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

981. Sharp Decrease in Iran Oil Offtake. PriMin Hoveyda summoned UK Ambassador Wright and me 6th to complain that Iranian oil offtake dropped more than 200,000 barrels per day in December. He said Shah and other GOI leaders suspect this is unwelcome retaliation on part of oil Consortium for recent Kharg Island problem (A–415).2 Hoveyda went on to say Iran’s vital plans for development will suffer if anticipated increases in oil offtake do not materialize. Noting greater foreign exchange shortage would result Hoveyda said Iran would dislike to have to shift to heavier reliance on Eastern Bloc countries for commerce and possibly even arms.

Making clear this is issue outside jurisdiction of USG, I took occasion to recall frequent USG cautioning over excessively rosy estimates of future Iran income. Noted specifically how during last summer’s economic review Shah had brushed aside realistic estimates his economic advisors as being too conservative. Also explained this pointed up our concern re too much Iranian spending on things military (Hoveyda cited current flare-up of hostilities with Iraq as justifying GOI’s judgment re military expenditures). In any case, I made clear my conviction oil Consortium worked by laws of supply and demand rather than political vindictiveness (Wright says he took same line). I also expressed some doubt about plethora of Iranian barter deals with Eastern Bloc countries, noting how Hitler used these tools for political purposes. Also suggested Iran keep wary eye on its oil sales to Rumania and others for possibility exists Eastern Bloc countries will flog this oil on European market at expense Iranian markets. Noted that Iran would do well to keep in mind its predominant oil market (and inconvertible exchange) must inevitably be with free world countries.

Hoveyda said he realized USG unable take specific action but expressed hope we might informally encourage oil companies to keep Iran offtakes up. He contrasted this year’s sharp increase in production in Saudi Arabia (I noted year ago Iran percentage of increase was high while Saudi was low) and in Abu Dhabi. We both agreed frank [Page 342] discussion of these problems of type he undertaking is much preferable to artillery salvo technique employed in Kharg Island issue. Hoveyda said Consortium Chief John Warder, who was leaving his office when I arrived, is going to London to seek explanation from Consortium members.

  1. Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1964–66, PET 6 IRAN. Confidential. Repeated to London.
  2. Airgram A–415 from Tehran is dated December 16, 1965. (Ibid., PET 1 IRAN) Iran and Iraq had recently clashed militarily over Kharg Island, Iran’s primary offshore oil loading terminus.