Last Friday night, while vacationing at Walt Disney World, the Saudi minister of finance and political economy, Mohammed Abalkhail, telephoned U.S. Treasury Secretary W. Michael Blumenthal.
One of the most powerful men in his government, Abalkhail told Bluementhal that he had noted with interest President Carter's statement two days earlier expressing concern about the declining value of the dollar. Since his government, too, was worried about the dollar, could he get a better idea of Carter's plans?
Next morning, in a dramatic example of where power lies in the mordern world, an Air Force Jetstar was whizzing Monetary Affairs Anthony Solomon to Walt Disney World, near Orlando, Fla. Put aside for the moment were Blumenthal's plans to go to Ann Arbor, Mich., to pick up an honorary degree, and Solomon's scheduled flight to Denver to rejoin his ailing wife.
The upshot of the Blumenthal-Abalkhil visit was an interview published midweek in a Kuwaiti newspaper in which Saudi Crown Prince Fahd reiterated confidence in the dollar and rejected the idea of pricing Saudi oil in other currencies. Treasury officials claim that Fahd's statement - which helped bolster the dollar in Wednesday foreign exchange markets - was a direct result of Blumenthal's soothing words last Saturday.
For three intensive hours, while tourists were enjoying the make believe of Disney World's Abalkhail, Blumenthal and Solomon were dealing with the real world of oil prices and inflation in the Saudi minister's hotel suite.
Abalkhail sought, and got, a review of the administration and Federal Reserve plans to bolster the dollar. Blumenthal and Solomon assured him that the American trade and current account deficits are in the process of turning down. They reiterated Carter's determination to control inflation.
By telephone to Riyadh, Abalkhail relayed the gist of the conversation to Fahd, and came back to Blumenthal with a few additional questions. From Washington on Sunday, and again on Monday, Blumenthal talked to Abalkhail in Disney World.
What specific promises, if any, the Treasury official delivered to the Saudis is unknown. But his sales pitch was rewarded when Fahd gave his interview to Al-Siyassa, the Kuwaiti newspaper.
The United States is counting on the Saudis to dampen the demands elsewhere in the oil cartel for a sharp increase in the price of oil.
Sheikh Ahmed Zaki Yamani recently affirmed that the Saudis will press their partners to keep any future oil price increases gradual, despite the fact that U.S. inflation and the lower international value of the dollar have meant a loss of from 10 to 14 per cent in the real price of oil in the last year.
During the precipitate decline of the dollar exchange rate in the past month, rumors have multiplied that the cartel might price its oil in some currency other than the dollar, or in a "basket" of currencies that might hedge its bets against foreign exchange losses.
But the Saudis are reluctant to move away from the dollar, despite the beating it has taken recently. Such a move would be a hard blow to the prestige of the dollar, which is not in the interest of the Saudis, who have heavy investments and reserves in dollars.
Beyond that, to move into the yen, or D-marks, or a "basket" of currencies carries its own risks: if the dollar recovers, then the Saudis would be stuck with a decline in the other currencies.
In political terms, the Saudis would much prefer to maintain good relations with the United States, seen as providing a security umbrella against both the Soviet Union and more radical Arabs.
Reassured by Blumenthal's outline of Carter's plans, as passed on to him by Abalkhail, Fahd flatly rejected the notion of using other currencies as a basis for oil pricings and voiced his belief in the dollar "as the most important currency."
He even added that "as long as prices of consumer goods and manufactured goods remain stable without clear inflation, we don't have any intention of raising prices."