Years of Upheaval

by Henry Kissinger

  These differences over tactics were quickly overtaken by events. For three years, a new infrastructure had been elaborated by the oil-producing nations built on the weakness and irresolution of the consumers. Free-market theology had kept the consumer governments, and especially the United States, out of negotiations as the companies were rendered defenseless. Political demands had become mingled with economics. When Western Hemisphere oil could no longer replace imports from the Arab world, the threat of a production cutoff by OPEC suddenly turned into a crucial weapon. The October war put a triumphal arch over this structure. Amazingly, the full implications of it had not yet been absorbed when the war was started. It was probably just as well, for otherwise we might not have mustered the unity or determination to stick to a course that our geopolitical imperatives demanded.

  The October War and Energy: The First Oil Shock

  WHEN the war began, there was vague talk in our government about a possible oil embargo. Remembering the experience of 1967, few believed that it could have any lasting impact. Deputy Assistant Secretary of State Roy Atherton, however, predicted an embargo as early as the first WSAG meeting on the morning of October 6, and Deputy Secretary Kenneth Rush worried that we had no contingency plans for it. So starting that evening, I called for contingency plans at each WSAG meeting, with no clear idea of what that request implied. Bill Simon, Governor Love, and Charles DiBona (energy consultant to the President) did yeoman work. Still, events moved faster than our capacity to plan. Gasoline rationing was discussed, but all agencies thought it premature. I was advocating a common front of consumer nations, including plans for emergency sharing in case of an embargo, yet none of our allies was prepared even to discuss such a plan.

  This became clear on October n, when French Foreign Minister Michel Jobert called on me for the first time in my new role of Secretary of State. Jobert warned that the producers were about to double the price of oil. Would we accept this? Of course we could not, but resistance by America alone would be ineffective and Jobert opposed consumer solidarity. I told Jobert that the pressure on price was not primarily the result of the war; the OPEC meeting, which began in Vienna on October 8, had been scheduled well before the outbreak of hostilities. As for dealing with a price rise, there were two problems. Heretofore the negotiations had been conducted by the oil companies, which had excluded the governments from their discussions and had passed on the price rises to the consumers. But if governments were now to attempt to break this spiral, all the consumers had to cooperate. I said:

  We do not have a strategy. . . . There really is a kind of madness. You are nationalized in Algeria, and then our companies go in to take your place. We might be nationalized somewhere else, and we are replaced by others. We should discuss all of this with the consuming nations. . . .

  It is an illusion to think that, once the war is settled, then there would be no problem about oil. However, the present method of dealing with the question is suicidal. First, we must get our own house in order. We are prepared to talk with you about this on a very confidential basis. If you wish to send someone over to see us, we will welcome that.

  Jobert did not take up the offer of confidential talks; he remained cool to consumer cooperation. An American proposal to mobilize a common strategy among the consuming nations had been on the table since my Year of Europe speech six months earlier. It had been repeated several times since. It had been ignored because France, in particular, wanted to retain a free hand in energy matters; it sought to use the crisis to make advantageous bilateral deals with the producing nations.

  On October 16 OPEC abandoned the creeping increase of oil prices in favor of a dramatic rise. In a stunning and unprecedented move, and without any discussion with the consumers, six Gulf states unilaterally raised the posted price of oil by 70 percent — from $3.01 to $5.12. The Arab members of OPEC, meeting in Kuwait, agreed the next day to cut their oil production by 5 percent and to continue reducing it by 5 additional percent every month until Israel was induced to withdraw from all occupied Arab territories. On October 18 Saudi Arabia announced that it would exceed the agreed quota by cutting its production by 10 percent until Arab Mideast terms were satisfied. These production cuts, whatever their political rationale, in fact sustained the higher price and laid the basis for even more dramatic increases.

  Matters soon became even more critical. On October 19 Nixon asked the Congress for a $2.2 billion package of assistance to Israel to pay for the military equipment sent by the airlift. The request was put forward as a routine, largely budgetary, decision. There was no existing appropriation to cover our emergency airlift to Israel. The Defense Department was afraid that it would have to absorb the costs by reducing other programs. Legislative experts argued that it would be easier to obtain a supplementary appropriation while the war was going on than afterward. The decision to submit the request was thus made on technical grounds. I can find no record that anyone warned of an Arab reaction. Those fears had been real enough in the days before our airlift was launched. Now, nearly a week later, the worst was thought to be over.

  The timing of the aid request could not have been more unfortunate. Until that point, we had maneuvered so that our airlift appeared as a response to the Soviet buildup and the failure of our cease-fire initiative. In the United Nations we had fended off resolutions we might have had to veto, and thus avoided sparking Arab resentments. But now during the last weekend of the war, while Egypt’s army was in difficulty and Israeli forces were close to Damascus, the announcement of our $2.2 billion aid package set up a target for mounting Arab frustrations. We would have been much better advised to defer the formal request until after the cease-fire had been agreed. We could have then explained it as our contribution to bringing the war to an end.

  The Arab reaction was swift. The day after our announcement — the day I left for Moscow to negotiate a cease-fire — Saudi Arabia declared a total embargo on oil exports to the United States. Later the Arab members of OPEC extended the embargo to the Netherlands, the European government that expressed most support for our policy. The October 16 OPEC decision on price, the October 17 Kuwait decision on Arab production cutbacks, and the October 20 Arab embargo together revolutionized the world oil market.

  The structure of the oil market was so little understood that the embargo became the principal focus of concern. Lifting it turned almost into an obsession for the next five months, partly because Nixon thought that it lent itself to a spectacular that would overcome Watergate. In fact, the Arab embargo was a symbolic gesture of limited practical impact. To be sure, Saudi and other Arab oil was not shipped to the United States. But since the oil companies were operating a common pool, they simply substituted nonembargoed non-Arab oil for embargoed Arab oil and shifted other allocations accordingly. The true impact of the embargo was psychological. The fear that it might be extended — that Arab production might shut down further — triggered a wave of panic buying by Europe and Japan, which constricted supplies and drove prices up even more.

  It was, in fact, the production cutbacks that really transformed the market, sharply accelerating the tilt in the balance between supply and demand and demonstrating the extraordinary leverage of the producing countries. The hesitant reaction of the consuming nations compounded their difficulties. Their reluctance to cooperate with one another perpetuated their vulnerability, virtually guaranteeing a permanent crisis.

  At a State Department staff meeting on October 18 I objected to the proposition that the companies had no choice but to agree to the new price hike:

  What do we want to do? . . . [T]he next year they go to $10.00. Will they then have to accept that too? . . . Then they go to $20.00. Is there some point at which they have to resist? . . . My instinct would be that since the situation is going to get worse, it’s better to have a confrontation early.

  The figures I had mentioned sarcastically to demonstrate the absurd lengths to which the abdication of the consumers could drive the oil mar
ket began to become a reality within six weeks. I was right in my perception, but so was Under Secretary of State for Economic Affairs William J. Casey in his rejoinder: “Well, what does confrontation mean? Nobody in this government has come up with any way to deal with these demands.” The beginning of wisdom for an oil strategy should have been solidarity among all major consumer nations. That was prevented by six months of transatlantic tensions now magnified by the panic triggered by the price rises, production cutbacks, and embargo. No European government took up our offer of private exchanges on energy cooperation. They missed no opportunity to dissociate from our Mideast diplomacy — as described in Chapter XVI. Indeed, the European nations refused to share oil supplies even with their embargoed partner, the Netherlands, for fear that the producers might in retaliation extend the embargo to them.

  In these circumstances, the United States was forced to implement a strategy unilaterally. This had three components: a national energy program that would attempt to restore some balance in the world energy market; a Middle East diplomacy that would not be deflected by pressures, however painful, whether from allies or producers; and, having established these premises, a return to the effort to mobilize consumer solidarity.

  On November 7, 1973, Nixon proclaimed Project Independence, which committed the United States to free itself of the need to import energy by 1980 through conservation and the development of alternative sources. On one level, it was a vainglorious pronouncement, since all indicators showed that our dependence was likely to increase, not diminish, by 1980. On the other hand, while Nixon underestimated the time required for the task, he pointed the country in the right direction. In international affairs, when faced with a problem, Nixon sought the means with which to root it out, not to palliate it. America would have to be less profligate in its use of energy and more inventive and determined in developing alternative resources. If we could reduce our dependence on imported oil, the bargaining position of all consumers would improve dramatically. And that is how it turned out, if over a longer period of time than Nixon envisaged.

  The long-range strategy did not, of course, solve the immediate problem of our policy differences with our allies.

  A corollary of Project Independence was a demonstration by us that pressure could not affect the pace or the content of our diplomacy. We insisted on sticking to the diplomacy we had charted in the early days of the war despite the pressures of many of our allies who sought to placate the producers by embracing their political demands. Painful as we found it, we thought we served our allies best by stressing their inability to affect our decisions, therefore removing an incentive for producer pressures against them.

  It took many months for this strategy to take effect, and it could not be achieved without cost, especially to allied relations. Once the process of dissociation — which we had not started — was under way, a vicious circle resulted. For proud nations that until recently had dominated the Middle East, it was not a little humiliating to be shown to be irrelevant to Mideast peace diplomacy. They in turn lost no opportunity to exacerbate the problem. By December 1973, we were being told that some of our allies were asking for preferential treatment from the Arabs for having disavowed our policy. The United States, so the alleged argument ran, must not be rewarded even should our diplomacy make progress. The embargo against us should be kept in force for several months or else the European and Japanese dissociation from our policy would be seen to have been pointless. We could never confirm all these allegations but they were too numerous not to have a foundation. It was not one of the finer moments of allied relations.

  As for pressures by the producers, we thought it in the best interests of the moderates among them to shield them from assuming responsibility for what was bound to be a complex and bitter negotiation on Arab-Israeli peace. To involve Saudi Arabia in the details of the negotiations seemed to us to expose a valued friend to unnecessary pressures from all sides. The moderate Arab producers faced a complex enough situation as it was. Having resorted to the oil weapon in a moment of high emotion, they found it hard to end it. The requirement of Arab unity in effect gave the radicals a veto.

  Sadat had been instrumental in urging use of the oil weapon during the war. In our early contacts with him he, like his brethren, used the formula that the embargo had been a multilateral decision and could not be lifted except by joint action. Thus he needed to be able to point to some progress in peace talks before he could recommend alleviating the oil pressures. So long as he did not seek to push us beyond what we had decided before the embargo — and what was needed quickly to prevent another blowup — we were prepared to acquiesce. But we insisted all along that we would not carry our diplomacy beyond Egyptian-Israeli disengagement unless the embargo was ended — in effect we turned the oil weapon against the producers. Recognizing this, Sadat from late in November on urged a progressive lifting of restrictions, to coincide with the completion of the first disengagement agreement. But even for Sadat it proved easier to brandish the oil weapon than to sheath it.

  King Faisal told me that he could not end the embargo unilaterally or even at the recommendation of a solitary Arab leader like Sadat, and I believe he was telling the truth. Without an Arab consensus, lifting the embargo would prompt a backlash against him; the easing in relations with the United States would be offset by menace from his radical colleagues. As it turned out, Faisal did not want to risk this without some progress on the Syrian front. We could not wait that long. A Syrian disengagement would take months. And if we permitted the producers to erect one set of hurdles after another, there would be no end to the race. Each success would produce only a demand for yet another diplomatic exertion; the oil pressures would become permanent. On the other hand, to the extent that the producers were eager for a Syrian disengagement — and most of them were — our refusal to proceed would make the oil weapon a wasting asset. It left them with the problem of how to disengage from their own handiwork.

  The Arab leader most widely identified in the West with oil diplomacy was the Saudi Oil Minister, Sheikh Ahmed Zaki Yamani. I had met him several times before the crisis made him an awesome figure fawned over in his global travels by eager votaries and journalists hanging on his every word. I had found him extraordinarily intelligent and well read; he could speak penetratingly on many subjects, including sociology and psychology. His watchful eyes and little Van Dyke beard made him look like a priggish young don playing at oil policy but not really meaning the apocalyptic message he was bringing, especially as it was put forward with a gentle voice and a self-deprecatory smile at variance with the implications of his actions.

  In a different society or at a different time, Yamani might have become a scholar or the leader of one of the tiny political parties on the moderate right or left whose influence depended not on size but on the intellectual integrity of the membership — for example, the Republican Party in Italy, which prides itself that its small numbers reflect its rigorous standards. But in his country at that time, barred by birth from the political leadership reserved for princes and by talent from an ordinary existence, he emerged in a position as essential as it was peripheral to the exercise of real political power within the Kingdom. He became the technician par excellence, nearly indispensable for the industry central to his country’s and ultimately the world’s economy. Nothing was possible without him; but the ultimate decisions were made by others, on the basis of calculations to which his contribution was technical and in response to pressures he had no possibility of affecting (and perhaps evaluated in his own way).

  There was thus an inevitable gap between Yamani’s influence in the world at large and inside Saudi Arabia. Globally, Yamani was celebrated, often feared. He appeared as the authentic voice of the Kingdom, occasionally even of the Arab world. But inside Saudi Arabia his position was much more ambiguous. Not a member of the royal family or of aristocratic rank, he had made his way in a traditional society by his uncommon ability. But he was far from the
inner circle. He attended few of my meetings with the leading princes. When he did participate, he was seated in protocol order among the lesser officials in the room, and he never spoke. I have often wondered whether Yamani’s occasionally strident pronouncements did not reflect his insecurity in his own political hierarchy and his need to establish himself with key groups around the Arab world rather than the considered opinions of the Kingdom.

  In that sense, Yamani embodied the perplexities with which his specialty saddled his country. The passage from feudalism to modernity has always been traumatic. Saudi Arabia’s dilemma is that the very oil income that makes it so pivotal in the world economy can also accelerate the process of internal modernization at a rate no society at a comparable state of political evolution has ever had to face. The pace toward such a future must be ambivalently perceived by Saudi leaders. Feudal societies operate by traditional, reciprocal, largely personal obligations. The modern state seeks predictability through legal or bureaucratic norms. A feudal state stresses status; a modern state emphasizes achievement. Yamani represented a meritocracy whose influence would grow as fast as the oil income he was generating. Economic and social development challenges the traditional modes and sources of power; modernization trains thousands in foreign countries, inculcating values not easy to reconcile with those of an inward-looking, authoritarian state based on Bedouin loyalties. One Yamani was an invaluable asset. But what would happen when there were ten thousand? How would new status for such groups be reconciled with the claims of a hereditary ruling class? How would past and future successfully meld?