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

218. Telegram From the Department of State to the Embassy in Iran¹

Washington, February 29, 1968, 0025Z.

122201. Subject: Iranian Oil. Ref: Tehran’s 3441.²

1. Dept increasingly disturbed by reports from Tehran, London and Paris that Aramco parents are being blamed for frustrating Shah’s wishes for increased off-take and income and by implication that all others would be pleased or at least willing to give Iran favorable treatment.³

2. Our understanding is that there is no major disagreement among shareholders on the two essential points: 1) the Shah’s demands for 20 percent annual increase in off-take cannot be met, in fact, 8–9 percent growth is all that can be assured in 1968, and 2) NIOC cannot be given cost oil. We understand there is also essential agreement now on new quarter-price arrangements on over-liftings. Although some companies might well wish to be allowed to take, at cost, more than their equity share, this opposed by BP as well as all American majors and we doubt that other companies seriously believe refusal to permit this could be called constraint of trade.⁴

3. Rules on programming production give Iran advantages over Aramco system and new agreement, we understand, gives companies option of applying Aramco over-lift agreements if they find them to their advantage.

4. We fear that high visibility of Aramco may lead Iranians to concentrate their irritation on its parent companies. But we also fear that French and British (Fearnley) may be encouraging this tendency by trying to shift blame to Americans when there is none to shift.

5. We hope addressees will be able to counter suggestion of American intransigence if it arises again.

6. It is interesting to note that greatest percentage increase among major Gulf producers in 1968 will not be Aramco but Abu Dhabi off-shore where only British Petroleum and CFP are involved. In addition CFP was one of two companies (other was Texaco) which opposed increase in Abadan refinery throughput.

Rusk

1. Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1967–69, PET 6 IRAN. Confidential; Limdis. Drafted by Akins (E/FSE); cleared by Neuman (NEA), Oliver (E/FSE), Eliot (NEA/IRN), and Malmborg (L/E); and approved by S. Rockwell. Also sent to London and Paris.
2. Document 217.
3. In a March 18 letter to Robert Dowell, Jr., Petroleum Attachè in Tehran, Akins noted that despite the fact that the oil companies felt a change in the overlift arrangement would make no difference to Iran, they were reluctant to make a change. He wrote: “John Oliver and I called company vice-presidents March 14, told them of our views of the seriousness of the situation and the impression we got from them was, ‘Tough; but a clash has become inevitable and we might as well have it now and get it over with.’ Mr. Rostow will probably call the presidents or executive vice-presidents to Washington next week to go over the same material. I doubt if he will be effective in persuading them of anything unless they are frightened. Maybe they will be. The Shah is an oriental despot and the oil executives are dinosaurs. If they come to blows it could be the battle of the century.” (National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1967–69, PET 6 IRAN)
4. In his letter to Dowell, Akins wrote: “Your references to ‘restraint of trade’ were a bit disturbing. We were surprised to see the accusation put into a telegram which was given fairly wide distribution in the Government. But fortunately the strong anti-oil company voices in Treasury and Commerce do not seem to have picked up the matter. They couldn’t get very far, in any case, given the fact that the American companies were given specific exemption from anti-trust legislation when they entered the Consortium.”