188. Telegram From the Embassy in Iran to the Department of State1

1041. Shah’s Pique at Oil Companies. Re Embtel 981.2

Short-fall in Oil Income. Practically at outset our discussion US-Iran military cooperation 20th, Shah diverted discussion to his bitterness re UK and US oil Consortium. He cited 200,000 barrel per day nosedive in liftings in December and $30,000,000 deficiency in 1965 revenues anticipated by Iran. He went on to say that both military security and economic development are vital to Iran. If oil companies do not provide anticipated growth in revenues, Iran might have to reorient “philosophy” which Shah said he had espoused “during twenty-five years of my reign.”
US Companies’ Record. Noting I had not come prepared to air this problem and in any case USG’s capability vis-à-vis oil companies as he knew is very circumscribed, I mentioned receipt few days ago of letter from Esso Vice President Howard Page. Page’s letter had been drafted pursuant to PriMin Hoveyda’s and Fornmin Aram’s having raised this problem with me at Shah’s instructions. In general, Page’s letter indicates Consortium, and American companies in particular, have good record. Shah said he had already seen Page letter (Page sent copy to NIOC’s Falla).
Broader Picture. Shah seemed have no arguments to counter Page letter. He sought elevate subject to broader free world interests [Page 343] in maintaining militarily secure and economically progressive Iran. Shah realized companies work for profit and that they have obligations as in Saudi Arabia, but in his view it is in their higher interest to support large progressive country like Iran instead of paying vast revenues to tiny entity like Abu Dhabi with its few tens of thousands of people and where oil production is expected to rise to million and half barrels per day. He said Abu Dhabi being operated primarily by British companies. He acknowledged that in oil matters UK Govt. has more direct involvement than does USG. Important point was that tranquility of entire Gulf region depends upon Iran; oil companies, as well as UK and US Govts., should take this into account in formulating their offtake policies. I said I felt Page’s letter reflected awareness of Iran’s value.
Iran-Consortium Relationship. When I expressed doubt re wisdom of shifting Iran’s “philosophy,” Shah said he might have no choice. He would have to supply his military and economic development needs where money and cheapest prices available. It was in this connection that he mentioned Soviet MIG–21 sales to Arab countries for only $600,000 per copy. I said from direct experience Iran should keep in mind foolhardiness of falling out with oil companies. He noted current difficulties between Kuwait and KOC but said Arabs always somehow keep oil revenues coming in, at same time reaping benefits of their demagoguery with oil companies. He agreed nevertheless that healthy Iranian relationship with oil Consortium is essential.

Comment. Although Shah knew we were coming to discuss military matters, he obviously had decided to make major point of his disappointment re oil income. Incidentally, after Shah had unloaded his complaint it was possible to exploit his concern to point up importance of our annual review designed to put military and economic expenditures in perspective bearing in mind prospective GOI income.

  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. Document 187.