168. Memorandum of Conversation1
SUBJECT
- U.S.–Iran Bilateral Oil Agreement (I)
PARTICIPANTS
- Henry A. Kissinger
- Secretary of State
- Hushang Ansary
- Iranian Minister of Finance and Economy
- Ardeshir Zahedi
- Iranian Ambassador
- Charles W. Robinson
- Under Secretary of State for Economic Affairs
- Rutherford M. Poats, Notetaker, E
Kissinger: The first thing you must understand, Hushang, is that in this town, especially this year, everybody has his own brilliant solution to all problems. Frank Zarb, our FEA Administrator, has his solution to the oil agreement problem we have been discussing with you.
(Pause while Secretary leaves to take a phone call.)
Robinson: You and I should plan to get together tomorrow to sum up what we’ve concluded and decide the next steps.
[Page 510]Ansary: Yes. I hope we can get right now the Secretary’s views on the principal questions so that we know how to proceed.
Robinson: We are pushing the swap arrangements you are discussing with our companies, and I believe something will come of this.
Ansary: Swap? You mean the barter of oil for military equipment?
Robinson: Yes, the negotiations with Litton, Boeing, General Dynamics and others. We want to see this pursued to a successful conclusion. A bilateral agreement would be supplemental to that.
Ansary: Is Zarb’s idea swap?
Robinson: No, government-to-government agreement. He has legislative authority now to proceed to establish a Strategic Reserve of 500 million barrels of oil, possibly 900 millions barrels later. This would be off-market, not conflicting with your sales.
Ansary: Would it have to be implemented by appropriations?
Robinson: Yes, but these would be more or less automatic. They would be subject to a specific plan to be submitted by Zarb to Congress.
Ansary: Where do we stand with the Defense Department on the plan we have been discussing?
Robinson: I’d prefer to wait until Henry gets back before going into that.
(The Secretary returns.)
Kissinger: Zarb wants to put Iranian oil into our Strategic Reserve. He’s got a complicated scheme to present to you. I must warn you that he wants a massive discount. He could not have storage in the salt domes ready before 1978, so we need to meld this idea with our earlier idea of immediate purchases. However, we have concluded that the plan involving Defense Department purchases from you is out.
Ansary: Why?
Kissinger: Essentially bureaucratic reasons. Unless the agency handling this proposal with the Congress is enthusiastically committed to it, there will be prolonged debate . . . a disaster.
Ansary: His Imperial Majesty likes the idea of a mutual security arrangement for sale of our oil to your Defense establishment. Now you are suggesting an entirely new idea that could take months to develop.
Kissinger: We will get to a quick decision. Is the negotiation with the U.S. (arms) companies going well?
Robinson: Yes, it seems to be. Seven companies are involved. General Dynamics is working on a 100,000 barrels/day plan.
Ansary: Yes, with Ashland.
Robinson: These swap arrangements could add up to 200,000 to 300,000 barrels/day.
Kissinger: Not bad. Is there to be a price reduction?
[Page 511]Ansary: We haven’t gotten to that.
Kissinger: What I want to do is to avoid a big debate in the Congress with people out-doing each other on the kind of bargain we should negotiate, urging us to blackmail Iran, and so on.
Ansary: So far as I am concerned, we would like to avoid Congressional debate. In order to be sure I understand the situation, should I leave Defense out of the discussion of oil at dinner tonight?
Kissinger: Yes. My advice is don’t raise it with Ellsworth.
Zahedi: To be frank with you, I don’t trust Ellsworth. I don’t think we would get anywhere with him.
Ansary: I have a problem with this, in view of my instructions from His Imperial Majesty. Is it a matter of making an effective presentation?
Kissinger: I don’t mind saying during the dinner to you that you can take five minutes to try to convince Ellsworth, but I am convinced that an approach through Zarb’s reserve plan is the way to proceed.
Ansary: He doesn’t have appropriations yet. And if he sold the oil before 1978 it would have to go into the commercial market.
Robinson: That would be true in any case.
Ansary: Then we are back to starting from scratch.
Robinson: There could be some phasing out of market purchases of crude from other countries, with swaps in the meantime.
Ansary: How would you justify this to the independents and the majors? I ask this question not because I want to get back to the Defense route, but because it will be necessary to explain to His Imperial Majesty if the preference now is for Zarb to get into the oil-importing business.
Kissinger: Once we have established the principle that we are going to buy Iranian oil for our Strategic Reserve, we have taken care of only the 1978–80 period, and it is obvious that you have to have sales now, so an interim arrangement is necessary.
Ansary: I am concerned that Zarb would resist going into commercial business.
Robinson: I suggest you pursue this at lunch with Zarb.2
(Adjourned to the dining room at 12:50 p.m.)
- Source: National Archives, RG 59, Central Foreign Policy Files, P820117–1638. Confidential; Nodis. Drafted by Poats and approved in S on April 1.↩
- At the lunch with Kissinger, Robinson, Zahedi, Scowcroft, and Poats, Zarb presented Ansary with a proposal to invoke FEA’s authorization to fill a strategic oil reserve by purchasing Iranian oil. (Library of Congress, Manuscript Division, Kissinger Papers, CL–153, Iran, Chronological Files, 1 January–14 April 1976) The memorandum of conversation is printed in Foreign Relations, 1969–1976, volume XXXVII, Energy Crisis, 1974–1980, Document 96.↩