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

186. National Policy Paper Prepared in the Department of State¹

Washington, February 2, 1967.

IRAN

PART ONE—U.S. POLICY

I. U.S. Interests and Objectives

A. The Broad Setting

With United States participation in the Allied occupation (U.S.S.R.-U.K.-U.S.) of Iran during World War II, our role drastically changed from an earlier cultural-missionary presence to a growing position of influence in the country’s affairs. Our assumption of leadership in post-war affairs was initially a vacuum-filling operation. We replaced the former rivals, Russia and Britain, whose days of shared hegemony ended rather abruptly with the repulse of Soviet efforts to communize northwestern Iran and the demise of Britain’s South Asian empire. Britain’s weakened role was later confirmed by the conflict and break over nationalization of the Anglo-Iranian Oil Company. Active United States diplomacy in the UN’s handling of the Azerbaijan crisis coincided roughly with our assuming a greater portion of the British responsibility in Greece, and in the strengthening of Turkey against Soviet claims to Kars and Ardahan, which led to the Truman Doctrine of March 12, 1947. Economic efforts under Point Four begun in 1950 established United States influence in both the internal and external affairs of Iran. Since that time, the importance of these northern tier countries, not the least being Iran, has increased rather than diminished.

B. US Interests in Iran

In the short term Iran is important to the United States because of its strategic location and the defense facilities and privileges extended to the United States bilaterally and through cooperation in the CENTO framework. Over the longer term it is of continuing importance to United States security interests that Iran be seriously committed to modernize its political as well as economic and social institutions and thus build the internal strength to foil insurgent attempts, either by discontented urban and rural elements, the Communist (Tudeh) Party or dissatisfied, unassimilated tribal elements (Kurds in the west or Arabs in the south), or obscurantist rightist groups such as Fedayan Islam opposing any basic reform. The United States and the West have a stake in continuing modernization of the political and economic structure. This is interrelated to our narrow interest deriving from the $225 million in commercial investments (including the American share in the consortium).

C. U.S. Objectives

United States objectives in Iran are pursued within the framework of our particular relationship with the monarchy of that country. The Iranian monarchy provides the stability not yet available through popular institutions or long popular experience in organized political affairs. It is, at present, the sole element in the country that can provide continuity for public policy. While there are areas of divergence between us and the Shah, they have remained thus far more matters of emphasis than of essence, not particularly significant within the broad consensus we share with him on most of the really fundamental issues of foreign and domestic policy. While the United States is not necessarily committed to the support of any particular form of Government in Iran, the Shah at present affords the best means for the safeguarding of our basic security interests in Iran and is the only personality on the scene who can lead the anarchically-bent Persians. Thus, until another potentially viable power source appears, which we do not expect during the next two to five years, support for the Shah and his reformist programs will form the basic condition of our pursuit of the following objectives:

1. An independent and increasingly self-reliant Iran, free from any foreign domination or aggression, and motivated to cooperate with the West in:

a. Taking such measures as lie within Iranian power to frustrate Soviet clandestine activities within Iran and Soviet expansion toward Suez and the Persian Gulf;

b. Providing access to Iranian soil for Western forces in the event of conflict, including retention of over-flight privileges;

c. Stimulating developing relations with neighboring countries so that there evolves in the course of time a more friendly relationship between Iran and its non-communist neighbors to promote greater stability and cooperation in the Middle East, particularly Persian Gulf, area.

2. Evolution of a new but still mutually rewarding relationship between the United States and Iran, in a climate of increasing Iranian public understanding that the United States role is that of assisting Iran in its national development rather than of directing its course.

3. An effective Iranian Government which, through the increase of strength and the improvement of administrative efficiency, will command the respect and support of broader segments of the population, especially among intellectuals—teachers, university students, professional men, etc.—and provincial leaders.

4. A sound, well managed economy which properly balances military and development expenditures so that the already large and rapidly growing wealth of the country can be used for orderly, self-sustaining economic growth and steady improvement of the standard of living.

5. The development and strengthening of political, social and economic institutions which will provide the means for orderly and peaceful transfer of power, as necessary, and in the longer term facilitate increased participation of ever-widening sectors of society in their own government.

6. Continued access for the West to Iranian resources, principally petroleum, on acceptable terms.

7. Continued United States access to expanding Iranian markets.

[Here follows Section II, “Problems and Alternatives.“]

III. United States Strategy in Iran

A. General

Our strategy for Iran must take account of the increasingly independent position of the Shah. This limits our area of maneuver. It also defines a major problem to which our strategy must address itself.

The key developments in recent years that underlie this picture of independence are: (1) the Shah’s successful concentration of power in his own hands and the internal stability this has achieved at least for the present; (2) the increase in oil revenues that has given the Shah relative financial independence from the United States and, at the same time, has provided a major instrument for his internal control of the country.

In addition to these developments, the Shah’s independent position must be understood as part of a longer run trend to which Mossadeq over a decade ago had given new impetus—namely, the emergence of Iran from a quasi-colonial status to one in which Iran would exercise the power over its own affairs that is associated with full sovereignty. Major elements of a strategy designed to move Iran forward in the next five years—politically, economically and socially—toward a more stable base for the longer run must be devised within this framework.

B. The Independent Posture

Our strategy should be to respond as fully and as positively as we can, consistent with maintaining our special bilateral security arrangements with Iran, to the Shah’s thrust toward a fully independent national posture in the country’s foreign relations. On the economic front, this would mean adherence to our current policy of phasing out AID assist-ance. Again, with respect to our military assistance program, we should adhere generally to the present policy of shifting the appropriate pace from grant to credit sales on fairly hard terms and attempt to restrain the Shah’s desires for equipment and forces that we consider unjustified by the threat. Although the days are over when we could dictate to the Shah what his military establishment should be, we can continue to play an important role in influencing Iran’s military program, and in preserving a balanced application of resources as between the military and economic fields, provided this is done with tact, diplomacy, and a modest application of US resources. While recognizing that the Shah now has the financial means and market options to shift some of his procurement to non-US suppliers, we also recognize that our mutually beneficial relationship with Iran is, to a significant degree, based on our military training and supply activities.

C. The Means of Leverage

Our influence on both internal and external policy will have to be exercised in somewhat different ways than in the past because our material assistance is declining and because Iran is determined, after many years of almost embarrassing reliance on American advice, to make at least a show of independence. Recently this has been accompanied by an increase in foreign (non-United States) technical experts serving in Iran including some 500 from the USSR and other communist countries, and by more varied offers of financial assistance from non-United States sources. Our leverage in the past has resulted in large measure from our economic, technical and military assistance, which has totaled $1,453.5 [sic] million ($706 million economic, $757.5 military, through FY’66) in the past 16 years.

While not uniformly successful in achieving the stated goals, these modes of assistance have secured entree into the key administrative, economic, and military circles and have contributed notably to the forward movement experienced on most fronts during the past decade. At present our concrete assistance is dwindling because of our resource limitations, Iran’s growing financial strength, and Iranian pride—sometimes not fully justified—in the recent advances in domestic administrative capabilities. We ended direct budgetary support in 1961 and completed the shift in our support for development projects from concessional AID lending to Export-Import Bank loans in FY’66. We have gradually reduced our permanent technical advisory staff over the past three years and have put the Iranians on notice that the Development Grant program will end soon. In this transition period, which will come to an end in FY’68, we will concentrate our efforts in such strategic sectors as power and agriculture (rural development). We have shifted our Food for Peace assistance from a local-currency to a dollar-credit sales basis. In the military sphere, we are reducing MAP grants and shifting to credit sales, meanwhile retaining our close advisory relationship.

Fortunately our multifarious operations in Iran since the early 1950’s, combined with Iran’s reliance on us for fundamental security from Soviet aggression, have established our reputation sufficiently within influential government and private establishments that we need not look forward to encountering blank walls as our material sources of leverage melt away. Especially among the educated circles there is considerable acceptance of the value of ties with the West and increasing agreement with the stress we have been placing on modernization in all spheres of Iranian life. Neutralistic and xenophobic sentiments remain to be exploited by demagogic politicians, but it would take a major mishap to catapult such a one into power.

Nevertheless, as time goes on, we will unquestionably be more on our mettle to keep our advice sound and convincing in Iranian terms. Except perhaps in security matters, where we may look forward to many more years of close dependence on United States advice and support, we will be drawn less closely into the decision-making process in the inner councils of government, i.e., we will move more into the role of a trusted ally (hopefully still the most trusted) and away from the earlier role of responsible senior partner. When we are consulted on non-military domestic and foreign policy issues, we must take increasing care to avoid repeatedly offering advice which, however beneficial in an objective sense it might seem to be, would be disregarded because the Iranians would be unable or unwilling to act on it. It is hard to foresee how much disregarded advice would add up to a general reduction of confidence in United States leadership, but we must keep in mind that this consideration will be more of a problem in Iran in the future than it has been in the past.

It has been a significant irritant in our relations in recent years that as Iran sees it, we appear to take its dependence on us so much for granted that we show greater concern for troublesome and uncooperative allies and even neutrals than for Iran. As Iran’s strength and its bent toward independence grow, this type of irritant could well affect our leverage, and it therefore behooves us to keep in mind the deference due, in both tone and substance, to a staunch and increasingly proud ally.

D. Contingencies

The principal contingency requiring a change of strategy would be the removal of the Shah from a position of power, either suddenly or as a result of a well-coordinated coup. This and other contingencies will be the subject of a separate study.

IV. The Preferred Strategy: Courses of Action

A. Political Strategy

A limited response by the Shah to the pressures for broader political participation, which are bound to increase during the period ahead, could be an important factor in achieving the objective of a longer run stability that we and the regime both seek. The 1967 elections may provide the opportunity for a limited opening up of the system. Considering the time required for planning and organizing broader political participation, we should, as opportunities arise, continue to urge upon the Shah the desirability of such an approach. He has occasionally indicted an interest in building bridges to some of the more moderate nationalist figures in the opposition. If the Shah could reach, in the next year or so, a decision to permit at least a limited amount of popular choice in the next elections—even if that choice were only between “approved” candidates, this could be an important step forward in Iran’s political development. United States influence, diplomatically exercised, would support such a strategy.

1. Courses of Action—Political

a. Encourage the Shah in his “White Revolution” on a course which is fast enough to broaden the base of support for the regime by whatever means make sense politically and economically in terms of the regime’s basic stability.

Action: State

b. Continue to deal with the Shah on questions of basic national security but do what we can to foster responsibility for Iran’s day-to-day foreign and military policies on the part of the government.

Action: State, DOD

c. Encourage the Iranian Government’s efforts to engender a greater degree of popular identification with government affairs, and discourage regime impulses toward unduly harsh and repressive measures against non-communist opposition elements.

Action: State, DOD

d. Encourage the Shah to enlist both moderate, conservative and liberal opposition elements to support his program of social reform and emancipation.

Action: State, AID, USIA

e. Encourage the Shah and the Government toward greater efforts to build more permanent and orderly political, legislative, administrative and labor institutions and organizations.

Action: State, USIA, AID, Labor

f. Persuade the Iranian Government and people that the United States is willing to assist Iran without threatening its sovereignty.

Action: State, USIA, DOD

g. Persuade the Iranian Government to show maximum understanding of the real problems faced by Iraq and the Persian Gulf Sheikhdoms, to concentrate on real as opposed to merely apparent threats to Iran’s vital interests, and to maintain an attitude of dignity and non-provocation even in the face of provocative propaganda from those countries and the UAR.

Action: State, DOD

h. Encourage the Iranians to maintain an attitude of vigilance in the face of current Bloc blandishments and to take effective measures to thwart the Soviet subversive potential inside Iran.

Action: State, DOD

i. Seek to maintain and increase the effectiveness of United States-Iranian cooperation on international issues in the United Nations, CENTO, and elsewhere.

Action: State, DOD, USIA

j. Encourage the increase of responsible mutual interchange between Iran and other nations in the Free World, particularly in the Regional Cooperation for Development (RCD) organization, taking care that our encouragement of RCD not be misinterpreted as interfering or attempting to influence the course of RCD.

Action: State, USIA, DOD

k. Take whatever administrative and legal steps are warranted to ensure that dissident Iranian political activity in the United States does not damage United States-Iranian relations.

Action: State, Justice

B. Security—Strategy

1. Future United States Role in External Defense

Our military relationship with Iran is now, and will continue for the foreseeable future, to be close and meaningful. Through our support of CENTO and our bilateral security agreement of 1959, we provide a security umbrella for Iran against Soviet aggression. We should continue to support CENTO as an arrangement of positive, if limited, value, whose collapse would have a tangible disruptive effect in the Middle East. Our official public statements have clearly indicated our willingness to oppose by various means aggression in the Middle East, including Iran, from non-Soviet directions, though the Iranians place little reliance on such statements. Our exclusive military advisory relationship dates from 1947, but is based on the groundwork laid by our army mission and Corps of Engineers during World War II. Since 1951 we have supplied military equipment of various degrees of sophistication, as has befitted developing Iranian capabilities. A unique feature of our military supply relationship with Iran has been joint forward planning which we began on a five-year basis in 1962 and which has been useful in securing agreement with the Shah on a reasonable schedule for equipment supply and on the proper strategic mission of the Iranian armed forces.

The September 1962 agreement was amended in July of 1964² to extend the period covered through FY 1969. US commitments are stated in Annex A to the 1964 Memorandum of Understanding,³ and are listed as specific items of assistance with no dollar costs given. The Presidential determination, NSC 1550, No. 65–1,⁴ for the agreement indicates that grant assistance in Annex A for the period FY 67–69 shall not exceed $83 million. This figure does not include grant military assistance to the Imperial Iranian Gendarmerie during the period. The memorandum contained assurances by the Government of Iran that its program of military purchases would not cause undue strain on the nation’s foreign exchange reserves or jeopardize plans for the nation’s economic and social development. The agreement provided for a joint annual review procedure to satisfy the Iranian and United States Government that a proper balance was being maintained between development and defense. In addition, Iran was authorized to purchase over the next five years $200 million of American military equipment for delivery before the end of FY 1970. These purchases will be financed by United States credit institutions backed by US Government guarantees. The credits will be repayable on terms that will allow amortization over the ten-year period FY 1965–74 at interest rates ranging between four to five per cent per annum.

The Iranian Parliament recently authorized the purchase of an additional $200 million worth of military equipment. The U.S. has offered additional credit up to $200 million for purchases in the period FY 1967–70, with no more than $50 million of this amount to be made available in any one fiscal year. A review of the impact of Iranian military expenditures on the economy of the country shall take place before the U.S. makes commitment with respect to the amount of this credit to be made available to Iran in each fiscal year, and the US Government shall determine military credit availabilities in the light of the impact on Iran’s foreign exchange and debt servicing position of any major third country military purchases; after the first $50 million, each subsequent annual credit tranche shall be approved by the President.

It has not always been easy in the past for us to secure agreements on military matters. The Shah, reflecting a consensus of high-level Iranian opinion, has tended to regard Iran’s 1955 decision to join the Western defensive system as a claim for special consideration of various kinds, especially economic and military assistance. In the early days of this arrangement, the Shah tended to focus mostly on the latter. Obsessed with Iranian weakness and vulnerability, and fancying himself as a military strategist, he pressed us to support, with equipment grants and direct budgetary assistance, a military buildup on a scale that far out-stripped any conceivable progress in Iranian absorptive capacity and that threatened to create a serious imbalance in the allocation of Iranian financial resources. Since those days we have managed to scale down his military establishment and our relationship has matured in many ways. As the Shah has seen his resources increase and as his dependence on us has declined, our negotiations are increasingly conducted on a basis of give and take in which we must take into account the value that we place on our close and cooperative military relationship. More and more he sees himself as a potential purchaser who wishes simply to state his own requirements with the hope that these can be met from US sources—but with alternative sources clearly in mind. During the summer of 1966, for example, Iran negotiated a $60 million credit sale agreement with the UK for naval vessels, Hovercraft, and Tigercat missiles. The Shah momentarily considered buying surface-to-air missiles from the USSR but decided to abandon the idea; he has nevertheless reached agreement for purchase of non-sophisticated equipment from the Soviet Union.

Since 1958 our military relationship has matured considerably. We have seen a noticeable improvement in Iranian capacity and willingness to relate their military effort to their overall economic development. Our task over the next few years will be, within the context of our long-term agreements, to meet the Shah’s intense desire for military modernization—for which he is now able to pay—sufficiently so that we can maintain the US as the primary foreign military influence in Iran and to continue the United States advisory services which have already begun to bear fruit in the form of a gradually growing professionalism in the Iranian armed forces. A specific objective would be to forestall any significant military relationship between Iran and the Soviet Union. The Shah gave us categoric assurance in Summer 1966 that he would not acquire any sophisticated military equipment from the Soviet Bloc.

In the years ahead, we will continue to be faced with the Shah’s concern about the radical Arab threat to Iran. The Shah has become increasingly concerned with possibilities of Arab attack on vital oil and military installations in southern Iran, a viewpoint which is the result, partly, of his observation of the negative US reaction to Pakistan’s situation in the Indo-Pak war and also his fears of increasing UAR penetration in the wake of what he considers to be an inevitable British withdrawal from the Persian Gulf. He has asserted his unmistakable intention to acquire the military equipment to meet this threat. While responding to the extent possible to legitimate defense needs and while seeking to concentrate the Shah’s attention on real as opposed to imagined threats to Iran’s vital interests, we will have to be careful not to strain his confidence in us by attempting to dissuade him from meeting what he considers to be Iran’s real security needs even if we ourselves cannot supply the equipment he desires. The United States too has an interest in the security of the Persian Gulf area, including its security against inroads and pressures from the United Arab Republic. Although the Shah is inclined to exaggerate the nature of the threat, if a real threat develops, our interests lie closer to those of Iran than to those of the United Arab Republic.

2. Future United States Role in Internal Defense

Thanks to effective political and security control, there is no immediate serious threat to Iran’s internal security. Iran abounds, however, in classical potentials for insurgency, and the regime realizes the necessity for vigilance against outbreaks, with or without foreign subversion, among the tribes and border nationalities (Kurds and Arabs) and even among the disparate but volatile urban opposition elements.

The United States has and will continue to play both a direct and an indirect role in enhancing the capabilities of the regime to cope with potential insurgency situations. Our most direct role is in the supply of technical assistance to the urban police and the rural Gendarmerie (with whom we have had an advisory mission since 1942). For the urban police, USAID civil-type police assistance and advice have effected marked improvements in police telecommunications, vehicular mobility, rec-ords and identification, and in other civil police functions. In the military sphere, some of our equipment grants and a good part of our advisory services have been tailored increasingly to the techniques and theories of counter-insurgency. Iran has formed a Special Forces Group (approximately battalion size) in Tehran. Mobile training teams from the United States Special Forces have instructed regular units of the Iranian army in unconventional warfare and counter-insurgency in field exercises. Our direct role involves also a considerable amount of persuasion toward more enlightened and long-term means of dealing with potential insurgency situations (disaster relief, labor development, economic rehabilitation and development, etc.) in place of the repressive means to which the regime is so often drawn when the chips are down.

Our indirect role embraces virtually all of our other programs in Iran, since they are all designed fundamentally to chip away at the roots of disaffection and hence to increase the strength of the government.

3. Courses of Action—Security

a. Continue to make clear to Iran, the U.S.S.R., and Iran’s Arab neighbors, through our military cooperation and general posture of support for Iran, that Iran cannot be attacked without grave risks of direct United States military counteraction.

Action: DOD, State

b. To the above end, schedule periodic joint maneuvers on Iranian soil with Iranian forces to demonstrate United States capabilities for quick and effective action.

Action: DOD, State

c. Equip, train, and encourage Iranian armed forces toward maximal capacity to delay a hostile military advance, and to combat indirect communist aggression with a minimum of direct involvement by Free World military sources.

Action: DOD

d. Work for a steady improvement in the professionalism of the armed forces and the maintenance of their morale and loyalty to the regime.

Action: DOD

e. Improve the counter-insurgency and riot-control capacities of the military as well as of the rural and urban police forces.

Action: DOD, AID

f. Monitor carefully the measures, both military and fiscal, being taken to carry out multi-year MAP and MSA agreements reached with the Shah, including size and programming of force structure.

[Here follow C. “Economic Strategy” and Part Two, “Factors Bearing on U.S. Policy.“]

1. Source: Department of State, S/P Files: Lot 72 D 139, Iran. Secret/Noforn. The introduction to the paper states: “All agencies with major responsibilities affecting our relations with Iran participated in the development of this Paper and concur in the objectives, strategy and courses of action which it sets forth.” “Execution of the policy set forth in this Paper is the responsibility of the various executive agencies under the leadership of the Secretary of State and overseas under the leadership of the Ambassador.” Secretary Rusk approved the paper on February 2.
2. See Document 47 and footnote 6 thereto.
3. Annex A is in telegram 1196 to Tehran, June 25, 1964. (Department of State, Central Files, DEF 19 U.S.-IRAN)
4. Not found.