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

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

Tehran, December 29, 1967, 0824Z.

2702. Ref: Tehran 2701.² Iranian Oil.

1. My audience with Shah 28th turned out to be one of most unpleasant of my tour here. He was obviously smouldering over devaluation shortfall issue with which he had been preoccupied earlier in day³ (see reftel).

2. Using terms such as “robbery,” “thieves” and some unprintable epithets, Shah professed to be completely disgusted with Consortium’s behavior. At one point in discussion, Shah said if companies wanted war they could have it. This time it would not be with a Mosadeq but with a united Iran behind Shah himself.

3. When I noted Consortium believes it has legal basis for its position and perhaps arbitration might be one possibility for solving devaluation problem, Shah said arbitration is totally unacceptable. As for matter being legal issue, Shah said GOI would take care of that once and for all by immediate passage of legislation which would insure GOI undepreciable payments. Comment: Since this is critical point, I later sounded out Shah again and received distinct impression that as of now unilateral legislation which Shah has in mind for dealing with devaluation issue will be limited to insuring value of payments. Question is, of course, re wisdom of having any precedent set for unilateral legislation against Consortium.

4. In justification of righteousness his cause, Shah cited fact that both British Ambassador and Consortium Chief O’Brien had registered disapproval of Consortium’s action in reducing December 15 payments.⁴

5. Shah’s bitterness splashed over whole oil picture. Re OPEC discount problem, Shah contended companies give with one hand, i.e. agree to phase-out of discount, but then take back with other, i.e. gravity allowance. He said he had doubted wisdom of Amuzegar’s going to 52 cents on gravity allowance figure but had gone along with it. Comment: [garble] Amuzegar indicated (Tehran 2633)⁵ that he had only gone to 45 cents in recent Tehran discussions, Shah’s use of 52 cents figure, which he repeated twice, may mean that Amuzegar is prepared to move to that figure in attempt to reach compromise.

6. Shah went on to berate Consortium for its continual maltreatment of Iran, despite Iran’s exemplary behavior in comparison with other countries.⁶ My efforts to point out that Iran has in fact been treated very well fell on deaf ears. Shah once again contended that Consortium is sitting astride Iran’s vast reserves and he cannot permit such restraining influences on Iran’s welfare.

7. I pointed out problem is one of marketing. In this connection, I suggested Iran may be trying to carry water on both shoulders, i.e. pushing Consortium to find greater markets while at same time stealing some of Consortium’s markets, e.g. recent IPAC deal for providing 18,000 bpd to Philippines which previously been almost exclusively market for American majors in Consortium. Shah argued such competition is infinitesimal compared with bonanzas greedy oil companies are throwing to countries like Libya. When I pointed out geographic factor which places Libya in favorable situation with Suez closed, Shah said what really infuriates him is companies’ lifting large quantities from Sheikhdoms like Kuwait and Abu Dhabi when Iran with its 26,000,000 people needs funds to maintain its progress and play its role in Mideast security. Shah also asserted that Saudi Arabia’s production will soon move up to 4,000,000 barrels per day. Since geographic factor a la Libya cannot be applied vis-à-vis Saudi Arabia, this further demonstrates he said, how companies discriminate against INOC.

8. Shah once again mentioned possibility of legislation which would enable GOI to have oil at well-head for clients which GOI may develop not in competition with Consortium. He noted Iraq had long since found companies submissive to such measures. My natural response was to point to Iraq’s sorry plight today and how much better off Iran is. I urged Shah “with every bone in my body” not to go down Iraqi road.

9. When subject of Iraq first arose, Shah said derisively, “congratulations.” He contended that unhappy developments in Iraq, leading to influx of Soviets into Iraq’s oil fields, are primarily due to faulty Western policy over past ten years. Since there was little likelihood of rational discussion, I did not pursue this point further to ascertain what Shah had specifically in mind.

10. I told Shah Washington would be appreciative his views re Soviet intrusion in Iraqi oil industry. Shah said much depends on nature of Soviet involvement. However, danger is real, he said, that perhaps with pipeline through Syria, Soviets can get both Iraq and Syria in their clutches, thus leapfrogging over Turkey and Iran. This would place them in dominating position in Mideast, particularly since they already doing so well in what Shah has often mentioned as triangle (it is somewhat linear) of Cairo, Aden-Yemen, and Djibouti.

11. This provided occasion to pass some of interesting analysis contained in Beirut 5181,⁷ particularly ambition of Soviets to become international major. I noted in this connection recent PIW statistics that Soviets last year exported 56 percent of their production, which was 14.6 percent increase from previous year.

Here follows a brief general discussion of the oil industry.

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.
2. Not printed. (Ibid.)
3. Since Iran’s contract with the Consortium was based on payments in sterling and the international oil market was based on dollars, depreciation meant that Iran would be getting proportionately less for its oil than would Arab producers like Saudi Arabia with contracts payable in dollars.
4. The British Foreign Secretary moved quickly to “dissuade the Shah from taking any rash action” and asked the United States to make a “similar demarche,” which the Americans agreed to do at the Ambassador’s discretion. (Telegram 92281, January 3, 1968; National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1967–69, PET 6 IRAN)
5. Not printed. (Ibid.)
6. The Consortium notified the Finance Minister the next day that they had agreed to make additional payments to make up the devaluation shortfall. (Telegram 2767 from Tehran, January 4; ibid.)
7. Dated December 26. (Ibid., PET 6)