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officials later reported to the State Department, “Without directly saying it, Syrota implied that the US may be behind a move to drive oil prices down, or that US petroleum policy had otherwise changed in some significant way.” On February 11, 1985 Saudi Arabia’s King Fand met with President Reagan during the King’s visit to the United States. The two leaders talked about oil prices, the U.S. trade deficit and the problems caused by the dollar’s strength. Specifically, the King wanted to know about the changed U.S. position on oil prices. During the King’s visit Sheikh Yamani, met with Vice President Bush, Secretary of State George Shultz, Treasury Secretary James Baker and Energy Secretary John Herrington. Before meeting with Yamani, Shultz received a memorandum from Assistant Secretary of State Richard W. Murphy explaining that “Yamani will have met with Secretary of Energy Herrington who will have discussed the oil market situation and urged the Saudis to follow more market-oriented pricing and production policies.” After these official meetings, the Saudis sat down to work out the details of a market-oriented sales policy with the four major buyers of Saudi oil Exxon, Chevron, Texaco and Mobil. The companies proposed a “netback pricing” scheme that worked to lower prices and increase production. In Tandem In tandem with the policy to reduce oil prices the Treasury Department under James Baker devised a dollar devaluation policy that was designed to expand U.S. exports and undermine congressional efforts to pass protectionist legislation as well as lower oil prices in Europe and Japan. Additionally, because the strong dollar was hurting the foreign operations of the international oil companies, devaluing the dollar was an easy way to quickly increase their overseas profits. Finally, the dollar devaluation also helped Saudi Arabia because a large portion of its financial reserves were held in non-U.S. currencies. As a secret State Department document revealed, even though Saudi oil revenues would fall significantly, the Saudis received “a major windfall due to the recent decline in the dollar.” For 1985 alone the windfall amounted to “as much as $10 billion.”The State Department also noted that “Given announced U.S. exchange-rate policy, the Saudi Government probably expects to reap a similar benefit in 1986, albeit on a smaller scale.” Knowing that the impact would create economic havoc among independent U.S. oil producers who would mount a vehement protest, the Reagan-Bush Administration was prepared with a public relations strategy to deflect any criticism and to ensure that the administration was seen as the innocent victim of Saudi actions, not the perpetrator of those actions. As prices began collapsing in 1986, more and more independents began to complain, just as the Treasury Department had predicted, that the administration was not taking seriously the impact of the price decline on the economy of Texas and other southwestern states. With the pressure mounting, the administration went public with its two-track position: concern about lower prices and support of the free market. Although both President Reagan and Vice President Bush favored the free market and lower oil prices, they also wanted the political support of the independent producers. To demonstrate their concern, the White House first detailed Energy Secretary Herrington to give a speech on March 31 expressing concern about the “danger of lower oil prices for the U.S. oil industry.” Just in case he hadn’t been heard, Herrington repeated his message the next day before an energy industry meeting. Then on April 1 George Bush told a Washington press conference prior to his high-visibility ten-day tour of the Persian Gulf that, “stability in the market is a very important thing, and I will be selling very hard in terms of our domestic interest…and thus the interest of our national security…I think it is essential that we talk about stability and that we just not have a continued free fall like a parachutist jumping without a parachute.” And in two public appearances Pres ident Reagan expressed concern about low oil prices and the impact on domestic producers and recognized the need for stability. ‘Texas is Screaming’ The Administration sought to have its words interpreted as sending a message to the Saudis. But the Saudis weren’t the real target. The flurry of public utterances by George Bush and other high administration officials were designed to mollify domestic producers. When asked about Bush’s trip, one administration official candidly admitted to an oil industry journal that “Texas is screaming.” Another senior administration official was even more forthright: “What’s going on is a lot less than meets the eye. We never left the track we were on. There was never any thought to change our energy policy. What we have here is domestic politics at work.” To demonstrate the administration’s duplicity on the matter one need only have been present to hear Energy Secretary Herrington, just three days after his highly publicized comments to the national press, give a non-publicized speech at Harvard University praising the unleashing of “the free market forces of supply and demand” which allowed crude oil prices to plunge “from over $35 a barrel to just $10 to $15 a barrel today.” Lower oil prices were great, said Herrington, because “American drivers are paying 45 percent less for a gallon of gasoline, energy production is at an all-time high, and foreign oil imports are down.” And, said the Energy Secretary, “those are just a few of the benefits we’ve gained from relying on the free market.” Clearly, the term “free market” had become a convenient facade to cover the ReaganBush administration’s secret arrangement with the Saudis. George Bush’s highly visible trip to the Persian Gulf was designed to have the Vice President state publicly the administration commitment to the “free market” and price stability. After his 2-hour meeting with King Fand, Bush told the press that they had agreed on the need for stability in the oil market. Yet, according to a confidential State Department memo, “Vice President Bush explained our energy policy emphasizing our belief that market forces could best set oil price and production levels.” No mention of stability. And another State Department document reveals that at a crucial meeting of the International Energy Agency, U.S. representatives not only advocated “free market” policies, but actively fought against proposals by some IEA-member countries, specifically Japan, for a top-level meeting of IEA energy ministers aimed at stabilizing world oil prices, arguing in an official statement that it would “directly affect the market and encourage expectations that the market can be controlled.” According to this highly revealing declassified cable, “… Separated by the Atlantic from domestic political considerations,” the U.S. officials strongly reaffirmed the administration’s non-interventionist policy, going so far as to try to excise from a draft IEA statement on the impact of lower oil prices any mention of “stability”the very term used by George Bush in explaining the purpose of his recent oil talks in Saudi Arabia. In addition, “The U.S. downplayed the impact of lower prices on the U.S. oil production in the near term. There will be only a limited decline in oil and gas production as a result of lower oil prices, because in most cases marginal production costs are below the $10-$15 per barrel range…Consequently, our energy security is not likely to deteriorate significantly over the next couple of years.” The results of the price crash were nearly identical with the analysis prepared by the Department of Treasury in 1983. Major refiners benefitted, while independent producers were hurt. The economy obtained the benefit of lower oil prices at the cost of increasing imports from the Persian Gulf and losing nearly 1 million barrels a day of domestic production. Specifically, the ex-Aramco partners \(Exxon, Chevron. Texaco and ing the first quarter of 1986 and their market power, both as purchasers of domestic crude and as refiner-marketers of gasoline and other prod Continued on page 14 THE TEXAS OBSERVER 11