As U.S. energy policy has evolved lately, a number of Administration planners have concluded that the high world oil prices not only pose severe economic problems but also point the way to their solution. The argument: high or relatively high prices can be used to discourage consumption and, more important, to encourage investment in development of new energy sources.
Last week, in a speech before the National Press Club in Washington, Secretary of State Henry Kissinger made the strongest affirmation yet of that philosophy. The Secretary coupled a call for a "substantial" reduction in the price of oil with an argument that there is a minimum level below which the price should not be allowed to sink. He asked all the major consuming nations to join the U.S. in establishing a "common floor" for the price, to be maintained through import tariffs or other means.
Kissinger's floor plan was submitted to the Paris-based International Energy Agency last week by Assistant Secretary Thomas Enders. IEA officials were noncommittal. Neither Kissinger nor Enders has said publicly where the floor might be. The level most often mentioned in Washington is $7 or $8 per bbl. That is far above the $2.65 import price that prevailed before the Arab oil embargo of October 1973, but it is also $3 to $4 below the $10.80 per bbl. basic price currently dictated by the 13-member Organization of Petroleum Exporting Countries.
The core of Kissinger's argument for a minimum price was that it was necessary to "bring about adequate investment in the development of conventional, nuclear and fossil energy sources." He urged the consuming nations to join the U.S. in a consortium that over the next ten years would invest $500 billion in developing nuclear power, synthetic fuels and other energy alternatives. At the same time, he made a carrot-and-stick offer to the OPEC countries. The oil producers, said the Secretary, can "accept a significant price reduction now in return for stability over a longer period. Or they can run the risk of a dramatic break in prices when the program of alternative sources begins to pay off."
In sum, Kissinger's basic strategy for dealing with the oil cartel is 1) to threaten the OPEC countries with a break in prices in the future as the consuming countries gain greater energy independence, and 2) to hold out to the producers the promise of stable income over the long term if they agree to cooperate with the needs of the consumers now.