19. Telegram From the Embassy in Iran to the Department of State 1

1008. State pass Defense. Re Embtels 9882 and 922;3 Deptel 744.4 I had long conversation with Shah aboard aircraft carrier Bon Homme Richard evening of May 2. I took position and presented arguments as outlined Embtel 988.5

During conversation, it transpired that Shah had not had opportunity to read or study equipment list which he had handed me in reftel. He [Page 35] immediately disassociated himself from any desire for a full-scale armored division of the usual type in Khuzistan and indicated that he had no plans for an additional armored brigade and an additional infantry brigade in the area. This will make a substantial difference in cost in money and personnel which the first analysis of the papers handed to me in reftel revealed. The paper which ARMISH/MAAG is to present and discuss with Iranian staff is being revised accordingly. Copies of this revision will be sent to CINCSTRIKE and to Department.

He again forcefully stated his determination to build a force capable of defending Khuzistan against any local threat or of stemming a major threat until assistance could be forthcoming. His concept is to convert the eighth division into a unit of three battalions of tanks, three battalions of armored infantry with armored personnel carriers, an armored cavalry unit and normal artillery plus one battery of eight-inch howitzers.

Shah also alluded to need for airlift for two parachute battalions to provide for rapid reinforcement of area. In process of stressing urgency of his desire for more tanks, he emphasized his need to know availability date of M–60 tanks and price and approximate date of availability of projected Sheridan tank equipped with Shillelagh missile (ARMISH/MAAG is seeking this information through CINCSTRIKE).

Shah made great point of vital importance of Khuzistan to Iran emphasizing that this province contains Iran’s huge oil reserves and refineries and that other developments, including Dez Dam with electric power, will make Khuzistan thriving industrial region of future. He expressed determination to see that there would be sufficient defensive power on ground to preserve this vital area for Iran. He conceded that he could not describe the immediate military threat but was persuaded that if proper defensive measure is not taken that threat would develop within two years’ time.

Shah is very optimistic about increase in oil revenue. Iran’s decision to accept consortium’s recent offer will, in his opinion, result in revenues this year amounting to 500 million dollars. Discovery of additional large oil reserve makes it certain that Iran will be able to increase its production consistently over foreseeable future. Shah believes that with completion of pipe line and products terminal at Bandar Ma’shur, the cost of production per barrel will be reduced from 26 cents to 32 cents and pointed out that half of this savings will redound to Iran’s revenues. He expressed confidence that by 1970 oil royalties from consortium and from other sources, such as PanAm, will amount to a billion 200 million dollars and a modest portion of this income can appropriately be devoted to defense of area whence it comes. He readily agreed that these military expenditures should not be greater than required for a safe minimum defense and felt that this could be achieved without impairing economic development [Page 36] in light of very substantial anticipated increased revenue from oil.

The foregoing will probably be the basis of what the Shah will have to say to the President on June 5. He asked how far he should go in discussing these matters with the President and I replied by saying that only one period of probably an hour’s duration had been arranged for conversation with President and that there would certainly be no opportunity for “negotiations.” I felt certain the President would be glad to hear of his preoccupations but I felt that the discussions would be in general terms over a broad range of subjects of mutual interest to Iran and the US. I reminded the Shah of the brief and informal character of his visit and that the meeting with the President had developed only incidentally after his acceptance of the invitation to open the art exhibition and to speak at UCLA. The Shah seemed to accept this as reasonable. I took this opportunity of telling him that the Department had not felt it necessary for me to be in Washington at the time of his visit.

I shall expect to discuss military requirements with the Shah at greater length before his departure for the US and hope to be able later to report more specifically on his position.

Holmes
  1. Source: Department of State, Central Files, DEF 19–3 US–IRAN. Secret. Repeated to CINCSTRIKE/CINCMEAFSA for POLAD.
  2. Telegram 988 from Tehran, April 30, commented on the list of Iranian military requirements that the Shah had given to Holmes during the meeting described in telegram 922. (Ibid.)
  3. Document 15.
  4. Dated April 10. (Department of State, Central Files, CENTO 3 US (WA))
  5. In telegram 988 Holmes reported that he planned to discuss the Shah’s military inventory problems with him, emphasize the value the United States attached to Iran’s position and role in the area, and say that Iran’s needs after FY1966 would be given serious consideration for military assistance grants—at a reduced level—commensurate with the availability of U.S. funds and Iran’s financial position.