220. Background Paper Prepared in the Department of State1



August 22–24, 1967



Our military relationship with Iran is fundamental to our overall relationship, and the Shah will be seeking, during his August visit, a reaffirmation of our desire to continue the close military relationship we have had in the past. Although he is clearly determined to move away from his former complete dependence on us for military assistance, there is no sign that he wishes seriously to disturb the fundamentals of his security relationship with the United States. Despite recent Iranian purchases from the UK and the USSR, the influential position which the U.S. has achieved with the Iranian military establishment will continue as long as we are able to continue our military assistance, sales and related advisory programs. Since the inception of our military assistance to Iran in 1954, we have programmed military equipment and services totaling more than $790 million for Iran’s armed forces. We have also conditionally agreed to extend Iran credits up to a total of $400 million for military equipment and services during FY 1965–70. Credit agreements for $300 million have already been signed and the funds earmarked for specific purchases. Our grant military assistance continues on a reduced scale. During his visit, the Shah is likely to express a desire to obtain additional equipment and advisory assistance and to indicate that Iran’s security needs will be met by purchases from other sources if the U.S. is unable to respond favorably to his requests for assistance.


U.S. military assistance policy toward Iran has evolved significantly during the past few years. Prior to 1964, all U.S. military equipment and services were provided Iran on a grant basis; since that time, Iran has undertaken to pay for an increasingly large portion of its defense needs, and we anticipate that by 1970 the U.S. grant program in Iran will concentrate on training and support unless overriding political exigencies require grant materiel aid.

The impetus for Iran’s present military purchase policy was composed of several factors: 1) the fact that U.S. grant military assistance has [Page 403] been provided exclusively to meet the Soviet threat and not that from other directions which the Shah believes to be more imminent; 2) the Shah’s conviction that the principal short-term danger to his country lies in Nasserist Arab ambitions in the oil-rich Persian Gulf area (see separate Background Paper);2 3) Iran’s growing foreign exchange revenues from oil which now exceed $600 million annually.

Increasingly worried over the radical Arab threat, the Shah approached us in early 1964 with a proposal to make large-scale military purchases estimated at more than $450 million. We were concerned that purchases of this magnitude might seriously impair Iran’s economic development program. We eventually persuaded the Shah that a credit of $200 million over a 5-year period would meet Iran’s needs. A Memorandum of Understanding covering this $200 million credit, and also extending the U.S. grant aid commitment through FY 1969, was signed on July 4, 1964.3

In November 1965, the Shah pressed us for additional credits. A U.S. military survey team was dispatched to reassess the threat to Iran, and we agreed in August 1966 to amend the earlier Memorandum of Understanding so as to make available an additional $200 million for military purchases over the FY 1967–70 period.4 The new credit was subject to release in four annual increments of $50 million each, with approval of each increment to be made by the President after a thorough review of Iran’s economy to ensure that extension of each credit increment would not impair the economic development of the country.

Under the Agreement as amended, Iran is buying two squadrons (32 aircraft) of F–4–D interceptors to complement the six squadrons of F–5 fighters provided under MAP, 460 M–60-Al medium tanks to modernize Iran’s armored division, an air control and warning system to protect Iran’s oil-rich southwestern region against possible aggression, C–130–E transport aircraft to enhance armed forces mobility and a 60-day war reserve of ammunition.

Our long-term agreement and the virtually exclusive military advisory relationship provided through ARMISH–MAAG should ensure our remaining the primary foreign military influence in Iran if we can continue to provide advisory services and credit on an attractive basis for military sales. We are not trying, however, to sustain a position as exclusive supplier of military equipment. Last year, Iran ordered some $60 million worth of short-range missiles and naval craft from Britain, and in February 1967 the Iranian Government announced a $110 million barter agreement with the USSR for the purchase of non-sophisticated military [Page 404] items (see separate Background Paper).5 Iran has been negotiating with other European governments for purchases of defense production equipment.

The Shah recently told Ambassador Meyer that he hopes to place his equipment purchase program on a 4–5 year basis, noting that he was thinking of purchasing Sheridan armored reconnaissance vehicles, transport aircraft, helicopters, a follow-on fighter to the F–5 being provided under MAP and, perhaps, rehabilitated F–4 interceptors late in the planning period. The Shah has not broached the issue of additional credits. In view of the continuing increase in Iran’s foreign exchange earnings from oil and Iran’s probable equipment modernization needs, however, he may well seek an extension of present credit levels into the 1970’s, perhaps coupled with an increase in credit availabilities in FY 1968–70.

The Shah has also indicated that he may request more U.S. advisors to assist his Air Force as increasingly complex systems (e.g., F–4D interceptors and an Air Control and Warning System along the Persian Gulf) are introduced. We are not certain as to just what the Shah has in mind, but he may be thinking in terms of U.S. personnel performing actual maintenance on the new materiel. The U.S. Army Mission/Military Assistance Advisory Group (ARMISH/MAAG) has increased its advisory effort with the Iranian Air Force and plans to devote an increasing proportion of its efforts to this area as these systems are introduced. If the Iranians are interested in direct support, they should be encouraged to purchase it from U.S. industry or from U.S. technical advisory groups. The Military Assistance Program is not intended to perform direct support for foreign forces, and a personnel augmentation for this purpose would be extremely difficult, if not impossible, to justify before Congress. Therefore we should urge him to expedite the training of Iranians for such functions and to consider selective purchasing from U.S. sources of personnel services if necessary to complement Iranian efforts.

  1. Source: Johnson Library, National Security File, Country File, Iran, Visit of Shah (con’t.), 8/22–24/67. Secret. No drafting information appears on the source text.
  2. Not printed. (Ibid.)
  3. See Document 47.
  4. See Document 171.
  5. Not printed. (Johnson Library, National Security File, Country File, Iran, Visit of Shah (con’t.), 8/22–24/67)