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

215. Telegram From the Embassy in Iran to the Department of State¹

Tehran, November 22, 1967, 1530Z.

2249. Iranian Oil.

1. In discussion with Harriman 22d,² Shah rehearsed his usual theme that Consortium should accord Iran preferential treatment. He referred to Iran’s good behavior this past summer, its stabilizing role in this region now and in future, and importance of executing Iran’s extensive Fourth Plan (which he admitted had been based on false statistics re projected oil revenues).³

2. Shah said it is simply question of “money,” implying he not particular how increased revenue is achieved. He suggested four possibilities: A) as transportation rates come down following last summer’s crisis companies should let Iran share in benefits from increased prices now prevailing in Europe; B) 6–1/2 per cent OPEC discount now being given companies be eliminated; C) Consortium internal regulations should be changed to become like those at Aramco so that those who wish to overlift are not penalized; and D) oil companies should encourage expansion of petrochemical industry in Iran.

3. Re natural gas, Shah said estimates for building pipeline (with L–60 steel) to Trieste range around $800 million but he suspects cost more likely to be in $1 billion to $1.2 billion range. He disclosed new idea, apparently being developed by French, whereby Soviets would deliver to France quantities of natural gas equivalent to those delivered by Iran to USSR border (via second pipeline) and French would pay Iranians in free foreign exchange. Shah said this proposal is agreeable to Iranians because it means foreign exchange rather than bartered Soviet goods. He acknowledged, however, that French have yet to negotiate such deal with Soviets.

3. Comment: Shah’s discussion of oil was dispassionate. He said he hopes points mentioned in para two can be worked out when Consortium team comes to Iran for discussions Nov. 29.

Meyer

1. Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1967–69, PET 6 IRAN. Secret. Repeated to London, Paris, and CINCSTRIKE/USCINCMEAFSA.
2. The Consortium prepared a paper to brief Harriman before his meeting with the Shah. The paper, a comprehensive analysis of the status of the oil negotiations, is in a memorandum from McClelland to Akins, November 23. (Department of State, E Files: Lot 71 D 84, PET—Petroleum Iran (2) 1967)
3. Dr. Eqbal, managing director of NIOC, had explained the error to Consortium members in October: “Dr. Eqbal stated that an error had occurred in calculations within the GOI in that capacity figures given to NIOC by the Consortium had been taken by NIOC as production and offtake levels to be achieved by the end of 1967. These were notably 3.1 million bpd production and 2.9 million bpd offtake, both of which are projected capacity figures, not actual production of offtake. (In fact, 1967 offtake is expected by the members to average about 2.3 million bpd.) Dr. Eqbal said that he had informed Finance Minister Amuzegar of offtake levels based on the above and that Mr. Amuzegar had used these figures as a basis for the computation of revenue from oil not only for the balance of 1967, but also for projections for future years….According to Mr. Amuzegar, assumptions about financing incorporated in the Fourth Plan were based on revenue figures derived from the above mentioned offtake figures. He repeated, as Dr. Eqbal had stated in London, that the GOI required $6 billion in oil revenue during the five-year Fourth Plan, which begins in March 1968.” The effects of the miscalculation were far-reaching: “Mr. Amuzegar informed the member representatives that revenue based on a level of 2.9 million bpd for the next quarter of 1967 had already been spent and beseeched the members to help resolve the GOI’s dilemma (though admitting it was founded on inaccurate information) by revising their offtake estimates for 1968.” (Airgram A–242 from Tehran, November 6; National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, PET 6 IRAN)