227. Memorandum of Conversation1
SUBJECT
- Oil Matters (Part 4 of 4)
PARTICIPANTS
- H.E. Amir Abbas Hoveyda, Prime Minister of Iran
- H.E. Hushang Ansary, Ambassador of Iran
- H.E. Mehdi Samii, Governor of the Central Bank of Iran
- Dr. Reza Fallah, Director, National Iranian Oil Company
- The Hon. Dean Rusk, Secretary of State
- The Hon. Armin H. Meyer, American Ambassador to Iran
- Mr. Stuart W. Rockwell, Deputy Assistant Secretary, NEA
- Mr. Theodore L. Eliot, Jr., Country Director for Iran, NEA
The Prime Minister asked Dr. Fallah to join the meeting for a discussion of oil matters. He said that Iran has no problems in the current year with the Oil Consortium but that it hopes for one billion dollars in oil revenues next year (comment: presumably the Iranian year beginning March 21, 1969). The member companies of the Consortium are considering this request, but have not yet responded. Last year, he said, the Shah told the companies that if they could not meet Iran’s requirements, Iran would find its own markets. He decried what he described as the companies’ policy of supporting such states as Abu Dhabi and Kuwait that either have no useful way to employ their oil revenues or use them to support radical Arabs.
The Prime Minister went on to say that Iran is now looking at the American market. One way to sell oil to the United States would be through the present American quota system, using the proceeds to purchase American goods. Iran might possibly buy into an American firm having an import quota. In any case, the Prime Minister said, two aspects of this situation deserved special mention. One is the fact that the United States needs additional oil reserves. Iran has entered into a contract with another country (comment: South Africa; see below) desirous of stockpiling oil and has asked a private firm for a study on a similar possible contract with the United States. Iran would give this study to the United States Government for its consideration. Iran could use the proceeds from such sales to the United States to buy American [Page 415] products. The second aspect of the matter was possible sales of petroleum products to the Department of Defense.
Dr. Fallah said that sales to the Department of Defense pose a problem because DOD purchases on the basis of public tender. The Secretary asked if Dr. Fallah meant that Iran could not meet the price competition. Dr. Fallah said that the National Iranian Oil Company (NIOC) would act as the Consortium’s agent. The Prime Minister said that the NIOC would find a market for the Consortium. The NIOC would make no money as an agent, but Iran would profit through the taxes the Consortium would pay on higher production. Dr. Fallah said that Iran desires a three-year contract with DOD, but the latter won’t go beyond six months. This and not price is the problem. The Prime Minister said that Dr. Fallah would be talking with DOD officials. The Secretary said that we can be sympathetic provided that the price is right, but we do not want to subsidize the seller.
Dr. Fallah said that on the other aspect of the Iranian plan to sell oil to the United States, Iran believes that it is in the US interest to buy inexpensive Iranian oil. The Secretary asked how such purchases would be financed. He said that he couldn’t imagine the Congress financing an oil stockpile. Dr. Fallah said that at some time in the future, the United States, like South Africa, might finance a stockpile. Iran could provide credit for that part of the sale whose proceeds would go to Iran.
The Secretary said that from the standpoint of national resources policy there was some logic in the Iranian proposal. But to translate the proposal into financial and political terms would be difficult. He asked if such a proposition might not be more attractive for Western Europe. Dr. Fallah replied that Western Europe is already a market for Iranian oil. The Secretary commented that in our case, the proposal would appear to hurt our own producers who wouldn’t trust their government to keep the stockpile locked up. Dr. Fallah said that the major American companies would like the proposal.
The Secretary said he was interested in the subject and would give it more thought, but there are political and financial problems. Dr. Fallah said that Alaskan finds are not the permanent answer to American oil needs and added that the Iranian proposal would not hurt the American balance of payments. The Secretary repeated that the proposal is politically very difficult. He asked that Iran provide us with its studies informally and that future discussions be on an informal basis.
- Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1967–69, PET 6 IRAN. Drafted by Eliot on December 8 and approved in S on December 11.↩