179. Briefing Memorandum From the Assistant Secretary of State for Near Eastern and South Asian Affairs (Hare) to Acting Secretary of State Ball1
SUBJECT
- Iranian Oil Consortium: Your Dinner with Iranian Foreign Minister, Tuesday, October 25, 1966 at 8:00 p.m.
Recommended Position
At a meeting yesterday in London, the Iranian Government gave the Oil Consortium one month in which to present proposals in response to [Page 325] the Government’s demands. Officials of American companies belonging to the Consortium told us yesterday afternoon in Washington that, while they continue to hope we will help restrain the Iranians from precipitate and unilateral action, they would prefer that we not become involved in the substance of the issues as they are working on their position.
In the light of the attitude of the American companies, we do not recommend that you raise this subject this evening with Iranian Foreign Minister Aram. If he, however, raises the subject, you might say that we continue to view the situation with concern and believe that it was a wise decision to allow a month’s time for further discussion.
We anticipate that Ambassador Meyer will speak to the Shah along these lines today in Tehran.
Background
At the annual Consortium-Iranian meeting two weeks ago in London, the Iranians asked for a 17 percent increase in Consortium production for each of the next two years. If the Consortium could not achieve this rate of increase, the Iranians requested an advance payment based on the difference between a 17 percent increase and the actual increase. The Consortium has declined to agree to this demand, pointing out that it is unable to predict in advance any rate of increase in the light of changing market conditions. The Consortium has told the Iranians that it hopes to increase its production 10–11 percent this year. The Mideast average increase will be 7–8 percent.
After receiving the Consortium’s negative reply to their first proposal, the Iranians asked that the Consortium make available to Iran to market on its own account, presumably to Eastern Europe, crude oil at cost. The Iranians suggested that the Consortium guarantee an annual production increase of 12 percent and deliver to them an amount of crude oil annually for the next four or five years equal to the difference between the actual increase and a 17 percent increase. At yesterday’s meeting, the Consortium declined to agree to this demand, but requested and obtained a month’s time in which to consider possible alternative proposals.
The Iranians have informed the Consortium and the British and American governments that they are considering another proposal under which they would ask the Consortium to relinquish all its Iranian reserves of oil except those required to meet a minimum acceptable annual increase in Consortium production. The Shah has indicated that Iran will if necessary take legislative action to achieve this end. Such a move would be contrary to the Consortium-Iranian agreement of 1954.
Iranian motives appear to be a combination of two elements. One is a need for increased foreign exchange receipts to meet the needs of a vigorous development program and to cover the costs of rising military imports. [Page 326] The second is a desire to get into the business of marketing oil for their own account.
It is not certain what new proposals will be developed by the Consortium. The oil companies will seek a solution within the 1954 agreement. They will not consent to an arrangement under which they would guarantee a specified rate of increase in offtake from Iran because they would then be subjected to similar demands from other producing countries. They will also not consent to an arrangement under which the Iranians obtain oil at cost to market in competition with the Consortium. They believe that the Iranians intend to market any such oil not only in Eastern Europe and that Iranian oil exports to Eastern Europe would permit the Soviets to increase their sales to existing Consortium markets.
The Consortium operates in Iran under an agreement reached in 1954 which terminated the crisis set off by Mossadeq’s nationalization of the Anglo-Iranian Oil Co. in 1951. The members of the Consortium are British Petroleum (40%), Shell (14%), Standard of New Jersey (7%), Standard of California (7%), Texaco (7%), Mobil (7%), Gulf (7%), French Oil Co. (6%), and eight independent American companies (5%).
- Source: Department of State, Central Files, DEF 6 IRAN. Confidential. Drafted by Eliot and cleared by Solomon and in draft by Director of the Office of Fuels and Energy John G. Oliver.↩