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The Resource War in 3-D

concurrent with closure of its one-quarter-million-ton smelter. We are exporting our productive capacity and importing unemployment.

As I review today the threshold of a global raw materials crisis and the still unresolved energy crisis, I can only conclude that the government's attempt to form a non-fuel minerals policy as much as I know of its capability to meet the needs of national security in this crisis - has failed. Therefore, I find it necessary to recommend for immediate action the following

measures:

1. Public lands management. We must revise our attitude toward exploration of public lands to give our mineral needs equal opportunity in a framework of an internationally acceptable standard of practice. 2. Incentives to upgrade domestic mineral capacity. The establishment of a program under Title III of the Defense Production Act of 1950 to provide incentives to upgrade our mineral capacity.

3. Department of Mineral and Material Affairs. The establishment of a Department of Mineral and Material Affairs with cabinet-level rank and the consequent reorganization of the Bureau of Mines and the U.S. Geological Survey under its jurisdiction.

4. Cost recovery programs. Environmental and occupational health/safety cost recovery programs through a pay-back program which must be invested in new mineral exploration and in improved technology of recovery and processing.

5. Defense and Alliance. Additional expenditures are needed to support U.S. and Alliance efforts to provide military security to world resource supplies and to the sea routes necessary for delivery.

6. Resource-oriented foreign policy. A U.S. foreign policy which advances the political security of supply sources and encourages nations which allow access through market rules and do not discriminate against foreign ownership.

I think we can change. I know we must. In this rather down-beat presentation, I choose to close on three up-beat notes.

First, Dr. William Perry, Under Secretary of Defense for Research and Engineering, when recently questioned by me regarding strategic and critical minerals matter, admitted for the first time with regard to this issue that the "buck stops here." He admitted that the Department of Defense had too long ignored the criticalness of this issue, and he had undertaken steps to get the Department involved in the matter of minerals dependency. Second, the National Security Council (NSC) is in the process of conducting a study regarding several critical minerals and the dangerous consequences of U.S. dependence on a handful of sources. The study is an offshoot of the Non-Fuel Minerals Policy Review, and while I would have preferred a much expanded Phase II, I regard that this involvement of the NSC in the national security implications of this issue as a very positive

Keynote Address

17

indication of the willingness of the Administration to address this important question.

Third, last November the U.S. Senate was faced with an important land issue involving cobalt. Notwithstanding the fact that America is nearly 100% dependent on foreign sources of cobalt, 76% of which are in southern Africa, and notwithstanding that the land in Idaho is part of America's only known economic reserve of cobalt, the Senate chose to include the area within wilderness. As if that were not enough, they required that any cobalt be mined by underground mining methods by means of access from outside the wilderness.

Then earlier this year something amazing happened in the House of Representatives. We tied that cobalt in the wilderness question to the matter of national defense, and suddenly we had many allies who apparently had been unaware of the Idaho cobalt problem before. Joined with us were Chairman Melvin Price of the Armed Services Committee and Chairman Don Fuqua of the Science and Technology Committee. We had emphasized and made such effective use of the national security implications of this one wilderness decision that, for the first time in the 16-year history of the Wilderness Act, the proponents of wilderness chose not to fight us on the floor of the House of Representatives. That victory of ours constituted the first major victory for the minerals industry in ten years. The significance is that we had tied a mineral issue to a national defense concern, and had won. This is the way we must proceed in the future. This is the way to achieve victory. This is the way we must face impending resource wars.

19

FOREIGN POLICY AND THE CRISIS IN OIL
By

John Norton Moore

The message of this paper is stark and blunt. Although slow progress is being made toward a coherent domestic energy program, continued failure to deal effectively with the foreign policy dimensions of the oil crisis will increasingly erode Western security and destabilize the global economy.

Nature of the Problem

Non-fuel minerals are critically important to Western economic health and national security, and there are a number of potentially serious problems concerning Western access to certain strategic minerals, particularly those produced in southern and central Africa. But the potential "minerals crisis," which certainly requires the immediate attention of U.S. policymakers, pales in comparison with the "oil crisis" which is here now and worsening. No resource other than oil is in combination as narrowly concentrated in export surplus, as great a percentage of world trade, as widely important in production, as efficiently controlled by a global cartel, as relatively inelastic in substitution potential (at least in the short run), as difficult to stockpile in needed quantity, as influenced by events in a relatively unstable region and as influenced by nations neutral to or even hostile to the West.

The difference in the seriousness between oil and non-fuel minerals import dependency, at this point in time at least, is that today the oil crisis already has impacted on the two most severe problems facing the nation and the West in general (ones which we hope will not be further aggravated by critical non-fuel minerals shortages because of lack of forewarning and foresight which is the underlying purpose of the three panel reports which follow).

These problems center around the necessity (1) to restore healthy economic growth in a climate of reduced inflation and increased productivity, and (2) to reverse the dramatic trends of the 1970s toward relative increases in Soviet and Warsaw Pact strength at the expense of Western military strength and global politico-military stability. Although it is generally perceived that the oil crisis is a major contributor to the Western economic malaise, it is less clearly understood that it impacts severely on the East-West military balance.

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The Resource War in 3-D At a time of seemingly intractible stagflation and limited increases in real Gross National Product (GNP), it is particularly difficult for civilian political leaders in the West to meet real defense needs. As the oil crisis drains off enormous transfers of funds to the nations of the Organization of Petroleum Exporting Countries (OPEC), these transfers can be met by increased borrowings, reductions in the standard of living or reductions in expenditures, such as defense. The fact is that in the U.S. both the standard of living and national security are declining to a great extent because of the oil crisis. It is no accident that at the end of the first decade of the oil crisis, taxation in the U.S. is at the highest levels in history as a percentage of GNP, yet expenditures for defense are among the lowest in our post-World War II history.

The seriousness of the oil cost hemorrhage is documented in a recent Organization for Economic Cooperation and Development (OECD) study which indicated that the direct costs of higher 1979 OPEC oil prices, coupled with the indirect costs of resulting reduced economic growth, will cost every American about $400 in 1980. In comparison, the U.S. defense budget will cost every American only about $125 more than this. Unless the West brings the oil crisis under control more effectively than it has to date, it seems unlikely that either of these most serious economic and security problems can be alleviated.

To date, the response in America and the West has been to turn inward to national policies for alleviating the oil crunch while largely ignoring the foreign policy dimension of the problem. Despite wide differences in approach, it is widely understood that the oil crunch requires an appropriate mix of national energy policies. The role of conservation, price control, alternative energy sources and added taxes are broadly debated in what is agreed by all must be a vigorous national effort to reduce dependence on foreign oil. Yet this national debate must focus great attention on the foreign policy dimension of the problem. The oil crunch originated with foreign events, and it is still largely moved by them, as we learned in the 1973 Middle East war and in the recent oil shock following the Iranian revolution.

Today, about one-quarter of the world's commercial energy is from OPEC oil. Moreover, a half decade after "Project Independence" the United States imports about 50% of its oil rather than the earlier 30-40% dependency. No responsible projection for the intermediate future (to the year 2000) holds out much promise of a radical shift in world dependence on OPEC oil, although we can hope that current higher oil prices will lead more rapidly to other alternatives than are now anticipated. Given this dependency, the ability of OPEC to decrease production to rachet price, regardless of success in meeting domestic conservation goals, makes a foreign policy for oil as vital as an effective domestic energy policy. Moreover, the threat of a political

Foreign Policy and The Crisis in Oil

21

embargo cannot be adequately countered by any purely national program, given the magnitude of current dependence. In turn, of course, any foreign policy for oil must rest on a coherent domestic energy base that reduces pressures for yet more imported oil and establishes a meaningful strategic reserve. In short, adequate policy requires an effective foreign policy component, and such a foreign policy in turn requires an effective domestic energy base.

The need for integrated policy responses, which encompass both domestic and international actions, is particularly highlighted by considering the types of problems which have been produced or exacerbated by the continuing oil crisis:

• Stagflation heavily induced by oil price shocks, such as when prices quadrupled in 1973-1974 and more than doubled in 1979.

⚫ Instability in global financial markets.

• Increased and still growing pressures for protectionism in world trade (and conversely for unfair dumping) resulting from the need to earn foreign exchange to pay for the net foreign exchange deficit to OPEC countries. • Destabilizing and inequitable wealth transfers to OPEC nations.

• Increased political instability and "cultural shock" in the Middle East resulting from both internal and external threats accelerated by the high wealth transfers to OPEC nations, and the realization of these nations of the importance of oil in world politics.

• Devastating economic impact on the non-OPEC developing countries who are increasingly being crippled by oil expenditures, and also by the oil-induced global economic malaise as exports suffer, protectionism increases and real levels of aid decrease.

• Increasing breakdown in conditions for stable investment abroad, and deterioration in the rule of law, e.g., some OPEC nations now routinely break supply contracts and impose retroactive price increases.

• Most importantly, but less immediately evident, a serious erosion of the power of Western democracies vis-a-vis the Soviet Bloc as the economic malaise in the West since the 1973-1974 quadrupling of oil prices has induced the West to spend much less on defense.

Objectives of a Foreign Policy for Oil

Failure to articulate goals with specificity is a common cause of policy failure. With respect to the oil crisis, a tentative formulation of U.S. foreign policy goals might include the following:

1. Increased stability of oil supply and price. Meeting this central objective of a foreign policy for oil must involve: (a) efforts to obtain international acceptance of the principle of the impermissibility of supply interruptions (such as embargoes) for political reasons; (b) end oil shocks. and restore stability of expectations concerning oil pricing; (c) moderate real