he also has advanced degrees in journalism and strategic studies and has worked as a human rights investigator in college administrator. in oil cannes, his first book, andrew examines american-iranian-and saudi oil policies from 1969 to 1977. during this crucial eight year timeframe america went from being the world's largest producer of oil to its largest importer of oil and saudi arabia
supplanted it wrong as washington's most important islamic allies in the persian gulf war. at the center of oil kings stands the shot of ron who with his country's economic future on higher oil prices and ultimately lost his hold on power. andrea's received high marks for his insightful analysis and wide use of original interviews and formally classified materials as he opens a window on this important time in history. in the process he has also produced the most thorough account yet of president ford's handling of relations with the shot, king faisal, and will policy. please join me in welcoming andrew scott cooper. [applause] [applause] >> thank you. thank you to the gerald r. ford
presidential library for roasting me in making my research in this wonderful event possible. you may have heard the expression, it's good to be king well, tonight it's good to be a historian. oil diplomacy and oil dependency this morning the new york times published an op-ed on foreign oil dependency. the "wall street journal" published one on the importance of history studies in creating competitive dynamic work force. we seek to bridge to compelling in vital areas of public interest. it is a rare and wonderful thing for a historian to watch as events the world speculated about a generation ago finally come to pass more than three decades later. five years ago when i began my research into u.s. we will diplomacy in the 1970's i was puzzled by references made in documents from 1976 that read
like something out of the financial thriller. there was talk of a sudden increase in oil prices triggering a global financial crisis. the bankruptcy of countries in southern europe and international debt default crisis, a recession in the united states, unemployment over 9 percent, and the possible collapse of big banks on wall street. thirty-five years later and here we are. global recession induced by soaring oil prices, the bankruptcy or near insolvency of countries in southern europe, bank failures in bailout at home and abroad, united states economy on the brink of a recession, unemployment over 9%. the warning to future generation is more relevant today than ever before. those who cannot win the pastor condemned to repeat it and we're simply repeating it today. parallels between the earlier
time and the focus of my research and our own time or brought home to me most vividly during my recent stay in greece where i wrote the oil kings. in may 2010 the day after violent protests in athens against the government's austerity package of walked through the center of town, past burned up buildings and vehicles trying to comprehend what had obviously gone so badly wrong for the greek people. it seemed incomprehensible that the same country that have hosted the summer olympic games could have bankrupted themselves in the space of just six short years. and we hit the center of a contagion shipping global financial networks and threatening the survival of european and american banks. during my walk through athens of wondered why the crisis had spiraled so far beyond the control of any single states or international agency. why were our biggest banks so vulnerable to the cut to the
regulatory agencies did it so badly wrong? almost every level. however one looked at it, the picture resembled an institutional crisis and structural breakdown. then there was the question, like most analysts saw was not thinking about how the current leaders in power in washington, paris, or london or reacting to events. i was thinking about another president and another time. i was thinking about gerald ford in particular was thinking about a conversation president ford had in the oval office of the white house in december 1976 with the iranian ambassador to washington. in that conversation president ford explained to the ambassador that he needed the help of the shop around to stop opec, the
cartel that represented oil producers, from approving another big increase in the price of oil. at that time the shaw was this country's most important middle east ally, so much so that he was known by admirers and critics alike as america's shot. opec was due to meet in a few days' time to calculate the size of the price increase for the common year. the shot had made it clear that he believed oil was undervalued and price and that western consumers could afford to pay 15 percent more for the imports of persian gulf crude oil. he had already brushed aside a letter asking him to rethink his position. the meeting with the investor was his final attempt to make the regulator see reason. that is lassie to come in quietly. i want no confrontation, and that is why this meeting is private. in the meeting the president was
joined by alan greenspan who at that time served as chairman of the council of advisers and also by national security adviser brent scowcroft to took notice. together for then greenspan tried to convey what they feared might happen if oil prices went up by 15%. the economies of the western industrialized world were still absolving the oil shock of three years earlier. many of you remember that time in 1933. oil prices quadrupled destabilizing the world economy and triggering the deepest recession in the united states since the 1930's and put millions of people out of work and cost big corporations like pan am to appeal to the federal government for bailout money. in europe at that time soaring fuel costs have helped drive portugal's economy to the wall and weaken the economies of spain, greece, italy, and great
britain to the point where the governments were forced to appeal to international lenders for financial lifelines. with the resources of international lending agencies like the international monetary fund and the world bank these countries had turned to private banks in the united states to help them meet their internal and external spending obligations and commitments. big banks on wall street, including bank of america, chase, and morgan had rushed to fill the gap to the point that they were now in turn dangerously overextended and vulnerable to a single the fault somewhere along . in every room of candor at that time morgan's president publicly admitted in agree drive for profits american banks in the early 1970's made bad loans and real estate investments and for other questionable purposes. i love my research.
wall street was now anxiously awaiting the outcome of the meeting that was due in a few days' time because everyone understood that another big increase in oil prices might be the trigger for default, contagion, and collapsed. now, president ford at this time countries in southern europe and only recently thrown off the shackles of years of authoritarian rule. there were trying to transition to a western-style democracy. portugal, spain, and greece, while burdened with underperforming economies, soaring levels of inflation and unemployment and political unrest from right-wing and left-wing extremists. the ford administration was particularly worried about four nato allies, italy, spain, portugal, and great britain. the communist party was exploiting economic discontent to try and maneuver its way into
a coalition government. britain's government had warned washington that it was on the verge of running out of cash. if the imf turned down an appeal for another loan the prime minister would have to and implement an austerity program so harsh their would be riots in the streets. the governments of spain and portugal were effectively broke and in danger of being asked by extremists. president ford to the ambassador, the situation is very serious. any increase in oil price pence to the danger of financial crisis the failure in government, even to the danger of a military crisis. this is in the context of the cold war. how the things you so bad that 1976 president of the united states had to appeal to the ambassador of a dissolving country to help save the u.s. and western economies and banks
from a financial meltdown? well, it turns out that the notice to its economy had been expected to generate enough growth in the first half of 1976 to pull itself of a recession and lift the economies of its allies in its wake. something happened on the road to economic recovery. eighteen months earlier the ford administration disagreed over the federal stimulus spending package. the result was a stimulus like no one. conservatives opposed stimulus spending in its entirety and liberals complained that more, not less was needed. in the event millions of dollars set aside for federal stimulus programs went unspent. the federal government underspent by an estimated $15 billion which was a huge dollar not the time. it reminded some analysts of a previous budgetary miscalculation from 1976 when lyndon johnson's administration
underestimated the cost of the vietnam war by $10 billion cause the blow up in the federal budget. eleven years later complained one observer of the federal budget was in a state of chaos. the shortfall in stimulus spending helped create a condition in which the u.s. economy is set of taking off as projected plateaued and paused and appeared headed for a nose dive in the form of a recession at the end of 1976. that in turn meant u.s. imports of goods from europe would pay off which would place further pressure on already struggling european economies. the second half of 1976, the greenspan pause. the u.s. economy was not growing as fast as he had ascended with earlier in the year. barrett, he conceded, it was not
going in all. it was greenspan who won the president that the economy was so fragile even a 15% increase in the price of oil must be enough to tip the u.s. economy in the economies of its trading partners back into recession with the rest of government failures and bank collapses. in the oval office that day greenspan explained that oil prices have caused so much chaos in the international financial system that the lending flexibility the big bang said banished and financial mccourts across the world stretch than. he added the huge increase in debt when oil consumers had tried to borrow their way out of the fiscal hole with found themselves than have badly ship in the constant -- confidence of markets, governments and big business. essential that we show
restraint. when i first read that transcript more than four years ago in a full year-and-a-half i was perplexed. in fact, i could not place the conversation with any coherent from work because if what i was reading was right the president was admitting that the u.s. banking system, economy, and the economies of the european allies are so fragile and so overextended that even a 15% net increase in the price of oil could cause panic and bring down the bank's and threaten the stability of countries. so you can ask what all that had to do with u.s. oil diplomacy. that was the subject of my research. i had never heard of the banking scare in 1976 before and certainly had not expected to find one. there is no reference in the memoirs of former administration officials and unaware of.
histories make no reference hit. so to try and put the context of the transcript -- put it in some context i have to broaden the focus of my research well beyond the narrow confines of u.s. oil relations with iran and saudi arabia. i started to look up the whole subject of oil and a much more holistic way. study the impact of rising oil prices in 1970 on the economies of countries like the united states, portugal, greece, italy, and spain. also economies of countries like south vietnam, tanzania, sherlock, canada, and chile taking the heavy conversation as my starting point in moving my research investigations hoping to locate the moment when it looks to me as though things have started to go wrong. the start date that led to
president ford's confrontation with the shot of oil prices in his final weeks of office. that meant i had to move back in time past the recession, passed watergate, nixon is resignation, beyond the oil embargo, the young to poor work, the vietnam war, the 1972 presidential election and back as far as the visit to washington to attend the funeral of former president eisenhower. and that is the point which my book begins. in the fall of 20083 years ago during the financial collapse of remember watching footage of the plan and brothers and thinking this sounds familiar. as each month passed and ease phase of the financial crisis gave way to endure more ominous than the last, this crisis is still moving.
i began to wonder if i was watching gerald ford's worst-case scenario for 1970 stuck to play itself out. until that time it had not occurred to me the modern nation states could go bankrupt. individuals can be declared bankrupt, but entire countries, it seemed unfathomable. there we were in there they were lined up in a row of dominoes about to fall one to which other . iceland, greece, ireland, portugal, spain, and not readily in trouble. i watched lens of instability claim banks and corporations. and then the social unrest. there were riots in athens, madrid, london. governments were ousted in ireland, portugal, and britain. and i remember thinking, was in new zealand. the bottom of the world
recovering from spinal surgery. what can i do, gile none one and reported hysterical emergency? no one's a born to listen to me. this raises a big question about the role historians can play in our fast-moving contemporary society. during my research i interviewed a highly respected washington-based military strategist. aston to help explain to me how the united states became so weak in the 1970's during this crucial time were gerald ford was president and inherited the situation and had to manage it. in sin my conversation with this individual veered off on to of other subjects. inevitably we got into the middle east and the u.s. invasion of a rock. aston what he thought had gone wrong.
now, he explained to me that usually when there's a foreign-policy crisis of washington the administration in office its experts in the country or region that is the subject of dispute. these experts include historians , linguists, and cultural and religious studies dollars. there are invited to ask questions from officials who are trying to decide the best way to respond to these issues that they're trying to deal with. however, that apparently did not happen in the run-up to the invasion in 2003. historians were not invited to share their views because the administration in office had already decided on the course of action regardless of the facts. that change, however, in the summer of 2003 when u.s. troops were attacked and the united nations compound in baghdad was bombed. suddenly the experts receive
invitations. we need to talk to you. in other words, experts were called in until the disaster had already started to unfold. by that time it was too late. this individual told me that he attended a meeting in which the participants were shocked at the ignorance of the officials who were briefing them. they knew next to nothing about the business makeup or territorial divisions within the country. until then they have not regarded them as particularly relevant. when we want something to happen so badly that we ignore all evidence to the contrary we call it magical thinking. the kind of magical thinking on display can be seen today in the way relates to oil, and i'm not referring merely to country's reliance on foreign supplies of oil, but the commodity itself, which we have allowed to dominate our lives and determine how destinies. if it's not obvious by now, it should be.
no coincidence that the american century coincided with the age of oil, which many experts believe is one down, the age of oil, and talking about. from the end of world war two until the mid-1970s low oil prices made possible the postwar economic miracle that saw the united states enjoyed several decades of unparalleled economic growth and prosperity. the first evidence of the downside. during the research i cam across the fascinating memo. in it he explained that the oil
prices had altered the national economy and that there could be no gun back to the days of the 1960 when in his words the base of our society and the base of our economy were secure. he continued, now the real world begins to press on the average american and could very well devastate family life and standards of living if we do not confront our longer-term problems and protect the united states from the ever increasing dangers to which it is becoming exposed. the united states had to confront its addiction to oil. the immediate problem and oil, although i will list our national defense posture and fiscal erosion as equally critical. it is important for the american people to understand how the oil crisis emerged, what it is, and what the potential consequences worldwide are if we don't come to grips with the. that was in 1975. thirty-six years later that is a
conversation still to be had with the american people. statistics have become mind numbing, but the reality is that this country consumes more oil than any other, 22% of the world's oil production every year. let's go back to 2005 and the latest phase of the oil pricing roller-coaster the we have all been gone in recent years. at that time oil prices from 2005-2008 oil prices doubled. oil that was selling for $75 a barrel on the summer of 20007 shut up as high as $147 per barrel year later. i don't know about you, but to me that sounds like an oil shock that was not talked about the time. no one mentioned the oil shock. oil prices, oil price increases can be of short by consumer economies if they are gradual and moderate.
slow increases in the price of oil allowed governments, businesses, and consumers to adjust their spending caps and behavior. sudden spikes in the price of oil can cause real structural damage. like dr. murietta vigny and professor james hamilton of the university of california in san diego. as a result of my research i believe that the soaring oil prices played an important part in overloading the u.s. economy in 2007 and severely destabilizing financial now works and banks. it was not the sole cause and may not have been the biggest cause, but you can't ignore that it was actually one cause of this current financial crisis we're all stuck in. oil prices were and continue to be one of the top contributing factors of this crisis. the intensity and to ration of this crisis. the parallels with the oil shock
of the mid-1970s are unmistakable, and i would argue toward closer analysis. professor hamilton has drawn a link between the 2007 mortgage foreclosure crisis and higher oil prices. testimony before the joint economic committee of the congress described how for dollar a gallon gas prices in 2007 led to a sudden change in consumer spending patterns. he gave the example of automobile and auto parts that shaped a half a percentage point of gdp in 2007 and 2008. americans on average but hundred 40 billion gallons of gasoline year. if oil goes up the dollar and price that means they lost a hundred and $40 billion in consumer purchasing power. as oil prices rocketed, in comes fell and jobs were lost as the
economy's slowdown. intriguingly professor hamilton told congress that we saw the biggest initial decline in house prices and increases in delinquencies in areas farthest from the urban core suggest the interaction between housing demand and commuting cost. once house prices declined and delinquencies reached a sufficient level the solvency of key financial institutions came to be doubted. he concluded his testimony with this uncomfortable observation. the reality is that no policy could have prevented a substantial increase in the price of oil between 2005 and the first part of 2008. now, the point he is making is that the days when this country or any single country could influence on manipulate the world's oil supply and markets are over. the entry of china into the global energy market led to the same hiking of market conditions
, we saw when the united states entered the world market as a consumer in the early 1970's. it may seem hard to believe, but as late as -- as recently as 1970 the united states was the world's biggest oil producer. that quickly changed when oil production in the continental united states reached a peak. at that point u.s. was forced to compete with foreign produced oil against its own trading partners in europe and japan. with less of their capacity the world oil supply became vulnerable to a single intervention or active godlike political unrest, pipeline sabotage, and even severe weather conditions in the persian gulf which can lead to loading and shipping disruption. the economic boom in asia and china over the past decade, especially in the run-up to the 2008 beijing olympic games so oil prices skyrocket.
between 2004 and 2005 the world's oil consumption rose an estimated 5 million barrels a day. according to the doctor reveal the asian economies accounted for 59 percent of the growth and demand for oil in 2004. now, when gerald ford was faced with a potentially catastrophic increase in oil prices in 1976 he turned to the saudis for help, as every other president has done since that time. on occasion with their own national interest aligning to those of the united states, the saudis will disregard the wish of the opec cartel, breached their production quota and pump enough surplus credences system to try and flood the market with cheap oil. flooding the market is supposed to be it will hold prices in place or force them back down. a flooded oil market offers ever spied for recession battered western economies and take the strain of badly overloaded
financial networks. so you may ask why do we ask the saudis to flood the market now. if they are our allies, why don't step up to the plate. well, they are our allies, but it is no longer a simple as that conditions have changed. in recent years real doubts have emerged in the minds of many analysts about the ability of the saudis to influence the oil markets in the way they used to. we know that in 2008 they tried to flood the market to help the u.s. and its allies, but that their effort to do so in the first half of the year did not take effect quickly enough. by the time oil prices collapsed in the second half of 2008 it was too late to save lehman brothers and too late to take the strain off of the financial networks. the damage inflicted was too great to be reversed. another concern is the state of saudi oil reserves. now, and january of this year
wikileaks revealed that a senior saudi oil company official had tipped off u.s. diplomats to the fact that the kingdom's reserves of crude oil may have been overstated by as much as 30 billion barrels a day, a billion barrels, i'm sorry, or by 40%. 40 percent of their reserves could be overstated. he said that they have overstated their reserves to encourage foreign investment. he might also have added that they understand the oil reserves by the assets that guarantee u.s. protection and reliance on saudi petropower. take that away and what shared interest to the two countries have? not much. for that reason it has always been in the interest of the persian gulf oil producers, especially the saudis, to discourage any energy conservation and the united states. this is done by making sure oil prices don't get so high that they encourage energy efficiency
and the development of renewable energy products and resources that might make the u.s. more energy self-sufficient. the u.s. embassy cabled washington to say that our mission now questions how much the saudis can substantially influence the crude markets over the long term. clearly they can drive prices up if they want to, but we question whether they any longer have the power to drive prices down for a prolonged time. then there is the surprising fact that saudi arabia is now the world's 15th largest consumer of primary energy. saudi arabia's population has soared in recent decades, and that, in turn, has placed great strain of the country's economy and its energy infrastructure. demand for electricity is growing by 10% to your. saudi arabia will have to double its electricity production in seven years. they're moving forward with plans to produce their own
nuclear power by 2020. in the future there will have a will to export. and finally the political turmoil in the middle east this year has led king ability to announce more than $150 billion in handouts and welfare subsidies to keep his people happy. let's not forget the $60 billion arms deal the obama administration concluded last year with the saudi-arabian government, one of the biggest arms deals in history. the price of the subsidies and new u.s. weapons systems have to be paid for somehow. that can only be done by making sure oil prices stay at a level high enough to cover their cost. you know what that means, you're going to pay for them. it's going to pay for the welfare programs commander going to pay for the fighter aircraft and warships. before the unrest in the middle east this sunday speculated that
their budgetary needs to be met if oil stayed at or above approximately $60 a barrel. but now according to estimates with all the new expensive subsidies and weapons to pay for the saudi budget will only be dollars that the price of oil and at least $88 this year and $115 by 2015. so you can see the relationship here between arms sales, oil prices, political stability, and financial insecurity in a country such as this. i want to bring my remarks to a close by quoting from a recent article which won my heart. without history we have only ignorance. the columnist noted that in britain today fewer and fewer students are taking history of the subject. indeed they have been actively
discouraged from taking the subject. inescapable. we inherited, make it, and we are fated to become part of it. in our education system its steady is increasingly neglected . indeed, in a large number of british schools the industry is already a reality. she goes on to say we cannot believe history, but we ignore it at our peril. cicero argues that to remain ignorant of what has occurred before your board is to remain all was a child. government policy makers, the private sector, the media, and the public should remember that historians are here to help. there are important lessons to be drawn from the past. the information historian's gather with the help of institutions like this one can be applied to the events of today's world.
might be helpful, for example, if president obama and his top policy makers were aware that german support crippled with challengers and that 35 years ago this month this country was faced with a double dip recession and defaults, financial contagion, and political unrest in europe and the middle east. we are watching history play out in real time. hair experiences may be new, but they are not as unique as we like to think they are. they certainly toward another decade of magical thinking. thank you very much. [applause] [applause] >> for the q&a, there is a microphone at the back of the room. if you can get to it that is where we like you to ask questions. if you can't, call up the
question and of repeated. >> what do you think would happen in the middle east if for some reason we could stop buying oil and then the longer have the resources and revenues to subsidize their populations? why would be the effect globally in the middle east? >> i think we saw some of that this year. some of the governments that have to pull back on their subsidies. at think that when the history of our times are written that the arabs spring will be connected to the financial collapse of two dozen 7-8. there is cause and effect there. the role and the particular manner in the welfare subsidies to help legitimize the standing. if they can't pay for them and
they have a crisis of legitimacy and right now president, demijohn understands that. he actually tried to reduce the subsidy because he knows that there is a dangerous relationship there between them. it will be interesting to see how it plays out. >> in the middle 1960's when i was a senior here at the university of had a good friend from around. he was a nuclear engineering student. and with the blessings of the united states government, the idea was that if they could get electricity by nuclear means, they have more oil to sell to us at lower prices. couldn't you say the same thing that was driving saudi arabia to pursue nuclear programs but also be the case in peron. >> the new program.
they have a much bigger, 70 million people and a much more industrialized economy. they don't have enough oil in the country for the future needs. they would argue that they need the nuclear power to keep their economy going. i'm glad you brought up the nuclear program. this goes back to 1972. we know the president nixon and secretary kissinger pledged that they would sell nuclear palestine and nuclear fuel. in 1975 the u.s. agreed to sell eight nuclear power plants and offer to build and in richmond facility for the iranians. this stuff is just coming out now. very interesting part of the equation because in order to really understand what's going on now we have to kind of put it in a bigger picture.
>> in the late 70's and early 80's the u.s. began establishing military bases and central command, saudi arabia, bahrain. was wondering if you talk more specifically about the relationship between oil politics earlier in the 70's to the establishment of such a command and also just in the secondary sources, history, political theory that was important to the research. >> i have a bibliography in the back of this book which is quite extensive. everything is listed there. the shot was meant to be our gladiator. he was meant to do the work so that we did not have to have bases. that is why the u.s. agreed to lift restrictions on arms sales which created the destructive
dynamic after a while. the change came during the arab oil embargo. cutting the deal to end the embargo in which the u.s. agreed to help the saudis deal with internal subversion at home and external subversion and pacify surrounding areas. the terms of that deal are not widely known, exactly what they agreed to promised each other, but those supplies was key to that. and then, of course, when the shah was ousted the u.s. was faced with this catastrophic loss, the power within the persian gulf region and began concluding military bases because the saudis were perceived as not being strong enough to stand up to a militant pteron. >> do you think that some of the parallels you talk about our
changing today in all world where there are emerging oil markets in places that are more palatable to the u.s. public such as brazil and canada? >> it is changing. gone down. oil usage is gone down. so it has gone down. and the economy comes back the fear is that the dependency will go up again because people have short memories. at least our policy makers keep putting policies in place to build on this current concern in the country. you know, as far as canada and south america are concerned, believe it when i see it. canada is this country's biggest supplier of oil, but shell is extremely expensive. the load being freed had been picked in terms of oil. we are now moving into a different and perhaps last phase of the great oil age which is to drill under the arctic and drill in more difficult places.
the shop predicted this in 1973. written off as a crackpot. he gave the famous interview in which he said in 100 years from now this will business will be over. you will have to drill under the north pole. he spoke about solar power and wind power. in fact, he was a visionary. >> thank you for your remarks. i am a bit confused about the lessons of history here. the fact is we have an influx of crisis. the use of oil. people have defined the paradigm of energy security. one way is simply get more oil. as you're pointing out, it's more expensive and thus of ecological costs that are severe . the history of dependency in oil of this country, powerful
interests in the auto industry, the oil lobby and industrial complex. now was outlined in the 60's. part of the sustained history. wisely accommodated these interests, and there are certain military interests, rather sophisticated passion part of the equation. my question is how can -- now obama at least rhetorically is talking about expanding mass transit, high-speed rail, alternative energy demand for different reasons that i was the ideological we don't even have the resources. so given these different structural forces out you think there is intervention? what did gerald ford do about these? >> he had a problem because he was on elected and he had a short term. he was dealing with multiple crises.
the flood the market in 1977 to read right now they're pumping more oil than they have the past 30 years. i think that there have probably been a series of discussions with this of ministration about the need to help of the europeans in particular. history is repeating itself because policy makers often are working in secrecy, often working very quickly and having to make decisions quickly and are not able or don't have the analysis and hand or if they do their choosing to disregard it. so it is really going to have to come from a combination of public pressure, public awareness which means media interest which is very difficult these days or else as oil production plateaus and low prices rise and hundred 50-$200 per barrel, possible the market
will take care of it and we will see these investments and renewable energy have to comment because people will not be able to -- this kutcher will not be able to survive another oil shock. for -- >> if you could touch on the role of speculation and speculators as well espouse we knew all of this was occurring in 73. why wasn't the move toward something mass transit. >> well, there was. this was when san francisco's bay area rapid transit comes in. in fact people began buying smaller cars. great strides made toward energy conservation.
talked about the need to free ourselves of dependence on the single commodity. but his message was not received very well. every president since then has been haunted. energy self-sufficiency. the public was not ready to you that. certainly you get beat up in the media. the malaise speech. i don't think the word malaise is in that speech. is the way it was spun after the event. when he gave the speech as opinion poll showed up. initially they went right through the roof. then they fell when there wasn't much follow-through. in terms of speculation i know
that there have been ongoing investigations. we just don't know the extent. right now it's affected by so many different variables. another variable is the fact that the saudis and iranians beat oil as a weapon. something i argue in the introduction of my book. recede as a commodity, but for the saudis this is the weapon of national defence and in certain situations offense. if they can flood the market they're not just trying to help us but taking a financial hit. it's worth it to them to take a financial hit if they can cause some damage with the iranian economy. a senior saudi prince who was formerly the head of the intelligence service gave the speech. amazingly the remarks of the speech released through a
newspaper. he said that the saucepot is to squeeze its economy. the way to do that is the press is of lower revenues. >> i have a question for you on a recent events in libya. i understand it's only 2% from libya to the u.s. the european market. these events and unrest in europe as well. >> well, probably connected. of just consult. 85 percent of the libyan oil exports go to europe. most of those exports go to countries like italy, greece, and spain. so greece, which is in a terrible situation, even today, for them to suddenly
they have to build a country of. but you see this interesting dynamic play. at least for me, very few things happen in total isolation. >> thank you very much. i enjoyed your talk on martin cole. a blurb for your book promises us some insight with regard to the effect of the saudi flooding and the islamic revolution, and you did not quite get around to say much about this evening. i want to hear the story. >> yes. this is a major part of the final part of the book. when the saudis agreed to flood the market in 1977 the cut a deal with the ford administration to essentially break opec from the inside. there were very concerned.
the power player broker. although he was a u.s. ally he was resisting u.s. appeals concerning oil prices. so as it was described to me by the men who'd tell with this crisis of the time within the ministration the goal of the administration was to break opec without hurting. they were aware even at that stage that the regime was not as strong as it appeared to be in public. then made a miscalculation for sure. they underestimated the severity of the financial problems facing the show. he needed those well revenues, he needed the money from the oil price increase that was going to come in 1977, and when the market was flooded there were driven out of the market. this older well at a significant
discount. the price profit by the rest of the cartel. so the diaries are quite interesting because there is a moment in january 1967 with a set we're broke. he had ducked himself into a fiscal hold his own and really needed that money. how they foreign creditors and also he had his own welfare subsidies to worry about. promising more housing subsidies . @booktv i could not pay them. in the first nine days of 1977 the oil export revenues collapsed by something like 36 percent. they recovered slowly over the you're in march. by that time was too late.
well documented that the iranian economy suffered severely. the government was forced to institute an austerity budget which lead to job layoffs. many of the people who were laid off or laborers, young man from the rural areas were more conservative. there were working on construction projects. suddenly there were on the streets unemployed. they are the kindling for the revolution to come. so this is where policy makers who are working on an issue over here and doing their best, causes and consequences of what they're doing over year. it's very difficult for policy makers to have their eye on the ball all the time, but we do know now that secretary kissinger probably should have spoken up and said more to his colleagues because he was the
one who really interested that the regime was not as strong as it appeared to be. that was the long answer. >> hub to envision a world without opec and how would the united states benefit without an opec existence? >> opec is really saudi arabia. in june there was a split. another split which is quite interesting. once again the saudis wanted to increase their oil production. the iranians and the rest of the cartels of no. the meeting broke up and the saudis said it will pump market any what -- pump oil onto the market anyway. rears seeing a repeat. we will be interesting to see how far they go with it. in know, russia is now a major oil producer. we are seeing the countries of south america discovering oil
deposits. i mean opec is to the extent what saudi arabia wanted to beat. the interest of the saudis they use the power so that their petropower is most important force in the oil market for the world. >> in the interest of full disclosure i must say that i am an iranian. i have been here for years. the last four as a loyal citizen . their resentment in this country because of our dependence on oil this is even before september 11th and the terror and all the problems. they also resent the fact that the chris -- the price is going out.
i watched the program on the discovery channel that included that of the amount we pay, let's say $3.40 or never, only a dollar of it does not go to taxes. all the rest is consumed by taxes of one kind or another, which we impose and collect and is a significant part of our economy, is significant part of our revenue. that last dollar pays the transportation of crude oil, refining it, storing it, and distribution of it. i think most people don't know that. in your research to do come across anything like that? do you think this is something that people should focus on?
>> in the mid-70s it was a little different. the oil companies at that time were concerned by zero price is getting too high because it was dampening demand. i was hurting their profit. there was a moment where labor secretary kissinger in early 1974, they say to him, the shots as the problem, the one who is raising the price of oil. please go and talk to him. >> talking about the taxation of oil. >> i'm not familiar with that. as the last question. the last question. one more. okay. >> sometimes or at least it's my understanding we observe shifts
in the crude oil prices and is not necessarily a direct correlation between pump prices. how much of the actual landed cost to the consumer has to do with the value chain here in america verses the true quality crude price. for example refineries and capacity and distribution. >> i can answer that question. [applause] [applause] ..