Office of the Historian

138. Telegram From the Embassy in Iran to the Department of State1

Tehran, May 18, 1966, 1015Z.

1550. For Secretary.

1.
As you may know, my efforts last week in Washington to assure responsive USG position to Shah’s military needs, as confirmed by General Peterson’s military survey, unexpectedly met resistance from Secretary McNamara. Despite Peterson findings, he reluctant proceed with additional military sales here. His understandable reasons: a) general Washington antipathy to military programs particularly following Indo-Pak conflict last year: and b) concern that military expenditures will jeopardize Iran’s economic development.
2.
Even without Peterson confirmation, Shah is convinced Iran needs additional equipment. It not possible to dissuade him from securing adequate air defense for wealth-bearing southern region of Iran and some additional naval craft to assure stability of Gulf as traditional British power diminishes. Economically, Shah tends to bite off more than he can chew but recent history demonstrates projects never progress as rapidly as anticipated and this tends to relieve financial indigestion. In any case at present Iran is thriving and generally justified optimism prevails here re future.
3.
There is no doubt Shah means it when he says he will buy elsewhere if USG not forthcoming. British told us last week they undertaking intensive military sales campaign here. French, Italians and others also in wings. Soviets also a possibility that cannot be excluded. Our conviction is that maintenance of US-Iran military relationship is best bet for keeping Shah from going off deep end economically or otherwise.
4.
Aram 17th quoted Shah as expressing hope that his five months’ wait would be followed by adequate US responsiveness but if not he determined make other arrangements. Shah cited Kosygin’s visit to Cairo as compounding concern engendered by Nasser’s threats against Saudi Arabia and Nasser’s announcement that UAR will continue in Yemen in anticipation of British withdrawal from Aden in 1968. While Shah no doubt sent this word in part to pressure us, Aram is genuinely concerned re Shah’s attitude.
5.
Turk Ambassador Kent sought me out evening 17th to report that during 1–1/2 hour conversation previous day Shah had at one point stated that if US fails to respond to his additional military needs Kent [Page 246] should “not be surprised to see Malinovsky here.” Such talk is, of course, obnoxious and may also have had purpose of influencing our views. At same time, I remember Ambassador Henry Grady telegraphically commenting before breakdown of oil industry here that some people think Iranians will not cut off nose to spite face but those people are wrong.
6.
All this does not mean we should jump through hoop when Shah snaps fingers. Peterson Mission reduced Shah’s demands to justifiable requirements. Beyond this, equipment recommended by Peterson will exceed in cost $200,000,000 supplementary loan authorization which Shah has received from Parliament. This means that within Peterson program, Shah is going to have to make some choices. In any case, during our discussion of these matters I intend to bear down heavily on need for keeping military expenditures from wrecking economic progress which Iran is making.
7.
Military package which we propose should above all honor promise made in President’s letter to Shah of April 11,2 i.e. credit sales within additional $200,000,000 ceiling at “most favorable prices.” It seems every time DOD takes another look at the figures, prices go up further. Hope they can be kept to minimum cost to USG and with waiver of research and development percentage (my impression such waivers not at all uncommon). As to interest rate, we continue to hope that for important political reasons (climate for augmented special facilities) one percentage point can be shaved from 5–1/2 percent going rate for additional $200 million credit.
8.
In general, our colleagues in DOD appear to want to be as forthcoming as circumstances permit. Ray Hare would know present status of their thinking and whether a word from you might be helpful. If such word needed, I can assure you it is in our nation’s interest.
Meyer
  1. Source: Department of State, Central Files, DEF 19–8 US–IRAN. Secret; Priority; Exdis.↩
  2. Document 129.↩