Foreign Relations of the United States, 1964–1968, Volume XXXIV, Energy Diplomacy and Global Issues

212. Action Memorandum From the Assistant Secretary of State for Economic Affairs (Solomon) to the Under Secretary of State for Political Affairs (Rostow)¹

Washington, October 12, 1967.

SUBJECT

• Iranian Oil Production

The December, 1966 agreement between the Iranian Oil Consortium and the Government of Iran included the following points: the Consortium would at least match the overall Middle East production increases in 1967 and 1968 (they had been running at about 10.5 percent increase each year) and would make best efforts for subsequent years. Specifically, the Consortium agreed to try to increase production from an average of 1.9 million bbls/day in 1966 to about 2.1 million bbls/day in 1967 and to 2.35 million bbls/day in 1968 (an increase of 11–12 percent per annum).

Early this year the British became skittish about these production goals and asked us to urge the American companies to make sure they would meet them. The Secretary told the British Ambassador on March 3 that we had no reason to believe they would not be able to and we were hence not willing to raise the subject with the companies. Furthermore, we had no indication that the Iranians were dissatisfied with the agreement.

Because the IPC pipeline remained closed for the first two months of this year and the Arabs stopped shipments to the United States and the United Kingdom in June and July, Iranian production has increased much more this year than expected and in the first nine months it has averaged over 2.4 million bbls/day. Production will probably drop below these levels for the remainder of the year but the Consortium expects the average for the year to be at least 2.25 million bbls/day—an increase of 17 percent over 1966 levels and 150,000 bbls/day more than the projected increase for the year. (FYI: We believe the Consortium estimate is deliberately low to allow room for bargaining. Production for the year will probably average closer to 2.35 million bbls/day—the level which has been projected for 1968.) This compares with an estimated increase in the Arab Middle East (not including North Africa) of only 7 percent for the year.

Although the Shah expressed his satisfaction with the December, 1966 agreement, the Iranians apparently now wish to extract a new commitment for 11 percent increases per annum based on December, 1967 capacity (not production) of 3 million bbls/day, arriving at 4 million bbls/day production in 1970 with a production capacity of about six million bbls/day.

The Consortium believes it is highly unlikely that production figures can be anywhere near this amount in 1970 unless there is some further unexpected deterioration in operating conditions in the Arab world. At an annual increase of 11 percent from 1966, Iranian production in 1970 should be about 2.9 million bbls/day; capacity at that time should be around 3.6 million bbls/day. The Consortium has been reluctant to increase capacity much beyond actual production, at least partially because of the Iranian tendency to insist that production be kept near maximum possible levels.

The Iranians have raised the subject with the Consortium, with the British in London² and with our Embassy in Tehran although Prime Minister Hoveyda said he realized there was little the United States could do to influence the American companies’ policy (Tehran’s 1534 attached).³ Ambassador Ansary seems to be putting in a few licks on the same subject.

Rèsumè on Differences Between Consortium Plans and GOI Desires

(All figures in millions of barrels/day)

	Production	Provided in Dec. 1966 Agreement*	New Iranian Demands for Prod Levels	Consortium Plans for Capacity	Iranian Demands for Capacity
1966	est 1.9	n.a.	n.a.	n.a.	n.a.
1967	est 2.3	2.1	2.3	3.1
1968	—	2.35		3.1
1969	—	2.6		3.3
1970	—	2.9	4.0	3.6	6.0

*11–12 percent increase in 1967 and 1968; same percentages have been projected in this table for 1969 and 1970.

Recommendations:

We suggest that you tell Ambassador Ansary:

1. We cannot of course dictate policy to the American member companies of the Consortium.

2. The American companies of the Consortium have always taken their commitments to the GOI seriously and we have every reason to believe that they will do all possible to see that Iran gets its fair share of the Middle East increase in production. It appears that the Consortium will substantially exceed its commitment for 1967. But it is difficult and probably impossible for any oil companies to make absolute commitments as far in the future as 1970.

3. Although it is unlikely that production ratios will ever be precisely what they would have been had there been no Middle East crisis this summer, it is inevitable that some of the pre-crisis purchasing patterns have been restored as a result of the lifting of the boycott on oil shipments and it would be unrealistic for Iran to expect to retain all the additional production which has accrued to it as a result of the crisis.

4. We understand that the current talks in London between the Consortium and the Iranian team ended amicably, although we do not have detailed information on the decisions. (London’s 2768 included for your information.)⁴

5. Kuwait will have almost no increase in oil income this year and Saudi Arabia will have less than it had counted on. It is in the interests of the U.S. as well as Iran to maintain and support the moderate governments of these two countries.

1. Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1967–69, PET 6 IRAN. Confidential. Drafted by Akins and cleared by Eliot and Oliver.
2. The British Minister of State told the Iranians that “Iranian demands are unrealistic; that companies’ plans are reasonable in current commercial context; and that companies could not give Iran preference on political response grounds without provoking undesirable political response in Iran’s Arab neighbors.” (Telegram 2851 from London, October 11; ibid., PET 6 IRAN) The British submitted a memorandum to the Department on October 12 regarding their concern. (Ibid.)
3. Not found attached. Dated October 5. (Ibid.)
4. Not found attached. Dated October 9. (Ibid.)