Foreign Relations of the United States, 1964–1968, Volume XXII, Iran

170. Telegram From the Department of State to the Embassy in Iran¹

Washington, August 5, 1966, 8:14 p.m.

23183. Joint State/Defense message.

1. Basic U.S.-Iran relationship and impact thereon of Shah’s flirtation with Soviet arms purchase have been subject of highest level USG discussions during past several days. We now ready state our position in more definitive framework with aim of achieving forward movement. The President had directed DASD Townsend Hoopes proceed immediately to Tehran to participate with you in putting our position before Shah. Hoopes presence with you during audience will underline importance USG attaches to relations with Iran. He will be prepared help you set our position in context of present realities in Washington—specifically to restate the financial terms of the new $200 million credit as approved by the USG, to explain budgetary limitations on military sales as they relate to size of loan and interest rate, nature and rationale of our administrative procedures in military sales, character of our price offers to Iran in present package, and other elements which underlie our position as set forth in President’s letter to Shah of July 20. Accordingly you should seek early audience for yourself and Hoopes with Shah. FYI. Hoopes arrives Tehran Monday August 8 at 2030 hours via Pan Am 114. End FYI.

2. Following are basic elements of USG position which you and Hoopes should convey to Shah:

(a) After study at highest government level, USG prepared open detailed technical discussions of further Iranian military purchases from US. As indicated by President’s letter, we place great value on US-Iran cooperation in military matters and sincerely hope circumstances will permit this cordial relationship to continue in full effectiveness. We therefore trust Shah will recognize that our proposals are based on genuine desire continue in that military relationship without impairment.

(b) We prepared discuss with him and his military advisers, within purchasing power of new credit, full range of equipment items reflected in Peterson Report, except destroyer (DD). We now in position offer two squadrons (up to 32 aircraft) of F–4’s for delivery in CY ’68 or earlier. These will be new production aircraft whose cost, while not firm, will be in neighborhood of $50 million per squadron. FYI. This probably minimum figure but there is some prospect for reduction. End FYI. Final price must be determined after thorough technical exploration with Iranians as to detailed configuration of aircraft and support elements. You should stress that our willingness increase total aircraft from 12 to 32 and to promise early delivery are important concessions. Furthermore, we are prepared make concessions on R&D charges with respect to the two Hawk battalions; these would put price of first Hawk unit at about $27 million and of second unit at slightly above $30 million, an aggregate reduction of approximately $3 million. Moreover, Secretary McNamara has indicated his willingness to deliver military equipment to Iran on an accelerated basis where possible. We are prepared proceed with sale of PGM’s, even though we are not able offer a destroyer (DD). FYI. To summarize, USG offering three concessions: 1) Increase from 12 to 32 F–4 aircraft; 2) Accelerate deliveries of these aircraft and where possible other items; 3) Waive R&D charges on Hawks approximating $3 million. End FYI.

(c) Our offer sell major sensitive, sophisticated items (FYI—F–4 aircraft and Shillelagh missile system at minimum—end FYI) must remain conditional until Iran has clarified its position with respect to possible military procurement from the U.S.S.R. As the President’s letter stated, we cannot believe that either U.S. or Iran will profit by an increase of Soviet influence in Persian Gulf area; we believe an Iranian arms deal with the Soviet Union would confuse our Congress and people concerning Iran’s intentions; and on the technical side, we are determined to protect sensitive US equipment from compromise by Soviet military technicians. FYI. Concerning the relationship between an Iran-U.S.S.R. arms deal and US willingness to offer certain items, we wish to keep above caveats in general terms. You should accordingly refuse be drawn into specific arguments in this regard, particularly on technical and security issues. End FYI.

(d) USG hopes that the Shah will look only to Free World sources of arms in meeting his security requirements; but in any event, we continue attach great importance to the annual economic review; and during each review we will wish to take account of impact on Iran’s foreign exchange and debt servicing position of any major third country military purchases, and we will determine US military credit availabilities in light of that impact.

(e) Assuming there is clear understanding that new U.S. credit limit is $200 million at 5–6 percent plus $60 million of old credit at 4 percent, we are prepared send DOD team immediately to open negotiations on item content and Iranian repayment schedule for the $60 million remaining under the old credit arrangement and on first $50 million of new $200 million. US negotiators would reserve position on sensitive items as indicated Para (c). Prior to negotiating detailed financial arrangements, we would require appropriate amendments to 1964 Memorandum of Understanding. FYI. USG position on amendments will be cabled shortly. End FYI.

Rusk

1. Source: Department of State, Central Files, DEF 19–8 US–IRAN. Secret; Priority; Limdis. Drafted by Colonel Haynes in DOD/ISA on August 4; cleared by Hare, Eliot, McNaughton, and Wriggins; and approved by U. Alexis Johnson. Repeated to London, Moscow, Paris, and CINCSTRIKE.