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10. Memorandum From Acting Secretary of State Rush to President Nixon1

SUBJECT

  • Shah of Iran and Oil Consortium Reach Agreement

Meetings in St. Moritz last week between the Shah and a negotiating team from the consortium of international oil companies in Iran produced agreement in principle on the general terms of a new long-term contractual relationship. The main points of this agreement, which will replace the 1954 agreement but retain many of its provisions,2 are as follows:

—The Iranians will be owners and operators of assets and activities in the oil concession area. They will contract to sell oil to the consortium for a twenty year period beginning March 21, 1973.

—The consortium will form an Iranian-chartered company to produce, process, and transport Iranian oil under a service contract with the National Iranian Oil Company (NIOC). The programs and budget of this company will be subject to NIOC approval.

—The companies will purchase oil at the wellhead, on a cost plus fee basis designed to give Iran the financial equivalent of the participation agreement recently signed with Arab producers of the Persian Gulf.

NIOC will be responsible for securing necessary investment funds, but the consortium will have the option to provide these funds as advance payment on oil purchases.

NIOC will receive oil to market directly increasing from 200,000 barrels per day this year to 1.5 million barrels a day in 1981.

At first blush both sides seem to have achieved their principal objectives under the new settlement. The companies retain assured access to Iranian offtake, management initiative if not control, and investment rights in an overall formula which lends hope that participation agreements with Arab oil producers will not have to be renegotiated as a result of the Iranian agreement as the companies have feared. For his part, the Shah has achieved increased revenue and management con[Page 35]trol and direct access to oil in a format which ends the concessionary agreement of 1954 in favor of a sales contract such as he publicly had insisted upon. The Shah’s overriding political objectives have been met. He can now proclaim that Iran is again second to none in protecting its sovereign interests and attaining its national aspirations.3

Some difficult issues, such as the means and timing of periodic price renegotiations, appear to remain unresolved. Nevertheless, with the outlines of the new arrangement agreed to, prospects for a fully satisfactory settlement are promising.4 The need for USG intervention seems to have passed.

Kenneth Rush
  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 602, Country Files—Middle East, Iran, Vol. IV, September 1971–April 1973. Confidential.
  2. See footnote 4, Document 7. Among other provisions, the 1954 agreement recognized the National Iranian Oil Company’s ownership of oil land and assets while granting control of oil field and refinery operation to the consortium.
  3. Telegram 1829 from Tehran, March 21, reported that the Iranian Government and media were treating the takeover that day of the management and operation of the oil industry as an Iranian victory over the consortium and an Iranian New Year’s gift from the Shah to the people. Helms observed that “Iranian crowing might create pressure among Arab oil producers for further revision of their arrangements with oil companies” but expected that the Iranian campaign would subside after March 21. (National Archives, RG 59, Central Foreign Policy Files, [no film number])
  4. In telegram 3612 from Tehran, May 26, the Embassy reported that the Iranian Government had signed an additional agreement with the consortium on May 24 and that “Iran received some advantages over Arabs but these not repeat not expected provoke new round of leapfrogging from Arab producers.” (Ibid., Nixon Presidential Materials, NSC Files, Box 1295, Harold H. Saunders Files, Iran, 5/16/73–12/31/73) A detailed summary of the agreement is in INR Report RECS–20, “Iran: Pace-Setter in Oil,” September 19. (Ibid., RG 59, Central Files 1970–73, PET 6 IRAN)