THE ENERGY CRISIS
AND WORLD ORDER

Remarks by
THE HONORABLE
HENRY A. KISSINGER

before the
Annual Meeting of the
National Conference of
State Legislators

Detroit Plaza Hotel, Renaissance Center
Detroit, Michigan

Wednesday, August 3, 1977

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Ladies and Gentlemen:

My subject today is the Energy Crisis — a problem that is at the intersection of the public policy concerns that you wrestle with from day to day, and the global and strategic issues with which I have been involved.

A Gallup Poll in the spring of 1977 produced the startling result that only half of the American public knew that the United States must import oil to meet its energy needs, and only 17 percent had a perception of just how great our dependence is. When such a large proportion of our population is unaware of one of our most urgent national problems, it is difficult to gain public support for a major program even when our peril is already clear and in another decade could become overwhelming. We face a massive challenge to leadership at all levels of our society. You in this audience have a major role to play. However much national and state leaders may debate about specific aspects of the energy problem, we all have a major responsibility to educate the American public about its reality, its gravity, and about the urgency of a coherent strategy.

The Energy Crisis is not just a technical problem; it is not an abstract playground for specialists. It has wide-ranging implications for our daily lives and some of our deepest values. Energy is central to our own economy. It affects our jobs, prices, and prosperity. And internationally the energy crisis has global dimensions; it is one of the most fundamental challenges to international stability in a generation. It poses a fundamental challenge to the vitality of the world economy. And for the first time in our history, a small group of nations controlling a scarce resource could over time be tempted to pressure us into foreign policy decisions not dictated by our national interest.

The question is quite simply whether energy will bring about the destruction of the system of world order we have been building slowly and painfully over the last two decades, or whether it will serve as the instrument and vital proof of our common progress. The energy crisis therefore goes beyond the technical problem of establishing a better balance between supply and demand. It is the supreme test of nations' ability to live together on this shrinking planet, to prevent this increasingly scarce resource from leading to major conflict, and, above all, to understand and act upon the mutual dependence of different nations—of producer and consumer, developed and developing nations, the wealthy and debt-ridden.

I believe that in the final analysis the interests of the nations of the world are, though different, complementary. But that complementarity is not self-evident;

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a new commitment to international cooperation will not emerge from the crisis of the last four years automatically. It is the supreme task of statesmanship for our age to create out of the elements of our mutual dependence a new dedication to positive collaboration, and in this way to turn the energy challenge into a powerful positive force for world cooperation, order, and progress.

## The Energy Challenge and its Consequences

What is the Energy Crisis?

The last three decades have been a history of our increasing dependence on imported energy. In 1959, the United States was virtually self-sufficient in oil. In 1960, our reliance on foreign oil had grown to 16 percent of our requirements. In 1973, the year of the embargo and the massive price increase, America's dependence had doubled to 35 percent. Since then our dependence has grown, not diminished; in the winter months of this year, oil imports for the first time in our history reached 50 percent of our oil consumption—a development which only two years ago was not expected until the 1980s.

When the United States was self-sufficient, or a net exporter of oil, not only were we invulnerable to embargoes but we also had some influence over the world price. We could go far toward ensuring that the world economy had available to it adequate supplies of oil at reasonable prices.

In the last two decades conditions have changed dramatically. We have become net importers of oil and on a growing scale. Western Europe's and Japan's energy needs increased rapidly. Developing countries around the world began their own efforts toward industrialization, and in consequence became for the first time major consumers of energy. Prices remained low. And so for two decades the world economic system was based on the expectation of cheap and plenti ful petroleum, while supply, except in the Middle East, fell far behind the explosive energy demand.

The effect on the United States of this structural change in the world energy market was dramatic. As we grew increasingly dependent on outside oil, we became vulnerable to external manipulation of price and interruption of our supply.

It was against this background that OPEC began to make its influence felt. Forged into an effective mechanism for agreement on prices and production among the few nations in the world that were oil exporters, OPEC embarked on what in 1973 became a successful effort to quadruple the world price of oil. In the same year, in an added demonstration of the central role of petroleum in the world's economy, the

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major producers cut off their exports to certain countries during the Arab-Israeli war.

These events made explicit the energy crisis which had been building for decades. They caused an immediate economic crisis both in this country and around the world. A drop of only ten percent of our imported oil, lasting less than half a year, cost Americans half a million jobs and over ten billion dollars of national output. The massive price increases of 1973 added at least five percentage points to the price index, contributing to our worst inflation since World War II. It set the stage for a serious recession, in this country and worldwide, from which we are only now recovering.

Internationally, the energy crisis reduced the annual growth rate of the industrial countries by 1.2 percent and accelerated the average rate of inflation in the industrialized world by three percent. It has also had a massive adverse effect on the balance of payments of all the industrial nations. Since 1973, the oil-consuming countries have paid $367 billion in oil import bills to the 13 OPEC countries; this is the equivalent of a huge excise tax and constitutes one of the greatest and most sudden transfers of wealth in human history. Today, each 10 percent price increase adds an additional $14 billion to the OPEC balances. For the United States, the quadrupled oil price worsened our balance of payments by $36.4 billion in 1976 alone. To put it another way: President Carter has stated that this year our balance of payments deficit is running at a rate of $25 billion a year; without oil imports, we would be running a surplus of $20 billion a year. Oil imports mark a $45 billion difference, which over time could spell an economic disaster.

The enormous surplus earnings of the oil producers overhang the world economy. They are a factor of instability even if not manipulated for political motives. In another Middle East crisis the vast accumulated petrodollars could become a weapon against the world monetary and financial system.

Since the dramatic events of 1973, America's dependence on imported oil has increased by nearly 50 percent despite the efforts of three Presidents to mobilize an effective national response to the energy challenge. This growing dependence is intolerable. Even when the oil producers behave responsibly and seek to be moderate — as they have in recent years — their decisions are determined by *their* conception of their interests, priorities, and political choices, and not by ours. Our ability to conduct a fair and responsible foreign policy according to *our* values and *our* choices is constrained. Our country's freedom of action in foreign policy is to that degree circumscribed.

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If the economic and political consequences of the energy crisis are severe for the United States, the impact on other countries more dependent on imported oil is correspondingly greater. Simultaneous recession and inflation — stagflation — has created severe problems in many countries, including many of our allies in Europe. Political and social difficulties that were already at the margin of governments' ability to manage, threaten in some cases to get out of control. Economic crisis was a rude shock to large numbers of ordinary people in Western Europe whose aspirations had been raised so dramatically in the years since the war.

Thus, too much of Western Europe of the seventies has become fertile ground for social friction and political turmoil within nations, and for economic conflict between them. The energy crisis has hampered the progress of European unity. It has strengthened the hand of opponents of democracy as democratic governments and moderate leaders have come under severe attack for failing to solve their economic problems, to a degree not experienced since the twenties and thirties. If Communist Parties come to power in Western Europe, it will mark a tragic watershed in America's relationship to its alliances, transforming the North Atlantic Alliance as well as the purposes and practices of European integration. The irony is that some of the most conservative and anti-Communist governments in the world will have contributed to this state of affairs.

Even short of this prospect, the consequences for the cohesion of the Western alliance are grave. Nations in economic travail are inevitably tempted to resort to protectionism in a desperate effort to keep jobs and markets at home. The result can be a vicious spiral of shrinking trade and further economic deterioration for all nations. Today even while the industrial democracies are embarked on the difficult process of recovery, protectionist pressures are high and still mounting. This is because the recovery is uneven, and unemployment remains a problem almost everywhere.

Nor is the impact of the oil crisis confined to the industrial nations. In fact, it is the nations of the developing world that suffer most from the massive balance of payments deficits caused by the oil price rises. Indeed, the severest blow to the economic development of new nations has come not from the "imperialist exploitation" so loudly assailed in international forums but from an arbitrary price increase by their Third World brethren. The developing countries do not have the means, as the industrial nations have, to pass on the price rises to some extent to other nations in exports of manufactures. If they are to be able even

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to feed themselves they must achieve agricultural modernization, which depends on chemical fertilizers which are petroleum-based. The higher energy costs are to the developing nations permanent, chronic, and massive. The increase in their energy costs now in fact equals the total flow of external economic aid they receive. The entire world's assistance thus barely enables them to stand still.

In short, the energy crisis has placed at risk the entire range of our foreign policy. It mortgages the prospects of our own economy; it weakens the industrial democracies economically and potentially militarily; it undermines the world economy, and it frustrates the hope for progress of most of the new nations.

## Responding to the Energy Challenge

Many of the challenges this country faces in international affairs are unavoidable, as other nations grow inevitably in strength and as the specter of nuclear warfare overshadows the planet. But the threat that oil, and its price and supply, pose to the national interest and world order can be significantly reduced by determined action — at home and in cooperation with others. The failure to do so will be a blow to all our national purposes. To be sure, the crisis will evolve slowly, almost imperceptibly, and its full consequences may not be apparent for a decade. But when our vulnerability threatens our standard of well-being and when our destiny and that of our allies has become hostage to unpredictable decisions, shall we then tell our people that, knowing our peril, we absorbed ourselves in sterile domestic debate and were afraid to put before them the relatively minor sacrifices and inconveniences that could have avoided a calamity?

The United States is in a unique and fortunate position which imposes on us, for that very reason, a responsibility of leadership and a duty to be resolute. Our allies cannot aspire to reduce their dependence significantly by their own efforts. We can — and in so doing we are in a position to affect the condition of all nations psychologically as well as materially. The United States has the opportunity to create a new unity of purpose among the democracies on an issue of vital common concern; to give direction to the world's tentative steps toward wider patterns of fruitful cooperation.

The United States needs, most of all, an energy strategy. First, there must be recognition of the severity of our present circumstances — by leaders, legislatures, and public. The steps that are taken must not be random responses but elements of a coherent

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strategy that links both domestic and foreign concerns. Such a strategy requires above all a determined national energy program for the United States. It must mobilize the solidarity of the industrial democracies. It must address the international financial implications of the crisis. It must accommodate the needs of the developing nations. And it must engage the oil-producing nations as constructive participants and partners in a thriving global economic system.

In the absence of such a program, diplomatic attempts to persuade the cartel to be moderate in pricing policy are at best a stop-gap measure. "International jaw-boning," as it were, is a weak reed on which to rest the future of the world economy and the autonomy of our foreign policy. It puts us in danger of being supplicants instead of equal partners in constructing a world order based on equity. It adds to the temptations to set the price on political grounds and to ask a political price in return. The price of oil will be restrained only by objective market conditions; energy crises can be averted only if the industrial nations' dependence on imported oil is diminished by determined national programs.

Thus we in this country should set ourselves a clear goal: we should seek to reduce our oil imports, within a reasonable period of time, to a point where our lessened vulnerability to supply interruption and our reduced balance of payments drain restore balance to the international energy dialogue.

## Elements of an Energy Strategy

An effective national energy strategy to bring about this result must include the following elements:

- conservation,

- development of new supply,

- collaboration among the consumer nations, including safeguarding the world financial system, and

- shaping a reliable long-term relationship between the consumers and producers.

President Carter in a series of public appearances in April called attention to the urgency of the energy challenge. He also vigorously advocated a determined program for energy conservation. Whatever the merit of specific elements of the program, the President's objective deserves the support of all Americans. To discover new sources of oil and to develop alternative supplies of energy will take years. In the near-term future, only conservation will enable us both to absorb the present burden of energy costs and to begin to restore balance between supply and demand.

President Carter's conservation aim is to reduce the annual growth of national energy demand to less

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than 2 percent by 1985, from the present 4.6 percent; to limit gasoline consumption to 10 percent below its present level by 1985; to reduce oil imports from a potential level of 16 million barrels per day to 6 million; to establish a Strategic Petroleum Reserve of 1 billion barrels as insurance against emergencies; to increase coal production by two-thirds to more than 1 billion tons annually; to insulate 90 percent of existing homes and all new buildings, and to install solar energy in more than 2.5 million homes.

The United States is theoretically capable of reducing its energy consumption by as much as 30 percent *without* affecting the rate of growth of our GNP or our standard of living. In 1975, Americans *wasted* more fossil fuel than was *used* by two thirds of the world's population. Energy is wasted whenever energy expenditure can be reduced without higher economic or social costs. To give but one example: in the past two decades architects have more and more tended towards sealed constructions, that is to say, buildings whose windows cannot be opened — especially office constructions. But in most cities of America, temperatures for many months each year are comfortable. Thus, in sealed buildings a great deal of energy is wasted in achieving a temperature that already exists outside and that would be available for free if windows could be opened. This simple conservation measure would obviously impose no hardship and could be rapidly achieved by changing building codes.

Given the high cost of energy, conservation is in the clear self-interest of every hard-headed businessman or every cost-conscious homeowner. It is a classic example of how the national interest can be exactly consistent with self-interest. Conservation is not a new burden to be imposed on our pocket books; it is the discipline and effort required to *ease* the burden of energy costs on the national economy and on individual families.

Conservation requires above all the more efficient use of the energy now available. It means getting 30 to 40 miles to the gallon instead of seven; better insulated houses with more efficient heating systems; a national commitment to eliminate waste by turning out unneeded lights, television sets, and air conditioning, and the greatest possible use of public transit.

If we fail to take these relatively simple measures, we doom ourselves to 50 percent or even greater dependency on imported energy. We will have delegated crucial decisions to foreign countries to whom our prosperity is not in all circumstances an overriding objective and who cannot be expected to show a greater concern for our well-being than we do.

It is imperative that Congress and the President

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reach agreement on a comprehensive, far-reaching conservation plan. If we are to restore balance to the world energy market, an effective conservation program must be enacted and soon.

The second essential element of an energy strategy is development of new and alternative energy supplies. Conservation alone, crucial as it is, cannot permanently reduce our dependence on OPEC oil. Even the most ambitious conservation plan could not expect to do more than reduce our dependence on imported oil to the level of 1973 — when an embargo caused the most serious recession since the 1930s.

The Administration has, frankly, been much less energetic in pressing for new sources of energy and in fostering cooperation with the industrial democracies than in stressing conservation. We should urgently complete a coherent national energy program.

Much more can and must be done to develop new sources of oil. We should provide every incentive to maximize domestic production. We should also pursue a conscious policy of diversification of foreign sources. Any new source of oil is additional insurance against an embargo and a contribution to equilibrium in the international energy dialogue.

It is clearly in the interest of the United States and all the industrial democracies to diversify technologically as well as geographically. It has been said that the United States is the Saudi Arabia of coal, so vast are our deposits. Moreover, the industrial democracies have the technical skill and resources to create fuels from shale oil, tar sands, and coal gasification and liquefaction. And much progress has been made — and more can be made — on advanced methods such as nuclear power, fusion, and solar power.

It is important to face the fact that nuclear power represents one of the best hopes to close the gap between supply and demand, especially for some of our allies in Western Europe and Japan. They are committed to civilian nuclear power as a matter of urgent national policy, and they will not be easily dissuaded. It is time to end the disputes triggered by our very legitimate worries about the proliferation of nuclear weapons and to work with the industrial democracies on a coherent nuclear energy policy. If the United States uses its ability to supply nuclear fuels as a form of pressure, it may only accelerate the temptations to develop autonomous national nuclear programs.

The investment required to develop new and alternative sources in the near-term future is as massive as it is essential. A serious review of the incentives and disincentives for energy development provided by our tax system and environmental policies is therefore in order. Such a review should also address the

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question whether existing incentives can work rapidly enough to produce the alternative energy sources in the time available. If the answer is in the negative, government-guaranteed financing should be considered.

## The Coherence of the Industrial Democracies

Our own national effort must be part of an international strategy which has these additional elements:

- a coordinated program among the industrial democracies that are the major market for international oil production, including measures to protect and strengthen the international financial system;

- assisting the non-oil-producing developing countries whose development plans are shattered by exorbitant energy costs;

- and for the long-term, shaping a productive relationship of economic cooperation in which the oil producers become ready partners, with a shared stake in a common global effort.

First, as to the nations bordering the North Atlantic and Japan, cooperation among all the industrial democracies is required to influence world energy markets decisively. We cannot do the job alone, but we are the crucial element since we consume half the oil of the industrialized world.

We, who are blessed with greater resources than any of our allies, who are less vulnerable to outside pressures, have a responsibility to take the initiative to organize the collective effort by our example and by our leadership. With a major American effort, the field of energy can in the seventies give a new impetus to the unity among the democracies that in the immediate postwar period spurred common defense, diplomatic cooperation, and progress towards European integration.

For these reasons, the United States took the initiative in 1974 first to organize the Washington Energy Conference and then to help bring about the International Energy Agency. This body, the IEA, has been in operation for three years now. It is the principal institution of energy cooperation among the 19 leading industrial nations of the democratic world. It is a firm foundation on which to build the future common effort of the industrial democracies.

The IEA has set conservation targets for its members to encourage and coordinate national conservation programs. The goal for 1977 is to hold collective oil consumption to 35 million barrels per day or 3 percent above 1973 levels. Additional goals will be set for 1980 and 1985. A successful joint effort can mark a major

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step toward reducing the vulnerability of the industrialized world.

IEA programs, secondly, call for joint projects drawing on capital, technology, and manpower from IEA members to develop new energy sources. Priority areas have been chosen for research and development. Pooling the research efforts of the most advanced industrial nations will multiply the prospects for breakthroughs in technology and exploration.

The capacities of the industrial countries to develop new energy sources vary widely. Some have rich untapped deposits of fossil fuels; some have industrial skills and advanced technology; some have considerable capital available for investment. Few have all three. Nothing would do more to encourage a sense of common purpose among the industrial democracies than to find ways to undertake joint energy development programs.

Thirdly, an emergency program has been approved by all IEA members to maintain reserve stocks and to share supplies during any future oil embargo. The significance of this program cannot be exaggerated. It greatly reduces the impact of selective embargoes against individual countries. And it eases even the impact of a general embargo, which, in any event, involves such political risks that it could be invoked only in the most extraordinary circumstances. The emergency sharing program thus serves as both insurance and deterrent against any new embargo.

The IEA represents a collective response to one of the most serious challenges the West has faced in a generation. It demonstrates the recognition by the democracies that their destiny is shared, and that their best hope of a solution is through unity and common effort. It is of major political importance because it enables the new Administration to make energy conservation a further stimulus to the strength and cooperation of the democracies.

At the same time, our international energy strategy must include measures to safeguard the global financial system against disruption.

There are two enduring consequences of the oil crisis: the creation of massive petrodollar surpluses in the OPEC countries, and the need of consumers, both rich and poor, to overcome the grave balance of payments difficulties created by the high price of oil. It is essential that we guard against the possibility of instability, arising either from the inability of one or several consumer countries to meet their balance of payments needs, or from manipulation of petrodollar surpluses by the producers.

Two measures have been explored in recent years to meet that need. One was a $25 billion Financial Sup-

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port Fund, negotiated in 1975 by the industrial democracies for mutual assistance in an oil payments crisis. The failure of the United States Congress to ratify the Fund — the only legislature among the industrialized countries to do so — was unfortunate. But the negotiation for the Fund served an important purpose in giving the world assurance that as a last resort the industrial democracies had the resources to defend the financial system.

Within the next few days, the major financial powers are meeting in Paris to discuss a new facility within the International Monetary Fund, which would provide additional resources to countries that suffer balance of payments emergencies. It would draw on important contributions from OPEC members, and be available to borrowers if they were making satisfactory efforts at home to curb inflation and to reduce imports.

Provided its funds are available without conditions dependent on the solution of regional conflicts, the new facility in the IMF will serve an important function and should be implemented rapidly. It is an important first step. Early consideration should be given to arranging a second tranche, perhaps with less rigid dependence on OPEC funds than the presently discussed 50 percent. If this should prove difficult, or if burdensome political conditions are attached by the oil producers, new and urgent consideration should be given to resurrecting the Financial Support Fund of the democracies which was designed to safeguard their economies independently of OPEC.

## The Role of the Developing Countries

If international order is to be made secure against instabilities caused by energy, the needs of the developing countries which are not blessed with oil must be addressed by the world community.

These developing countries were caught in the middle by the 1973 oil crisis. Because of the energy-induced recession in the industrialized countries, their oil import bill shot up, and their export prospects sharply declined. They seek desperately to resume their advance toward a more hopeful future, but they do so now under less hopeful circumstances. From 1973 to 1975, the foreign debt of those countries nearly doubled, from $67 billion to $117 billion. They need relief from the enormous blight of high energy costs on their development hopes and plans. Relief for the poorer developing countries is an appropriate task for the joint efforts of newly-rich oil producers and the industrial democracies. Specifically:

- We should rapidly expand all forms of assistance, capital and technical, to aid developing countries

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to expand their own domestic energy production. Many developing countries possess considerable promise for oil, coal, and other forms of energy. They have been unable to exploit them for lack of the capital and technical know-how which modern energy development demands.

- The world financial system has performed remarkably well in channeling some of the petro-dollar surpluses to the needy developing countries. Now, however, is the time to consolidate their debt structures and expand the flow of official, longer-term capital. The development assistance resources of the World Bank and other international financial institutions must be expanded.

- In the final analysis, the long-term solution to the developing countries' payments problems is trade. We must stem the retreat to protectionism, and complete the Tokyo Round of trade negotiations, if we hope to offer any permanent prospects of development to the poorer nations of the world.

## The Role of the Oil Producers

Every one of the tasks enumerated here calls for a joint effort by the oil producers and the industrial democracies. This brings me to the fourth, but perhaps most challenging, element of any international energy strategy: the role of the oil producers in the emerging world energy order.

Clearly, the democracies must safeguard their economies against the hazard of conflict. But, in doing all we can to reduce our vulnerability to pressure and threat, we must take care not to make it inevitable. On the contrary, the basic reality of the present situation is the economic and political interdependence between the energy producing nations and the energy consumers. The challenge to creative diplomacy in the years ahead is to mold this mutuality of interest into a stable and positive long-term relationship.

What are these mutual interests?

First of all, obviously, the producers need markets for their oil. Disruption of the economies of the industrial democracies reduces world growth and world demand for energy. In 1975, as the result of the recession in the industrial democracies, market conditions were depressed to the point where some producers committed to ambitious development programs found themselves in difficulty and were looking for means to sell their oil surpluses despite the production restrictions of OPEC.

Secondly, the producers have a stake in the financial stability of the industrial democracies which are, after

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all, the only places where they can productively invest their payments surpluses. The global economy cannot be disrupted as it was in 1973 without severe damage to the interests of the oil-producing countries themselves. Under present conditions, a world economic crisis would have a massive impact on the oil producers because their overseas investments would be in severe jeopardy.

Thirdly, the industrialized world is the only source of the technology, capital goods, training, and management skills which the oil producers require to develop their economies. In a climate of confrontation, the governments and publics of the industrialized world have little incentive to support such programs.

Fourth, many of the oil producers are concerned about their own stability and safety. A cooperative relationship with the West enhances their security. They cannot be eager to shatter ties which might expose them to the designs of avaricious and hostile countries; they have a major political interest, therefore, in the friendship of the industrial democracies.

Thus, most of the oil producers can have no interest in confrontation; indeed, if they understand their interests, they have an important stake in the ability of the industrial democracies to solve their energy problems. Some of the more enlightened OPEC countries are therefore, paradoxically, leading advocates of energy conservation. They know theirs is a depleting resource and they are eager to extend its life over the longest period of time. They want to use their oil revenues to develop and diversify their economies. Some of them also believe that the world's oil reserves are too valuable to be used up for fuel; they are seeking to switch their own oil resources into new petrochemical industries for their own economic advance.

Thus, energy conservation and the reduction of the West's oil import requirements are as much in the producers' long-term interest as they are in our own. This reflects the basic reality that the ultimate "solution" to the world's energy problem is a thriving interdependent global economy which promotes economic advance in every region through the free flow of trade and know-how and international cooperation.

In building such a world, the industrial nations have an obligation to take serious account of the developing countries' and oil producers' legitimate aspiration for long-term income security and economic growth. The developing countries and producers, in their turn, must recognize that pressure or blackmail will in time backfire on those who use such tactics. The United States, as the world's strongest economy, would be injured less than others in an environment of economic warfare. But this would be incompatible with

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the open economic system that has nourished the world's prosperity and our own. And it would be inconsistent with basic American values and the American people's hopes for a world of peace, compassion, economic progress, and justice.

A cooperative solution for energy thus merges with the problem of world order. The United States has no more important task than to contribute its creativity to building an international system that all nations have a stake in preserving because they participate in its construction and share in its benefits. In a world of 150 sovereign states, there simply is no peaceful alternative to a cooperative international system.

Consumers, producers, and developing countries should learn from the energy crisis both the dangers of economic warfare and a more hopeful recognition of their common stake in a flourishing and just world order.

For the United States particularly, this is an extraordinary moment. For a generation we have carried out our responsibility to maintain the world balance of power and to lead the alliances of the free nations. We have behind us an era of great accomplishment. The energy crisis is the challenge of a new era. Republicans and Democrats, Congress and the Executive, the private sector and government — can work together in the great common enterprise of meeting a challenge that faces us not as partisans but as a nation.

The combination of technical genius and moral ideals is the extraordinary quality of the American people. We have the potential to turn energy from a crisis into a new advance toward our traditional goals of peace and cooperation, justice and progress, toward a future in which all nations and peoples come to participate in the freedom and well-being with which we have been blessed.

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As Prepared for Delivery

"THE ENERGY CRISIS AND WORLD ORDER"

REMARKS BY
THE HONORABLE HENRY A. KISSINGER

BEFORE THE
ANNUAL MEETING OF THE
NATIONAL CONFERENCE OF STATE LEGISLATORS
DETROIT PLAZA HOTEL, RENAISSANCE CENTER

DETROIT, MICHIGAN

WEDNESDAY, AUGUST 3, 1977

EMBARGOED UNTIL DELIVERY, SCHEDULED FOR 1:30 P.M. EDT NOT TO BE PREVIOUSLY PUBLISHED, QUOTED FROM, OR USED IN ANY WAY

Ladies and Gentlemen:

My subject today is the Energy Crisis -- a problem that is at the intersection of the public policy concerns that you wrestle with from day to day, and the global and strategic issues with which I have been involved.

A Gallup Poll in the spring of 1977 produced the startling result that only half of the American public knew that the United States must import oil to meet its energy needs, and only 17 percent had a perception of just how great our dependence is. When such a large proportion of our population is unaware of one of our most urgent national problems, it is difficult to gain public support for a major program even when our peril is already clear and in another decade could become overwhelming. We face a massive challenge to leadership at all levels of our society. You in this audience have a major role to play. However much national and state leaders may debate about specific aspects of the energy problem, we all have a major responsibility to educate the American public about its reality, its gravity and about the urgency of a coherent strategy.

The question is quite simply whether energy will bring about the destruction of the system of world order we have been building slowly and painfully over the last two decades, or whether it will serve as the instrument and vital proof of our common progress. The energy crisis therefore goes beyond the technical problem of establishing a better balance between supply and demand. It is the supreme test of nations' ability to live together on this shrinking planet, to prevent this increasingly scarce resource from leading to major conflict, and, above all, to understand and act upon the mutual dependence on different nations -- of producer and consumer, developed and developing nations, the wealthy and debt-ridden.

I believe that in the final analysis the interests of the nations of the world are, though different, complementary. But that complementarity is not self-evident; a new commitment to international cooperation will not emerge from the crisis of the last four years automatically. It is the supreme task of statesmanship for our age to create out of the elements of our mutual dependence a new dedication to positive collaboration, and in this way to turn the energy challenge into a powerful positive force for world cooperation, order and progress.

## THE ENERGY CHALLENGE AND ITS CONSEQUENCES

### What is the Energy Crisis?

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The last three decades have been a history of our increasing dependence on imported energy. In 1959, the United States was virtually self-sufficient in oil. In 1960, our reliance on foreign oil had grown to 16 percent of our requirements. In 1973, the year of the embargo and the massive price increase, America's dependence had doubled to 35 percent. Since then our dependence has grown, not diminished; in the winter months of this year, oil imports for the first time in our history reached 50 percent of our oil consumption -- a development which only two years ago was not expected until the 1980's.

In the last two decades conditions have changed dramatically. We have become net importers of oil and on a growing scale. Western Europe's and Japan's energy needs increased rapidly. Developing countries around the world began their own efforts toward industrialization, and in consequence became for the first time major consumers of energy. Prices remained low. And so for two decades the world economic system was based on the expectation of cheap and plentiful petroleum, while supply, except in the Middle East, fell far behind the explosive energy demand.

It was against this background that OPEC began to make its influence felt. Forged into an effective mechanism for agreement on prices and production among the few nations in the world that were oil exporters, OPEC embarked on what in 1973 became a successful effort to quadruple the world price of oil. In the same year, in an added demonstration of the central role of petroleum in the world's economy, the major producers cut off their exports to certain countries during the Arab-Israeli war.

Internationally, the energy crisis reduced the annual growth rate of the industrial countries by 1.2 percent and accelerated the average rate of inflation in the industrialized world by three percent. It has also had a massive adverse effect on the balance of payments of all the industrial nations. Since 1973, the oil consuming countries have paid $367 billion in oil import bills to the 13 OPEC countries; this is the equivalent of a huge excise tax and constitutes one of the greatest and most sudden transfers of wealth in human history. Today, each 10 percent price increase adds an additional $14 billion to the

Since the dramatic events of 1973 America's dependence on imported oil has increased by nearly fifty percent despite the efforts of three Presidents to mobilize an effective national response to the energy challenge. This growing dependence is intolerable. Even when the oil producers behave responsibly and seek to be moderate -- as they have in recent years -- their decisions are determined by their conception of their interests, priorities and political choices, and not by ours. Our ability to conduct a fair and responsible foreign policy according to our values and our choices is constrained. Our country's freedom of action in foreign policy is to that degree circumscribed.

If the economic and political consequences of the energy crisis are severe for the United States, the impact on other countries more dependent on imported oil is correspondingly greater. Simultaneous recession and inflation -- stagflation -- has created severe problems in many countries, including many of our allies in Europe. Political and social difficulties that were already at the margin of governments' ability to manage threaten in some cases to get out of control. Economic crisis was a rude shock to large numbers of ordinary people in Western Europe whose aspirations had been raised so dramatically in the years since the war.

Thus too much of Western Europe of the '70's has become fertile ground for social friction and political turmoil within nations and economic conflict between them. The energy crisis has hampered the progress of European unity. It has strengthened the hand of opponents of democracy as democratic governments and moderate leaders have come under severe attack for failing to solve their economic problems, to a degree not experienced since the '20's and '30's. If Communist Parties come to power in Western Europe, it will mark a tragic watershed in America's relationship to its alliances, transforming the North Atlantic Alliance as well as the purposes and practices of European integration. The irony is that some of the most conservative and anti-Communist governments in the world will have contributed to this state of affairs.

Even short of this prospect, the consequences for the cohesion of the Western Alliance are grave. Nations in economic travail are inevitably tempted to resort to protectionism in a desperate effort to keep jobs and markets at home. The result can be a vicious spiral of shrinking trade and further economic deterioration for all nations. Today even while the industrial democracies are embarked on the difficult process of recovery, protectionist pressures are high and still mounting. This is because the recovery is uneven, and unemployment remains a problem almost everywhere.

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Nor is the impact of the oil crisis confined to the industrial nations. In fact, it is the nations of the developing world that suffer most from the massive balance of payments deficits caused by the oil price rises. Indeed the severest blow to the economic development of new nations has come not from the "imperialist exploitation" so loudly assailed in international forums but from an arbitrary price increase by their Third World brethern. The developing countries do not have the means, as the industrial nations have, to pass on the price rises to some extent to other nations in exports of manufactures. If they are to be able even to feed themselves they must achieve agricultural modernization, which depends on chemical fertilizers which are petroleum-based. The higher energy costs are to the developing nations permanent, chronic and massive. The increase in their energy costs now in fact equals the total flow of external economic aid they receive. The entire world's assistance thus barely enables them to stand still.

In short, the energy crisis has placed at risk the entire range of our foreign policy. It mortgages the prospects of our own economy; it weakens the industrial democracies economically and potentially militarily; it undermines the world economy and it frustrates the hope for progress of most of the new nations.

## RESPONDING TO THE ENERGY CHALLENGE

Many of the challenges this country faces in international affairs are unavoidable, as other nations grow inevitably in strength and as the specter of nuclear warfare overshadows the planet. But the threat that oil, and its price and supply, pose to the national interest and world order can be significantly reduced by determined action -- at home and in cooperation with others. The failure to do so will be a blow to all our national purposes. To be sure, the crisis will evolve slowly, almost imperceptibly, and its full consequences may not be apparent for a decade. But when our vulnerability threatens our standard of well-being and when our destiny and that of our allies has become hostage to unpredictable decisions, shall we then tell our people that knowing our peril we absorbed ourselves in sterile domestic debate and were afraid to put before them the relatively minor sacrifices and inconveniences that could have avoided a calamity?

The United States is in a unique and fortunate position, which imposes on us for that very reason a responsibility of leadership and a duty to be resolute. Our allies cannot aspire to reduce their dependence significantly by their own efforts. We can -- and in so doing we are in a position to affect the condition of all nations psychologically as well as materially. The United States has the opportunity to create a new unity of purpose among the democracies on an issue of vital common concern; to give direction to the world's tentative steps toward wider patterns of fruitful cooperation.

The United States needs, most of all, an energy strategy. First, there must be recognition of the severity of our present circumstances -- by leaders, legislatures, and public. The steps that are taken must not be random responses but elements of a coherent strategy that links both domestic and foreign concerns. Such a strategy requires above all a determined national energy program for the United States. It must mobilize the solidarity of the industrial democracies.

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It must address the international financial implications of the crisis. It must
accommodate the needs of the developing nations. And it must engage the oil
producing nations as constructive participants and partners in a thriving global
economic system.

ELEMENTS OF AN ENERGY STRATEGY

-- conservation,

-- development of new supply,

-- collaboration among the consumer nations, including safeguarding the
world financial system, and

-- shaping a reliable long-term relationship between the consumers and
producers.

President Carter's conservation aim is to reduce the annual growth of
national energy demand to less than 2 percent by 1985, from the present 4.6
percent; to limit gasoline consumption to 10 percent below its present level by
1985; to reduce oil imports from a potential level of 16 million barrels per day
to 6 million; to establish a Strategic Petroleum Reserve of 1 billion barrels as
insurance against emergencies; to increase coal production by two-thirds to more
than 1 billion tons annually; to insulate 90 percent of existing homes and all
new buildings; and to install solar energy in more than 2.5 million homes.

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The United States is theoretically capable of reducing its energy consumption by as much as 30 percent *without* affecting the rate of growth of our GNP or our standard of living. In 1975, Americans *wasted* more fossil fuel than was *used* by two thirds of the world's population. Energy is wasted whenever energy expenditure can be reduced without higher economic or social costs. To give but one example: In the past two decades architects have more and more tended towards sealed constructions, that is to say buildings whose windows cannot be opened -- especially office constructions. But in most cities of America, temperatures for many months each year are comfortable. Thus in sealed buildings a great deal of energy is wasted in achieving a temperature that already exists outside and that would be available for free if windows could be opened. This simple conservation measure would obviously impose no hardship and could be rapidly achieved by changing building codes.

Conservation requires above all the more efficient use of the energy now available. It means getting 30 to 40 miles to the gallon instead of seven; better insulated houses with more efficient heating systems; and a national commitment to eliminate waste by turning out unneeded lights, television sets, air conditioning; and the greatest possible use of public transit.

If we fail to take these relatively simple measures, we doom ourselves to fifty percent or even greater dependency on imported energy. We will have delegated crucial decisions to foreign countries to whom our prosperity is not in all circumstances an overriding objective and who cannot be expected to show a greater concern for our well-being than we do.

It is imperative that Congress and the President reach agreement on a comprehensive, far-reaching conservation plan. If we are to restore balance to the world energy market, an effective conservation program *must* be enacted and soon.

The second essential element of an energy strategy is *development of new and alternative energy supplies*. Conservation alone, crucial as it is, cannot *permanently* reduce our dependence on *OPEC* oil. Even the most ambitious conservation plan could not expect to do more than reduce our dependence on imported oil to the level of 1973 -- when an embargo caused the most serious recession since the 1930s.

It is clearly in the interest of the United States and all the industrial democracies to diversify technologically as well as geographically. It has been said that the United States is the Saudi Arabia of coal, so vast are our deposits. Moreover, the industrial democracies have the technical skill and resources to create fuels from shale oil, tar sands, and coal gasification and liquefaction. And much progress has been made and more can be made on advanced methods such as nuclear power, fusion, and solar power.

The investment required to develop new and alternative sources in the near-term future is as massive as it is essential. A serious review of the incentives and disincentives for energy development provided by our tax system and environmental policies is therefore in order. Such a review should also address the question whether existing incentives can work rapidly enough to produce the alternative energy sources in the time available. If the answer is in the negative, government guaranteed financing should be considered.

## THE COHERENCE OF THE INDUSTRIAL DEMOCRACIES

- a coordinated program among the industrial democracies, that are the major market for international oil production, including measures to protect and strengthen the international financial system;

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to organize the collective effort by our example and by our leadership. With a
major American effort, the field of energy can in the 70's give a new impetus to
the unit among the democracies that in the immediate postwar period spurred
common defense, diplomatic cooperation and progress towards European integration.

For these reasons, the United States took the initiative in 1974 first to
organize the Washington Energy Conference and then to help bring about the
International Energy Agency. This body, the IEA, has been in operation for
three years now. It is the principal institution of energy cooperation among
the nineteen leading industrial nations of the democratic world. It is a firm
foundation on which to build the future common effort of the industrial democracies.

The IEA has set conservation targets for its members to encourage and coordinate national conservation programs. The goal for 1977 is to hold collective oil consumption to 35 million barrels per day or 3 percent about 1973 levels. Additional goals will be set for 1980 and 1985. A successful joint effort can mark a major step toward reducing the vulnerability of the industrialized world.

IEA programs, secondly, call for joint projects drawing on capital,
technology and manpower from IEA members to develop new energy sources.
Priority areas have been chosen for research and development. Pooling the
research efforts of the most advanced industrial nations will multiply the pro-
spects for breakthroughs in technology and exploration.

The capacities of the industrial countries to develop new energy sources
vary widely. Some have rich untapped deposits of fossil fuels; some have
industrial skills and advanced technology; some have considerable capital avail-
able for investment. Few have all three. Nothing would do more to encourage
a sense of common purpose among the industrial democracies than to find ways to
undertake joint energy development programs.

Thirdly, an emergency program has been approved by all IEA members to
maintain reserve stocks and to share supplies during any future oil embargo.
The significance of this program cannot be exaggerated. It greatly reduces the
impact of selective embargoes against individual countries. And it eases even
the impact of a general embargo, which in any event involves such political
risks that it could be invoked only in the most extraordinary circumstances.
The emergency sharing program thus serves as both insurance and deterrent
against any new embargo.

The IEA represents a collective response to one of the most serious
challenges the West has faced in a generation. It demonstrates the recognition
by the democracies that their destiny is shared, and that their best hope of a
solution is through unity and common effort. It is of major political impor-
tance because it enables the new Administration to make energy conservation a
further stimulus to the strength and cooperation of the democracies.

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There are two enduring consequences of the oil crisis -- the creation of massive petrodollar surpluses in the OPEC countries, and the need of consumers, both rich and poor, to overcome the grave balance of payments difficulties created by the high price of oil. It is essential that we guard against the possibility of instability, arising either from the inability of one or several consumer countries to meet their balance of payments needs, or from manipulation of petrodollar surpluses by the producers.

Two measures have been explored in recent years to meet that need. One was a $25 billion Financial Support Fund, negotiated in 1975 by the industrial democracies for mutual assistance in an oil payments crisis. The failure of the United States Congress to ratify the Fund -- the only legislature among the industrialized countries to do so -- was unfortunate. But the negotiation for the Fund served an important purpose in giving the world assurance that as a last resort the industrial democracies had the resources to defend the financial system.

Within the next few days the major financial powers are meeting in Paris to discuss a new facility within the International Monetary Fund, which would provide additional resources to countries which suffer balance of payments emergencies. It would draw on important contributions from OPEC members, and be available to borrowers if they were making satisfactory efforts at home to curb inflation and to reduce imports.

Provided its funds are available without conditions dependent on the solution of regional conflicts, the new facility in the IMF will serve an important function, and should be implemented rapidly. It is an important first step. Early consideration should be given to arranging a second tranche, perhaps with less rigid dependence on OPEC funds than the presently discussed fifty percent. If this should prove difficult, or if burdensome political conditions are attached by the oil producers, new and urgent consideration should be given to resurrecting the Financial Support Fund of the democracies which was designed to safeguard their economies independently of OPEC.

## THE ROLE OF THE DEVELOPING COUNTRIES

These developing countries were caught in the middle by the 1973 oil crisis. Because of the energy-induced recession in the industrialized countries, their oil import bill shot up, and their export prospects sharply declined. They seek desperately to resume their advance toward a more hopeful future, but they do so now under less hopeful circumstances. From 1973 to 1975, the foreign debt of those countries nearly doubled, from $67 billion to $117 billion. They need relief from the enormous blight of high energy costs on their development hopes and plans. Relief for the poorer developing countries is an appropriate task for the joint efforts of newly rich oil producers and the industrial democracies. Specifically:

-- We should rapidly expand all forms of assistance, capital and technical,

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to aid developing countries to expand their own domestic energy production. Many developing countries possess considerable promise for oil, coal and other forms of energy. They have been unable to exploit them for lack of the capital and technical knowhow which modern energy development demands.

-- The world financial system has performed remarkably well in channeling some of the petrodollar surpluses to the needy developing countries. Now, however, is the time to consolidate their debt structures and expand the flow of official, longer-term capital. The development assistance resources of the World Bank and other international financial institutions must be expanded.

-- In the final analysis, the long term solution to the developing countries' payments problems is trade. We must stem the retreat to protectionism, and complete the Tokyo Round of trade negotiations, if we hope to offer any permanent prospects of development to the poorer nations of the world.

## THE ROLE OF THE OIL PRODUCERS

First of all, obviously, the producers need markets for their oil. Disruption of the economies of the industrial democracies reduces world growth and world demand for energy. In 1975 as the result of the recession in the industrial democracies, market conditions were depressed to the point where some producers committed to ambitious development programs found themselves in difficulty and were looking for means to sell their oil surpluses despite the production restrictions of OPEC.

Secondly, the producers have a stake in the financial stability of the industrial democracies which are after all the only places where they can productively invest their payments surpluses. The global economy cannot be disrupted as it was in 1973 without severe damage to the interests of the oil-producing countries themselves. Under present conditions, a world economic crisis would have a massive impact on the oil producers because their overseas investments would be in severe jeopardy.

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Thus energy conservation and the reduction of the West's oil import requirements are as much in the producers' long-term interest as they are in our own. This reflects the basic reality that the ultimate "solution" to the world's energy problem is a thriving interdependent global economy which promotes economic advance in every region through the free flow of trade and know-how and international cooperation.

In building such a world, the industrial nations have an obligation to take serious account of the developing countries' and oil producers' legitimate aspiration for long-term income security and economic growth. The developing countries and producers in their turn must recognize that pressure or blackmail will in time backfire on those who use such tactics. The United States, as the world's strongest economy, would be injured less than others in an environment of economic warfare. But this would be incompatible with the open economic system that has nourished the world's prosperity and our own. And it would be inconsistent with basic American values and the American people's hopes for a world of peace, compassion, economic progress, and justice.

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For the United States particularly, this is an extraordinary moment. For a generation we have carried out our responsibility to maintain the world balance of power and to lead the alliances of the free nations. We have behind us an era of great accomplishment. The energy crisis is the challenge of a new era. Republicans and Democrats, Congress and the Executive, the private sector and government -- can work together in the great common enterprise of meeting a challenge that faces us not as partisans but as a nation.

##########

(c)

Ladies and Gentlemen:

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Since the dramatic events of 1973, America's dependence on imported oil has increased by nearly 50 percent despite the efforts of three Presidents to mobilize an effective national response to the energy challenge. This growing dependence is intolerable. Even when the oil producers behave responsibly and seek to be moderate — as they have in recent years — their decisions are determined by their conception of their interests, priorities, and political choices, and not by ours. Our ability to conduct a fair and responsible foreign policy according to our values and our choices is constrained. Our country's freedom of action in foreign policy is to that degree circumscribed.

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- conservation,

- development of new supply,

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DETROIT, AUGUST 3, 1977

LADIES AND GENTLEMEN:

I WOULD LIKE TO DISCUSS WITH YOU TODAY THE ENERGY CRISIS -- A SUBJECT THAT IS AT THE INTERSECTION OF THE CONCERNS OF PUBLIC POLICY THAT YOU WRESTLE WITH FROM DAY TO DAY, AND THE GLOBAL AND STRATEGIC PROBLEMS IN WHICH I HAVE UNTIL RECENTLY BEEN INVOLVED.

A GALLUP POLL IN THE SPRING OF 1977 PRODUCED THE STARTLING RESULT THAT ONLY HALF OF THE AMERICAN PUBLIC KNEW THAT THE UNITED STATES MUST IMPORT OIL TO MEET ITS ENERGY NEEDS, AND ONLY 17 PERCENT HAD A PERCEPTION OF JUST HOW GREAT OUR DEPENDENCE IS. WHEN SUCH A LARGE PROPORTION OF OUR POPULATION IS UNAWARE OF ONE OF OUR MOST URGENT NATIONAL PROBLEMS, IT IS DIFFICULT TO GAIN PUBLIC SUPPORT FOR A MAJOR PROGRAM TO REDUCE DANGERS WHICH ARE ALREADY CLEAR AND WHICH IN ANOTHER DECADE COULD BE OVERWHELMING. WE FACE ABOVE ALL A MASSIVE CHALLENGE TO LEADERSHIP AT ALL LEVELS OF OUR

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SOCIETY. HOWEVER MUCH NATIONAL AND STATE LEADERS MAY
DEBATE ABOUT HOW TO DEAL WITH THE ENERGY PROBLEM, THEY
ALL HAVE A MAJOR RESPONSIBILITY TO EDUCATE THE AMERICAN
PUBLIC ABOUT ITS REALITY, ITS GRAVITY AND THE URGENCY OF A
COHERENT STRATEGY.

ENERGY IS NOT JUST A TECHNICAL PROBLEM; IT IS NOT AN
ABSTRACT PLAYGROUND FOR SPECIALISTS. IT IS A PROBLEM WITH
WIDE-RANGING IMPLICATIONS FOR OUR DAILY LIVES AND SOME OF
OUR DEEPEST VALUES. ENERGY IS CENTRAL TO OUR OWN ECONOMY.
IT AFFECTS OUR JOBS, PRICES, AND PROSPERITY. AND INTER-
NATIONALLY THE ENERGY CRISIS HAS GLOBAL DIMENSIONS; IT IS
ONE OF THE MOST FUNDAMENTAL CHALLENGES TO INTERNATIONAL
STABILITY IN A GENERATION. FOR THE FIRST TIME IN OUR HISTORY
A SMALL GROUP OF NATIONS, CONTROLLING A SCARCE RESOURCE COULD
OVER TIME BE TEMPTED TO PRESSURE US INTO FOREIGN POLICY
DECISIONS NOT DICTATED BY OUR NATIONAL INTEREST.

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THE QUESTION IS QUITE SIMPLY WHETHER ENERGY WILL BRING ABOUT THE DESTRUCTION OF THE SYSTEM OF WORLD ORDER WE HAVE BEEN BUILDING SLOWLY AND PAINFULLY IN THE LAST TWO DECADES, OR THE VITAL PROOF AND FINAL MEASURE OF OUR COMMON PROGRESS.

THE ENERGY CRISIS THEREFORE GOES BEYOND THE TECHNICAL PROBLEM OF ESTABLISHING A MORE BALANCED RELATIONSHIP BETWEEN SUPPLY AND DEMAND. IT IS THE SUPREME TEST OF NATIONS' ABILITY TO LIVE TOGETHER ON THIS SHRINKING PLANET, TO PREVENT THIS INCREASINGLY SCARCE RESOURCE FROM LEADING TO MAJOR CONFLICT, TO UNDERSTAND AND ACT UPON THE MUTUAL DEPENDENCE OF DIFFERENT NATIONS -- OF PRODUCER AND CONSUMER, DEVELOPED AND DEVELOPING NATIONS, THE WEALTHY AND DEBT-RIDDEN.

I BELIEVE THAT IN THE FINAL ANALYSIS THE INTERESTS OF THE NATIONS OF THE WORLD ARE, THOUGH DIFFERENT, COMPLEMENTARY.

BUT THAT COMPLEMENTARITY IS NOT SELF-EVIDENT; A NEW ATTITUDE OF INTERNATIONAL COOPERATION WILL NOT EMERGE FROM THE CRISIS OF THE LAST FOUR YEARS AUTOMATICALLY. IT IS THE

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SUPREME TASK OF STATESMANSHIP FOR OUR AGE TO CREATE OUT
OF THE ELEMENTS OF OUR MUTUAL DEPENDENCE A NEW COMMITMENT
TO POSITIVE COLLABORATION, AND IN THIS WAY TO TURN THE
ENERGY CHALLENGE INTO A POWERFUL POSITIVE FORCE FOR WORLD
COOPERATION, ORDER AND PROGRESS.

WHAT IS THE ENERGY CRISIS?

THE LAST THREE DECADES HAVE BEEN A HISTORY OF OUR
INCREASING DEPENDENCE ON IMPORTED ENERGY. IN 1959, THE
UNITED STATES WAS VIRTUALLY SELF-SUFFICIENT IN OIL. IN
1960, OUR RELIANCE ON FOREIGN OIL HAD GROWN TO 16 PERCENT
OF OUR REQUIREMENTS. IN 1973, THE YEAR OF THE EMBARGO
AND THE MASSIVE PRICE INCREASE, AMERICA'S DEPENDENCE WAS
35 PERCENT. SINCE THEN OUR DEPENDENCE HAS GROWN, NOT
DIMINISHED; IN THE WINTER MONTHS OF THIS YEAR, OIL IMPORTS
FOR THE FIRST TIME IN OUR HISTORY REACHED 50 PERCENT OF OUR
OIL CONSUMPTION -- A DEVELOPMENT WHICH ONLY TWO YEARS AGO

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WAS NOT EXPECTED UNTIL THE 1980's.

WHEN THE UNITED STATES WAS SELF-SUFFICIENT, OR A NET EXPORTER OF OIL, NOT ONLY WERE WE INVULNERABLE TO EMBARGOES BUT WE ALSO HAD SOME INFLUENCE OVER THE WORLD PRICE. WE COULD GO FAR TOWARD ENSURING THAT THE WORLD ECONOMY HAS AVAILABLE TO IT ADEQUATE SUPPLIES OF OIL AT REASONABLE PRICES. BUT IN THE LAST TWO DECADES CONDITIONS HAVE CHANGED DRAMATICALLY. WE HAVE BECOME NET IMPORTERS OF OIL AND ON A GROWING SCALE.

DURING THIS SAME PERIOD, EUROPE'S ENERGY NEEDS INCREASED RAPIDLY. DEVELOPING COUNTRIES AROUND THE WORLD BEGAN THEIR OWN EFFORTS TOWARD INDUSTRIALIZATION, AND IN CONSEQUENCE BECAME FOR THE FIRST TIME MAJOR CONSUMERS OF ENERGY. ENERGY CONSUMPTION AROUND THE WORLD CLIMBED DRAMATICALLY EVERYWHERE. PRICES REMAINED LOW. AND SO FOR TWO DECADES THE WORLD ECONOMIC SYSTEM WAS VIRTUALLY DESIGNED AND BUILT ON THE EXPECTATION OF CHEAP AND PLENTIFUL PETROLEUM WHILE SUPPLY

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EXCEPT IN THE MIDDLE EAST, FELL FAR BEHIND THE EXPLOSIVE ENERGY DEMAND.

THE EFFECT ON THE UNITED STATES OF THIS STRUCTURAL CHANGE IN THE WORLD ENERGY MARKET WAS UNPRECEDENTED. AS WE GREW INCREASINGLY DEPENDENT ON OUTSIDE OIL, WE BECAME VULNERABLE TO EXTERNAL MANIPULATION OF PRICE AND INTERRUPTION OF OUR SUPPLY.

IT WAS AGAINST THIS BACKGROUND THAT OPEC BEGAN TO MAKE ITS INFLUENCE FELT. FORGED INTO AN EFFECTIVE MECHANISM FOR AGREEMENT ON PRICES AND PRODUCTION AMONG THE FEW NATIONS IN THE WORLD THAT WERE OIL EXPORTERS INTHE EARLY SEVENTIES, IT EMBARKED ON WHAT IN THE END BECAME A SUCCESSFUL PROGRAM TO QUADRUPLE THE PRICE OF WORLD OIL. THEN, IN AN ADDED DEMONSTRATION OF THE CENTRAL ROLE OF PETROLEUM IN THE WORLD'S ECONOMY, THE MAJOR PRODUCERS CUT OFF THEIR EXPORTS IN 1973 TO CERTAIN COUNTRIES DURING THE ARAB-ISRAELI WAR.

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THESE FACTORS CAUSED AN IMMEDIATE ECONOMIC CRISIS BOTH IN THIS COUNTRY AND AROUND THE WORLD. A DROP OF ONLY TEN PERCENT OF OUR IMPORTED OIL, LASTING LESS THAN HALF A YEAR, COST AMERICANS HALF A MILLION JOBS AND OVER TEN BILLION DOLLARS OF NATIONAL OUTPUT. THE MASSIVE PRICE INCREASES OF 1973 ADDED AT LEAST FIVE PERCENTAGE POINTS TO THE PRICE INDEX, CONTRIBUTING TO OUR WORST INFLATION SINCE WORLD WAR II. IT SET THE STAGE FOR A SERIOUS RECESSION, IN THIS COUNTRY AND WORLDWIDE, FROM WHICH WE ARE ONLY NOW RECOVERING.

THESE EVENTS MADE EXPLICIT THE ENERGY CRISIS WHICH HAD BEEN BUILDING FOR DECADES. THE ENERGY CRISIS REDUCED THE ANNUAL GROWTH RATE OF THE INDUSTRIAL COUNTRIES BY 1.2 PERCENT AND ACCELERATED THE AVERAGE RATE OF INFLATION IN THE INDUSTRIALIZED WORLD BY THREE PERCENT. IT HAS ALSO HAD A MASSIVE ADVERSE EFFECT ON THE BALANCE OF PAYMENTS OF ALL THE INDUSTRIAL NATIONS. SINCE 1973, THE OIL CONSUMING COUNTRIES HAVE PAID $367 BILLION IN OIL IMPORT BILLS TO THE

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13 OPEC COUNTRIES; THIS IS THE EQUIVALENT OF A HUGE EXCISE TAX AND CONSTITUTES ONE OF THE GREATEST AND MOST SUDDEN TRANSFERS OF WEALTH IN HUMAN HISTORY. TODAY, EACH 10 PERCENT PRICE INCREASE ADDS AN ADDITIONAL $14 BILLION TO THE GROWING OPEC BALANCES. FOR THE UNITED STATES, THE QUADRUPLED OIL PRICE WORSENED OUR BALANCE OF PAYMENTS BY $36.4 BILLION IN 1976 ALONE. TO PUT IT ANOTHER WAY: THE PRESIDENT HAS STATED THAT THIS YEAR OUR BALANCE OF PAYMENTS DEFICIT IS RUNNING AT A RATE OF $25 BILLION A YEAR; WITHOUT OIL IMPORTS, WE WOULD BE RUNNING A SURPLUS OF $20 BILLION A YEAR. OIL IMPORTS MARK A $45 BILLION DIFFERENCE WHICH OVER TIME WOULD SPELL AN ECONOMIC DISASTER.

THE ENORMOUS SURPLUS EARNINGS OF THE OIL PRODUCERS OVERHANG THE WORLD ECONOMY. IN ANOTHER CRISIS THE VAST ACCUMMULATED PETRODOLLARS COULD BECOME A WEAPON AGAINST THE WORLD MONETARY AND FINANCIAL SYSTEM. THEY ARE A FACTOR OF INSTABILITY EVEN IF NOT MANIPULATED FOR POLITICAL MOTIVES.

IF MANIPULATED THEY COULD BRING ON A FINANCIAL CRISIS,

SINCE THE DRAMATIC EVENTS OF 1973 OUR DEPENDENCE ON
IMPORTED OIL HAS INCREASED BY NEARLY FIFTY PERCENT DESPITE
THE EFFORTS OF THREE PRESIDENTS TO MOBILIZE AN EFFECTIVE
NATIONAL RESPONSE TO THE ENERGY CHALLENGE. THIS GROWING
DEPENDENCE IS INTOLERABLE. EVEN WHEN THE OIL PRODUCERS
BEHAVE RESPONSIBLY AND SEEK TO BE MODERATE -- AS THEY HAVE
IN RECENT YEARS -- THEIR DECISIONS ARE DETERMINED BY THEIR
CONCEPTION OF THEIR INTERESTS, PRIORITIES AND POLITICAL
CHOICES, AND NOT BY OURS. OUR ABILITY TO CONDUCT A FAIR
AND RESPONSIBLE FOREIGN POLICY ACCORDING TO OUR VALUES
AND OUR CHOICES IS CONSTRAINED. OUR COUNTRY'S FREEDOM OF
ACTION IN FOREIGN POLICY IS TO THAT DEGREE SERIOUSLY CIRC-
UMSCRIBED. SOON IT MAY BE IN EVEN GREATER DANGER,

IF THE ECONOMIC AND POLITICAL IMPACT OF THE ENERGY
CRISIS ON THE UNITED STATES IS SEVERE, THE IMPACT ON OTHER
COUNTRIES MORE DEPENDENT ON IMPORTED OIL IS CORRESPONDINGLY
GREATER. WORLDWIDE RECESSION AND INFLATION -- STAGFLATION --

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HAS CREATED SEVERE PROBLEMS IN MANY COUNTRIES, INCLUDING MANY
OF OUR ALLIES IN EUROPE. POLITICAL AND SOCIAL DIFFICULTIES
THAT WERE ALREADY AT THE MARGIN OF GOVERNMENTS' ABILITY TO
MANAGE THREATEN IN SOME CASES TO GET OUT OF CONTROL. ECONOMIC
CRISIS WAS A RUDE SHOCK TO LARGE NUMBERS OF ORDINARY PEOPLE
IN WESTERN EUROPE WHOSE ASPIRATIONS HAD BEEN RAISED SO DRAMA-
TICALLY IN THE YEARS SINCE THE WAR. THUS TOO MUCH OF WESTERN
EUROPE OF THE '70'S HAS BECOME FERTILE GROUND FOR SOCIAL
FRICTION AND POLITICAL TURMOIL WITHIN NATIONS AND ECONOMIC
CONFLICT BETWEEN THEM. THE ENERGY CRISIS HAS HAMPERED THE
PROGRESS OF EUROPEAN UNITY. IT HAS STRENGTHENED THE HAND
OF OPPONENTS OF DEMOCRACY AS DEMOCRATIC GOVERNMENTS AND
MODERATE LEADERS HAVE COME UNDER SEVERE ATTACK FOR FAILING
TO SOLVE THEIR ECONOMIC PROBLEMS TO A DEGREE NOT EXPERIENCED
SINCE THE '20'S AND '30'S. IF THERE IS TODAY ANY SIMILAR
BREAK AWAY FROM THE DEMOCRATIC SYSTEM AND COMMUNIST PARTIES
COME TO POWER IN ALLIED GOVERNMENTS IN WESTERN EUROPE, THE

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NORTH ATLANTIC ALLIANCE WILL BE TRANSFORMED. IT WILL BE A TRAGIC WATERSHED IN AMERICA'S RELATIONSHIP TO ITS ALLIANCES. THE IRONY IS THAT SOME OF THE MOST CONSERVATIVE AND ANTI-COMMUNIST GOVERNMENTS IN THE WORLD WILL HAVE CONTRIBUTED TO THIS STATE OF AFFAIRS.

THE ECONOMIC PROSPECTS FOR THE FUTURE OF THE WESTERN ALLIANCE ARE EQUALLY GRAVE. NATIONS IN ECONOMIC TRAVAIL ARE INEVITABLY TEMPTED TO RESORT TO PROTECTIONISM IN A DESPERATE EFFORT TO KEEP JOBS AND MARKETS AT HOME. THE RESULT CAN BE A VICIOUS SPIRAL OF SHRINKING TRADE AND FURTHER ECONOMIC DETERIORATION FOR ALL NATIONS. TODAY EVEN WHILE THE INDUSTRIAL DEMOCRACIES ARE BEGINNING THE DIFFICULT PROCESS OF RECOVERY, PROTECTIONIST PRESSURES ARE HIGH AND STILL MOUNTING. THIS IS BECAUSE THE RECOVERY IS UNEVEN, AND UNEMPLOYMENT REMAINS A PROBLEM ALMOST EVERYWHERE.

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(Y)

NOR IS THE IMPACT OF THE OIL CRISIS CONFINED TO THE INDUSTRIAL NATIONS. IN FACT, IT IS THE NATIONS OF THE DEVELOPING WORLD THAT SUFFER MOST FROM THE MASSIVE BALANCE OF PAYMENTS DEFICITS CAUSED BY THE OIL PRICE RISES.

INDEED THE SEVEREST BLOW TO THE ECONOMIC DEVELOPMENT OF NEW NATIONS HAS COME NOT FROM THE "IMPERIALIST EXPLOITATION" SO LOUDLY ASSAILED IN INTERNATIONAL FORA BUT FROM AN ARBITRARY PRICE INCREASE BY THEIR THIRD WORLD BRETHERN.

THE DEVELOPING COUNTRIES DO NOT HAVE THE MEANS, AS THE INDUSTRIAL NATIONS HAVE, TO PASS ON THE PRICE RISES TO SOME EXTENT TO OTHER NATIONS IN EXPORTS OF MANUFACTURES.

THE HIGHER ENERGY COSTS TO THEM ARE PERMANENT, CHRONIC AND MASSIVE.

THE POOR COUNTRIES MUST IMPORT ENERGY IF THEY ARE TO HAVE ANY HOPE OF INDUSTRIALIZATION, OR OF AGRICULTURAL MODERNIZATION, WHERE SO MUCH DEPENDS ON CHEMICAL FERTILIZERS

-15-

(N)

WHICH ARE PETROLEUM-BASED. THE INCREASE IN THE ENERGY COSTS OF THE DEVELOPING NATIONS NOW IN FACT EQUALS THE TOTAL FLOW OF EXTERNAL ECONOMIC AID THEY RECEIVE. THE ENTIRE WORLD'S ASSISTANCE EFFORTS THUS BARELY ENABLE THEM TO STAND STILL.

IN SHORT THE ENERGY CRISIS HAS TRANSFORMED THE WORLD. IN DOING SO IT HAS PLACED AT RISK THE ENTIRE RANGE OF OUR FOREIGN POLICY. IT MORTGAGES THE PROSPECTS OF OUR OWN ECONOMY; IT WEAKENS THE INDUSTRIAL DEMOCRACIES ECONOMICALLY AND POTENTIALLY MILITARILY; IT UNDERMINES THE WORLD ECONOMY AND IT FRUSTRATES THE HOPE FOR PROGRESS OF MOST OF THE NEW NATIONS.

MANY OF THE CHALLENGES THIS COUNTRY FACES IN INTERNATIONAL AFFAIRS ARE UNAVOIDABLE, AS OTHER NATIONS GROW INEVITABLY IN STRENGTH AND NUCLEAR WEAPONS OVERSHADOW THE PLANET. BUT THE THREAT THAT OIL, AND ITS PRICE AND SUPPLY, POSE TO

-14-

THE NATIONAL INTEREST AND WORLD ORDER CAN BE SIGNIFICANTLY REDUCED BY DETERMINED ACTION --AT HOME AND IN COOPERATION WITH OTHERS. THE FAILURE TO DO SO WILL BE A BLOW TO ALL OUR NATIONAL PURPOSES. TO BE SURE, THE CRISIS WILL EVOLVE SLOWLY, ALMOST IMPERCEPTIBLY AND ITS FULL CON- SEQUENCES MAY NOT BE APPARENT FOR A DECADE. BUT WHEN OUR VULNERABILITY THREATENS OUR STANDARD OF WELL-BEING AND WHEN OUR DESTINY AND THAT OF OUR ALLIES HAS BECOME HOSTAGE TO UNPREDICTABLE DECISIONS SHALL WE THEN TELL OUR PEOPLE THAT KNOWING OUR PERIL WE ABSORBED OURSELVES IN STERILE DOMESTIC DEBATE AND WERE AFRAID TO PUT BEFORE THEM THE RELATIVELY MINOR SACRIFICES AND INCONVENIENCES THAT COULD HAVE AVOIDED A CALAMITY?

THE UNITED STATES IS IN A UNIQUE AND FORTUNATE POSITION, BUT ONE WHICH IMPOSES ON US FOR THAT VERY REASON A RESPONSIBILITY OF LEADERSHIP AND A DUTY TO BE RESOLUTE. OUR ALLIES CANNOT ASPIRE TO REDUCE THEIR DEPENDENCE

-15-

SIGNIFICANTLY BY THEIR OWN EFFORTS. WE CAN -- AND IN SO DOING WE ARE IN POSITION TO AFFECT THE CONDITION OF ALL NATIONS PSYCHOLOGICALLY AS WELL AS MATERIALLY. THE UNITED STATES HAS THE OPPORTUNITY TO CREATE A NEW UNITY OF PURPOSE AMONG THE DEMOCRACIES ON AN ISSUE OF VITAL COMMON CONCERN; TO GIVE DIRECTION TO THE WORLD'S TENTATIVE STEPS TOWARD WIDER PATTERNS OF FRUITFUL COOPERATION.

THE UNITED STATES NEEDS, MOST OF ALL, AN ENERGY STRATEGY THAT LINKS BOTH DOMESTIC AND FOREIGN CONCERNS. FIRST, THERE MUST BE RECOGNITION OF THE SEVERITY OF OUR PRESENT CIRCUMSTANCES -- BY LEADERS, LEGISLATURES, AND PUBLIC. THE STEPS THAT ARE TAKEN MUST NOT BE RANDOM RESPONSES BUT ELEMENTS OF A COHERENT STRATEGY, SUCH A STRATEGY REQUIRES ABOVE ALL A DETERMINED NATIONAL ENERGY PROGRAM FOR THE UNITED STATES. IT MUST MOBILIZE THE SOLIDARITY OF THE INDUSTRIAL DEMOCRACIES. IT MUST ENGAGE THE OIL PRODUCING NATIONS AS CONSTRUCTIVE PARTICIPANTS AND

-16-

PARTNERS IN A THRIVING WORLD ECONOMIC SYSTEM. IT MUST ADDRESS THE INTERNATIONAL FINANCIAL IMPLICATIONS OF THE EFFORT. AND IT MUST ACCOMMODATE THE NEEDS OF THE DEVELOPING NATIONS.

IN THE ABSENCE OF SUCH A PROGRAM, DIPLOMATIC ATTEMPTS TO PERSUADE THE CARTEL TO BE MODERATE ARE AT BEST A STOP-GAP MEASURE. "INTERNATIONAL JAW-BONING," AS IT WERE, IS A WEAK REED ON WHICH TO REST THE FUTURE OF THE GLOBAL ECONOMY AND THE AUTONOMY OF OUR FOREIGN POLICY. IT PUTS US IN DANGER OF BEING SUPPLICANTS INSTEAD OF EQUAL PARTNERS IN CONSTRUCTING A WORLD ORDER BASED ON EQUITY. IT ADDS TO THE TEMPTATIONS TO SET THE PRICE ON POLITICAL GROUNDS AND TO ASK A POLITICAL PRICE IN RETURN. THE PRICE OF OIL WILL BE RESTRAINED ONLY BY OBJECTIVE MARKET CONDITIONS; ENERGY CRISES CAN BE AVERTED ONLY IF OUR DEPENDENCE ON IMPORTED OIL IS DIMINISHED BY A COHERENT NATIONAL PROGRAM.

-17-

THUS WE SHOULD SET OURSELVES A CLEAR GOAL: WE SHOULD SEEK TO REDUCE OUR OIL IMPORTS, WITHIN A REASONABLE PERIOD OF TIME, TO A POINT WHERE OUR LESSENED VULNERABILITY TO SUPPLY INTERRUPTION AND OUR REDUCED BALANCE OF PAYMENTS DRAIN CHANGE THE FRAMEWORK OF THE INTERNATIONAL DIALOGUE.

## ELEMENTS OF AN ENERGY STRATEGY

AN EFFECTIVE NATIONAL ENERGY STRATEGY TO BRING ABOUT THIS RESULT MUST INCLUDE THE FOLLOWING ELEMENTS:

- CONSERVATION,

- DEVELOPMENT OF NEW SUPPLY,

- COLLABORATION AMONG THE CONSUMER NATIONS, INCLUDING SAFEGUARDING THE WORLD FINANCIAL SYSTEM, AND

- SHAPING A NEW LONG-TERM RELATIONSHIPS BETWEEN THE CONSUMERS AND PRODUCERS.

AS PRESIDENT CARTER HAS VIGOROUSLY ADVOCATED, AN ENERGY POLICY MUST BEGIN WITH A DETERMINED PROGRAM FOR ENERGY

-18-

(Y)

CONSERVATION. TO DISCOVER NEW SOURCES OF OIL AND TO DEVELOP NEW ENERGY SOURCES WILL TAKE YEARS. IN THE NEAR-TERM FUTURE, ONLY CONSERVATION WILL ENABLE US BOTH TO ABSORB THE PRESENT BURDEN OF ENERGY COSTS AND TO BEGIN TO RESTORE BALANCE BETWEEN SUPPLY AND DEMAND.

ON APRIL 29, PRESIDENT CARTER PROPOSED IN HIS NATIONAL ENERGY PLAN A COMPREHENSIVE PROGRAM OF CONSERVATION MEASURES. WHATEVER THE MERIT OF SPECIFIC ELEMENTS OF THE PROGRAM, THE PRESIDENT'S OBJECTIVE DESERVES THE SUPPORT OF ALL AMERICANS. HIS AIM IS TO REDUCE THE GROWTH OF NATIONAL ENERGY DEMAND TO LESS THAN 2 PERCENT BY 1985, FROM THE PRESENT 4.6 PERCENT; TO REDUCE GASOLINE CONSUMPTION TO 10 PERCENT BELOW ITS PRESENT LEVEL BY 1985; TO REDUCE OIL IMPORTS FROM A POTENTIAL LEVEL OF 16 MILLION BARRELS PER DAY TO 6 MILLION; TO ESTABLISH A STRATEGIC PETROLEUM RESERVE OF 1 BILLION BARRELS AS INSURANCE AGAINST EMERGENCIES; TO INCREASE COAL PRODUCTION BY TWO-THIRDS TO MORE THAN 1

BILLION TONS ANNUALLY; TO INSULATE 90 PERCENT OF EXISTING HOMES AND ALL NEW BUILDINGS; AND TO INSTALL SOLAR ENERGY IN MORE THAN 2.5 MILLION HOMES.

THE UNITED STATES IS THEORETICALLY CAPABLE OF REDUCING ITS ENERGY CONSUMPTION BY AS MUCH AS 30 PERCENT *WITHOUT* AFFECTING THE RATE OF GROWTH OF OUR GNP OR OUR STANDARD OF LIVING. IN 1975, AMERICANS *WASTED* MORE FOSSIL FUEL THAN WAS *USED* BY TWO-THIRDS OF THE WORLD'S POPULATION.

ENERGY IS WASTED WHENEVER A REDUCTION IN ENERGY EXPENDITURE CAN BE ACHIEVED WITHOUT HIGHER ECONOMIC OR SOCIAL COSTS.

FOR EXAMPLE IN THE PAST TWO DECADES ARCHITECTS HAVE MORE AND MORE TENDED TOWARDS SEALED CONSTRUCTIONS, THAT IS BUILDINGS WHOSE WINDOWS CANNOT BE OPENED -- ESPECIALLY IN OFFICE BUILDINGS. BUT IN MOST CITIES OF AMERICA, TEMPERATURES FOR MANY MONTHS EACH YEAR ARE COMFORTABLE. THUS A GREAT DEAL OF ENERGY IS WASTED IN THESE SEALED BUILDINGS IN ACHIEVING A TEMPERATURE THAT ALREADY EXISTS OUTSIDE AND THAT WOULD BE

-20-

AVAILABLE FOR FREE IF WINDOWS COULD BE OPENED. THIS SIMPLE
CONSERVATION MEASURE WOULD OBVIOUSLY IMPOSE NO HARDSHIP
AND COULD BE RAPIDLY ACHIEVED BY CHANGING BUILDING
CODES.

GIVEN THE HIGH COST OF ENERGY RESOURCES, CONSERVATION
IS IN THE CLEAR SELF-INTEREST OF EVERY HARD-HEADED
BUSINESSMAN OR EVERY COST-CONSCIOUS HOMEOWNER. IT IS A
CLASSIC EXAMPLE OF HOW THE NATIONAL INTEREST CAN BE
EXACTLY CONSISTENT WITH SELF-INTEREST. CONSERVATION IS
NOT A NEW BURDEN TO BE IMPOSED ON OUR POCKET BOOKS; IT
IMPLIES INSTEAD THE DISCIPLINE AND EFFORT REQUIRED TO EASE
THE BURDEN OF ENERGY COSTS ON THE NATIONAL ECONOMY AND ON
INDIVIDUAL FAMILIES.

CONSERVATION REQUIRES ABOVE ALL THE MORE EFFICIENT
USE OF THE ENERGY NOW AVAILABLE TO US. IT MEANS GETTING
30 TO 40 MILES TO THE GALLON INSTEAD OF SEVEN; BETTER
INSULATED HOUSES WITH MORE EFFICIENT HEATING SYSTEMS;

AND A NATIONAL AWARENESS TO ELIMINATE WASTE BY TURNING
OUT UNNEEDED LIGHTS, TELEVISION SETS, AIR CONDITIONING;
THE GREATEST POSSIBLE USE OF PUBLIC TRANSIT.

IF WE FAIL TO TAKE THESE RELATIVELY SIMPLE MEASURES,
WE DOOM OURSELVES TO FIFTY PERCENT OR EVEN GREATER
DEPENDENCY ON IMPORTED ENERGY. WE WILL HAVE DELEGATED
CRUCIAL DECISIONS TO FOREIGN COUNTRIES TO WHOM OUR
PROSPERITY IS NOT IN ALL CIRCUMSTANCES AN OVERRIDING
OBJECTIVE AND THAT WILL NOT SEE ANY REASON TO SHOW A
GREATER CONCERN FOR OUR WELL-BEING THAN WE DO.

IT IS IMPERATIVE THAT CONGRESS AND THE PRESIDENT REACH
AGREEMENT ON A COMPREHENSIVE, FAR-REACHING CONSERVATION
PLAN. IF WE ARE TO RESTORE BALANCE TO THE WORLD ENERGY
MARKET, AN EFFECTIVE CONSERVATION PROGRAM MUST BE ENACTED
AND SOON.

THE SECOND ESSENTIAL ELEMENT OF AN EFFECTIVE ENERGY
STRATEGY IS DEVELOPMENT OF NEW AND ALTERNATIVE ENERGY SOURCES.

-22-

CONSERVATION ALONE, CRUCIAL AS IT IS, CANNOT PERMANENTLY
REDUCE OUR DEPENDENCE ON OPEC OIL. EVEN THE MOST AMBITIOUS
CONSERVATION PLAN COULD NOT EXPECT TO DO MORE THAN REDUCE
OUR DEPENDENCE ON IMPORTED OIL TO THE LEVEL OF 1973 -- WHEN
AN EMBARGO CAUSED THE MOST SERIOUS RECESSION SINCE THE
1930s.

THE ADMINISTRATION HAS, FRANKLY, BEEN MUCH LESS
ENERGETIC IN PRESSING FOR NEW SOURCES OF ENERGY THAN IN
STRESSING CONSERVATION. THIS SHOULD BE URGENTLY REMEDIED.

MUCH MORE CAN AND MUST BE DONE TO DEVELOP NEW SOURCES
OF OIL. WE SHOULD PROVIDE EVERY INCENTIVE TO MAXIMIZE
DOMESTIC PRODUCTION. WITH OIL FROM THE NORTH SEA, THE
NORTH SLOPE, MEXICO, AND MANY OTHER LOCATIONS BECOMING
ACCESSIBLE, OUR VULNERABILITY IS REDUCED. WE SHOULD ALSO
PURSUE A CONSCIOUS POLICY OF DIVERSIFICATION OF FOREIGN
SOURCES. ANY NEW SOURCE OF OIL THAT BECOMES AVAILABLE IS
ADDITIONAL INSURANCE AGAINST A NEW EMBARGO.

-23-

IT IS CLEARLY IN THE INTEREST OF THE UNITED STATES AND ALL THE INDUSTRIAL DEMOCRACIES TO DIVERSIFY TECHNOLOGICALLY AS WELL AS GEOGRAPHICALLY. IT HAS BEEN SAID THAT THE UNITED STATES IS THE SAUDI ARABIA OF COAL, SO VAST ARE OUR DEPOSITS. MOREOVER, THE INDUSTRIAL DEMOCRACIES HAVE THE TECHNICAL SKILL AND RESOURCES TO CREATE FUELS FROM SHALE OIL, TAR SANDS, AND COAL GASIFICATION AND LIQUEFACTION. AND MUCH PROGRESS HAS BEEN MADE AND MORE CAN BE MADE ON ADVANCED METHODS SUCH AS NUCLEAR POWER, FUSION, AND SOLAR POWER.

IT IS IMPORTANT TO FACE THE FACE THAT NUCLEAR POWER REPRESENTS ONE OF THE BEST HOPES TO CLOSE THE GAP BETWEEN SUPPLY AND DEMAND, ESPECIALLY FOR SOME OF OUR ALLIES IN WESTERN EUROPE AND JAPAN. THEY ARE COMMITTED TO CIVILIAN NUCLEAR POWER AS A MATTER OF URGENT NATIONAL POLICY, AND THEY WILL NOT BE EASILY DISSUADED. IT IS TIME TO END THE DISPUTES TRIGGERED BY OUR VERY LEGITIMATE WORRIES ABOUT THE

-24-

PROLIFERATION OF NUCLEAR WEAPONS; IT IS TIME TO DEVELOP
A COHERENT NUCLEAR ENERGY POLICY FOR ALL OF THE INDUSTRIAL
DEMOCRACIES. IF THE UNITED STATES IS UNRELIABLE AS A
SUPPLIER OF CIVILIAN NUCLEAR FUELS, WE ONLY ACCELERATE
THE TEMPTATIONS TO DEVELOP NATIONAL INDEPENDENT NUCLEAR
PROGRAMS.

THE INVESTMENT REQUIRED TO DEVELOP NEW AND ALTERNATIVE SOURCES IN THE NEAR-TERM FUTURE IS MASSIVE, BUT IT IS ESSENTIAL. IF OUR TAX SYSTEM AND ENVIRONMENTAL POLICIES PROVIDE DISINCENTIVES FOR ENERGY DEVELOPMENT, WE ARE RISKING OUR NATIONAL FUTURE. A SERIOUS REVIEW OF THESE POLICIES IS THEREFORE ESSENTIAL. SUCH A REVIEW SHOULD ALSO STUDY WHETHER INCENTIVES CAN WORK RAPIDLY ENOUGH TO PRODUCE ALTERNATIVE ENERGY SOURCES RAPIDLY. IF THE ANSWER IS IN THE NEGATIVE, GOVERNMENT GUARANTEED FINANCING SHOULD BE CONSIDERED.

-25-

OUR OWN NATIONAL EFFORT, WHILE CRUCIAL, IS NOT
ENOUGH BY ITSELF. IT MUST BE MANAGED IN THE FRAMEWORK
OF AN INTERNATIONAL STRATEGY WHICH HAS THESE ADDITIONAL
ELEMENTS:

-- A COORDINATED PROGRAM AMONG THE INDUSTRIAL DEMOCRACIES, THAT ARE THE MAJOR MARKET FOR INTERNATIONAL PETROLEUM PRODUCTION;

-- MEASURES TO PROTECT AND STRENGTHEN THE INTERNATIONAL FINANCIAL SYSTEM; ASSISTING THE NON-OIL PRODUCING DEVELOPING COUNTRIES WHOSE DEVELOPMENT PLANS ARE SHATTERED BY EXORBITANT ENERGY COSTS;

-- AND THE OVERRIDING IMPORTANCE OF SHAPING A SYSTEM OF INTERNATIONAL COOPERATION IN WHICH THE OIL PRODUCERS BECOME READY PARTNERS, WITH SHARED INTERESTS, IN A COMMON GLOBAL EFFORT.

FIRST, AS TO WESTERN EUROPE AND JAPAN, ONLY THROUGH
COOPERATION AMONG ALL THE INDUSTRIAL DEMOCRACIES CAN THE

-26-

ECONOMIC AND POLITICAL CONDITIONS OF WORLD ENERGY MARKETS BE SIGNIFICANTLY AFFECTED. WE CANNOT DO THE JOB ALONE. BUT WE ARE THE CRUCIAL ELEMENT, AND THE INEVITABLE LEADERS, OF THE INTERNATIONAL EFFORT.

THE UNITED STATES CONSUMES HALF THE OIL OF THE INDUSTRIALIZED WORLD. WITHOUT OUR EFFORT, THERE IS NO HOPE OF SUCCESS FOR ANY CONSUMER STRATEGY. WE, WHO ARE BLESSED WITH GREATER RESOURCES THAN ANY OF OUR ALLIES, WHO ARE LESS VULNERABLE TO OUTSIDE PRESSURES HAVE A RESPONSIBILITY TO TAKE THE INITIATIVE TO ORGANIZE THE COLLECTIVE EFFORT BY OUR EXAMPLE AND BY OUR LEADERSHIP. WITH A MAJOR AMERICAN EFFORT, THE FIELD OF ENERGY CAN IN THE 70'S GIVE A NEW IMPETUS TO THE UNITY AMONG THE DEMOCRACIES THAT IN THE IMMEDIATE POSTWAR PERIOD SPURRED COMMON DEFENSE, DIPLOMATIC COOPERATION AND PROGRESS TOWARDS EUROPEAN INTEGRATION.

-27-

FOR THESE REASONS THE UNITED STATES TOOK THE INITIATIVE IN 1974 FIRST TO ORGANIZE THE WASHINGTON ENERGY CONFERENCE AND THEN TO HELP BRING ABOUT THE INTERNATIONAL ENERGY AGENCY. THIS BODY, THE IEA, HAS BEEN IN OPERATION FOR THREE YEARS NOW. IT IS THE PRINCIPAL INSTITUTION OF ENERGY COOPERATION AMONG THE NINETEEN LEADING INDUSTRIAL NATIONS OF THE DEMOCRATIC WORLD. IT IS A FIRM FOUNDATION ON WHICH TO BUILD THE FUTURE COMMON EFFORT OF THE DEMOCRACIES.

THE IEA HAS SET CONSERVATION TARGETS FOR ITS MEMBERS TO SPUR AND COORDINATE NATIONAL CONSERVATION PROGRAMS. THE GOAL FOR 1977 IS TO HOLD COLLECTIVE OIL CONSUMPTION TO 35 MILLION BARRELS PER DAY OR 3 PERCENT ABOVE 1973 LEVELS. ADDITIONAL GOALS WILL BE SET FOR 1980 AND 1985.

OBVIOUSLY SINCE THE UNITED STATES CONSUMES HALF OF THE ENERGY OF THE ENTIRE INDUSTRIALIZED WORLD AN EFFECTIVE UNITED STATES CONSERVATION PROGRAM IS THE PREREQUISITE FOR A JOINT EFFORT -- AND A JOINT EFFORT IN TURN CAN MARK A

(H)

-28-

MAJOR STEP TOWARD REDUCING THE VULNERABILITY TO OIL PRESSURES OF THE INDUSTRIALIZED WORLD.

IEA PROGRAMS, SECONDLY, CALL FOR JOINT PROJECTS DRAWING ON CAPITAL, TECHNOLOGY AND MANPOWER FROM IEA MEMBERS TO DEVELOP NEW ENERGY SOURCES. PRIORITY AREAS HAVE BEEN CHOSEN FOR RESEARCH AND DEVELOPMENT. POOLING THE RESEARCH EFFORTS OF THE MOST ADVANCED INDUSTRIAL NATIONS WILL MULTIPLY THE PROSPECTS FOR BREAKTHROUGHS IN TECHNOLOGY AND EXPLORATION.

THE CAPACITIES OF THE INDUSTRIAL COUNTRIES TO DEVELOP NEW ENERGY SOURCES VARY WIDELY. SOME HAVE RICH UNTAPPED DEPOSITS OF FOSSIL FUELS; SOME HAVE INDUSTRIAL SKILLS AND ADVANCED TECHNOLOGY; SOME HAVE CONSIDERABLE CAPITAL AVAILABLE FOR INVESTMENT. FEW HAVE ALL THREE. NOTHING WOULD DO MORE TO ENCOURAGE A SENSE OF COMMON PURPOSE AMONG THE INDUSTRIAL DEMOCRACIES THAN TO FIND WAYS TO UNDERTAKE JOINT ENERGY DEVELOPMENT PROGRAMS.

-29-

THIRDLY, AN EMERGENCY PROGRAM HAS BEEN APPROVED BY ALL IEA MEMBERS TO MAINTAIN RESERVE STOCKS AND TO SHARE SUPPLIES DURING ANY FUTURE OIL EMBARGO. THE SIGNIFICANCE OF THIS PROGRAM CAN NOT BE EXAGGERATED. IT GREATLY REDUCES THE IMPACT OF SELECTIVE EMBARGOES AGAINST INDIVIDUAL COUNTRIES. AND IT EASES EVEN THE IMPACT OF A GENERAL EMBARGO WHICH IN ANY EVENT INVOLVES SUCH POLITICAL RISKS THAT IT COULD BE INVOKED ONLY IN THE MOST EXTRAORDINARY CIRCUMSTANCES. THE EMERGENCY SHARING PROGRAM IS BOTH INSURANCE AND A DETERRENT AGAINST A NEW EMBARGO.

THE IEA REPRESENTS A COLLECTIVE RESPONSE TO ONE OF THE MOST SERIOUS CHALLENGES THE WEST HAS FACED IN A GENERATION. IT DEMONSTRATES THE RECOGNITION BY THE DEMOCRACIES THAT THEIR DESTINY IS SHARED, AND THAT THEIR ONLY HOPE OF A SOLUTION IS THROUGH UNITY AND COMMON EFFORT. IT PROVIDES A BASIS ON WHICH THE NEW ADMINISTRATION CAN BUILD EVEN MORE FAR-REACHING FORMS OF COOPERATION.

AT THE SAME TIME, OUR INTERNATIONAL ENERGY
STRATEGY MUST TAKE ACCOUNT OF THE NEED TO SAFEGUARD THE
GLOBAL FINANCIAL SYSTEM AGAINST DISRUPTION.

THERE ARE TWO ENDURING CONSEQUENCES OF THE OIL
CRISIS -- THE CREATION OF MASSIVE PETRODOLLAR SURPLUSES
IN THE OPEC COUNTRIES, AND THE NEED OF OIL IMPORTERS,
BOTH RICH AND POOR, TO HAVE ACCESS TO NEW RESOURCES
TO MEET THE BALANCE OF PAYMENTS DIFFICULTIES WHICH THE
PETRODOLLAR SURPLUSES CREATE. IT IS ESSENTIAL THAT WE
TAKE MEASURES AGAINST THE POSSIBILITY OF INSTABILITY,
ARISING EITHER FROM A BREAKDOWN IN THE CAPACITY OF THE
IMPORTERS TO MEET THEIR BALANCE OF PAYMENTS NEEDS, OR
FROM MANIPULATION OF THE SURPLUSES BY THE EXPORTERS.

TWO MEASURES HAVE BEEN EXPLORED IN RECENT YEARS TO
MEET THAT NEED. ONE WAS A $25 BILLION FINANCIAL SUPPORT FUND,
NEGOTIATED IN 1975 BY THE INDUSTRIAL DEMOCRACIES FOR
MUTUAL ASSISTANCE IN AN OIL PAYMENTS CRISES. THE FAILURE

-31-

OF THE UNITED STATES CONGRESS TO RATIFY THE FUND, --
THE ONLY LEGISLATURE AMONG THE INDUSTRIALIZED COUNTRIES
TO DO SO -- WAS A SETBACK. BUT THE NEGOTIATION SERVED
AN IMPORTANT PURPOSE IN GIVING THE WORLD ASSURANCE THAT THE
INDUSTRIAL DEMOCRACIES WOULD NOT PERMIT THE FINANCIAL
SYSTEM TO FAIL FOR WANT OF LIQUIDITY.

WITHIN THE NEXT FEW DAYS THE MAJOR FINANCIAL POWERS
ARE MEETING IN PARIS TO DISCUSS A NEW FACILITY WITHIN THE
INTERNATIONAL MONETARY FUND, WHICH WOULD PROVIDE ADDITIONAL
RESOURCES TO COUNTRIES WHICH SUFFER BALANCE OF PAYMENTS
EMERGENCIES. IT WOULD DRAW ON IMPORTANT CONTRIBUTIONS
FROM OPEC MEMBERS, AND BE AVAILABLE TO BORROWERS IF THEY
WERE MAKING SATISFACTORY EFFORTS AT HOME TO CURB INFLATION
AND TO REDUCE IMPORTS.

PROVIDED ITS FUNDS ARE AVAILABLE WITHOUT CONDITIONS
DEPENDENT ON REGIONAL CONFLICTS, THE NEW FACILITY IN THE IMF
WILL SERVE AN IMPORTANT FUNCTION, AND SHOULD BE IMPLEMENTED

-32-

RAPIDLY, THE PROPOSAL NOW BEING CONSIDERED IN PARIS
IS AN IMPORTANT FIRST STEP. BUT EARLY CONSIDERATION SHOULD
BE GIVEN TO ARRANGING A SECOND TRANCHE, PERHAPS WITH LESS
RIGID DEPENDENCE ON OPEC FUNDS THAN THE PRESENTLY DISCUSSED
FIFTY PERCENT. IF THIS SHOULD PROVE DIFFICULT, OR IF
BURDENSOME CONDITIONS ARE ATTACHED BY THE OIL PRODUCERS,
NEW AND URGENT CONSIDERATION SHOULD BE GIVEN TO RESURRECTING
THE FINANCIAL SUPPORT FUND OF THE DEMOCRACIES WHICH WAS
DESIGNED TO SAFEGUARD THEIR ECONOMIES INDEPENDENTLY OF OPEC.

IF INTERNATIONAL ORDER IS TO BE MADE SECURE AGAINST
INSTABILITIES CAUSED BY ENERGY, THE NEEDS OF THESE
DEVELOPING COUNTRIES WHICH ARE NOT BLESSED WITH OIL MUST
BE ADDRESSED BY THE WORLD COMMUNITY.

THESE DEVELOPING COUNTRIES WERE CAUGHT IN THE MIDDLE
BY THE 1973 OIL CRISIS. BECAUSE OF THE ENERGY-INDUCED
RECESSION IN THE INDUSTRIALIZED COUNTRIES, THEIR OIL IMPORT

BILL SHOT UP, AND THEIR EXPORT PROSPECTS SHARPLY DECLINED.

THEY SEEK DESPERATELY TO RESUME THEIR ADVANCE TOWARD A
MORE HOPEFUL EXISTENCE, BUT THEY DO SO NOW UNDER LESS
HOPEFUL CIRCUMSTANCES. FROM 1973 TO 1975, THE FOREIGN
DEBT OF THOSE COUNTRIES NEARLY DOUBLED, FROM $67 BILLION
TO $117 BILLION. SOONER OR LATER, THIS MUST LEAD TO THE
DRYING UP OF FOREIGN ASSISTANCE OR TO A FINANCIAL CRISIS
OR BOTH. RECESSION AND INFLATION IN THE INDUSTRIAL
COUNTRIES SLACKENED DEMAND FOR THEIR EXPORTS AND RAISED
THE PRICE OF THEIR IMPORTS. THEY NEED RELIEF FROM THE
ENORMOUS BURDEN OF ENERGY COSTS ON THEIR DEVELOPMENT
HOPES AND PLANS. THIS RELIEF CAN ONLY COME FROM THE OIL
PRODUCERS AND THE INDUSTRIALIZED COUNTRIES SHARING
RESPONSIBILITY, IN CONDITIONS OF A THRIVING WORLD ECONOMY.
SPECIFICALLY,

-- WE SHOULD RAPIDLY EXPAND ALL FORMS OF ASSISTANCE,
CAPITAL AND TECHNICAL, TO AID THE DEVELOPING COUNTRIES

-34-

TO EXPAND THEIR OWN DOMESTIC ENERGY RESOURCES.

MANY DEVELOPING COUNTRIES POSSESS CONSIDERABLE PROMISE FOR OIL, COAL AND OTHER FORMS OF ENERGY.

THEY HAVE BEEN UNABLE TO EXPLOIT THEM FOR LACK OF THE CAPITAL AND TECHNICAL KNOWHOW WHICH MODERN ENERGY DEVELOPMENT DEMANDS. OPEC AND THE WEST HAVE A COMMON RESPONSIBILITY TO HELP THEM EXPAND THEIR OWN ENERGY OUTPUT.

-- THE WORLD FINANCIAL SYSTEM HAS PERFORMED REMARKABLY WELL IN CHANNELING SOME OF THE PETRODOLLAR SURPLUSES TO THE NEEDY DEVELOPING COUNTRIES. NOW, HOWEVER, IS THE TIME TO CONSOLIDATE THEIR DEBT STRUCTURES, AND EXPAND THE FLOW OF OFFICIAL, LONGER-TERM CAPITAL. THE DEVELOPMENT ASSISTANCE RESOURCES OF THE WORLD BANK AND OTHER INTERNATIONAL FINANCIAL INSTITUTIONS MUST BE EXPANDED, AGAIN THROUGH COOPERATION OF THE OPEC NATIONS AND THE WEST.

-35-

-- IN THE FINAL ANALYSIS, THE LONG TERM SOLUTION TO THE DEVELOPING COUNTRIES' PAYMENTS PROBLEMS IS TRADE. WE MUST STEM THE RETREAT TO PROTECTIONISM, AND COMPLETE THE TOKYO ROUND OF TRADE NEGOTIATIONS, IF WE HOPE TO OFFER ANY PERMANENT PROSPECTS OF DEVELOPMENT OF THE POORER NATIONS OF THE WORLD.

THIS BRINGS ME TO THE FOURTH, BUT PERHAPS MOST CHALLENGING, ELEMENT OF ANY INTERNATIONAL ENERGY STRATEGY: THE SIGNIFICANCE OF THE OIL PRODUCERS THEMSELVES, AND THEIR OWN ROLE IN THE EMERGING WORLD ENERGY ORDER.

CLEARLY, WE MUST PLAN AGAINST THE HAZARD OF CONFLICT. BUT, IN DOING ALL WE CAN TO REDUCE OUR VULNERABILITY TO PRESSURE AND THREAT, WE MUST TAKE CARE NOT TO MAKE IT INEVITABLE. WE MUST ALWAYS KEEP IN MIND THAT THE BASIC REALITY OF THE PRESENT SITUATION IS THE CLOSE INTERDEPENDENCE BETWEEN THE ENERGY PRODUCING NATIONS AND THE ENERGY CONSUMERS.

-36-

THE CHALLENGE TO CREATIVE DIPLOMACY IN THE YEARS AHEAD --
AND AN ESSENTIAL ELEMENT OF ANY ENERGY STRATEGY -- IS TO
MOLD THIS MUTUALITY OF INTEREST INTO A STABLE AND
POSITIVE LONG-TERM ECONOMIC AND POLITICAL RELATIONSHIP
WHICH MAKES OF INTERDEPENDENCE A GUARANTEE OF COOPERATION
RATHER THAN AN INSTRUMENT OF CONFLICT.

WHAT ARE THESE MUTUAL INTERESTS?

FIRST OF ALL, THE PRODUCERS NEED MARKETS FOR THEIR
OIL. DISRUPTION OF THE ECONOMIES OF THE INDUSTRIAL
DEMOCRACIES REDUCES WORLD GROWTH AND WORLD DEMAND FOR
ENERGY. IN 1975 MARKET CONDITIONS CHANGED AS THE RESULT
OF THE RECESSION IN THE INDUSTRIAL DEMOCRACIES TO THE
POINT WHERE SOME PRODUCERS DEPENDENT ON OIL IMPORTS FOR
AMBITIOUS DEVELOPMENT PROGRAMS FOUND THEMSELVES IN
DIFFICULTY AND WERE LOOKING FOR MEANS TO SELL THEIR
SURPLUSES DESPITE THE PRODUCTION RESTRICTIONS OF OPEC.

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SECONDLY, THE PRODUCERS HAVE A STAKE IN THE FINANCIAL STABILITY OF THE INDUSTRIAL DEMOCRACIES WHICH IS AFTER ALL THE ONLY PLACE THEY CAN PRODUCTIVELY INVEST THEIR PAYMENTS SURPLUSES. THE GLOBAL ECONOMY CANNOT BE DISRUPTED AS IT WAS IN 1973 WITHOUT SEVERE DAMAGE TO THE INTERESTS OF THE OIL PRODUCING COUNTRIES, PERHAPS MOST OF ALL. A WORLD ECONOMIC CRISIS WOULD HAVE A MASSIVE IMPACE NOW ON PRODUCERS AS WELL AS CONSUMERS BECAUSE THE PRODUCERS' OVERSEAS INVESTMENTS WOULD BE IN SEVERE JEOPARDY.

THIRDLY, THE INDUSTRIALIZED WORLD IS THE ONLY SOURCE OF THE TECHNOLOGY, CAPITAL GOODS, TRAINING, AND MANAGEMENT SKILLS WHICH THE OIL PRODUCERS REQUIRE TO DEVELOP THEIR ECONOMIES. IN A CLIMATE OF CONFRONTATION, THE GOVERNMENTS AND PUBLICS OF THE INDUSTRIALIZED WORLD HAVE LITTLE INCENTIVE TO SUPPORT SUCH PROGRAMS.

FOURTH, MANY OF THE OIL PRODUCERS ARE CONCERNED ABOUT THEIR OWN STABILITY AND SAFETY. A COOPERATIVE RELATIONSHIP

(Y)

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WITH THE WEST ENHANCES THEIR SECURITY. THEY CANNOT BE EAGER TO SHATTER TIES WHICH MIGHT EXPOSE THEM TO AVARICIOUS AND HOSTILE NEIGHBORS; THEY HAVE A MAJOR POLITICAL INTEREST IN THE FRIENDSHIP OF THE INDUSTRIAL DEMOCRACIES.

THUS MOST OF THE OIL PRODUCERS CAN HAVE NO INTEREST IN CONFRONTATION; THEY HAVE AN IMPORTANT STAKE IN A SATISFACTORY, COOPERATIVE SOLUTION TO THE ENERGY PROBLEM. INDEED, SOME OF THE MORE ENLIGHTENED OPEC COUNTRIES ARE LEADING ADVOCATES OF ENERGY CONSERVATION. THEY KNOW THEIR IS A DEPLETING RESOURCE AND THEY ARE EAGER TO EXTEND ITS LIFE OVER THE LONGEST PERIOD OF TIME. MOST OF THE OIL PRODUCERS WANT TO SUE THEIR OIL REVENUES WHILE THEY EXIST TO FINANCE THE TECHNICAL ASSISTANCE THEY NEED FROM OUTSIDE TO DEVELOP AND DIVERSIFY THEIR ECONOMIES. THEY ALSO POINT OUT THAT THE WORLD'S OIL RESERVES ARE TOO VALUABLE TO BE USED UP FOR FUEL; THEY ARE SEEKING TO SWITCH THEIR OIL

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RESOURCES INTO NEW PETROCHEMICAL INDUSTRIES FOR THEIR
OWN ECONOMIC ADVANCE.

THUS ENERGY CONSERVATION AND THE REDUCTION OF THE
WEST'S OIL IMPORT REQUIREMENTS ARE AS MUCH IN THE
PRODUCERS' LONG-TERM INTEREST AS THEY ARE IN OUR OWN.
THE ULTIMATE "SOLUTION" TO THE WORLD'S ENERGY PROBLEM
IS A THRIVING INTERDEPENDENT GLOBAL ECONOMY WHICH PROMOTES
ECONOMIC ADVANCE IN EVERY REGION, IN RELIANCE ON THE FREE
FLOW OF TRADE AND KNOW-HOW AND INTERNATIONAL COOPERATION.

THE INDUSTRIAL NATIONS MUST RECOGNIZE THE DEVELOPING
COUNTRIES' AND OIL PRODUCERS' LEGITIMATE ASPIRATION FOR
LONG-TERM INCOME SECURITY AND ECONOMIC GROWTH. THE DEVELOPING
COUNTRIES AND PRODUCERS IN THEIR TURN MUST RECOGNIZE THAT
PRESSURE OR BLACK MAIL WILL IN TIME BACKFIRE ON THOSE WHO
USE SUCH TACTICS. THE UNITED STATES, AS THE WORLD'S
STRONGEST ECONOMY, WOULD BE INJURED LESS THAN OTHERS IN AN
ENVIRONMENT OF ECONOMIC WARFARE. BUT THIS WOULD BE INCOMPATIBLE

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WITH THE OPEN ECONOMIC SYSTEM THAT HAS NOURISHED THE WORLD'S PROSPERITY AND OUR OWN, AND THAT WE WISH TO SEE PROSPER. AND IT WOULD BE INCONSISTENT WITH BASIC AMERICAN VALUES AND THE AMERICAN PEOPLE'S HOPES FOR A WORLD OF PEACE, COMPASSION, ECONOMIC PROGRESS, AND JUSTICE.

A COOPERATIVE SOLUTION FOR ENERGY THUS MERGES WITH THE PROBLEM OF WORLD ORDER. THE UNITED STATES HAS HAD NO MORE IMPORTANT TASK THAN TO BUILD AN INTERNATIONAL SYSTEM THAT ALL NATIONS HAVE A STAKE IN PRESERVING BECAUSE THEY PARTICIPATE IN ITS CONSTRUCTION AND SHARE IN ITS BENEFITS.

CONSUMERS, PRODUCERS, AND DEVELOPING COUNTRIES SHOULD PERCEIVE THE ENERGY CRISIS, BOTH THE DANGERS OF ECONOMIC WARFARE AND THE MORE HOPEFUL RECOGNITION OF THEIR COMMON STAKE, IN A FLOURISHING AND JUST WORLD ORDER.

FOR THE UNITED STATES PARTICULARLY, THIS IS AN EXTRAORDINARY MOMENT. FOR A GENERATION WE HAVE CARRIED

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OUT OUR RESPONSIBILITY TO MAINTAIN THE WORLD BALANCE OF POWER, AND TO LEAD THE ALLIANCES OF THE FREE NATIONS.

WE HAVE BEHIND US AN ERA OF GREAT ACCOMPLISHMENT. THE ENERGY CRISIS IS THE CHALLENGE OF A NEW ERA. REPUBLICANS AND DEMOCRATS, CONGRESS AND THE EXECUTIVE, PRIVATE SECTOR AND GOVERNMENT -- CAN WORK TOGETHER IN THE GREAT COMMON ENTERPRISE OF MAKING A MAJOR ADVANCE TOWARDS A WORLD OF COOPERATION AND JUSTICE. THIS IS A CHALLENGE THAT FACES US NOT AS PARTISANS BUT AS A NATION.

THE COMBINATION OF TECHNICAL GENIUS AND MORAL IDEALS IS THE EXTRAORDINARY QUALITY OF THE AMERICAN PEOPLE. WE HAVE THE POTENTIAL TO TURN THE ENERGY CRISIS FROM A PROBLEM INTO A NEW ADVANCE TOWARD OUR TRADITIONAL GOALS OF PEACE AND JUSTICE AND PROGRESS, TOWARD A FUTURE IN WHICH ALL NATIONS AND PEOPLE'S COME TO PARTICIPATE IN THE FREEDOM AND WELLBEING WITH WHICH WE HAVE BEEN BLESSED.