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

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

Washington, October 30, 1968, 2059Z.

263948. Joint State/Defense message. Subject: Iranian Military Sales.

1. State and Defense have reviewed problems posed by (a) order deadline of December 1968 for 10 C–130 aircraft desired by Iran and (b) Iranian desire have third and fourth squadrons of F–4’s delivered by end 1971.

2. Under existing policy, we see no choice except to include C–130 aircraft in sixth (FY 1968) tranche. We cannot permit GOI order these aircraft in expectation credit funds will be forthcoming because decision on credit comes only after annual review. Cash purchase of this magnitude also must await annual review or special authorization. Including C–130’s in sixth tranche can be accomplished by reducing number of Sheridans to 16 at $10 million. We reluctant postpone purchase of M–60 tanks because this would undoubtedly lose present favorable price.

3. In order deliver two additional F–4 squadrons to Iran by end 1971, two possible funding programs suggest themselves: (a) ordering all 32 aircraft plus long-lead support items at cost of $100 million in FY 1969 tranche and balance of support items ($30 million) in FY 1970 tranche. This would absorb all of planned credit in seventh (FY 1969) tranche. (b) Ordering long-lead items and AGE for all 32 aircraft ($24.5 million) in FY 1968 (sixth tranche), rest of third squadron ($41.8 million) in FY 1969 (seventh tranche), and rest of fourth squadron ($63.7 million) in FY 1970 (eighth tranche).

4. Our present policy, however, precludes our adopting either of these suggestions. Under present policy, we cannot commit ourselves to more than one year’s financing each year following annual review. Funding of F–4’s per para 3 above implies commitment to future year funding because first increment would fund only part of equipment needed for a squadron and implies obligation continue funding in future. In addition, suggestion (a) would preempt entire seventh tranche and postpone funding of other items, such as NIMCOMS, Sheridans, Persian Gulf defense items as recommended by Richmond report and other items which have high priority for Iranians. Suggestion (b) would require postponing items from sixth tranche in addition to Sheridans or decision sell C–130’s for cash; the latter being unacceptable under current policy as mentioned in para 2 above.

5. Another possibility would be raising planning ceiling for FY 1969 program above $100 million. This would require policy change, including Congressional consultations, and might in any case not be possible given present limitations on credit availabilities.

6. In absence compelling political justification we are reluctant undertake steps to alter present policy. We note in this connection recent sharp decline in Iranian foreign exchange reserves. We question desirability change in policy so soon after Shah’s USSR trip. In any case, policy reconsideration could not be undertaken without reviewing political factors and completing economic study, which would have to take into account forthcoming IBRD and IMF reports.

7. Another alternative is of course to postpone delivery fourth squadron. Under this alternative, third squadron could be funded in seventh tranche and fourth in eighth tranche, and additional funds would be available in both tranches for other high priority items even if ceiling remained at $100 million each year. Principal difficulty with this alternative, in addition postponement delivery of fourth squadron until 1972, would be fact fourth squadron could cost an additional $4–$10 million.

8. Embassy/MAAG comments requested on following points: (a) Political, economic and financial factors involved in possible change of policy to permit incremental financing of F–4’s, increase in $100 million ceiling, or substantial cash purchases in FY 1969. (b) Timing of annual review preceding seventh (FY 1969) tranche. When does Embassy believe economic data will be available? (c) Impact on Iran’s force structure and political-economic factors involved in postponement delivery fourth F–4 squadron to 1972. (d) Substitution of C–130’s for Sheridans (except 16) in sixth tranche.

Rusk

1. Source: Department of State, Central Files, DEF 12–5 IRAN. Secret. Drafted by Eliot; cleared by Schwartz (OASD/ISA/NESA), and in draft by Reed, Alne (ISA/ILN), Lewis D. Junior (G/PM), and Director of the AID Office of Near Eastern Affairs John Eddison; and approved by Rockwell. Repeated to CINCSTRIKE.