DIALOGUE ON WORLD OIL contains the edited proceedings of an October 1974 conference on world oil problems sponsored by the National Energy Project a conference sponsored by the of the American Enterprise Institute for Public Policy Research. AEI National Energy Project In October 1973, Arab oil-exporting nations sharply reduced their production of crude oil and imposed a complete embargo on exports to the United States. Subsequently, crude oil prices in the Arab Persian Gulf rose fourfold and have sustained that level since. Today, oil-consuming nations face stiffly higher prices, the threat of future cutbacks or embargoes, and, in some cases, a financial condition that can only be labeled critical. The main purpose of this two-day conference DIALOGUE ON was to bring together experts to analyze and discuss the issues growing out of these events and circumstances. The conference was unique in many respects. It offered a forum for discussion WORLD OIL of world oil problems among representatives of oil-producing and oil-consuming J. nations. It brought together representatives of different disciplines-economics and Edited by Edward Mitchell political science-and different interests-oil company executives, environmental­ With a foreword by Melvin R. Laird ists, and consumerists. And this was done on a scale small enough to encourage candid exchanges of views and extended discussions of important topics. Hendrik Houthakker of Harvard University opened the conference with a paper on the world oil market. He was followed by Donald S. Macdonald, Canada's minister of energy, mines and resources, who offered a consideration of Canadian energy problems as a microcosm of the world situation. This was followed by a presentation of the politics of world oil by George Lenczowski of the University of California at Berkeley. Alan Greenspan, chairman of the President's Council of Economic Advisers, closed the first day of the meeting by answering questions from the press and others concerning the world oil problem's impact on the American economy. The highlight of the second day was a televised panel discussion and question­ and-answer session featuring Sheikh Ahmed Zaki Yamani, Saudi Arabia's minister of petroleum and mineral resources; Senator Henry M. Jackson; John W. Sawhill, federal energy administrator; George Ball, former under secretary of state; Donald S. Macdonald; and former Secretary of Defense Melvin R. Laird, who chaired the discussion. Job Name:2275880 Date:15-06-18 PDF Page:2275880cbc.p1.pdf Color: Cyan Magenta Yellow Black DIALOGUE ON WORLD OIL was spon­ sored by the National Energy Project, Ameri­ can Enterprise Institute for Public Policy Re­ search, 1150 17th Street, N.W., Washington, D. C. 20036 Melvin R. Laird, Chairman Edward J. Mitchell, Project Director ADVISORY COUNCIL Kenneth J. Arrow, Professor, Harvard University George W. Ball, Partner, Lehman Brothers Thonlas Bradley, Mayor, City of Los Angeles Harold Brown, President, California Institute of Tech­ nology Janles L. Buckley, U.S. Senator, New York Robert Cahn, Christian Science Monitor Ruth C. Clusen, President, League of Women Voters Marlow W. Cook, U.S. Senator, Kentucky Wendell H. Ford, Governor, Kentucky Stanley K. Hathaway, Governor, Wyoming Paul R. Ignatius, President, Air Transport Association Mike McCormack, U.S. Representative, Washington Walter F. Mondale, U.S. Senator, Minnesota John N. Nassikas, Chairman, Federal Power Commis­ sion Vermont Royster, University of North Carolina Philip E. Ruppe, U.S. Representative, Michigan Glenn T. Seaborg, Professor, University of California Charles E. Spahr, Chairman, Standard Oil of Ohio Edgar B. Speer, Chairman, U.S. Steel Corporation Elvis J. Stahr, President, National Audubon Society Chauncey Starr, President, Electric Power Research Institute Clement J. Zablocki, U.S. Representative, Wisconsin Richard M. Fairbanks III, Assistant to the Chairman DIALOGUE ON WORLD OIL A conference sponsored by the American Enterprise Institute's National Energy Project THE AEI NATIONAL ENERGY PROJECT The American Enterprise Institute's National Energy Project was established in early 1974 to examine the broad array of issues affecting U.S. energy demands and supplies. The project will commission research into all important ramifications of the energy problem-economic and political, domestic and international, private and public-and will present the results in studies such as this one. In addition it will sponsor symposia, debates, conferences, and workshops, some of which will be televised. The project is chaired by Melvin R. Laird, former congressman, secretary of defense, and domestic counsellor to the President, and now senior counsellor of Reader's Digest. An advisory council, representing a wide range of energy-related viewpoints, has been appointed. The project director is Professor Edward J. Mitchell of the University of Michigan. Views expressed are those of the authors and do not necessarily reflect the views of either the advisory council and others associated with the project or of the advisory panels, staff, officers, and trustees of AEI. DIALOGUE ON WORLD OIL Proceedings of a Conference on World Oil Edited by Edward J. Mitchell With a foreword by Melvin R. Laird American Enterprise Institute for Public Policy Research Washington, D. C. Distributed to the Trade by National Book Network, 15200 NBN Way, Blue Ridge Summit, PA 17214. To order call toll free 1-800-462-6420 or 1-717-794-3800. For all other inquiries please contact the AEI Press, 1150 Seventeenth Street, N.W., Washington, D.C. 20036 or call 1-800-862-5801. ISBN 0-8447-2059-3 (Paper) ISBN 0-8447-2060-7 (Cloth) Library of Congress Catalog Card No. 74-29419 © 1974 by American Enterprise Institute for Public Policy Research 1150 Seventeenth Street, N.W., Washington, D. C. Permission to quote from or to reproduce materials in this publication is granted when due acknowledgment is made. Printed in the United States of Anlerica MAJOR CONTRIBUTORS George Ball Senior Partner, Lehman Brothers Alan Greenspan Chairman, Council of Economic Advisers Hendrik Houthakker Professor of Economics, Harvard University A1elvin R. Laird Senior Counsellor, Reader's [Jigest Chairman, American Enterprise Institute's National Energy Project George Lenczowski Professor of Political Science Universi ty of California, Berkeley Henry M. Jackson United States Senator, Washington Donald S. Macdonald Minister of Energy, ~1incs and Resources, Canada Philip E~. Ruppe United States Congressnlan, Michigan John Sawhill Administrator, Federal Energy Administration Herbert Stein A. Willis Robertson Professor of Economics University of \'irginia Sheikh Ahnzed Zaki Yal1zani Minister of Petroleum and Mineral Resources Saudi Arabia FOREWORD In this difficult and challenging decade, the most pervasive issue to be resolved by our economic and political institutions is that of the supply of and demand for the basic ingredient of modern industrial society: energy. In order to help in the vital task of informing the public of the major energy-policy issues and to stimulate original thinking and analysis in this area, I agreed to serve as chairman of the National Energy Project-a nonpartisan, nonprofit undertaking of the American Enterprise Institute for Public Policy Research. We are proud of the work of the project to date-of the published studies, academic research, and public debates on a wide variety of energy policy issues­ but I believe that this conference on world oil problems best epitomizes our efforts. Oil is the lynch pin of the present world energy market. Its price and availability are the central components of the present world fuel mosaic. To discuss both the economic and political considerations underlying the world oil market, the National Energy Project brought together in Washington an unprecedented spectrum of those interested in and knowledgeable of energy affairs­ economists, U.S. government leaders from both the Congress and the executive branch, oil industry spokesmen, representatives from oil-exporting countries around the globe, state and local government officials, environmentalists, and scientists. Each participant brought a unique perspective, and I believe we each took away from this conference a broadened understanding of the others' points of view. Even though the complexity of these problems is matched only by their importance, the underlying conclusion of this conference is the irreplaceable need for interchange of ideas and perspectives. The most dangerous shortage of all is a shortage of international understanding. I am glad that we can share the excitement of this conference through this publication. I hope that you will be challenged to rethink these cardinal policy questions with the participants. MELVIN R. LAIRD 11 November 1974 CONTENTS FOREWORD Melvin R. Laird INTRODUCTION .. ........................................... .. 1 Edward J. Mitchell PART ONE SUPPLY, DEMAND, AND THE PRICE OF OIL 5 Hendrik Houthakker 5 Discussion 14 PART TWO CANADIAN ENERGY PROBLEMS: A MICROCOSM OF THE WORLD SITUATION 31 Donald S. Macdonald 31 Discussion 37 PART THREE THE POLITICS OF WORLD OIL ................................ .. 45 George Lenczowski 45 Discussion 52 PART FOUR WORLD OIL AND THE AMERICAN ECONOMy 71 Discussion with Alan Greenspan PART FIVE DIALOGUE ON WORLD OIL .. ................................ .. 81 Melvin R. Laird, George Ball, Donald S. Macdonald, Sheikh Ahmed Zaki Yamani, Henry M. Jackson, John W. Sawhill 81 Discussion 93 CONFERENCE PARTICIPANTS 105 INTRODUCTION Edward