611.88/3–2851: Telegram

No. 11
The Secretary of State to the Embassy in Iran1

top secret

1698. Dept is carefully reviewing its Iran policies in light gravity present situation and is considering possible emergency measures to cope with any further deterioration.

Dept’s present policy briefly is to support Iran independence and assoc with free world through polit means, mil assistance and such econ measures as Exim loan, projected $25 million grant aid and Pt IV. These essentially long-range measures may be too inflexible for meeting crisis which might arise momentarily and, with possible exception grant aid program, have insufficient polit appeal to influence Iran policy to desired extent.

Mil aid program is being expedited, although poor reception of first impressive equipment, i.e., tanks, lends little hope that subsequent shipments will have appreciable influence upon situation. Reception accorded additional tanks now en route, however, may indicate future possibilities this program insofar as polit and psychological factors concerned. Only impediment availability Exim loan is Iran legis, passage of which in immed future believed doubtful. In any event impact loan project cannot be felt for many months and psychological value announcement wld be small. Dept is expediting Pt IV aid, although long-range and even greatly augmented program wld have little immed effect. $25 million grant aid included in other legis wld, in Dept’s view, help greatly, although funds scheduled mainly for capital equipment which too wld have [Page 29] longer-range rather than immed impact. (However, legis as drafted wld permit in emergency use some portion for consumers goods.) Moreover, several months required for enactment legis and availability funds.

Under present circumstances, therefore, there is little flexibility in use of these tools for dramatic impact upon Iran public opinion in a crisis, although their value shld not be underestimated. Dept urgently considering what other measures might be taken. Among difficulties involved is that Iran, as well as other countries, might conclude best way extracting US aid is to bring about crisis conditions. Moreover if Congressional approval required it wld have to be sold on “crisis” basis which might further inflame situation within Iran. Furthermore, US might be accused of underwriting Iran action in nationalizing AIOC. Recognized, however, natl interest may require proceed with some special program.

If it shld be possible for Dept in emergency obtain dols for use in Iran, it wld appear immed impact upon economy and great psychological advantage wld be derived from program designed meet current internal finan problems. Although extension US aid for this purpose wld be contrary gen policy, it is conceivable that circumstances may warrant such drastic course. Ur views as to precise way in which such funds might be utilized wld be of great value in Dept’s planning for this eventuality. Aid might take form either outright grant of dols to IranGov which cld use them purchase rials, or grant consumers goods. Latter appears equally difficult in view competition with normal commerical channels with ensuing polit repercussions but such items as dried milk, eggs, pharmaceuticals, etc., may offer possibilities. Direct relief to needy in form soup kitchens, dispensaries, foodstuffs and drugs might be considered. This might encounter relatively few obstacles in Iran and wld be in line US reputation for humanitarianism. It wld, however, aside from problems re methods of implementation, establish precedent it wld be difficult to withdraw from in subsequent years and wld be difficult justify in absence any unusual emergency demanding action of this nature.

There may be some Seven Year Plan2 projects which cld be made subj for fast US action with sufficient public appeal accomplish our ends: well drilling and pump installations in selected locations including perhaps land distributed by Shah; relatively inexpensive but impressive street paving and road projects; selected health projects; etc. Difficulties in such projects which shld be taken into account in formulating any program based thereupon include availability [Page 30] material, shortage of rials, and extent Amer supervision necessary or desirable. Suggestion Pt IV program be considerably expanded or that Pt IV rural improvement technicians be diverted to such “stop-gap” projects may also be worth consideration.

Dept wld accordingly appreciate receiving early indication in some detail ur views re foregoing or other programs you may wish to put forward within limit of five to fifteen million dols, including ur estimate of priorities and timing most appropriate such programs. Most effective results might be from combination several types aid. It shld be understood that Dept does not at present have funds for suggested emergency program and it is by no means certain that any special program will materialize. Dept believes on basis ur communications situation in Iran at moment is such that plans must be laid now to permit fast action if required in natl interest.3

  1. Drafted by Ferguson and Rountree and cleared by the Offices of the Assistant Secretary of State for Economic Affairs and of International Security Affairs and by the Technical Cooperation Administration.
  2. The Iranian Seven-Year Plan for economic development passed by the Majlis on Jan. 21, 1948.
  3. On Apr. 6, Ambassador Grady replied that economic aid to Iran would have a twofold importance: (a) political, in that it would show U.S. realization of the strategic importance of Iran and be tangible evidence of backing against Soviet aggression, and (b) economic, in that it would provide sufficient resources for economic development and encourage reform. Grady then reviewed the economic crisis facing Iran and concluded that in addition to U.S. aid the essential requirements for a solution to the crisis were “closest Anglo-Amer coordination and maintenance of oil revenue at not less than 25,000,000 pounds per year.” (Telegram 2302; 888.10/4–651)