226. Research Memorandum From the Director of the Bureau of Intelligence and Research (Hughes) to Secretary of State Rusk1
SUBJECT
- The Problems and Prospects of the Iranian Oil Consortium
The temporary settlement in April 1968 of current disputes between the Iranian Government and the group of western oil companies known as the Iranian Oil Consortium gave the companies additional time to determine their joint position for the subsequent round of negotiations, which began on September 30, 1968, at the semi-annual Consortium/National Iranian Oil Company meeting in London. This paper will attempt to present the background and an analysis of the problems involved.
Abstract
In order to achieve an exceptionally large increase in its oil revenues for several years to come, the Iranian Government will in the next few months bring heavy pressure to bear upon the Iranian Oil Consortium. Wishful thinking plus an error in computation2 has led the Iranians to plan upon a level of revenue from future Consortium operations that is, in the Consortium’s view, far above the probable figure, and the government has been so informed.
The Iranian position, in essence, is that Iran’s development needs (in particular, its fourth five-year development plan, covering the Iranian years 1347–51, roughly 1968–72) require a certain level of funds, that oil is the only Iranian resource capable of generating that level, and that the bulk of the necessary oil must come from the Consortium’s concession area, which contains by far the most prolific known and presently operational deposits. The Iranians would prefer, as the simplest solution (and the only one likely to succeed), that the members of the Consortium lift enough oil to provide, through the usual royalties and taxes, the desired level of governmental revenue.
If the Consortium is unable to do this, it must provide the National Iranian Oil Company (NIOC) with a sufficient quantity of oil from the Consortium area at a low enough price so that NIOC could make up [Page 413] the shortfall in revenue through its own sales or barter arrangements. The oil could be provided by modifying the terms of the Consortium’s 1966 agreement to make barter oil available to NIOC, by turning over to NIOC an already producing field in the Consortium area, or by conferring upon the Iranian Government membership in the Consortium. The government has indicated that, in case of refusal, Iran might take unilateral measures to obtain the oil.
In spite of the apparent Iranian determination to reach, in one way or another, its revenue goal, the government is very probably aware that this goal is unattainable—that the Consortium is in fact doing its best to increase its offtake but will not be able to meet Iranian demands, that additional sales by NIOC could not possibly close the gap, and that any unilateral measures Iran might take in an attempt to reach its goal not only would not accomplish that end but might prove to be disastrous.
There have been indications of Iranian hesitation to enter into an irreconcilable confrontation with the Consortium. The Iranians backed down in April 1968 with a “Persian solution” to the problems raised by their demands. They shifted the time frame of the dispute. Their recent offer to discuss production capacity as well as actual offtake of oil has opened up another avenue which could at least postpone a showdown. If the Consortium remains adamant about future commitments on offtake, refusing to promise the levels the Iranians are demanding, the government can back down again by accepting Consortium assurances that the necessary production capacity will be available in case Consortium offtake or a combination of Consortium offtake and NIOC offtake for barter purposes should by some chance reach the desired level. The Consortium is apparently in a position to make such a commitment for at least one year and possibly two.
With room for the Iranians to retreat, we believe they will probably do so. They will make every effort to better their position, such as by obtaining easier terms for barter oil and some additional minor concessions, as well as the highest possible offtake commitments, but we strongly doubt that they are as yet prepared to resort to unilateral measures of compulsion if their demands are not met.
Here follows the body of the 26-page report.
- Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1967–69, PET 6 IRAN. Secret; No Foreign Dissem; Controlled Dissem; No Dissem Abroad; Limdis.↩
- See footnote 3, Document 215.↩