss of independence may become permanently impaired.

The need for immediate action is urgent. Unless we start now to control and reduce our consumption, neither we nor the world will believe we have the strength or the resolve to master this crisis.

-10-

If we can conserve a million barrels of oil a day -- the goal which President Ford has set for the United States by the end of this year -- the accumulation of surplus funds by the oil producing nations will be cut by four billion dollars a year. And the President has called for us to double the amount conserved by the end of 1977. To achieve this goal will substantially reduce the surplus wealth of the OPEC countries and consequently reduce their leverage over us.

By 1985 -- ten years from now -- our country can be vulnerable to foreign energy disruptions or oil embargoes.

To sustain our self-reliance we will have to develop new, alternative sources of energy. This too will require sacrifice, for it will divert capital investment we would have wished to

-11-

use for other social and economic purposes. Unless we
now launch a strong program to develop our own energy we cannot
become independent of foreign oil.

It is nearly two years since the energy crisis began. The
Administration, Congress and the public have studied all the
options. There can be no justification to delay our decisions
longer.

The President has presented to Congress a coherent, forceful
program to end our dependence. It is clear that Congress must
share in shaping national energy policy and President Ford has
pledged to work with Congress toward that end.

Further delay or attempts to undo steps the President has
already taken to bring consumption under control -- steps

-12-

specifically designed to be temporary pending Congressional
approval of a full program -- can only undermine our confi-
dence and that of the nations which rely upon us. If we hesitate,
so will our allies.

## Consumer Nation Cooperation

Close cooperation between the United States and our allies is
crucial in every regard -- for conservation, for developing new
energy sources, for a combined approach to the dialogue with oil
producers.

The consuming nations already have made striking cooperative
progress:

- the *International Energy Agency*, the institutional framework of consumer solidarity and conservation, has begun to operate.

-13-

- the 25 billion dollar consumers' solidarity fund which we proposed only two months ago, has been agreed upon in cooperation with the IEA. This fund will put the industrial, consuming nations in political control of oil-money investments - without depriving OPEC countries of economic benefits. The United States regards the rapid creation of this fund to be of the greatest political and economic significance.

- the third and crucial question of developing new sources of energy is now being urgently addressed and we expect decisions in this field to be made within the next two months.

Consumer cooperation is needed to lower the price of oil, for without this, the energy crisis cannot be solved. Producers will not be persuaded to lower the price until they recognize

-14-

that to do so would be preferable to continued confrontation
with consumers, whose solidarity and resolve ultimately would
find ways to do without OPEC's resources altogether. If
the producers see that we are serious about conservation and
alternative sources of supply, they should conclude that lower
prices are the best insurance for gaining maximum benefit from
their oil deposits over the longest run.

Consumer cooperation also will reduce our vulner-
ability to any future oil embargo. To do so, consumer
nations need larger emergency oil reserves and must commit
themselves to sharing these reserves in time of emergency
in accordance with the principles of the International Energy
Program. When producers see we can survive an oil embargo
they will be less likely to cause another oil crisis.

-15-

Once consumer cooperation is established, each nation
will be able to take hard domestic decisions with confidence
that other consuming nations will support and complement
those decisions.

Thus, cooperation will require parallel action. This is
why we are asking other countries to match, one-for-one,
our conservation goal of one million barrels a day by the end
of this year, and two million a day by 1977, an amount which
would cut the current OPEC surplus by twenty percent.

But parallel action is not enough; the acts of each con-
suming country must be relevant to the needs of the others.

This is why President Ford has established a goal for
the United States to become, once again, a net energy supplier
to the industrialized world by the end of the century. This
effort will coincide with the substantial depletion of the

-16-

world's petroleum deposits over the next quarter-century
and will be accomplished largely through new energy sources:
synthetics, fusion, breeder reactors, hydrogen. We want
other consuming countries, in proportion to their ability and
needs, to establish similar programs, to be coordinated through
the International Energy Agency.

## The Importance of New Supplies

Conservation can begin to shift the balance of market power
from producers to consumers. But ultimately, the success of
our effort to reduce dependence on imported oil will require
accelerated development of new energy supplies in areas which
we control or can rely upon. Fortunately, the industrialized
countries have major energy reserves which can be developed
over the next decades.

-17-

North Sea oil, German coal, undeveloped coal and oil deposits in the U.S., and nuclear power in all countries are only some of the resources from which we can draw. Beyond that we have enormous potential for the development of synthetic fuels, fusion and hydrogen energy, and other non-conventional energy resources. But a radically new approach to international economic cooperation is needed to ensure that we will have these supplies available when we need them.

We must recognize that these new energy sources will be relatively expensive. Although some of them eventually may be priced substantially under the current world oil price, without exception they will cost more than we paid for our energy prior to 1973. More significantly, they all will be much more expensive than Middle Eastern oil, with which they cannot be expected to compete.

-18-

In addition, we must recognize that the industrialized countries are unequal in their energy production potential. Some are relatively rich in the conventional fossil fuels of oil, gas and coal. But others, such as Japan and some of the European countries, lack fossil fuel resources and, even with major nuclear programs, will remain dependent on imported oil for much of their energy requirements over the next decade.

To meet these concerns and to promote the development of new energy supplies, the United States proposes:

to provide security for investments, First, / that the major oil importing nations enter an agreement that, for a fixed period of time, no one of us will allow imported oil to be sold in our domestic economies at prices that could jeopardize the development of alternative sources or restimulate demand.

-19-

Each country could thus receive the revenue and balance of payments benefit of an eventual break in market prices. It would require intensive technical work to determine what the common agreed price should be. But it should be set at a level which will remove price uncertainty as a constraint on the development of new energy supplies essential to our reduced dependency objective for 1985. A common agreed price could be significantly less than the current world oil price but would have to be substantially higher than the price we paid for imported oil prior to 1973. An alternative means to reach the same objective would be for the industrialized countries to adopt a common tariff on oil imports, to be gradually phased in. Such a tariff might substitute for existing protective taxation.

to assist new energy projects, *Second,* /the United States proposes the establishment of a broad, flexible international arrangement under which IEA countries can provide direct assistance to selected energy

projects through investment guarantees, long-term purchasing
contracts, and similar programs. Such an arrangement is
indispensable if we are to meet our energy goals for the late
1980's and beyond.

The United States is committed to develop a synthetic
fuel capability of one million barrels a day by 1985. Other
countries will establish similar programs. The first task of
the proposed international arrangement should be to establish
ways for IEA members to participate in each other's programs
by sharing technology, costs, and output.

_Third_, to develop new energy technology, the United States
has committed ten billion dollars to energy research over the
next five years. We are prepared to spend a substantial part

-21-

Fourth, to ensure adequate uranium supplies, the United
States will be prepared to consider establishing multinational
enrichment plants through governmental and associated
private arrangements designed to promote an integrated
system of ensured uranium fuel with full safeguards.

-22-

The Producer's Situation

While consumers are now facing up to the difficult energy
decisions, the oil-producing nations already may have reached
the peak of their market power. The enormous shift in wealth
to the oil-producing countries continues, but has slowed sub-
stantially. Just to keep the real price of oil constant, OPEC
has had to shut down more than a fourth of its capacity this
winter, and a third of its capacity may have to be made inactive
before the year is out. The lower production levels go, the
harder it will be for OPEC to divide up the cuts. Already, individual
OPEC members are shaving prices to keep up their market share.
As pressure increases there will be more and more individual
deals. The changing situation has begun to raise questions about the
future economic development plans of some Middle East nations.

-23-

In addition, the potential costs of OPEC's drive to accumulate vast wealth are becoming clearer. The producers are beginning to realize the magnitude of the dilemma they would face in a world in which non-Communist nations were faced with oil-starvation and bankruptcy.

Whatever may be the relationship between high oil prices and recession or depression, the oil producers must consider the consequences of the reactions of industrialized Western nations beset and aroused by unemployment and economic dislocation. In such a situation, OPEC's new-found financial powers could be rendered as meaningless as King Midas' touch.

The question now is whether a new system can be found to answer the legitimate concerns and expectations of both producers and consumers for a stable, equitable, prosperous future.

-24-

A New Equilibrium

The way in which the international market has operated
for the past year and a half is not tolerable in the long run --
either for producers or for consumers.

But neither can we ever return to the way in which the
international oil market functioned prior to 1973. Prices
were too low. Governments had too little control over their
resources.

Thus it is clear that a new equilibrium must emerge.

First, producers must recognize that the continued
accumulation of vast monetary surpluses is detrimental to
world stability. Such surpluses can be reduced through greater
imports of goods and services by producers, giving them the

-25-

physical counterpart of their new wealth. But increased imports
are not enough. At some point the real price of oil will be
lowered significantly.

-- or the failure of consumers to take effective decisions
will push the world toward financial collapse and
political confrontation;

Second, producers and consumers must agree on
management of the huge surpluses which have
accumulated in the OPEC countries. The OPEC

-26-

countries must realize that the industrial world will not permit them to possess the power which those assets provide without strong new institutional and political ties to define and regulate their use.

At the same time, industrial countries must realize that effective management of their economies will require the cooperation of OPEC members. New institutions, grouping the largest industrial countries and the wealthiest oil producers, may be needed to manage the world economy.

Third, the new equilibrium should bring about cooperative development of new industries in producer countries by combining Western technology with the energy and capital of producer nations. Likely areas for early development are fertilizer and petrochemicals. Development of such industries will be a fundamental part of the new balance of interest we seek.

-27-

Finally, equilibrium will mean new political and institutional relationships. The new wealth of the producers, much of it now consisting of claims, is useless unless given validity in the industrial world. Conversely, the way in which those claims are handled can profoundly affect employment and output in industrial economies. Such mutual power will be intolerable without far more intimate institutional ties. Mutual interest can bring consumers and producers far closer together, with revolutionary implications for the structure of world politics.

The institutional framework for implementing this new equilibrium should have both bilateral and multilateral elements. The Joint Commissions which the United States has set up with some of the producing countries are one model for bilateral ties.

-28-

A cooperative framework for channeling oil-money surpluses into useful and politically acceptable investments, and for providing aid to the less developed world, may require new multilateral institutions.

Thus, we now can begin to see the outlines of future cooperation between producers and consumers. Once consumer solidarity is well established, we must turn to the agenda with the producers to build toward a new equilibrium.

Chief among the agenda items will be:

**First, Investment.** Oil producers need new, attractive investment outlets. Consumers need to be assured they will not lose control of essential sectors of their economies. It is in the interest of both foreign government investors and

-29-

recipient countries to deal with these concerns in ways which
preserve open investment relations among them.

A partial answer may lie in the creation of new intermediary
institutions through which producer governments could hold
equities but not vote them, benefit from the most capable
investment advice, and reflect their own basic portfolio
objectives.

To ensure that rising investments of oil producers do
not compromise our security, accurate and complete in-
formation on foreign capital investment in U.S. firms is needed.

Some process to define more sharply sectors or modes of
investment which are not mutually beneficial may be needed.

We, and other industrial countries, are reviewing our existing
policies and procedures and will take whatever steps are
necessary.

-30-

Next, security of supply. A new embargo would gravely threaten the industrialized economies. The oil-sharing agreement would mitigate the impact of such an emergency at first, but over a matter of months, a strong response to the producers would be inevitable. Moreover, renewed use of the oil weapon would raise doubts as to whether a relationship of confidence is possible between producers and consumers, and, therefore, doubts as to whether the new wealth of the producers can ever be realized.

Third, the developing countries. The oil producing countries and the developed consuming countries must share a concern for the plight of developing countries and increase the effectiveness of their joint aid efforts. The United States has proposed several specific ways of achieving this cooperation -- including the jointly financed 6 billion dollar trust fund under the International

-31-

Monetary Fund which will provide desperately needed subsi-
dized interest rates to the poorest developing countries.

And fourth, **price**. It may be possible to identify long-
term prices at which the consumer's balance of payments
problem becomes manageable, and at which producers are
not threatened with the loss of their market through the
development of alternative supplies by consumers. Most
investigations show that such prices would be well below current
levels, although much above historical averages. Conceivably,
if producers would set such prices now, consumers would
limit development of those energy resources which cost more.
However, if producers persist in a higher price, consumers
will both develop new sources and commit their economies to
them regardless of changes in the price of imported oil -- and
thereby deny OPEC producers this market forever.

***

-32-

The Need for a Unified Commitment

The strong and decisive steps we have taken already
have begun to reverse the psychological mood of the in-
dustrial nations. The spectre of the oil producers overwhelming
economic power and eventual political dominance is being
banished. Confidence is growing that we can master our
own destiny. But we have a long way to go.

For America, the key lies in what the President and the
Congress will do together, not in what they separately attempt.
Let us first agree:

-- That we cannot regain our independence without
bringing our oil consumption under control; thus
we must make a major, permanent effort at conservation;

January 30, 1975

Second Draft

- 2 -

- 3 -

- 4 -

The Overall Strategy

- 6 -

- 7 -

- 8 -

financial solidarity.

Our next, most urgent concerns are in the areas
of conservation and alternative supplies so that we
can then turn to a productive exchange with the
producers.

The course we must take is clear. It leads from national self-reliance to cooperation with other consuming nations to, ultimately, a dialogue between consumers and producers to bring about a new international equilibrium.

## National Self-Reliance

But further progress is impossible until the United States puts its own house in order by carrying out President Ford's urgent national energy plan. This plan involves two elements aimed at eventual national self-reliance:

- first, to conserve energy to end energy dependence in the short-term; and

For over a decade we allowed our dependence on imported oil to grow. Then a handful of oil-producing nations organized to exploit and to engineer the greatest transfer of wealth and power in history. The risk we face now is that our loss of independence may become permanent and that we will remain at the mercy of the oil producers.

The President's new energy program firmly commits the United States to energy self-reliance and invulnerability. The need for immediate action is urgent. Unless we start now to control and reduce our consumption, neither we nor the world will believe we have the strength or the resolve to master this crisis.

But to sustain our self-reliance we will have to develop new, alternative sources of energy. This too will require sacrifice, for it will divert capital investment we would have wished to

use for other social and economic purposes. But unless we
now launch a strong program to develop our own energy we cannot
become independent of foreign oil, even in a decade.

But further delay or attempts to undo steps the President has
already taken to bring consumption under control -- steps

— the *International Energy Agency*, the institutional framework
of consumer solidarity and conservation, has begun to
operate.

-- the 25 billion dollar consumers solidarity fund -- which will put the industrial, consuming nations in political control of oil-money investments -- without depriving OPEC countries of economic benefits -- has been set up in cooperation with the IEA.

-- the third and crucial question of developing new sources of energy is only now being addressed, but we expect decisions in this field to be made within the next two months.

The energy crisis cannot be fundamentally changed without a substantial reduction in the price of oil. And producers cannot be persuaded to lower the price until they recognize

The certitude of cooperation among the consuming nations
will enable each country to take necessary and difficult policy
measures at home with confidence that other important con-
suming nations simultaneously are taking steps to support and
complement those policies.

Thus, cooperation will require parallel action. This is
why we are asking other countries to match, one-for-one,
our conservation goal of one million barrels a day by the end
of this year, and two million a day by 1977.

Conservation can begin to shift the balance of market power
from producers to consumers. But ultimately, the success of
our effort to reduce dependence on imported oil will require
accelerated development of new energy supplies from areas which
we control or can rely upon. Fortunately, the industrialized
countries have major energy reserves which can be developed
over the next decades.

First, and most importantly, that the major oil importing nations firmly agree that, for a fixed period of time, no one of us will allow imported oil to be sold in our domestic economies at prices that could jeopardize the development of alternative sources. It will require intensive technical work to

determine what the common agreed price should be. But it
should be set at a level which will remove price uncertainty as
a constraint on the development of that portion of new energy
supplies which we determine to be essential to our reduced
dependency objective for 1985. A common agreed price could
be significantly less than the current world oil price but would
have to be substantially higher than the price we paid for
imported oil prior to 1973. An alternative means to reach the
same objective would be for the industrialized countries to adopt
a common tariff on oil imports, to be gradually phased in. Such
a tariff might substitute for existing protective taxation.

Second, the United States proposes the establishment of a
broad, flexible international arrangement under which IEA
countries can provide direct assistance to selected energy

In the United States, we have committed ourselves to the
intensive development of a synthetic fuel capability of one
million barrels a day by 1985. Other countries will establish
similar programs. The first task of the proposed international
arrangement should be to establish ways for IEA
members to participate in each other's programs by sharing
technology, costs, and output.

Third, to ensure that new energy technology is developed
and perfected rapidly, the United States has committed ten
billion dollars to energy research over the next five years. We are

Our efforts toward self-sufficiency must not be restrained by a
shortage of uranium fuel. National experts in the IEA now are
preparing comprehensive demand and supply projections in pre-
paration for meeting the future enriched uranium supply require-
ments of IEA members and other countries. As part of this
effort the United States will be prepared to consider establishing
multinational enrichment plants through governmental and
associated private arrangements designed to promote an integrated
system of ensured supply with full safeguards.

The Producer's Situation

While consumers are now facing up to the difficult energy
decisions, the oil-producing nations already may have reached
the peak of their market power. The enormous shift in wealth
to the oil-producing countries continues, but has slowed sub-
stantially. Just to keep the real price of oil constant, OPEC
has had to shut down more than a fourth of its capacity this
winter, and a third of its capacity may have to be made inactive
before the year is out. These cuts are raising questions about
the future economic development plans of some Middle East
nations.

A New Equilibrium

The way in which the international market has operated
for the past year and a half is not tolerable in the long run --
neither for producers nor for consumers.

First, there must come a recognition that the continued
accumulation of vast monetary surpluses is detrimental to
world stability. Such surpluses can be reduced through greater
imports of goods and services by producers, giving them the

Second, there must be agreement between producers and
consumers regarding the management of the huge surpluses
which have accumulated in the OPEC countries. The OPEC

Third, the new equilibrium should bring about cooperative
development of new industries through combining Western
technology with the feedstocks, capital, labor and resources
of producer nations. Such development will be a fundamental
part of the new balance of interest we seek.

Thus, we now can begin to see the outlines of future cooperation between producers and consumers. Once consumer solidarity is well established, we must turn to the agenda with the producers.

First, **Investment**. Oil producers need new, attractive investment outlets. Consumers need to be assured they will not lose control of essential sectors of their economies. It is in the interest of both foreign government investors and

recipient countries to deal with these concerns in ways which
preserve open investment relations among these countries.

-- That we cannot regain our independence without producing much more energy; thus we must devote massive resources to investment in alternative supplies.

Once these fundamental commitments are established, I believe a comprehensive, forceful program which both the President and the Congress can accept can quickly be found. All Americans will wish that program to be fair, placing the inevitable economic burden most on those best able to bear it. Americans will also want to be sure that it achieves its purpose, and will effectively free this country of its energy dependency within a decade.

Establishment of such a joint program is now our most
urgent concern. The world is watching to see if we have the
will to master this crisis. If we are determined, the task
we undertake will serve our national interest and interests of
all humanity. It can bring the day when there will be energy
abundance for all nations, energy with which we can construct
together a peaceful, just and creative world community.

DEPARTMENT OF STATE

Washington, D.C. 20520

January 18, 1975

TO: The Secretary

FROM: S/P - Winston Lord

SUBJECT: Draft Energy Speech

The attached is really raw material, not a draft speech. It does not yet really have a central point of view nor a theme, although there is some interesting new ground broken. However there is enough here for you to give some preliminary reactions. In addition to the overall structure and focus, I believe the following also has to be done:

-- The speech opens too abruptly and assumes too much knowledge. It needs a brief recapitulation of our strategic approach and the building blocks we have been putting into place. It also needs some political dimension as well.

-- I lean toward putting the equilibrium section toward the end, where we talk about cooperation between producers and consumers.

-- We will want to reflect progress now being made on the financial front. This issue deserves fuller treatment in any event.

-- There should be some brief discussion, or at least acknowledgment, of the LDC problem and what we will be doing about it.

-- The distinction between "self-reliance" and "consumer solidarity" is not clear enough yet.

-- There are some imbalances in emphasis, e.g., the heavy treatment of floor price and uranium

DEPARTMENT OF STATE

Washington, D.C. 20520

JANUARY 16, 1975

TO: THE SECRETARY
FROM: EB - THOMAS O. ENDERS
S/P - MR. LORD

DRAFT ENERGY SPEECH

HERE IS THE TEXT OF A POSSIBLE SPEECH
ON PRODUCER/CONSUMER RELATIONS AND ALTERNATIVE
SOURCES.

IT COVERS THE FOLLOWING NEW GROUND:

- IT DEFINES THE CONCEPT OF A NEW EQUILIBRIUM RELATIONSHIP BETWEEN PRODUCERS AND CONSUMERS;

- IT LAUNCHES THE CONCEPT OF AN INTERNATIONAL FLOOR PRICE AGREEMENT WITH A JOINT IEA FACILITY FOR THE DEVELOPMENT OF HIGHER COST ENERGY (INCLUDING SYNTHETICS) IN RETURN FOR ACCESS TO SUPPLY; AND

- IT OUTLINES SOME THEMES FOR DISCUSSION AT A PRODUCER/CONSUMER CONFERENCE.

THE SPEECH PRESUPPOSES PRESIDENTIAL AGREEMENT
TO NEGOTIATING AN INTERNATIONAL FLOOR PRICE.

TO BE EFFECTIVE, THE SPEECH SHOULD BE GIVEN
BEFORE THE FEBRUARY 5-7 IEA GOVERNING BOARD.

EB:TOENDERS/HMH

DRAFT ENERGY SPEECH

1. TURNING POINT

Now, SIXTEEN MONTHS FROM ITS START, WE
ARE AT A TURNING POINT IN THE ENERGY CRISIS.

CONSUMERS ARE AT OR NEAR THE BOTTOM OF
THEIR CURVE. IT TOOK THEM MOST OF THESE LONG
MONTHS TO REALIZE HOW SERIOUS THE THREAT TO THEM
IS. BUT NOW THEY ARE CONVINCED HOW EXTRAORDINARILY
DIFFICULT IT WILL BE TO FIND THEIR WAY BACK TO
FULL EMPLOYMENT AND TO A HIGH GROWTH TRACK UNDER
THE BURDEN OF ENORMOUS OIL DEBTS AND BALANCE OF
PAYMENTS UNCERTAINTIES. AND EVEN IF THEY DO,
THEY MUST FOR MANY YEARS AHEAD SELL CLAIMS ON THEIR
CAPITAL ASSETS TO FINANCE THE CURRENT CONSUMPTION
OF OIL. THE POWER IMPLICATIONS OF THIS MASSIVE
SHIFT OF WEALTH ARE ONLY JUST BEGINNING TO BE
PLAIN.

BUT ALREADY THE KEY ELEMENTS OF CONSUMER
DISCIPLINE AND SOLIDARITY ARE FALLING INTO
PLACE. THE INSTITUTIONAL FRAMEWORK OF CONSUMER
COOPERATION -- THE NEW INTERNATIONAL ENERGY
AGENCY -- IS IN PLACE AND OPERATING. SO IS THE OIL
SAFELY NET, THE INDISPENSABLE UNDERPINNING OF
CONSUMER SOLIDARITY. THE FINANCIAL SAFETY NET
FOR CONSUMERS -- THE PROPOSED $25 BILLION

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FACILITY - HAS BEEN DECIDED IN PRINCIPLE AND IS
EXPECTED TO BE READY FOR FORMAL SIGNATURE WITHIN
A MONTH. ALTHOUGH THEY REMAIN TO BE COMPLETED
AND WELDED INTO A WHOLE, INDIVIDUAL CONSERVATION
PROGRAMS HAVE BEEN ANNOUNCED BY MANY CONSUMING
COUNTRIES. THE IMPORTANT QUESTION OF DECISION
ON ALTERNATIVE SUPPLIES IS ONLY NOW BEING
ADDRESSED, BUT THERE IS AGREEMENT THAT BASIC
DECISIONS IN THIS FIELD MUST BE REACHED IN THE
NEXT TWO MONTHS. PRESIDENT FORD ANNOUNCED THE
UNITED STATES APPROACH TO CONSERVATION AND
ALTERNATIVE SUPPLIES IN THE STATE OF THE UNION
MESSAGE.

CONVERSELY, PRODUCERS ARE REACHING OR HAVE
REACHED THE PEAK OF THEIR MARKET POWER. OPEC
CONTINUES TO MAKE GAINS IN INCOME, BUT THE GREAT
SWEEPING RUSH FOR WEALTH HAS SLOWED DOWN GREATLY
AND NEW GAINS REQUIRE GREATER AND GREATER EFFORT.
JUST TO KEEP THE REAL PRICE OF OIL CONSTANT,
OPEC HAS HAD TO SHUT IN MORE THAN A FIFTH OF ITS
CAPACITY THIS WINTER, AND MORE THAN A FOURTH
MAY BE NEEDED BEFORE THE YEAR IS OUT. MOREOVER,
THE POTENTIAL COSTS OF THE NEW WEALTH ARE BECOMING
MORE APPARENT. OPEC'S HEADLONG ACCUMULATION

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IS THREATENING THE STABILITY OF JUST THESE COUNTRIES ON WHOSE SUPPORT SOME OF ITS MEMBERS DEPEND MOST FOR THEIR SECURITY. WHATEVER THE ANALYTIC RELATIONSHIP BETWEEN HIGH OIL PRICES AND RECESSION, OPEC CANNOT BE SURE OF CONSUMERS' REACTIONS SHOULD DEEP UNEMPLOYMENT RADICALIZE THE WEST. AND PRODUCERS MUST BE CONCERNED AT HOW GOOD ALL THEIR MASSIVE FINANCIAL CLAIMS ON CONSUMERS WILL EVENTUALLY TURN OUT TO BE. THE EXHILARATION OF THE FIRST DAYS GIVES WAY TO A PREOCCUPATION WITH PROTECTING OPEC GAINS.

THERE IS THEN REASON TO BELIEVE THAT THE CURVES DEPICTING THE POSITIONS OF THE CONSUMERS AND PRODUCERS HAVE REACHED A MAXIMUM SPREAD FROM EACH OTHER. THE QUESTION NOW IS: CAN THEY BE BROUGHT TO CONVERGE.

## DEFINITION OF A NEW EQUILIBRIUM

THE WAY IN WHICH THE INTERNATIONAL MARKET OPERATED FOR THE LAST 16 MONTHS IS NOT TOLERABLE IN THE LONG RUN, EITHER FOR PRODUCERS OR FOR CONSUMERS. EXPORTING COUNTRIES DO NOT HAVE THE INALIENABLE RIGHT TO RAISE THE PRICE OF OIL OR WITHHOLD SUPPLIES WHENEVER THEY DESIRE WITHOUT ANY CONSULTATION OR COOPERATION WITH THOSE WHO ARE AFFECTED BY SUCH ACTIONS. CONSUMERS MUST HAVE REASONABLE ACCESS TO SUPPLY AT REASONABLE PRICES.

4

BY THE SAME TOKEN, THE WAY IN WHICH THE INTERNATIONAL OIL MARKET FUNCTIONED PRIOR TO 1973 CAN NEVER RETURN. PRICES WERE TOO LOW. GOVERNMENTS HAD TOO LITTLE CONTROL OVER A VITAL RESOURCE.

A NEW EQUILIBRIUM MUST EMERGE. THE FOLLOWING ARE THE ESSENTIAL ELEMENTS OF WHAT THAT NEW EQUILIBRIUM MUST LOOK LIKE.

FIRST, CONDITIONS MUST BE CREATED IN WHICH THE ACCUMULATION OF SURPLUSES IS GRADUALLY BROUGHT TO ZERO, AND THEN FOR A TIME REVERSED. THIS WILL MEAN EVER GREATER IMPORTS OF GOODS AND SERVICES BY PRODUCERS, GIVING THEM THE PHYSICAL COUNTERPART OF THEIR NEW WEALTH. BUT A WIDE RANGE OF ANALYSTS AGREE THAT INCREASED IMPORTS ARE NOT ENOUGH. AT SOME POINT THE REAL PRICE OF OIL MUST ALSO BE LOWERED SIGNIFICANTLY.

AT THE MOMENT, PRODUCERS ARE STILL RELATIVELY LITTLE CONSTRAINED IN PRICE-SETTING. BUT IN THE FUTURE THEY WILL LOSE THAT FREEDOM. PRICE WILL COME DOWN FOR ONE OR MORE OF THREE REASONS. EITHER CONSUMER DECISIONS ON CONSERVATION AND ALTERNATIVE SUPPLIES WILL CREATE THE MARKET CONDITIONS IN WHICH PRICES ARE IMPOSSIBLE TO SUSTAIN. OR THE FAILURE OF CONSUMERS TO TAKE EFFECTIVE DECISIONS WILL PUSH THE WORLD TOWARDS FINANCIAL COLLAPSE AND POLITICAL EXPLOSION.

5

OR PRODUCERS WILL BRING PRICES DOWN IN THEIR OWN SELF-INTEREST, TRADING AN IMMEDIATE CUT IN PRICE FOR PRICE STABILITY IN THE FUTURE.

SECOND, THERE MUST BE AGREEMENT BETWEEN PRODUCERS AND CONSUMERS REGARDING THE MANAGEMENT OF THE HUGE SURPLUSES WHICH HAVE ACCUMULATED IN THE OPEC COUNTRIES. AT THE NEW EQUILIBRIUM ENORMOUS ASSETS WILL REMAIN IN THE HANDS OF OPEC MEMBERS, AND THUS AN EXTRAORDINARY POWER OVER THE INDUSTRIAL ECONOMY. THE OPEC COUNTRIES WILL REALIZE THAT THERE IS NO WAY IN WHICH THE INDUSTRIAL WORLD WILL PERMIT THEM TO POSSESS THAT POWER WITHOUT STRONG NEW INSTITUTIONAL AND POLITICAL TIES THAT DEFINE ITS SCOPE AND MADE ITS EXERCISE PREDICTABLE. SIMILARLY, INDUSTRIAL COUNTRIES WILL RECOGNIZE THAT EFFECTIVE MANAGEMENT OF THEIR ECONOMIES WILL BE FAR MORE DIFFICULT WITHOUT THE COOPERATION OF OPEC MEMBERS.

ALMOST INEVITABLY THERE WILL BE CREATED NEW INSTITUTIONS GROUPING THE LARGEST INDUSTRIAL COUNTRIES AND THE WEALTHIEST OIL PRODUCERS, TO MANAGE THE WORLD ECONOMY.

THIRD, THE NEW EQUILIBRIUM WILL ALSO MEAN A BROAD EXPLOITATION OF THE OPPORTUNITIES OF COMBINING WESTERN TECHNOLOGY WITH PRODUCER NATURAL GAS, FEEDSTOCKS AND CAPITAL. THERE ARE

6

MANY OBSTACLES TO JOINT EXPLOITATION OF LACK
OF SKILLED LABOR IN MANY PRODUCER COUNTRIES,
HEAVY COMPETITION IN MANY OF THE ITEMS MOST APT FOR
PRODUCTION (PETROCHEMICALS, FERTILIZERS).
BUT THESE OBSTACLES WILL BE OVERCOME, AND
DEVELOPMENT OF THESE NEW INDUSTRIES WILL BE A
FUNDAMENTAL PART OF THE NEW BALANCE OF INTEREST.

FOURTH, THE OIL PRODUCING COUNTRIES AND
THE DEVELOPED CONSUMING COUNTRIES SHARE A
CONCERN FOR THE PLIGHT OF DEVELOPING COUNTRIES.
BY A COOPERATIVE APPROACH TO AIDING DEVELOP-\MENT, THESE TWO CATEGORIES OF DONORS CAN INCREASE
THE EFFECTIVENESS OF THEIR JOINT EFFORTS.
THE US HAS PROPOSED SEVERAL SPECIFIC WAYS OF
ACHIEVING THIS COOPERATION - - INCLUDING A
TRUST FUND UNDER THE IMF, JOINTLY FINANCED
BY OIL PRODUCERS AND INDUSTRIAL COUNTRIES TO
PROVIDE DESPERATELY NEEDED SOFT-LENDING TO THE
POOREST DEVELOPING COUNTRIES, AND A NEW WORLD
BANK CONSULTATIVE GROUP ON FINANCING AGRICULTURAL
PRODUCTION. OTHERS WILL FOLLOW.

FINALLY, EQUILIBRIUM WILL MEAN A NEW
STRUCTURE OF POLITICAL AND SECURITY RELATIONSHIPS.
THE NEW WEALTH OF THE PRODUCERS, MUCH OF IT NOW
CONSISTING OF CLAIMS, IS USELESS TO THEM UNLESS IT
CAN BE VALIDATED IN THE INDUSTRIAL WORLD.

7

CONVERSELY, THE WAY IN WHICH THOSE CLAIMS ARE
HANDLED CAN HAVE PROFOUND IMPLICATIONS FOR
EMPLOYMENT AND OUTPUT IN INDUSTRIAL ECONOMIES.
SUCH MUTUAL POWER WILL BE INTOLERABLE WITHOUT
WITHOUT FAR MORE INTIMATE POLITICAL AND SECURITY
TIES. MUTUAL INTEREST CAN BRING CONSUMERS AND
PRODUCERS FAR CLOSER TOGETHER, WITH REVOLUTIONARY
IMPLICATIONS FOR THE STRUCTURE OF WORLD POLITICS.

THE INSTITUTIONAL FRAMEWORK FOR IMPLEMENTING
THIS NEW EQUILIBRIUM SHOULD HAVE BOTH BILATERAL
AND MULTILATERAL ELEMENTS. OUR BILATERAL JOINT
COMMISSIONS WITH A NUMBER OF THE MAJOR PRODUCING
COUNTRIES ARE ONE MODEL FOR PURSUING AND STRENGTHENING
BILATERAL ECONOMIC AND SECURITY TIES. THE DEVELOP-
MENT OF A COOPERATIVE FRAMEWORK FOR CHANNELING
INVESTMENT FUNDS INTO USEFUL AND POLITICALLY
ACCEPTABLE INVESTMENTS AND FOR PROVIDING AID TO
THE LESS DEVELOPED WORLD MAY REQUIRE NEW MULTI-
LATERAL INSTITUTIONS.

HOW IS THIS NEW EQUILIBRIUM TO BE ACHIEVED?
THERE ARE THREE PREREQUISITES:

(I) STEPS TOWARD CONSUMER SELF-RELIANCE
THROUGH DEMAND RESTRAINT AND INVESTMENT
IN ALTERNATIVE SOURCES;

(II) GREATER SOLIDARITY AMONG CONSUMERS; AND

(III) NEW COOPERATION BETWEEN PRODUCERS AND
CONSUMERS.

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3. SELF RELIANCE

WHY ARE STEPS TOWARD GREATER SELF-RELIANCE
FOR CONSUMERS NECESSARY?

FIRST, TO CREATE THE OBJECTIVE CONDITIONS FOR
A LOWER PRICE OF OIL. IF THE PRODUCERS ARE NOT
CONVINCED THAT WE ARE SERIOUS ABOUT CONSERVATION
OR ABOUT DEVELOPING ALTERNATIVE SOURCES OF SUPPLY,
THEY WILL HAVE LITTLE INTEREST IN A LOWER PRICE.
THEY WILL HAVE MORE INCENTIVE TO KEEP THE PRICE
HIGH TO MAXIMIZE THEIR REVENUES. IF WE ARE FIRM
IN OUR POLICIES TOWARD SELF-RELIANCE, THEY MUST
SEE, EVENTUALLY AT LEAST, THE NEED TO LOWER
PRICES -- FOR IT WILL BE IN THEIR INTEREST AS
WELL AS OURS TO LOWER PRICE.

SECONDLY, GREATER SELF-RELIANCE IS NECESSARY
TO REDUCE THE ACCUMULATION OF OPEC SURPLUS FUNDS.
THE CURRENT ACCOUNT SURPLUS OF THE OPEC COUNTRIES
AMOUNTED TO ABOUT $65 BILLION IN 1974. IT SHOULD
REMAIN AT APPROXIMATELY THE SAME LEVEL IN 1975.
CONSUMERS SAVE $4 BILLION A YEAR FOR EACH MILLION
BARRELS A DAY CONSERVED.

THIRD, AS WE BECOME MORE SELF-RELIANT, OUR
FUTURE VULNERABILITY TO AN OIL EMBARGO WILL
DIMINISH. GREATER SELF-RELIANCE NEEDS TO BE
SUPPLEMENTED BY LARGER EMERGENCY OIL RESERVES
AND CONTINUED ADHERENCE TO THE SHARING PRINCIPLES

9

OF THE INTERNATIONAL ENERGY PROGRAM. BUT SELF-RELIANCE WILL, IN ADDITION, PROVIDE THE WORLD WITH A PERCEPTION THAT WE ARE LESS VULNERABLE AND, IN PARTICULAR, THAT WE CAN SURVIVE AN OIL EMBARGO, NO MATTER HOW LONG IT MAY BE. THE PERCEPTION OF REDUCED VULNERABILITY CAN BE JUST AS IMPORTANT AS THE FACT AND CAN REDUCE THE LIKELIHOOD OF ANOTHER OIL CRISIS.

FOURTH, AND MOST IMPORTANT, STRONG MEASURES NOW WILL RADICALLY CHANGE THE PSYCHOLOGY OF THE INDUSTRIAL WORLD. THE SPECTER OF A GROWING AND EVENTUALLY OVERWHELMING ECONOMIC POTENTIAL OF OPEC, AND THE POLITICAL POWER THAT DERIVES FROM THAT POTENTIAL, WILL DIMINISH. CONFIDENCE THAT WE CAN MASTER OUR DESTINY WILL GROW.

THESE IMPERATIVES UNDERLAY THE PRESIDENT'S DECISION TO PROPOSE A TOUGH, FAR REACHING ENERGY PROGRAM TO THE AMERICAN PEOPLE.

EMPHASIZING THAT WE MUST RESTRAIN DEMAND FOR ENERGY NOT JUST FOR A YEAR OR TWO, BUT INDEFINITELY, THE PRESIDENT PROPOSED BROAD NEW TAXES ON ENERGY USE AND ON EXCESS PROFITS IN ENERGY PRODUCTION. HE ALSO ANNOUNCED A RANGE OF OTHER CONSERVATION MEASURES INCLUDING AGREEMENT WITH AUTOMOBILE MANUFACTURERS TO RAISE AUTOMOBILE EFFICIENCY BY 40 PERCENT OVER A FIVE YEAR PERIOD. BUT THE PRESIDENT MADE CLEAR THAT IF

10

THESE PROPOSALS ARE INSUFFICIENT TO OBTAIN SAVINGS OF ONE MILLION BARRELS A DAY BY END 1975, AND TWO MILLION BY END 1977, HE WOULD USE HIS ADMINISTRATIVE POWERS TO LIMIT IMPORTS BY QUANTITATIVE MEASURES. EQUALLY ESSENTAL TO US SELF-RELIANCE IS A MASSIVE NEW EFFORT TO DEVELOP ALTERNATIVE SUPPLIES. THE PRESIDENT ANNOUNCED ACCELERATED LEASING FOR THE OUTER CONTINENTAL SHELF, FAST DEVELOPMENT OF THE RICH NAVAL PETROLEUM RESERVES IN ALASKA AND CALIFORNIA, A LARGE SCALE PROGRAM OF FEDERAL SUPPORT FOR SYNTHETICS (SHALE, COAL LIQUEFACTION, COAL GASIFICATION) AND USE OF A FLOOR PRICE FOR OIL OR OTHER BORDER PROTECTION TO ASSURE ADEQUATE DEVELOPMENT OF ALTERNATIVE SUPPLIES.

### 4. CONSUMER SOLIDARITY

THE DRIVE TOWARD SELF-RELIANCE MUST COME ABOUT BY CONSUMER COOPERATION. THE UNITED STATES CANNOT DO IT ALONE, DESPITE THE FACT THAT OUR COUNTRY IS MORE ABLE THAN MOST COUNTRIES TO GO IT ALONE IN FINDING SOLUTIONS TO ENERGY PROBLEMS. BUT I DON'T THINK WE WOULD LIKE THE WORLD THAT WILL BE CREATED IN DOING SO, A FRAGMENTED, RADICALIZED, AND DISCONSOLATE WORLD IN WHICH THE POTENTIAL FOR BOTH INTERNAL AND EXTERNAL CONFLICT IS HEIGHTENED. THUS, THE UNITED STATES BEARS SPECIAL RESPONSIBILITY IN MAKING SURE THAT COOPERATIVE, RATHER THAN SELF-

EVD

11

SERVING NATIONALISTIC, SOLUTIONS ARE FOUND.

COOPERATION AMONG CONSUMERS IS VITAL FOR A NUMBER OF REASONS. MOST IMPORTANTLY, A SERIOUS COOPERATIVE EFFORT TO SOLVE ENERGY PROBLEMS IS NECESSARY FOR US TO REGAIN A SENSE OF DIRECTION AND PURPOSE. COOPERATION WILL ENABLE EACH COUNTRY TO TAKE THE NECESSARY AND DIFFICULT POLICY MEASURES AT HOME WITH CONFIDENCE THAT OTHER IMPORTANT CONSUMING NATIONS ARE TAKING STEPS TO SUPPORT AND COMPLEMENT THOSE POLICIES RATHER THAN NEGATE THEM.

A DIALOGUE WITH PRODUCERS WILL BE SUCCESSFUL ONLY IF CONSUMERS COOPERATE ON SIGNIFICANT STEPS TO ACHIEVE NOT ONLY ON ENERGY SHARING AND A FINANCIAL SAFETY NET BUT ALSO ON SELF-RELIANCE BY GREATER CONSERVATION AND STIMULATION OF NEW SUPPLIES. IF THE PRODUCERS DO NOT BELIEVE OUR INTENT, WE CAN ONLY EXPECT CONFRONTATION, NOT COOPERATION FROM ANY CONFERENCE.

BUT CONSUMERS MUST NOT ONLY COOPERATE, THEY MUST ACT TO BECOME RELEVANT TO EACH OTHER'S ENERGY NEEDS.

THAT IS WHY WE WILL PROPOSE TO OTHER COUNTRIES TO MATCH ONE TO ONE OUR CONSERVATION EFFORT OF ONE MILLION BARRELS A DAY BY END 1975, AND TWO MILLION BY END 1977.

12

THAT IS WHY PRESIDENT FORD ESTABLISHED THE GOAL FOR THE UNITED STATES OF ONCE AGAIN BECOMING A NET ENERGY SUPPLIER TO THE INDUSTRIALIZED WORLD BY THE END OF THE CENTURY; THIS EFFORT COINCIDES WITH THE GROWING EXHAUSTION OF PETROLEUM RESOURCES IN THE WORLD OVER THE NEXT 25 YEARS AND WILL BE ACCOMPLISHED ESSENTIALLY THROUGH UNCONVENTIONAL ENERGY SOURCES: SYNTHETICS, FUSION, BREEDER REACTORS, HYDROGEN. IT IS OUR HOPE THAT EACH COUNTRY WILL, IN RELATION TO ITS POSSIBILITIES AND NEEDS, ESTABLISH SIMILAR GOALS, WHICH THEN WOULD BE HARMONIZED IN THE IEA.

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## 5. NEW SUPPLIES

ULTIMATELY THE SUCCESS OR FAILURE OF OUR EFFORT TO REDUCE DEPENDENCE ON IMPORTED OIL DEPENDS ON THE ACCELERATED DEVELOPMENT OF NEW ENERGY SUPPLIES IN OUR OWN TERRITORIES. FORTUNATELY, THE INDUSTRIALIZED COUNTRIES AS A GROUP HAVE MAJOR ENERGY RESERVES WHICH CAN BE DEVELOPED OVER THE COMING DECADES.

NORTH SEA OIL, GERMAN COAL, UNDEVELOPED COAL AND OIL DEPOSITS IN THE U.S., AND NUCLEAR POWER IN ALL COUNTRIES ARE ONLY SOME OF THE RESOURCES FROM WHICH WE CAN HOPE TO OBTAIN MAJOR SUPPLIES OF NEW ENERGY OVER THE NEXT SEVERAL YEARS. BEYOND THAT WE HAVE A MASSIVE POTENTIAL FOR THE DEVELOPMENT OF SYNTHETIC FUELS, FUSION AND HYDROGEN ENERGY, AND OTHER NON-CONVENTIONAL ENERGY RESOURCES. BUT A TIMELY INTERNATIONAL PROGRAM TO ASSURE THAT WE HAVE ADEQUATE QUANTITIES OF THESE NEW SUPPLIES AVAILABLE WHEN WE WILL NEED THEM REQUIRES A RADICALLY NEW APPROACH TO THE PROBLEMS OF INTERNATIONAL ECONOMIC COOPERATION.

FIRST, WE MUST RECOGNIZE THAT THESE NEW ENERGY SUPPLIES ARE ALL RELATIVELY EXPENSIVE. SOME OF THEM SHOULD BE AVAILABLE AT A FINAL PRICE SUBSTANTIALLY UNDER THE CURRENT WORLD OIL PRICE, BUT WITHOUT EXCEPTION

14

THEY WILL BE HIGHER IN COST THAN THE PRICES WE WERE ACCUSTOMED TO PAY FOR OUR ENERGY IN THE YEARS PRIOR TO 1973. MOREOVER, THEY ARE ALL MUCH MORE EXPENSIVE THAN THE COST OF PRODUCTION OF OPEC OIL WITH WHICH THEY CANNOT REASONABLY BE EXPECTED TO COMPETE.

AT THE SAME TIME, OUR DECISIONS ON THE DEVELOPMENT OF NEW ENERGY SUPPLIES SHOULD FORM AN INTEGRAL PART OF OUR OVERALL APPROACH TO A DIALOGUE WITH THE OIL EXPORTING NATIONS ON THE ISSUES OF PRICE AND SUPPLY. IN EFFECT, WE AS CONSUMERS WILL BE SUPPORTING OUR OBJECTIVES FOR GREATER SELF-SUFFICIENCY WITH DECISIONS TO SUPPORT THE DEVELOPMENT OF ALTERNATIVE ENERGY SUPPLIES. THE PACE AT WHICH WE DEVELOP THESE SUPPLIES, THEREBY IRREVOCABLY REDUCING OUR POTENTIAL DEMAND FOR OPEC OIL, WILL BE INFLUENCED BY OUR ASSESSMENT OF PROSPECTS FOR OBTAINING IMPORTED OIL AT A REASONABLE AND PREDICTABLE PRICE.

IN ADDITION, WE MUST TAKE ACCOUNT IN OUR INTERNATIONAL STRATEGY OF THE FACT THAT THE INDUSTRIALIZED COUNTRIES HAVE A WIDE DISPARITY IN ENERGY POTENTIAL. SOME ARE RELATIVELY RICH IN THE CONVENTIONAL FOSSIL FUELS OF OIL, GAS AND COAL. BUT OTHERS SUCH AS JAPAN AND SOME OF THE EUROPEAN COUNTRIES LACK THE FOSSIL FUEL

15

RESOURCES WHICH ARE KEY TO ENERGY SELF-SUFFICIENCY
OVER THE NEXT DECADE AND EVEN WITH MAJOR NUCLEAR
PROGRAMS WILL REMAIN DEPENDENT ON IMPORTED OIL FOR
A LARGE PORTION OF THEIR ENERGY REQUIREMENTS THROUGH
1985.

THIS DISPARITY IN ENERGY RESOURCES HAS THREE
ASPECTS. IN THE FIRST INSTANCE, THE RESOURCE POOR
MUST BE GIVEN A DIRECT STAKE IN THE DEVELOPMENT OF
NEW ENERGY SUPPLIES ELSEWHERE IN THE INDUSTRIALIZED
WORLD. OVER THE LONGER-TERM, COUNTRIES SUCH AS THE
U.S. MUST HAVE ASSURANCES THAT OUR COMMITMENT TO THE
DEVELOPMENT OF NEW ENERGY, WHICH WILL HAVE THE EFFECT
OF SHIFTING DOWNWARD THE EQUILIBRIUM PRICE OF WORLD OIL,
DOES NOT UNJUSTLY PENALIZE OUR ECONOMIES BY LOCKING
THEM INTO A HIGH-COST ENERGY PATH. AND ALL COUNTRIES
MUST HAVE ASSURANCES THAT THEIR EFFORTS TO DEVELOP
ALTERNATIVE SOURCES, WHETHER FOSSIL OR NUCLEAR, AND
BRING THE PRICES DOWN WILL NOT BE NULLIFIED BY INCREAS-
ING CONSUMPTION BY THEIR PARTNERS.

THEREFORE, OUR INTERNATIONAL APPROACH TO THE
DEVELOPMENT OF NEW ENERGY SUPPLIES MUST:

- PROVIDE A BALANCE OF INTEREST BETWEEN THOSE
  WITH LARGE FOSSIL ENERGY RESOURCES AND THOSE
  WHERE MAIN POTENTIAL IS NUCLEAR AND OTHER
  NON-FOSSIL ENERGY;

16

-- REDUCE THE DEGREE TO WHICH FUTURE PRICE UNCERTAINTY INHIBITS THE FLOW OF INVESTMENT INTO NEW ENERGY PROJECTS;

-- DISTINGUISH BETWEEN THE QUITE DIFFERENT TASK OF ASSURING THE RAPID DEVELOPMENT OF NUCLEAR POWER AND CONVENTIONAL FOSSIL FUELS--FOR WHICH TECHNOLOGY IS GENERALLY NOW AVAILABLE AND WHICH MUST PROVIDE THE BULK OF OUR NEW ENERGY OVER THE NEXT TEN YEARS--AND THE SYNTHETICS AND OTHER NON-CONVENTIONAL SOURCES OF ENERGY WHICH ARE LIKELY TO BE CONSIDERABLY HIGHER IN COST AND WHERE WE REQUIRE AN ACCELERATED R AND D EFFORT; AND

-- RELATE TO OUR OVERALL POSITION VIS-A-VIS THE PRODUCERS ON PRICE AND SECURITY OF SUPPLY.

AS A FIRST TIER IN THIS INTERNATIONAL EFFORT, WE PROPOSE A FIRM INTERNATIONAL UNDERTAKING BY THE MAJOR OIL IMPORTING NATIONS FOR A FIXED PERIOD OF TIME THAT NO ONE OF US WOULD ALLOW IMPORTED OIL TO BE SOLD DOMESTICALLY IN OUR ECONOMIES AT LESS THAN A COMMON AGREED PRICE. THIS POLICY WOULD HAVE A PROTECTIVE EFFECT ON ALL ALTERNATIVE SOURCES, NUCLEAR AND NON-NUCLEAR, AND ASSURE THAT THEY ARE EXPLOITED AT AN OPTIMUM RATE. COUNTRIES WOULD BE LEFT FREE TO MEET THIS COMMITMENT THROUGH IMPORT TARIFFS, VARIABLE LEVIES, OR OTHER SIMILAR MEASURES.

17

WE WILL REQUIRE INTENSIVE WORK AT A TECHNICAL LEVEL TO DETERMINE WHAT THIS PRICE SHOULD BE. BUT IT SHOULD BE SET AT A LEVEL WHICH WILL REMOVE PRICE UNCERTAINTY AS A CONSTRAINT ON THE DEVELOPMENT OF THAT PORTION OF NEW ENERGY SUPPLIES WHICH WE DETERMINE TO BE ESSENTIAL TO OUR REDUCED DEPENDENCY OBJECTIVE FOR 1985. THIS COMMON PRICE CAN BE SIGNIFICANTLY LESS THAN THE CURRENT WORLD OIL PRICE BUT IT WILL ALSO HAVE TO BE SUBSTANTIALLY HIGHER THAN THE PRICE WE PAID FOR IMPORTED OIL PRIOR TO 1973.

AS A SECOND TIER OF COOPERATION, DESIGNED TO MEET OUR ENERGY REQUIREMENTS FOR THE LATE 1980'S AND BEYOND WE PROPOSE THE ESTABLISHMENT OF A BROAD, FLEXIBLE INTERNATIONAL FACILITY TO PROVIDE DIRECT ASSISTANCE TO SELECTED ENERGY PROJECTS THROUGH INVESTMENT GUARANTEES, LONG-TERM PURCHASING CONTRACTS, AND SIMILAR PROGRAMS.

IN THE U.S., WE HAVE COMMITTED OURSELVES TO THE DEVELOPMENT OF A SYNTHETIC FUEL CAPABILITY OF ONE MILLION BARRELS A DAY BY 1985. THIS EFFORT MUST BE INTENSIFIED AND WE ARE PREPARED TO EXPLORE WITH OTHER IEA COUNTRIES WAYS IN WHICH THEY CAN PARTICIPATE IN THE PROGRAM, OBTAINING ACCESS TO SUPPLIES IN RETURN FOR AN EQUITABLE SHARING OF COSTS.

18

THE PRICE FLOOR AND AN INTERNATIONAL ENERGY FINANCE FACILITY WILL HELP TO ASSURE AN ADEQUATE FLOW OF CAPITAL INTO NEW ENERGY DEVELOPMENT. HOWEVER, WE MUST ALSO PURSUE A JOINT APPROACH TO ASSURE THAT NEW ENERGY TECHNOLOGY IS DEVELOPED AND PERFECTED RAPIDLY.

THE U.S. HAS COMMITTED TEN BILLION DOLLARS TO ENERGY R AND D OVER THE NEXT FIVE YEARS. BUT A STRONG NATIONAL EFFORT WILL NOT BE SUFFICIENT. WE ARE PREPARED TO SPEND A MAJOR PART OF THIS TOTAL IN JOINT EFFORTS WITH OTHER IEA COUNTRIES THAT ARE READY AND WILLING TO CONTRIBUTE CAPITAL AND KNOW-HOW.

WE HAVE ALREADY BEGUN TO MOUNT A COMPREHENSIVE ENERGY R AND D PROGRAM WITHIN THE NEW INTERNATIONAL ENERGY AGENCY. NATIONAL SCIENTISTS ARE NOW WORKING TOGETHER ON JOINTLY FINANCED PROJECTS IN COAL AND NUCLEAR TECHNOLOGY, SOLAR ENERGY, AND FUSION. WE MUST MOVE RAPIDLY TO EXPAND THIS JOINT EFFORT.

WE ALSO HAVE INITIATED A COMPREHENSIVE EFFORT ON THE INTERNATIONAL ENERGY AGENCY TO ASSURE THAT NUCLEAR DEVELOPMENT IS NOT RESTRAINED BY A SHORTAGE OF URANIUM FUEL. NATIONAL EXPERTS ARE NOW PREPARING COMPREHENSIVE DEMAND AND SUPPLY PROJECTIONS. WHEN THIS IS COMPLETED, WE WILL EXAMINE JOINTLY HOW THE FUTURE ENRICHED URANIUM SUPPLY REQUIREMENTS OF IEA MEMBERS AND OTHER COUNTRIES CAN BEST BE MET.

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IN TERMS OF MEETING THE DEMAND FOR NUCLEAR FUEL,
THE UNITED STATES IS PREPARED TO EXAMINE THE SHARING OR
ENRICHMENT TECHNOLOGY WITH OTHER NATIONS WITH A VIEW
TOWARD ESTABLISHING MULTINATIONAL ENRICHMENT PLANTS.
SUCH A COORDINATED ENRICHMENT EFFORT, INVOLVING BOTH
GOVERNMENT-TO-GOVERNMENT ARRANGEMENTS AS WELL AS ASSOCIATED
RELATIONSHIPS BETWEEN INDUSTRIAL CONCERNS, COULD HELP
CREATE AN INTERGRATED PROGRAM OF ASSURED SUPPLY, WITH
APPROPRIATE GEOGRAPHIC DISPERSION, RECOGNITION OF THE
NEED TO OPERATE SUCH FACILITIES IN THE MOST SUFFICIENT
COMMERCIAL MANNER, AND ADEQUATE SAFEGUARDS.

MULTILATERAL ENRICHMENT COOPERATION COULD
TAKE THE FORM OF FINANCIAL AS WELL AS TECHNOLOGICAL
PARTICIPATION, AND COULD INVOLVE A FEW OR CONSIDERABLE
NUMBER OF PARTIES. IN ADDITION TO OBTAINING THE
BENEFITS OF FUEL SUPPLY FROM SUCH PLANTS, PARTICIPANTS
IN MULTILATERAL ENRICHMENT VENTURES WOULD FIND INVEST-
MENTS IN SUCH FACILITIES TO BE ECONOMICALLY FRUITFUL
AS A VEHICLE FOR PUTTING FINANCIAL RESOURCES TO WORK
IN A PROFIT-MAKING ENDEAVOR WHICH WOULD LEAD TO
INCREASED ENERGY RESOURCES FOR ALL.

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THE TOTAL AVAILABILITY OF ENRICHED URANIUM IN EACH COUNTRY CLEARLY INFLUENCES THE TOTAL SUPPLY PICTURE AMONG THE MAJOR CONSUMERS. ONE OF THE PURPOSES OF THE DEMAND AND SUPPLY PROJECTION EFFORT BEING LAUNCHED BY THE IEA AT THE PRESENT TIME IS TO HELP ENSURE THAT NATIONAL PROGRAMS CAN BE PLANNED SYSTEMATICALLY TO GUARD AGAINST BOTH CRITICAL UNDERSUPPLIES AS WELL AS COSTLY OVERSUPPLIES DURING THE COMING DECADE AND BEYOND. FOR ITS PART, LET ME EMPHASIZE THE DETERMINATION OF THE UNITED STATES TO TAKE WHATEVER ACTIONS ARE NECESSARY TO ASSURE THAT SUFFICIENT ADDITIONAL URANIUM ENRICHMENT CAPACITY WILL BE AVAILABLE TO MEET NOT ONLY OUR GROWING DOMESTIC ENERGY NEEDS FOR NUCLEAR FUEL, BUT ALSO TO PROVIDE MUCH OF THE ENRICHMENT SERVICES NEEDED BY OUR PARTNERS IN THE IEA AND OTHER USERS OF NUCLEAR ENERGY.

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FINALLY, WE SHOULD NOTE THAT IN MANY COUNTRIES,
INCLUDING THE UNITED STATES, POLICIES ARE BEING
FOLLOWED WHICH INHIBIT THE DEVELOPMENT OF NEW
ENERGY SUPPLIES. UNREALISTIC DOMESTIC WELL-HEAD
PRICES FOR OIL, EXPORT TAXES AND CONTROLS,
DISPUTES BETWEEN CENTRAL AND LOCAL GOVERNMENTS,
BOTTLENECKS ON ISSUANCE OF EXPLORATION LICENSES,
AND UNCERTAINTIES REGARDING GOVERNMENT PARTICIPATION
IN ENERGY DEVELOPMENT HAVE DELAYED DEVELOPMENT OF
NEW SUPPLIES.

WITH ENERGY DEVELOPMENT POLICIES SO DISPARATE
AND UNCOORDINATED, IT IS HARD TO CONCEIVE OF A
CONCERTED EFFORT TO DEVELOP NEW SUPPLIES. THUS
I AM PROPOSING THAT WE BROADEN OUR CONSULTATIONS
ON ENERGY POLICY WITHIN THE CONTEXT OF THE
INTERNATIONAL ENERGY AGENCY IN ORDER TO COORDINATE
OUR SUPPLY INCENTIVE POLICIES FAR MORE CLOSELY.

6. COOPERATION BETWEEN PRODUCERS
AND CONSUMERS

WHILE COOPERATION AMONG CONSUMERS IS THE
IMMEDIATE PRIORITY, WE MUST BEGIN TO EXAMINE THE
OUTLINE OF COOPERATION BETWEEN PRODUCERS AND
CONSUMERS. THIS COOPERATION IS CRUCIAL TO THE
DEVELOPMENT OF THE NEW EQUILIBRIUM WHICH WE
SEEK.

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ONE POSSIBILITY WOULD BE FOR CONSUMERS AND PRODUCERS TO BEGIN TO CONSIDER THE PRICE IMPLICATIONS OF LONGER-TERM EQUILIBRIUM. IT MAY BE POSSIBLE TO IDENTIFY LONG-TERM PRICES AT WHICH THE PRODUCERS BALANCE OF PAYMENTS BECOMES MANAGEABLE, AND AT WHICH PRODUCERS ARE NOT THREATENED WITH THE LOSS OF THEIR MARKET THROUGH THE DEVELOPMENT OF ALTERNATIVE SUPPLIES BY CONSUMERS. MOST INVESTIGATIONS SHOW THAT SUCH PRICES WOULD BE WELL BELOW CURRENT LEVELS (AT LEAST IN REAL TERMS), ALTHOUGH MUCH ABOVE HISTORICAL AVERAGES. CONCEIVABLY, IF PRODUCERS WOULD ACCEPT THIS PRICE NOW, CONSUMERS WOULD LIMIT DEVELOPMENT OF THOSE ENERGY RESOURCES WHICH COST MORE. HOWEVER, IF PRODUCERS PERSIST IN A HIGHER PRICE, CONSUMERS WILL BOTH DEVELOP THESE RESOURCES AND COMMIT THEMSELVES TO THEIR VIABILITY AT ANY PRICE FOR IMPORTED OIL - - THUS DENYING OPEC PRODUCERS THIS MARKET FOREVER. THERE IS, THEREFORE, IN THIS ECONOMIC CONCEPT A POTENTIAL FOR FUTURE NEGOTIATION. THIS PATH OF NEGOTIATION IS AVAILABLE TO FARSIGHTED PRODUCERS AND CONSUMERS.

A SECOND MAJOR CONCERN FOR DISCUSSION AMONG PRODUCERS AND CONSUMERS IS SECURITY OF SUPPLY. A NEW EMBARGO WOULD HAVE A DEVASTATING IMPACT ON

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THE INDUSTRIALIZED ECONOMIES. THE OIL-SHARING AGREEMENT WOULD MITIGATE ITS IMPACT AT FIRST, ALLOWING THE GROUP TO SURVIVE FOR SEVERAL, PERHAPS MANY MONTHS. THAT TIME WOULD PERMIT COUNTRIES TO AVOID RASH ACTION. BUT WHEN IT WAS UP, A STRONG AND SERIOUS RESPONSE WOULD BE INEVITABLE. RENEWED USE OF THE OIL WEAPON WOULD RAISE A GREAT QUESTION AS TO WHETHER A RELATION OF CONFIDENCE COULD BE CREATED BETWEEN PRODUCER AND CONSUMER, AND THEN WHETHER THE NEW WEALTH OF THE PRODUCERS COULD EVER BE REALIZED.

THE THIRD TOPIC FOR DISCUSSION IS INVESTMENT. OIL PRODUCERS NEED NEW, ATTRACTIVE INVESTMENT OUTLETS. CONSUMERS NEED TO BE ASSURED THEY WILL NOT LOSE CONTROL OF ESSENTIAL SECTORS OF THEIR ECONOMIES. NOT ONLY IS THE OPEC'S ACCUMULATION OF ASSETS UNPRECEDENTED, SO IS THE FACT THAT MOST OF THE NEW ASSETS ACCRUE TO STATE OR QUASI-STATE OWNERS. AS THESE STATE INVESTORS TURN INCREASINGLY TO LONG-TERM CAPITAL INVESTMENT IN INDUSTRIAL COUNTRY FIRMS A QUESTION ARISES AS TO WHETHER THESE GOVERNMENT INVESTORS WILL BE MOTIVATED BY POLITICAL AS WELL AS ECONOMIC CONSIDERATIONS. IT IS IN THE INTEREST OF BOTH FOREIGN GOVERNMENT INVESTORS AND RECIPIENT COUNTRIES TO DEAL WITH THIS CONCERN IN WAYS WHICH PRESERVE OPEN INVESTMENT RELATIONS AMONG THESE COUNTRIES. A PARTIAL ANSWER MAY BE

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IN THE CREATION OF NEW INTERMEDIARY INSTITUTIONS THROUGH WHICH PRODUCER GOVERNMENTS COULD HOLD EQUITIES, BUT NOT VOTE THEM, BENEFIT FROM THE MOST CAPABLE INVESTMENT ADVICE, AND REFLECT THEIR OWN BASIC PORTFOLIO OBJECTIVES.

IN ORDER TO ENSURE THAT THE RISING INVESTMENTS OF OIL PRODUCERS DO NOT COMPROMISE OUR NATIONAL SECURITY OBJECTIVES, THERE IS A NEED TO HAVE ACCURATE AND COMPLETE INFORMATION ON FOREIGN CAPITAL INVESTMENT IN U. S. FIRMS. THE U. S., AS WELL AS OTHER INDUSTRIAL COUNTRIES, IS REVIEWING ITS EXISTING REQUIREMENTS ON DISCLOSURE TO SEE WHAT ADDITIONAL STEPS ARE NEEDED TO ASSURE A COMPLETE PICTURE.

IT IS IMPORTANT NOW TO BEGIN THE INTELLECTUAL AND POLITICAL PROCESS OF DEFINING A NEW RELATIONSHIP BETWEEN PRODUCERS AND CONSUMERS. BUT CONTROLLED EXECUTION IS ALSO ESSENTIAL. BEFORE STARTING A MULTILATERAL PRODUCER/ CONSUMER DIALOGUE IT IS INDISPENSABLE TO REACH THE BASIC DECISIONS AMONG CONSUMERS. FOR WITHOUT IT THE CONSUMERS WILL BE IN DISARRAY, THE POWER OF THE PRODUCERS WILL BE DISPROPORTIONATE, AND THERE WILL BE NO OBJECTIVE POSSIBILITY OF REACHING A NEW EQUILIBRIUM OUTCOME.

EQUALLY, ONCE THE MULTILATERAL DIALOGUE STARTS, WE SHOULD NOT ATTEMPT TO OVERLOAD IT WITH THE KEY ISSUES: PRICE AND SECURITY OF SUPPLY.

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RATHER, THESE ISSUES SHOULD BE PURSUED BILATERALLY FOR A WHILE LONGER, UNTIL CONFIDENCE CAN DEVELOP, AND THE ULTIMATE QUESTIONS FACED.

## 7. THE CHOICES BEFORE US

THERE ARE THESE TWO SCENARIOS, AND TWO ONLY.

ONE LEADS FROM A WEAK EFFORT BY CONSUMERS TO DISCIPLINE THEMSELVES AND MASTER THE CRISIS, TO LARGE AND GROWING PRODUCER FINANCIAL SURPLUSES, EVENTUAL FINANCIAL COLLAPSE AND PERHAPS POLITICAL EXPLOSION.

THE OTHER LEADS THROUGH CONSUMER SOLIDARITY IN CONSERVATION AND ALTERNATIVE SUPPLIES, TO PRODUCER/CONSUMER COOPERATION ON PRICE AND SECURITY OF SUPPLY, TO A NEW HIGH LEVEL BARGAIN INVOLVING MUCH GREATER CONSUMER SELF-RELIANCE, JOINT PARTICIPATION IN THE MANAGEMENT OF THE INTERNATIONAL FINANCIAL SYSTEM, AND RAPID INDUSTRIALIZATION OF THE PRODUCING COUNTRIES.

WE CAN MOVE BACK AND FORTH INDECISIVELY FOR A WHILE BETWEEN THE TWO, BUT EVENTUALLY THE EFFECTS WILL BECOME CUMULATIVE AND WE WILL HEAD FOR ONE. IT IS THUS ESSENTIAL TO CHOOSE NOW WHICH WAY WE WILL GO.