Foreign Relations of the United States, 1955–1957, Near East Region; Iran; Iraq, Volume XII

353. Summary Paper Prepared by the Officer in Charge of Iranian Affairs (Hannah)¹

Washington, March 13, 1956.

On March 13 [less than 1 line of source text not declassified] conferred three hours with Shah² with following results:

1) The Shah stated the grant-loan package³ deal was impossible of acceptance. It is illegal without Majlis approval. The remaining time of the present Majlis session (6 days) is too short to obtain approval. It is politically impossible to inform the people that the U.S. holds Iranian friendship so lightly. Egypt obtained $50 million grant by blackmail and Afghanistan $5 million after opening its arms to the USSR.

2) In dejected despondency the Shah said this requires him to cut back on needed education, health, roads and military programs. This will result in a loss of face for him and for the U.S.

3) In view of the U.S. attitude he is without hope regarding the future aid program he discussed with the Secretary.

4) He will be embarrassed by having been duped when he makes his forthcoming trips to Turkey and the USSR.

5) The source reminded the Shah of U.S. disappointment over Iranian failure to make budgetary improvements. The Shah stated he is trying but it can’t be done all at once. He is committed to a three year program of financial stability.

6) Source pointed out that the revenue bill had been emasculated by removing certain taxes, such as one on private home building. The Shah stated the bill was passed today, and he claimed the home tax would net only 15 million rials ($200,000). He also said this tax would only hit the poor. He asked [for?] more time, saying the people would be educated to paying taxes, and he pointed out that “taxes were paid under my father’s reign”.

7) The Shah stated that Secretary Dulles thought only 10% of the oil revenues were going to the budget. Actually, he claimed 40% were being diverted from the economic development program. The source stated that the Shah and the Government were putting all their bets on this single item of the U.S. aid program, ignoring larger aid of other kinds. The Shah agreed but stated that military aid is kept confidential. He claimed that the previous Iranian Government was granted $100 million a year whereas the present Government gets only $20 million and half of that is in the form of a loan.

8) The Shah stated that apparently the U.S. is ready to help only those countries in danger of falling to Communist subversion. He added “I know that one day the U.S. will come to Iran’s aid—on the day that a Gamal Nasser sits where I sit”.

1. Source: Department of State, GTI Files: Lot 59 D 654, Iran Budgetary Aid 1955–56. Secret.
2. In a parallel démarche, Iran’s Foreign Minister talked to Chapin on March 13 and used similar arguments as the Shah. A report of that conversation is in telegram 1419 from Tehran, March 14. (Ibid., Central Files 788.5–MSP/3–1456)
3. Reference is to the $20 million U.S. aid to Iran, approved by the NSC on February 9 and offered to Iran as a $10 million grant and a $10 million loan.