392. National Security Council Report1

NSC 5703/1



  • A. NSC 5504
  • B. NSC 5610
  • C. NSC Actions Nos. 1624–c2 and 16673
  • D. Memo for NSC from Executive Secretary, subject: “Report by the Interdepartmental Committee on Certain U.S. Aid Programs”, dated December 5, 19564
  • E. NIE 34–57
  • F. NSC 5703
  • G. Memo for NSC from Executive Secretary, same subject, dated February 6, 19575

The National Security Council, the Secretary of the Treasury, the Attorney General, the Special Assistant to the President for Disarmament, the Acting Director, Bureau of the Budget, the Chairman, Atomic Energy Commission, and the Federal Civil Defense Administrator, at the 312th NSC meeting on February 7, 1957 (NSC Action No. 1667–b and –c):

Adopted the statement of policy contained in NSC 5703, subject to deletion of the Financial Appendix thereto pending the Council’s action under c below.
Agreed that no commitment as to a new or additional military assistance program for Iran based upon NSC 5703 should be made pending Council consideration of a study by the Department of Defense of the military implications for the Middle East of the Joint Resolution (such study to be completed not later than July, 1957).

The President on this date approved NSC 5703 as amended and adopted by the Council and enclosed herewith as NSC 5703/1, and the action in c above; directs their implementation by all appropriate Executive departments and agencies of the U.S. Government; and designates the Operations Coordinating Board as the coordinating agency.

[Page 901]

NSC 5703/1 supersedes NSC 5504.

James S. Lay, Jr.6



General Considerations

Importance of Iran for U.S. National Security.

1. Iran’s location between the USSR and the Persian Gulf, as well as its great oil reserves, makes it critically important for the United States that Iran’s friendship, independence and territorial integrity be maintained. On the other hand, Iran is a tempting and important target of Soviet expansion because of its vulnerability to overt and covert penetration and its suitability as a route to the Near East, South Asia and Persian Gulf oil. Since 1953, Iran has been regarded in the area as a symbol of U.S. influence, and its subjection to anti-Western control would be a major psychological setback with chain-reaction repercussions for U.S. prestige elsewhere in Asia. By the same token, the more Iran develops into a positive political and economic asset the greater would be U.S. influence beyond Iran’s borders.

International Political Orientation.

2. Iran is disposed to be friendly toward the West and, in particular, looks to the United States for guidance and support. There is deep distrust of the British, exacerbated by the British-French invasion of Egypt. Iran is not directly involved in intra-Arab rivalries or Arab-Israeli hostilities, nor is the Government attracted by the Afro-Asian bloc. Strategically, Iran belongs to the Northern Tier area along with Turkey and is concerned with the problem of defense against Soviet expansion. Iran has actively supported the United States in international affairs. There could, however, be a reorientation toward the Arab-Asian bloc if Iran felt itself becoming isolated by expanding Soviet influence in Afghanistan and the Arab states. There are extreme left-wing, right-wing and nationalist elements which, given an opportunity, might well form an alliance of convenience in order to take office, turn their backs on Turkey and the West, and lead Iran into cooperation with a neutralist bloc of Arab and Asian states.

3. Iran has felt over-extended by its formal alignment with the pro-Western Baghdad Pact which involved the abandonment of traditional neutrality without either the greatly increased military aid or the [Page 902] U.S. commitment to Iranian security which the Shah anticipated.7 The President’s proposed Joint Resolution of January 5 is expected to bolster Iranian confidence in the concept of Middle East defense and in the future effectiveness of the Baghdad Pact. But, while the Resolution will probably help to ease the pressure of Iranian demands for a U.S. guarantee of Iranian security, it will not, apart from the measures that may be taken to implement it, alter Iran’s basic vulnerability to Soviet pressure and penetration. Iran remains concerned by the Soviet penetration of Afghanistan and exploitation of Arab disorder which threaten to outflank Iran, already exposed along a 1200-mile frontier with the USSR. Nor will the Resolution, in itself, satisfy the Shah’s desire for increased military aid. Indeed, the Shah will probably expect the implementation of the Resolution to include greater U.S. military and economic aid to Iran as a component part of an announced U.S. intention to pursue a more active and positive course of supporting pro-Western and anti-Communist forces in the Middle East. Iran’s strong pro-Western position, while a political asset for the United States, is regarded in Iran as a claim for additional U.S. support, a claim which will be strengthened by the strong support given to the January 5 Resolution by Iran and her Baghdad Pact neighbors.

Internal Strengths and Weaknesses.

4. Outwardly, Iran’s political and economic prospects are more favorable than at any time since the war. However, despite the progress made since 1953, there remain fundamental weaknesses which hamper the achievement of U.S. objectives and which could, during the next two or three years, undermine the achievements of the past three years, thereby increasing the opportunity for the USSR to dominate Iran.

Internal security has been established. Neither the Tudeh Party nor Nationalist opposition elements are currently capable of concerted effective action. However, serious weaknesses still exist in limiting the subversive potential of Communist and other dissident elements.
The present Government’s prestige is enhanced by its exceptionally close relation to the monarchy which results from the Shah’s assumption, since April 1955, of personal leadership and policy-making responsibility in the Government. However, the Shah’s personal involvement, coupled with his arbitrariness and vacillation, imperils the effectiveness of the monarchy as the guarantor of continuity and symbol of national unity.
Oil revenues, which are expected to reach the agreed level by the end of 1957, would provide Iran with the foreign exchange resources to make possible appreciable progress toward national economic improvement. However, unless action is taken to overcome mismanagement, political rivalries, inertia and lack of skills, the Government will be unable to translate this growing economic potential into tangible benefits fast enough to gratify popular aspirations.
The Government in adopting a strong pro-U.S. position has gone further than politically conscious opinion in Iran will actively support.

5. The very considerable strengths of Iran today were, to a large extent, induced by the policies and aid programs of the United States. Conversely, the weaknesses reflect fundamental factors which permeate Iran. The people’s rising aspirations have been frustrated by archaic institutions. These frustrations of a volatile people tend to build up dangerous political pressures which are periodically released. The country lacks reserves of political confidence, military strength and economic contentment to withstand such pressures. Iran must meet the rising expectations of its people or some other release must be found for accumulating pressures, lf the present regime is to succeed it must capture the nation’s imagination and confidence by proving in tangible ways its ability to cope with Iran’s age-old weaknesses.

Economic Problems and U.S. Aid.

6. Iran’s current economic and financial position is improving as the result of increased oil revenues and limited progress toward balancing the central government budget. During the first six months of the current Iranian fiscal year, non-oil revenues rose some 32% above the previous year, while expenditures increased only 17%. Oil revenues are expected to continue their growth from the $29 million in Iranian FY 1955 and $92 million in FY 1956 to $160 million in FY 1957 and $200 million in FY 1958.

Budgetary. Although Iran has the financial resources to meet its ordinary budget requirements without U.S. support, deficits in the Iranian regular budget are likely to continue in the absence of thorough-going tax and administrative reforms. The Shah has frequently indicated his belief that the United States should make up such deficits.
Economic Development. Prospective oil proceeds are sufficient for the requirements of Iran’s ambitious 7-year Development Plan. Although the results of the Plan will have a great bearing on the political stability of the country, the administrative chaos in the Plan Organization and its slowness to produce visible results are causes of serious concern. There is almost complete lack of over-all coordination and rational planning of the country’s total efforts to capitalize on its assets. Although the financial position is improving, Iran cannot now undertake, unaided, regional economic or military projects of importance to the development of Northern Tier strength.
[Page 904]

Military Problems and U.S. Aid.

7. Militarily, Iran is dangerously and directly exposed to Soviet expansion. Iran’s defenses are totally inadequate for such a threat. The Army is capable of maintaining internal security, preserving the existing Government in power and offering very limited resistance to aggression. The Air Force is weak and incapable of resisting air attack. The Navy is weak and ineffective. Despite this meager capability, the missions of the armed forces consist of assisting in the maintenance of internal security, resisting external aggression by defensive delaying action, and assisting in regional defense. The Shah has accepted the U.S.-recommended pattern for the Iranian armed forces, although periodically he reverts to his oft-repeated desire for forces comparable to those created in Turkey with U.S. assistance. However, if built up to presently contemplated levels and partially redeployed, Iranian armed forces could make an increased contribution to Middle East security by providing, with outside air and logistic support, a defensive delaying capability against Soviet forces, initially from positions in the Elburz Mountains along Iran’s northern frontier.8 Failure to achieve forces of this minimum capability may result in discrediting the Shah’s policy at home, weakening the Government, and causing a gradual reversion to neutrality and a reduction in U.S. influence.

8. The military implications for Iran of the Joint Resolution on the Middle East cannot as yet be assessed. However, the future size and composition of the Iranian armed forces can be effectively worked out only in joint U.S.-Iranian planning because political considerations are involved.

Political Impact of U.S. Policies and Programs.

9. It is difficult to exaggerate the political impact in Iran to U.S. policies and programs. They are regarded as criteria of American ability and willingness to ensure or participate in the defense of the Middle East. U.S. aid offsets the political impact of Soviet aid offers. U.S. political and financial assistance are important pillars supporting the Shah in his present paramount position. U.S. military aid is particularly important as a partial offset to the U.S. decision not to join the Baghdad Pact at this time or give Iran the security guarantee it desires. The technical assistance program is important as a means of making the presence of the United States felt at all levels of the population and throughout the country. On the other hand, there is a clear tendency in Iran to place too much reliance on U.S. aid as a means of compensating [Page 905] for Iranian deficiencies. Every effort should be made to overcome this tendency but, during the next few years, it will continue to be important to the United States to continue various programs in Iran.


10. An independent, friendly Iran, free from Communist control.

11. A strong stable government with the capability and determination to resist Soviet pressures, to prevent Communist penetration and to cooperate actively with the anti-Communist governments of the Free World.

12. A government that can and will make maximum balanced use of all available resources in order to provide early and visible progress toward economic improvements that will meet rising popular expectations.

13. Iranian armed forces capable of maintaining internal security and resisting external aggression by defense delaying action.

14. Active Iranian participation in Northern Tier defense arrangements.

15. Continued availability of Iranian oil to the Free World and denial of such resources to Communist-dominated areas.

Major Policy Guidance


16. Iran presents a peculiar difficulty. Ostensibly there has been rapid progress toward achievement of U.S. objectives. However, below the surface, fundamental political and economic strength has not developed. The next two or three years will be particularly important in consolidating the gains already made. A combination of carefully controlled influence and inducements will be necessary to strengthen the forces working for change and to guide them into constructive channels.

17. While the Government is now in the hands of Western-oriented, predominantly conservative elements, acceptable to the Shah, the ability of such elements to govern effectively in the future is largely dependent on the following factors:

The extent to which oil revenues are rapidly translated into tangible economic improvements benefiting the growing middle and working classes.
The extent to which political means can be found to appeal to liberal, nationalist and intellectual elements, thereby preventing a polarization which would force these elements into a unified opposition.
The extent to which the stabilizing institution of the monarchy can be protected against the Shah’s personal inconstancy and arbitrariness.
The extent to which the Shah’s commitment of his country to the West is underwritten by the strengthening of Iran’s security vis-à-vis the Soviet Union.

The ability of the United States to guide the Shah and the Government toward solutions of the internal problems set forth in a, b, and c, will be heavily conditioned by the extent to which the Shah’s confidence in his country’s security is bolstered as indicated in d, above.

U.S. Military Support.

18. Accordingly, the United States should:9

Study the implications which the Joint Resolution may have on the mission, size and composition of Iranian armed forces.
Provide necessary military assistance for the purpose of assisting Iran (1) to build up, maintain and properly deploy armed forces which will be capable of maintaining internal security and with outside air and logistic support, fighting defensive delaying actions initially from positions in northern Iran against Soviet forces; (2) to accomplish necessary military construction incident to this build-up and redeployment.
Encourage Iran to continue to participate actively and effectively in military cooperation with its neighbors, looking toward the development at the earliest possible time of regional defense arrangements which will provide the Northern Tier area with an increased element of security.

U.S. Economic Aid.

19. In order to improve regional cooperation, to maintain confidence in the United States and to reduce as far as possible Iranian dependence on the United States for its ordinary requirements, the United States should continue to provide aid on a declining scale, such aid to be in the form of loans, unless exceptional circumstances justify grants. General budgetary aid should be avoided to the maximum extent practicable. Aid funds, apart from those necessary to meet the appropriate U.S. share of local currency costs of the military construction program, should be devoted, in so far as practicable, to development assistance which will increase Iran’s economic capability. Technical assistance programs should be emphasized, especially those related to public administration activities. U.S. economic aid should be administered in a manner best calculated to influence the Iranian Government to make effective fiscal and administrative reforms.

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Exercise of U.S. Influence Toward Solution of Iranian Internal Problems.

20. The United States should exert its influence to induce and assist Iran to:

Translate the country’s financial and economic resources more rapidly into politically valuable tangible benefits for the masses of people.
Take effective steps to introduce better over-all coordination and national planning of the use of the country’s resources.

21. The United States should endeavor to strengthen internal political stability by:

Encouraging the adoption by the Shah and the Government of policies designed to provide a better accommodation between the Government and the presently disorganized but widespread and potentially important nationalism.
Endeavoring to enhance the prestige of the monarchy as the symbol of national unity and continuity, while encouraging a more consistent institutionalized relationship between the Shah’s function of broad national guidance and the Government’s specific administrative responsibilities.
Encouraging the adoption of reforms which will increase popular confidence in the gradual emergence of better government.

22. The United States should encourage private U.S. enterprise to participate in the development of Iranian resources.

[Heading and 10 paragraphs (1 page of source text) not declassified] [Here follow Annex A and Annex B, “Proposed Resolution on the Middle East Program,” submitted by President Eisenhower to Congress, January 5, 1957.]

Annex C

1. Force Goals prior to 28 September 1956 were as follows:


  • 8 Light Inf. Div.
  • 4 Light Armored Div.
  • 5 Independent Inf. Brig.

Air Force

  • 3 Fighter Bomber Sqdns. (UE 25 A/C Jet)
  • 1 Reconnaissance Sqdn. (UE 20 A/C)
  • 1 Transport Squadron (UE 12 A/C Prop)


  • 3 Gunboat (PG PY)
  • 4 Patrol Craft (CGPB)
  • 4 Coastal Minesweepers (MSC)

2. The Secretary of Defense approved the following as major combat force objectives for the Imperial Iranian Army: (Note that Air Force and Navy force goals remain unchanged) [Page 908]

  • 6 Infantry Divisions, full strength
  • 6 Infantry Divisions, reduced strength
  • 5 Independent Brigades, reduced strength

    (The full strength Infantry Divisions are generally composed of 3 regiments; reduced strength Divisions have one regiment and reduced support forces.)

3. Force goals for the Iranian Navy and Air Force remained unchanged resulting in total Iranian Armed Forces of approximately 152,000 divided as follows:

Imperial Iranian Army 143,000
Imperial Iranian Navy 4,500
Imperial Iranian Air Force 4,500

4. F 84 G’s from Europe are currently programmed for the fighter bomber squadrons. Type of planes for the reconnaissance and transport squadrons will depend upon availability of planes at time they are programmed.

Financial Appendix10

[Here follow pages 1–16 of the Financial Appendix.]

Defense Comments

The proposed levels of military assistance for Iran are based on the force goals recommended by the JCS and approved by the Department of Defense, together with a plan for the reorganization and redeployment of these forces.

Estimated expenditures through 1960 are based on continuation of the buildup of combat equipment, motor transport vehicles, and other equipment, together with the provision of a 30-day war reserve of ammunition. In addition, provision is made for a sizable construction program for troop housing and related facilities, and airfields. Provision is also made for annual recurring cost of spares, attrition, training ammunition, and other consumption items.

Total expenditures for the fiscal years 1957–1960 are estimated at $185 million. These expenditures are based on undelivered balances as of June 30, 1956, plus an illustrative program for the period FY 1957–1960 of about $225 million, comprised of the following: [Page 909]

(Millions of dollars)
Material and supplies $106.3
Construction 88.2
Training 15.0
PCH&T 15.5

With the exception of construction, the estimated cost of the U.S. military aid program is, in general, consistent with the cost of Alternative 2 of the Prochnow Report. The recosting of certain military equipment in accordance with the new Department of Defense pricing policy has resulted in some reduction from the Prochnow estimates.

The Prochnow Report included an estimated $70 million to cover the U.S. cost of construction for Iran, divided equally between dollars (MAP) and local currency. This amount was based on an Army construction program of about $64 million for troop housing, depots, facilities, and new roads incident to the reorganization of forces and limited redeployment of troops, together with about $6 million for airfield construction.

With the adoption of the new overall defense concept in mid-1956 embracing a more extensive defense zone in both the Elburz and Zagros Mountains, the estimated cost of construction has increased considerably. The total U.S. cost of this construction, estimated in January 1957 (NSC 5703) at $152 million, is now estimated at approximately $230 million, the increase reflecting higher costs based on construction contracts actually awarded during the past few months. Of the $230 million, $120 million is estimated to be financed in dollars (MAP) and $110 million in local currency (including $2 million provided through the U.S. Operations Mission). This new defense concept would entail an estimated cost to the U.S. of about $197 million for Army housing, access roads and other facilities—an increase of approximately $133 million over the estimated cost of the previous construction program included in the Prochnow Report. The new construction program would also involve an increase in U.S. costs for air bases from approximately $6 million (Mehrabad and Dezful), as indicated in the Prochnow Report, to $33 million (Mehrabad, Dezful and Ghom). The costs to the U.S. for the construction of the airfield at Kermanshah—included in the January 1957 estimates at $10 million— is not included in the present Financial Appendix, inasmuch as the construction of this airfield is no longer contemplated.

Of the $120 million total estimated dollar cost of the construction program chargeable to MAP appropriations, $89.2 million is assumed to be programmed over the fiscal years 1956–1960. Of this amount, $28 million was funded in FY 1956–1957 (including the $6 million Richards’ commitment), and $21.2 million is being proposed for FY [Page 910] 1958. Specific approval has not yet been given to completion of the construction program by the Department of Defense. Based on estimated construction schedules and assuming total annual appropriations for construction of approximately $40 million, covering total dollar and local currency costs, the above program would take approximately seven years to complete.

  1. Source: Department of State, S/S-NSC Files: Lot 63 D 351, NSC 5703 Series. Top Secret.
  2. See footnote 3, supra.
  3. See footnote 14, supra.
  4. This memorandum transmitted Document 372 to the NSC.
  5. See footnote 6, supra.
  6. Printed from a copy that bears this typed signature.
  7. For U.S. declarations April 9, 1956 and November 29, 1956, see Annex A. [Footnote in the source text. Annex A is not printed. The April 9 declaration was White House (Augusta, Georgia) press release on the Middle East, and the November 29 declaration was Department of State Press Release No. 604.]
  8. Delaying action in the Elburz Mountains represents a change in planning since the adoption of NSC 5504, which referred to “defense of the Zagros line.” [Footnote in the source text.]
  9. This paragraph was subsequently revised; subparagraph a was eliminated and subparagraphs b and c became a and b. See Document 402.
  10. NSC Action No. 1770–b (see footnote 12, Document 402) authorized the insertion of an August 5 revision of the Financial Appendix into NSC 5703/1. Each page of the source text of the Financial Appendix bears the notation: “(Revised 8/5/57).”