Foreign Relations of the United States, 1969–1976, Volume XXVII, Iran; Iraq, 1973–1976

122. Memorandum From the Under Secretary of State for Economic Affairs (Robinson) to Secretary of State Kissinger ¹

Washington, May 13, 1975.

SUBJECT

• Iran Bilateral Oil Deal

In accordance with your instructions I have continued to explore the Shah’s proposal for a bilateral arrangement under which we would purchase up to 500,000 barrels of Iranian oil per day, under a pricing formula keyed to the price of U.S. products to be acquired by Iran.² For this program the Shah has established two basic criteria which in my judgment we cannot meet.

—Secrecy to avoid adverse reaction from other OPEC members.

—Fixed prices for both oil and purchased U.S. products (possibly with indexation).

However, to evidence sincerity in exploring this concept in a constructive way, I suggested to Minister Ansary during my recent visit to Tehran³ the proposal outlined below:

—The U.S. would arrange for procurement by private sector importers of up to 500,000 barrels per day under a multi-year contract.

—The price would be the official OPEC price which conceivably could be fixed with indexation as proposed by the Shah.

—The U.S. oil importer would pay cash into the U.S. Treasury on receipt of the oil and the Treasury would issue to Iran five-year Treasury notes of an equivalent amount which could be applied against Iranian purchases of U.S. goods after an agreed period of delay. (Each 12 months of delay would represent a price reduction of over $1.00 per barrel.)

—The notes would provide a yield commencing on the date from which the notes could be applied against U.S. purchases in the form of interest, or as an adjustment equivalent to changes in the U.S. wholesale price index, or some combination of the two.

I made it very clear that any such arrangement would require approval by other agencies of the U.S. Government and the Congress. I pointed out, however, that we did not want to seek such approvals unless we knew that there was a mutually acceptable basis for such a plan.

Ansary indicated that he found the plan interesting but pointed out that the period of delay before the notes could be applied for U.S. purchases would have to be dealt with in a separate side letter to assure secrecy of the hidden discount. Secondly, he indicated a preference for a yield on the Treasury notes to reflect changes in the U.S. wholesale price index rather than in the form of interest. He did express appreciation, however, for the proposal and indicated that he would present it to the Shah for his reaction.

Subsequently, Ansary advised that the Shah’s reaction was “that our proposal was not exactly what the GOI had envisaged.”

—He was concerned with the suggestion that the proposal be restricted to sales to the private sector and he countered with the idea that the plan should be limited to military purchases. (Apparently, he feels that this would make possible an oil vs. equipment barter which would not be possible without a major change in our present system.)

—He did not object to price indexing based on the U.S. wholesale price index but indicated that it should apply to both the price of Iranian oil and U.S. commodity sales. (It was still the Shah’s hope that fixed prices could be established on both sides.)

—The Shah was agreeable to our suggested purchase of 500,000 barrels per day.

In summary, I feel that it is unlikely that we can conclude any agreement within the limitation of existing U.S. oil import/commodity sales policies which would meet the Shah’s requirements for what is essentially a government-to-government barter arrangement. Accordingly, I suggest that we not push further on this idea but be willing to listen to any alternative suggestions which the Shah may present during his forthcoming visit. In my judgment we have evidenced sufficient “good faith” in exploring this idea, but we should now recognize the unlikelihood of concluding such an arrangement and, therefore, we should allow for a winding down of this effort in a way which would avoid any negative political repercussions.

1. Source: Library of Congress, Manuscript Division, Kissinger Papers, Box CL–152, Iran, Chronological File, 1 April–30 May, 1975. Secret; Nodis.
2. Robinson’s earlier discussion of this plan with Ansary was reported in telegram Tosec 834/63511 to Kissinger in Aswan, March 20. (Ibid., 4 January–23 March, 1975)
3. According to telegram 4178 from Tehran, May 5, Robinson had fruitful discussions with Ansary on a range of topics: U.S.-Iranian-Saudi plans to assist Egypt financially, the oil consumer-producer dialogue, a U.S.-Iranian oil transaction, combined efforts to help developing nations, and the Joint Commission. (Ford Library, National Security Adviser, Presidential Country Files for Middle East and South Asia, Box 14, Iran—State Department Telegrams, To SECSTATE–NODIS (2)) Helms sent Kissinger a follow-up on these talks in telegram 4339 from Tehran, May 9. (Ibid.)