YOUR SPEECH TO THE MID-CONTINENT OIL & GAS ASSOCIATION, OCTOBER 15, 1976

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP91M00696R000700030040-3
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 11
• Document Creation Date: December 15, 2016
• Document Release Date: March 24, 2004
• Sequence Number: 40
• Publication Date: October 8, 1976
• Content Type: NOTES

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8 October 1976
NOTE FOR: The Director
FROM :
SUBJECT Your Speech to the Mid-Continent Oil & Gas Association,
October 15, 1976
1. Attached is a suggested outline for the substantive
portion of your remarks to the Oil & Gas Association. It seemed
more appropriate to me to prepare this in outline form rather
than finished text, but it can easily be converted if you wish.
2.. The text is largely drawn from OER material and has
been cleared by OER and by the A/NIO for Economics.
will look it over early next week. A copy has also guile zo
Andrew Falkiewicz.
3. Also attached are the two briefing papers we prepared
but did not use for Governor Carter on Energy and Petrodollars.
You might wish to review them before your talk.
4. 1 will be available to make whatever changes you might
wish and can provide you with additional copies or a larger type
as you desire.
Attachments
A/S
cc: Mr. Falkiewicz
am (8 Oct 76)
Distribution:
Original - Addressee
1 ?- D/DCI/NI
1 - EO/DCI/NI
A File: DCI
1 RI
1, -- A/EO/DCI/NI Chrono
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ECONOMIC INTELLIGENCE
I. The world has changed greatly since World War II, and so
have the interests of the Intelligence Community. In particular,
economic intelligence has grown steadily in importance during the
last decade. This growth is no fad. It dervies from a change
in the nature of the policy issues of concern to the President
and his principal advisers.
A. Until a few years ago, national security issues were
overwhelmingly political in nature.
1. The main role for economic intelligence was in
assessing the economic potential of the USSR, China,
and Eastern European nations for making war.
2. This mission remains, and CIA continues to devote
a large portion of its economic analytical resources
to understanding the strengths and weaknesses of
the Communist economies.
B. Today, however, international economic problems --
many of which bear no relationship to the Soviet Union
or the Communist countries -- are of great concern.
We now must consider the tradeoffs between our foreign
economic, political, and military objectives. In
addition, international economic developments have a
direct impact on our domestic economy.
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II. Policymakers today have greatly increased their demand for
economic intelligence support. They want to know what is going
on.,
w a~ it means, and what to expect in the future.
A. Since 1970, the stable international economic environment,
which had stimulated very rapid growth of international
trade, has been badly shaken. Several crises occurred
in quick succession, and to a greater or lesser extent
they are still with us:
1. A dollar crisis;
2. A less dramatic, but probably more lasting trade crisis;
3. A grain crisis;
4. An energy crisis.
B. Beginning in 1971 the monetary rules changed, gold was
dethroned, and international negotiations on exchange
rates, exchange market intervention, and the like became
of direct concern to our most senior policymakers.
C. Overshadowing more traditional economic concerns is
the question of access to resources.
1. The OPEC oil cartel -- I'll speak more of that later is in the forefront.
2. We may face similar challenges in other raw
materials. Shortfalls in grain production in the
USSR and elsewhere affect both the American farmer
and the American consumer.
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3. Trade negotiations, the price of gold, and the
increasingly strident demands of Third World countries
for a redistribution of income in their favor are
but a few of the important economic issues concerning
us all.
III. These newer problems have vastly broadened the number of
countries about which economic intelligence must be concerned.
The world is increasingly interdependent, and our economic security
is linked to developments worldwide. Foreign economic policy can
no longer be viewed as a subordinate aspect of foreign policy to
be left largely to technicians.
A.- Foreign economic matters can have a major impact on
our ability to maintain troops in NATO, on our relations
with Western Europe, on relations with the USSR and
China, and on the whole spectrum of our relations with
Japan. Thus, the Secretary of State must concern
himself with economics.
Q. Foreign economic questions now-also involve such matters
as the price of bread in American markets, the
availability of gas and fuel oil, jobs for textile, shoe,
and auto workers. Therefore the Secretary of the
Treasury, the Secretary of Commerce, the Secretary of
Labor, the Secretary of Agriculture -- all must concern
themselves with international economics.
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IV. To support these consumers -- and the Council of Economic
Advisers, the Council on International Economic Policy, the Economic
Policy Board -- the U.S. Intelligence Community has made major
changes in dealing with foreign economic intelligence.
A. CIA's Office of Economic Research is the main national
analytic research base. It is the largest element
of the U.S. Government engaged in research on foreign
economic matters.
B. Economic specialists in many other areas of the Government
are also at work in this area -- in Treasury, the
Department of State, Agriculture, etc. We are trying
hard to bring about the best possible coordination
of these informed people -- sharing information and
judgments. We believe strongly that competition in
analysis is highly desirable -- and we have, of course,
greatly increased our efforts to collect foreign economic
intelligence abroad as well.
C. There are a number of vehicles by which we can send our
analysis to the policymaker. We have daily current
intelligence publications, a specialized Economic
Intelligence Weekly, and a bi-weekly publication on
International Oil Developments. Many unclassified
STAT
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publications are released to the public via the Library
of Congress or Government Printing Office.
V. Let me now give you some samples of the kinds of issues we
are currently working on.
A. Economic growth and inflation: We closely monitor changes
in economic activity and inflation worldwide, especially
in the industrial countries.
B. Petrodollars: The Intelligence Community has a major
responsibility for tracking petrodollars -- their volume,
location, the currencies and type of assets in which
they are held.
C. Grain: The emphasis on grain reflects the extreme
tightness in the international grain market since U.S.
surplus stocks were exhausted. Any substantial shortfall
abroad is now quickly reflected in higher grain prices,
with a direct economic and political impact on the U.S.
In this situation, the priority of our long-established
work on Soviet and Chinese agriculture has greatly
increased.
STAT
STAT
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vml~
1). Trade and monitary negotiations: The Intelligence
Community supports U.S. negotiators in these areas
with estimates, projections, and advanced economic
methodology. We maintain a large and growing data
bank.
E. Technology transfers: There is a great deal of concern
in the Government about the impact on the Communist
countries of the transfer of advanced U.S. technology.
This is a very difficult area to analyze because many
-things besides technology influence these countries'
economic performances and military programs.
17.` Soviet defense expenditures: We have just completed --
and released to the public -- two major studies of the
burden of defense expenditures on the Soviet economy.
We will continue to refine our analyses in this vital
area.
VII. Let me now turn to the subject of greatest interest to this
group -- international oil. Much of this information may be
familiar to you -- and in fact I will welcome your comments as to
how well our perceptions agree with your own.
A. As you know, the Middle East has become the critical
geographic area in the Free World's energy supply in
the last 15-20 years. The Middle East oil producers,
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together with Algeria, Libya, Nigeria, Venezuela, and
Indonesia, have formed the OPEC cartel, giving them
control over international oil prices.
1. OPEC will be considering another price boost this
December.
2. Over the longer term, it is certain that OPEC will
increase oil prices at a rate that at least matches
inflation in the major developed countries.
3. Accounting for over 40 percent of current Free World
oil output, the Arab countries have shown their
willingness to use their oil as a weapon against the
West and, given another Middle East war, would be
likely to use it again.
4. The effectiveness of the Arab oil weapon is not
likely to decline in the foreseeable future because:
a. Free World energy consumption is rising, and
oil's share of that rising consumption is still
going up despite recent price increases and
oil conservation efforts.
The Arab countries,
hold the bulk of world oil reserves from which
the required increase in production will come.
B. Even though many people in government and industry around
the world are concerned about the increased reliance
STAT
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on OPEC and Arab oil, the cost of developing alternative
sources is so high and the market for these alternatives
is so uncertain that little has been done to move from
research and development to the market place. Even the
fears of an energy shortage as the oil age comes to an
end have done little to stimulate the development of
alternative energy sources.
C. With demand for Middle East oil rising through 1980
and beyond, Western nations will be increasingly affected
by cost pressures and transfers of income inherent in
progressively higher oil prices.
1. The large rise in crude oil prices in 1973/74 had
a severe contractionary impact on Free World economies.
2. Future price hikes by OPEC countries will have similar
effects.
D. Because oil demand will be so high, OPEC will have little
difficulty in continuing to set the world price of oil.
1. OPEC should have little trouble maintaining its cohesion
in the period through 1980, when its oil exports
will generally be increasing.
2. Those few countries with the option of substantially
raising oil production -- notably Saudi Arabia --
find OPEC a useful instrument of political influence
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and do not want to risk the political isolation that
lowering prices and boosting output would bring about.
3. Moreover, there is little economic incentive for
these countries to run the political risks involved
in such a policy. Even if all other OPEC countries
produce as much as they would be likely to without
the cartel, Saudi Arabia, Iraq, Kuwait, and the UAE
can more than maintain their current level of production
through 1980.
4. In the situation we are projecting, formal prorationing
should be unnessary. This is not to say, however,
that these issues will not be continuing sources of
friction amongst cartel members, simply that they
will not be sticky enough to endanger the coalition.
9
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MEMORANDUM FOR: Andrew Falkiewicz
Assistant to the Director
Attached is the packet I sent to Mr. Bush
for his Houston appearance on the 15th. I welcome
,any comments you might
FORM 5.75 I O I E S ' U I0N5'OUS
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