Foreign Relations of the United States, 1955–1957, Near East Region; Iran; Iraq, Volume XII

291. National Security Council Report¹

NSC 5504

Washington, January 15, 1955.

NOTE BY THE EXECUTIVE SECRETARY TO THE NATIONAL SECURITY COUNCIL ON U.S. POLICY TOWARD IRAN

REFERENCES

• A. NSC 5402/1; NSC 5402
• B. NSC Actions Nos. 1266 and 1304

The National Security Council, the Secretary of the Treasury, and the Director, Bureau of the Budget, at the 231st meeting of the Council of January 13, 1955, adopted the statement of policy contained in the reference report (NSC 5402/1), subject to the amendments thereto which are set forth in NSC Action No. 1304.

The President has this date approved the statement of policy contained in NSC 5402/1, as amended and adopted by the Council and enclosed herewith; directs its implementation by all appropriate executive departments and agencies of the U.S. Government and designates the Operations Coordinating Board as the coordinating agency.

The Financial Appendix and the Staff Study originally contained in NSC 5402/1 are also enclosed for information.²

Accordingly, NSC 5402 is hereby superseded.

James S. Lay , Jr.³

[Here follows a table of contents.]

[Enclosure]

STATEMENT OF POLICY BY THE NATIONAL SECURITY COUNCIL ON U.S. POLICY TOWARD IRAN

General Considerations

1. It is of critical importance to the United States that Iran remain an independent nation and be capable of resisting any attempt at domination by the USSR. It is in the national interest that Iran proceed to develop closer association with anti–Communist governments. Because of its key strategic position, oil resources, vulnerability to intervention armed attack and political subversion, Iran must be regarded as a continuing objective of Soviet expansion. Therefore in view of Iran’s importance to the free world, the United States and its allies will have to assume a larger and continuing responsibility for the independence of Iran. The development of Iran from a weak nation traditionally seeking a “neutral” position in world affairs into an anti–Communist asset in Asia would:

a. Strengthen the security of the entire Middle East, particularly the “northern tier” of the area.

b. Enhance United States prestige in nearby countries and strengthen their resolution to resist Communist pressures.

c. Prevent Communist use of Iranian oil as a weapon of economic warfare.

d. Have a beneficial psychological impact elsewhere in the free world.

e. Reduce the Soviet threat to important free world lines of communication.

2. Since Mosadeq’s downfall in August 1953 much progress has been made toward the attainment of U.S. objectives with respect to Iran. The Shah has been confirmed in his central role in the governmental power structure. Relative political stability throughout Iran has been established and maintained, so far, by the Zahedi Government. The mobs and demagogues of the Mosadeq era have been forced into the background, leaving the traditional land–owning, commercial and military groups once again in control of the offices and perquisites of government. The tribal situation is quiescent. Communist activities have been disrupted and a conscientious effort is being made to crush the Tudeh Party.

3. By an agreement with a group of international oil companies, including 40% American interest, the Anglo–Iranian oil dispute has been resolved and Iran is again to receive income from its oil resources. The Government has promised the people early, tangible benefits from this income, and therefore the durability of the oil settlement depends in large part upon the success of an economic development program.

4. It is estimated that Iran will probably remain, at least through 1955, in the hands of predominantly conservative Governments acceptable to the Shah and Western–oriented. However, Iran is likely to remain for some time a basically unstable country plagued with continuing economic and financial difficulties and the social and political problems springing primarily from the basic changes taking place in Iran society. The Parliament, upon which enactment of essential economic and social legislation depends, is composed of heterogeneous groups motivated mainly by self–interest. The lack of qualified Iranian administrative personnel is a serious problem. The Zahedi Government has so far failed to achieve widespread support. At best it appears to be accepted as one which has restored law and order, which may with U.S. support and oil revenue be able to provide some benefits for the country, and which has the will and ability to put down opposition. It has not yet succeeded in checking inflation or in bringing tangible benefits to the dissatisfied and politically influential urban middle and lower classes. These groups are increasingly aware of their lack of opportunity within existing social, economic and political structures. Unless a better basis for confidence and stability is established among them they will be increasingly vulnerable to extremist demagogues and Communist propaganda. In the long run, unless the traditional land–owning group adjusts to a sharing of political power with urban middle class elements there will probably be an increase in the disruptive potential of popular discontent.

5. Iran is in a better position to attack its problems than before. There is apparent a willingness among Iranian leaders to forsake the traditional policy of refusing to take sides in international rivalries and to develop closer ties with the anti–Communist governments of the free world. A significant new factor in the situation is the emergence of the United States as an acknowledged major influence in Iran. The Shah, who sincerely desires to improve his people’s welfare and is profoundly anti–Communist and sympathetic to U.S. objectives, is the ultimate, though not completely unrestricted, arbiter of political affairs. He and Prime Minister Zahedi are clearly determined to use authoritarian means if necessary to maintain stability and carry forward desirable economic and political programs. The prospect of very large future oil revenue offers hope that substantial economic progress can be made and provides a basis for assuming that the country will not need to depend on foreign financing for economic development after another two or three years. It is possible to capitalize on this favorable situation if the Shah and his key officials continue to move forward with hope and determination and if the U.S. continues to support Iranian efforts to overcome the problems described in paragraph 4 above.

6. Since September of 1953 the United States has granted emergency assistance at the rate of approximately $5 million per month to permit Iran to meet its operating deficit and to provide the necessary foreign exchange for essential imports. This aid was provided for the period prior to January 1, 1955 on a grant basis (a total of $83.3 million). A loan of $30 million has been offered to cover the period January 1 to July 1, 1955. An additional loan of $30 million is being considered to support Iran until January 1, 1956, when oil revenues are expected to be forthcoming in sufficient amounts to permit Iran to finance its own budgetary expenditures. Since oil revenues in the next year or two will be insufficient to finance politically essential economic development programs, the Export–Import Bank has recently offered a line of credit of $53 million for this purpose.

7. In addition to the above, the United States has a technical and economic assistance program for Iran of approximately $21.5 million for FY 1955. A program of $10 million technical assistance for FY 1956 is being proposed. Even when substantial oil revenues are realized it will be desirable to continue technical assistance to Iran for a number of years, with increasing participation by Iranians. The level of such technical assistance is expected to decrease as individual programs are turned over to the Iranians.

8. Oil revenues from the recently concluded agreement will accrue to Iran on a graduated scale. Direct payments by the consortium (including rial purchases within Iran), plus certain indirect tax benefits and savings, will total about $145 million in CY 1955, rising to $235 million in CY 1957, and perhaps increasing thereafter by about 5% per year.

9. On the above basis, in 1957 or soon thereafter, it appears that Iran would have the capacity, without U.S. economic aid, to support an adequate economic development program with some additional military expenses.

10. The Shah told the President on December 13, 1954 that Iran had decided to abandon its historical policy of clinging to a neutral position and to join hands with leading nations of the free world. He emphasized however that the Iranian government and the people would stand up more firmly in the face of pressures, threats and attempts at infiltration on the part of international Communism if they believed Iran could resist if attacked and that the peoples of the free world were interested in Iran’s being able to put up such resistance and were helping to that end. In referring to regional security arrangements he said Iran is willing to adapt its strategy to that of the defense of the area if “it has at least reason to believe that it will soon be in a position to contribute its share to the common defense of the area.”

11. In response, the Shah was informed that we would welcome Iran’s adherence to a regional defense agreement of Turkey, Pakistan and Iraq⁴ and are prepared to help develop in the Iranian armed forces defensive delaying capabilities which would make a useful contribution to the defense of the Zagros line. It was emphasized that intensive training is necessary to improve the Iranian army’s ability to make effective use of modern weapons. It was also pointed out that it was not possible at this time to evaluate the military role which Iranian forces should play in area defense, and that the United States does not want to develop a military establishment in Iran which would be an undue burden on the Iranian economy. No final decisions regarding Iran’s role in area defense can be made until after the entire Middle East military picture has been reviewed.

12. U.S. military aid to a value of $124 million has been programmed for Iran since 1950, of which about 70% was delivered by September 30, 1954. With the aid thus far provided the Iranian armed forces are capable generally of maintaining internal security but do not possess a capability for significant defensive delaying action against Soviet aggression.

13. The problem presented by the Shah must be measured in more than purely military terms. The presently favorable political and psychological elements of the Iranian situation are not static. The United States should therefore take advantage of this opportunity to bring Iran into closer cooperation with its neighbors in the free world and to change Iran from a liability to a positive anti–Communist asset in Asia. If the political and psychological climate is allowed to deteriorate by failure to provide a sense of increased security and participation in the free world, it is doubtful that Iran would enter into the desired kind of area defense arrangements. An additional result probably would be disillusion and suspicion among those Iranians currently resolved to resist international Communism; a weakening of public confidence in Iran’s ability to withstand Soviet pressures; and a consequent drop in the prestige and morale of the armed forces to a point where even the maintenance of internal security would be weakened.

14. The development of significant defensive delaying capabilities in the Iranian armed forces would require a long–term program involving U.S. expenditures substantially in excess of present levels. In addition to training and military end items, it would depend upon economic and defense support to complement military assistance. Iran does not have a capacity financially to support an increased military program while oil revenues are small, but can be expected to make an increasingly larger contribution in future years. It should also be recognized that full development of Iranian military capabilities depends on a general improvement in national morale, which in turn depends on the political–economic as well as military sphere.

Objectives

15. An independent Iran free from Communist control.

16. A strong, stable government in Iran, capable of resisting Soviet diplomatic and other pressures and of preventing Communist penetration, using all available resources effectively, with an improving economy, and actively cooperating with the anti–Communist governments of the free world.

17. Iranian armed forces capable of maintaining internal security, and having defensive delaying capabilities which would make a useful contribution to Middle East defense.

18. Iranian participation, at an appropriate time, in Middle East defense arrangements.

19. Maximum availability of Iranian oil to the free world and denial of such resources to Communist–dominated areas.

Courses of Action

20. Take the necessary steps, including, as appropriate, provision of military and related defense support aid for Iran, to help

a. Develop in the Iranian armed forces defensive delaying capabilities which would make a useful contribution to Middle East defense.

b. Improve the ability of the Iranian armed forces to maintain internal security.

c. Enhance the prestige of the monarchy and the morale of the Iranian Government and the military services.

d. Give the Iranian Government and the people a greater degree of confidence in the ability of the Iranian armed forces to defend Iran.

In carrying out this course of action keep the UK informed in general of the program and its objectives, and coordinate the program with the capabilities and plans of the UK, Turkey, Iraq and Pakistan for the defense of the area.

21. The amount and the rate of such military and defense support aid to Iran should be directly related to:

a. The attitude of Iran with regard to this aid and with regard to political, economic, and military cooperation with the free world, including Turkey, Pakistan and Iraq.

b. Iran’s ability and willingness to continue reorganization of its military establishment and its ability by intensive training under the tutelage of U.S. training teams satisfactorily to utilize present military equipment and to absorb additional equipment.

c. Early determination of the role which Iran is expected to play in Middle East defense, following the conclusion of the current US–UK–Turkey military talks.

d. The ability of Iran to make increasingly larger contributions toward supporting its military establishment by effective use of its own resources, thereby progressively reducing reliance on foreign aid.

22. Encourage Iran to enter into military cooperation with its neighbors as feasible, and to participate at an appropriate time in any regional defense arrangements which may be developed for the Middle East.

23. Facilitate the successful operation of the recent oil settlement,

24. Until Iran receives substantial revenues from its natural petroleum resources, provide economic development aid to Iran in the form of loans, unless exceptional circumstances justify grants.

25. Continue technical assistance to Iran, turning individual programs over to the Iranians as soon as they are capable. Where appropriate, utilize such private institutions and international organizations as may provide technical assistance more effectively.

26. Endeavor to persuade Iran to avoid financial over–commitment and to make effective use of its total revenue in such a way as to contribute to economic stability and growth, improved effectiveness of the armed forces in support of a stable government, and provision of early and tangible benefits to the people.

27. Support U.S. private enterprise in the development and expansion of Iranian oil resources and encourage U.S. private investment in other fields.

28. Endeavor to lessen widespread dissatisfaction among the potentially influential urban middle and lower classes by:

a. Continuing to encourage the adoption by the Iranian Government of reforms in the financial, judicial and administrative fields, with the objective of improving governmental efficiency and of giving the people greater confidence in the integrity and effectiveness of Iranian officialdom.

b. Encouraging the careful and gradual introduction of political and social reforms that will make the democratic forms in Iran more of a reality.

c. Seeking to increase the participation of intellectuals and students in Western oriented activities.

d. Strengthening U.S. cultural, educational and information programs.

29. Support Iranian approaches to the IBRD for long–term development financing consistent with a sound Iranian development program.

30. Recognize the strength of Iranian nationalist feeling, try to direct it into constructive channels and be ready to exploit any opportunity to do so, bearing in mind the desirability of strengthening in Iran the ability and desire of the Iranian people to resist Communist pressure.

[7 paragraphs (2 pages of source text) not declassified]⁵

[Here follow a 4–page Financial Appendix and a 21–page NSC Staff Study, entitled “Certain Problems Relating to Iran,” dealing with the following problems: 1. Strategic Importance of Iran, 2. Support of Iranian Armed Forces, 3. Economic Situation in Iran, and 4. Significance of the Irano–Soviet Treaty of 1921.]

1. Source: Department of State, S/S–NSC Files: Lot 63 D 351, NSC 5504 Series. Top Secret.
2. Attached but neither printed.
3. Printed from a copy that bears this typed signature.
4. On January 13, Turkey and Iraq issued a joint communiqué indicating their intention to form a military alliance and to invite other nations to join it. On February 24, Turkey and Iraq signed at Baghdad a Pact of Mutual Cooperation, generally known as the Baghdad Pact. For text, see 233 UNTS, p. 199. The Pact was adhered to by the United Kingdom on April 5, by Pakistan on September 23, and by Iran on November 3. Regarding U.S. policy toward the Baghdad Pact, see Documents 1 ff.

5. The following declassified footnote in the source text is attached to one of these paragraphs:

   “At the present time the United States has no commitment to employ U.S. forces in Iran. If it is found necessary for the United States to provide military forces in this area, implementation will require either an augmentation of United States forces or a reduction of present United States military commitments elsewhere.”