Foreign Relations of the United States, 1964–1968, Volume XXII, Iran

137. Memorandum for the Record¹

Washington, May 12, 1966, 2:30 p.m.

SUBJECT

• Near East-South Asia IRG Meeting;² Thursday, 12 May 1966 at 2:30 PM

1. The general subject was U.S. relations with Iran; the specific problem was the proposal to respond to the Shah’s request to buy additional arms from American manufacturers with favorable credit terms underwritten by Defense.

2. Background:

a. In 1964 negotiation, USG agreed provide $200 million arms aid, 10 years 4% terms. Currently under negotiation are final arrangements of third tranche of this 1964 package.

b. Several months ago the Iran Parliament authorized the Iran Government to expend an additional $200 million on foreign arms procurement.

c. 1964 agreement included provision that USG would annually review the viability of Iran economic development to ensure defense spending did not undermine economy.

d. In February 1966, General Peterson of STRICOM visited Iran and reviewed (1) the character of the military threat to Iran and (2) a proposed arms package that would meet this threat.

e. When costed out, General Peterson’s package adds up to well over $300 million, i.e. more than $100 million more than Iran Parliament provided.

f. General Peterson’s report for the first time included USG recognition of the threat to Iran as the result of massive Soviet involvement with and support of a variety of revolutionary elements in the Middle East. (Footnote: This estimate was written in Tampa and included in a document signed by U.S. and Iran military prior to consultation with either the Ambassador or the intelligence community. After expressing some irritation, Ambassador Meyer and the State Department elected to live with this fait accompli. Indeed, Ambassador Meyer is now exploiting it.)

g. The CIA member of the IRG/NEA transmitted a proposal to Ambassador Hare on 22 March 1966 proposing an early IRG consideration of the dangers apparent in the present state of our relations with the Shah. Ambassador Hare responded by calling to the attention of the CIA representative NIE 34–66³ on Iran (basically reassuring), but agreed to put Iran on the IRG agenda at an early date.

h. During late April and early May, Ambassador Hare visited the Middle East, including Iran.⁴

i. NIE 34–66 approved by USIB on 24 March 1966 concluded:

(1) that the Shah was unlikely to move deliberately to alter the alliance or reduce U.S. activities in Iran.

(2) that Iran’s rate of economic growth could be adversely affected by the Shah’s ambitious military expansion program.

j. An OCI Memorandum (CIA Internal Use Only) dated 6 May 1966⁵ observed that:

(1) U.S.-Iranian relations may reach a critical point this month over the issues of Iranian military purchases and the Iranian drive to increase oil revenues.

(2) the Shah would prefer to make military purchases in the U.S. but has made it clear he will turn elsewhere if this proves too difficult.

(3) the Shah found the insistence on the part of the USG that any agreement to provide additional military purchases be related to the annual review “irritating and insulting, particularly in light of his new ‘independent’ foreign policy”.

3. IRG Discussions:

a. Ambassador Hare provided a lucid analysis of the long history of USG involvement in the internal affairs of our military and aid clients, concluding with the observation that we are in a new phase; we have seen the end of the “client relationship”. The close relationship must be modified, he said; it will be different but it will not disappear. His assessment of the Shah’s attitude coincided with that which has been reported [less than 1 line of source text not declassified] by Ambassador Meyer.

b. Mr. Hoopes (ISA/Defense) reviewed the status of the old 1964 agreement (third tranche of $60 million under negotiation of credit terms) and summarized the history of the new proposal. Regardless of Defense agreement with the Peterson Report, limitations on MAP resources would, he thought, limit a new package to approximately $180 million); the 10-year and 4% credit would be difficult to arrange but Defense would attempt it. Hoopes thought this package would, with luck, barely meet the Shah’s requirement; Ambassador Meyer agreed.

c. AID was entirely negative, deprecated the threat to Iran (rather incompetently), argued for tough handling of the Shah (shades of the 1961 Iran Task Force!) and stuck to the position that the Iran economy could not support the $200 million additional arms purchase. State, fall-ing back on IBRD and IMF judgments, disputed some of the AID premises. Ambassador Meyer also challenged AID. Ambassador Hare acknowledged that the AID position was probably sound but unrealistic and wishful thinking; Ambassador Meyer agreed.

d. I said that the Agency supported both the assessment of Ambassador Hare and that of Ambassador Meyer (as I understood them). In describing the Agency position I use the language (but made no reference to) the OCI Memorandum dated 6 May 1966. I acknowledged this reflected an adjustment from the conclusions of the 24 March 1966 NIE. The threat to Iran from the areas of her Near East neighbors had never, I thought, been the subject of an intelligence community estimate; State had, however, occasionally offered judgments, to the Shah, on this subject. I referred to the dangers inherent in the practice of reacting to the exaggerated “estimates” from the Shah and others by calming them with watered-down estimative judgements deprecating the long-term Soviet indirect threat in the Near East. I expressed the opinion that these “bogus estimates” tended to gain currency and validity within the USG and unnecessarily complicated the task of developing a USG consensus for action when it was needed. I noted the need for better intelligence on the changing situation in the Gulf and the Arab Near East.

e. Alternatives to USMAP—The question of alternative free world military sources was discussed. Ambassador Meyer categorically opposed any sacrifice of our monopolistic position. ISA/Defense, the White House representative and I all expressed some enthusiasm for a reappraisal of this established USG position. I noted, for example, that the UK alternative to the USG in the field of naval equipment for the Gulf might be positively approached. I also observed that the Shah’s representatives had been shopping in German shipyards.

f. The Shah’s new status—I noted that we had not indicated any real interest in the Shah’s offer to assume a greater responsibility in his part of the world in order to reduce the load on the USG. Regardless of the obvious question of his real capability, I thought that the Shah’s offer should be viewed as an opportunity which could be exploited. A smaller military package could be made palatable to the Shah if it were wrapped in the trappings of a real gesture from the President recognizing the Shah’s offer. ISA/Defense and the White House favored this and recognized it would take some careful thought. Ambassador Hare and Ambassador Meyer listened attentively to this discussion.

4. IRG Action—Ambassador Hare summarized the discussions as reflecting a consensus that we should, within the limits of available resources, react positively to the Shah. He noted that Defense had not yet formulated a precise proposal.

5. Following the meeting, Ambassador Meyer and Mr. Hoopes departed for the Pentagon for a meeting with Secretary of Defense McNamara. I have been reliably but informally advised that the meeting went badly. Secretary McNamara did not appear to be aboard on the otherwise positive Defense position. His reaction was reportedly very discouraging; he emphasized the troubles he was having with Congress on MAP and the great demands elsewhere for our limited resources.

6. Secretary Rusk, advised late 12 May 1966 of Secretary McNamara’s negative attitude, reportedly withdrew to a non-committal position. Ambassador Meyer was, however, given a free hand to present his case to the President.

7. Ambassador Meyer saw the President at noon on Friday the 13th. The President, I have been advised by State, listened carefully to a thirty-minute presentation. The President said that he would defer making a decision. Ambassador Meyer has cancelled his reservation to depart for Iran on 14 May.

James H. Critchfield ⁶
Chief, Near East and
South Asia Division

1. Source: Central Intelligence Agency, DCI Executive Registry Files: Job 80–R01580R, IRG. Secret. Drafted on May 13 by Chief of the Near East and South Asia Division in the Directorate of Operations James H. Critchfield.
2. The Interdepartmental Regional Group for the Near East and South Asia (IRG/NEA) consisted of members from the Departments of State and Defense, the Central Intelligence Agency, the Joint Chiefs of Staff, the Agency for International Development, the U.S. Information Agency, and the White House.
3. Document 125.
4. For a report on Hare’s meeting with the Shah on April 17, see Document 131.
5. Document 135.
6. Printed from a copy that indicates Critchfield signed the original.