[Page 380]

126. Memorandum of Conversation1

SUBJECT

  • Shah of Iran Visit

PARTICIPANTS

  • Iranian Side
  • The Shah of Iran
  • Ambassador Zahedi
  • LTG Mohsen Hoshemi-Nejad, Military Aide & Chief of Military Household
  • U.S. Side
  • Secretary of Defense, James R. Schlesinger
  • Ambassador Helms
  • Secretary Ellsworth
  • MG John A. Wickham, Jr., Military Assistant to the SecDef

1. Secretary Schlesinger welcomed the Shah and indicated that the Department would endeavor to work out as quickly as possible whatever problems might exist with regard to equipment and training.2 In return, the Shah expressed his gratitude to the American people and the Armed Services as well as to Secretary Schlesinger for assistance to his country and to the Iranian people. He said that, as a matter of policy, Iranians would like to buy as much as possible through FMS although isolated cases might occur in which it would be necessary to buy directly from U.S. companies. He complained that prices had grown in a very striking way, upwards of 50 to 300%, with spare parts and ammunition. As a case in point, he indicated that a rental price of a C5A had risen from $70,000 to approximately $250,000. Secretary Schlesinger suggested that perhaps the growth in fuel prices had an important bearing on such inflation.

2. Concerning fuel prices, the Shah replied that the cost growth will force the United States to become self-sufficient on energy and that [Page 381]such self-sufficiency was an important objective for all countries. The United States, which must be the bastion of one civilization against another civilization must be energy self-sufficient. There was a time when a nation could pay a low price for POL but that time is gone forever, and now a nation must pay what it is worth. While he said it was necessary to pay such prices, he did not believe that the tremendous growth in costs of ammunition and spares was attributable solely to POL inflation.

3. Regarding armaments, the Shah said he had no reason to relax preparedness. One of the major tasks would be to decide what would be necessary in the way of air defense and air superiority equipment. Eventually, it would be necessary to replace the F4D which would phase-out in 1978. The F4E’s would phase out in 1980 or 82. The Shah said that he was thinking of the F18 to replace the F4. He also noted that eventually he would submit orders for F16’s to complement the F14’s. In addition, he suggested that Iran might wish to co-sponsor development of the F18 as well as a transport aircraft which the U.S. has under development. Finally, he mentioned desire to co-produce items for which the Iranians require large orders. Secretary Schlesinger welcomed the suggestion of participation in the development process. The Shah returned to the F18 and suggested that Iran might purchase upwards of 240 which would help the Navy in terms of lowering potential production costs. The Secretary pointed out that we do not have an approved program for the F18, and it will be necessary to go through contract definition as well as approval by the Navy and OSD. Furthermore, there may be some problem with Congressional approval. The Shah replied that the F18 is not an urgent issue. What is urgent for them is to procure a fighter that will be in the U.S. inventory such as the F16. He wants the F16 in a 2 to 1 ratio with the F14’s (approximately 160). In addition, he wanted to procure F16’s to replace the F5E’s. Thus, Iran would procure 280 or 300 F16’s. The first 160 he wanted quickly, with the rest to come as the F5E’s were disposed of. If the F18 comes along as an approved program, then Iran would want to have it as a replacement for the F4. The Secretary agreed that this was a subject for further exploration. In the U.S. the F18 is proposed as replacement for the Navy’s A7 and F4, while the F16 is to replace the Air Force F4. The costs for the F18 are not certain at this stage. We hope that the F16 will come in at $5 million and current estimates are that the F18 might be $7.5 million. As to the Navy, the Shah said he might order FRAM class destroyers to replace his frigates.

4. In response to the Shah’s concerns about price inflation, the Secretary noted that we are painfully aware of price rises which affect DOD procurement of all major end items as well as spares and ammunition. Prices in large part reflect the growth in costs of labor and [Page 382]matériel. Perhaps a softening in the U.S. economy will lead to a tapering off in cost growth. Nevertheless, the law requires that DOD recover full costs for FMS. The prices that DOD must pay for equipment are the same as those FMS customers pay. The Shah said he would be satisfied if Iran were charged the same prices as DOD, but he felt that in some cases ammunition and spares were procured sometime ago and therefore their costs would not be the same as replacement costs. Ambassador Ellsworth indicated that the whole issue of cost would be reviewed carefully. The Shah welcomed such a review and asked that it examine specifically the subject of ammunition and spares as well as the rental of C5 aircraft. If the rental of the C5 was too costly, it would be more economical to fly recently procured helicopters directly into Iran. The Secretary said that the review would ascertain whether prices are in line with cost recovery.

5. Turning to communications and radar systems, the Shah indicated that the ultimate cost could be nearly $6 billion. Iran expects the U.S. to develop the best plan and be the judge as to which products would be best for Iranian needs. The issue as to whether Iran should procure a fully automatic or a semi-automatic system was open to question. Perhaps a combination would be better for their needs at the present time. He commented favorably on the automatic capabilities which he had just witnessed on the AWACS. In connection with the radar deployment, he said that Iranians have reason to be alert to the potential threat on their eastern border. For this reason, it would be necessary to think about acquiring AWACS because of its area coverage capability and because ground radars probably would not be deployed for 3–5 years. Moreover, the mountainous terrain of Iran calls for down looking radar capabilities. He said that Iran will probably have to go with AWACS regardless of cost and competition for skills. The Shah indicated that he previously was briefed on the Navy’s E2C but, because of its limited range, such an aircraft would not be capable on the eastern frontier. The Secretary said that DOD remains concerned that the resources acquired by Iran do, in fact, meet Iranian needs and capabilities. DOD will continue to do its best to keep program advocates under control, but we cannot assure complete success.

6. As to the strategic situation, the Shah stated that military preparedness by Iran is essential and that the eastern frontier problems are what preoccupy him the most. For example, there is a possibility that an eventual secession from Iran of Baluchistan and Kerman could occur thereby ultimately permitting the Soviets to achieve direct access to the Arabian Sea through Afghanistan. [2 lines not declassified] The Shah felt the Soviets had initiated efforts to improve the military capabilities of India in order to fight Pakistan. He showed the Secretary a memorandum which outlined possible acquisitions of modern arms by India [Page 383]to include approximately 80 MIGs. In contrast, Pakistan has only a few Mirage and F84. In this connection, Pakistan has requested $1 billion credit from Iran, as well as additional credit from Saudi Arabia. The Shah asked whether spare parts could be provided for Pakistani weapons, and the Secretary indicated that, as far as he knew, no problem existed with providing spare parts. He did note that there was a problem with Turkey and hoped that Iran might assist, not, of course, with provision of end items because of Congressional constraints on delivery to third countries, but in terms of financial resources. The Shah replied that there is considerable turmoil internally in Turkey and that a dearth of leadership exists. However, when the President of Turkey visits in the near future, he will try to be helpful to him. In summary, the Shah indicated that the underlying concept of Soviet imperialistic moves is to create a situation which would deny the Middle East oil to the West and that through such denial, the West would be effectively immobilized.

7. The Secretary remarked that as we look around the world for stable countries, Iran stands out as one of the most exemplary. It is our wish that other countries would be comparable to Iran. The Shah noted that fortuitous events had occurred in Iran which provided important opportunities. Turning to comments on other countries, the Shah felt that the FRG, Austria, and Switzerland were solid. In France, Communist penetration of the armed forces should be of considerable concern. The Secretary noted that one of the lessons the Soviets learned in Chile was that they must target the armed forces just as they are doing in Portugal. The Shah hoped that the Portuguese situation would be a valuable example to the Spanish. He felt that Egypt was stable for the time being, as was Algeria. Libya was anyone’s guess. In Saudi Arabia, the leadership transition was better than expected. He felt that the King was respected in the family and was not just a puppet, although apparently there are arrangements which limit his governmental activity. The real issue in Saudi Arabia was whether the regime would make the necessary reforms and bring in faces outside of the family. He noted that Saudi Arabia had two armies—one to watch each other. Such a situation would never exist in Iran. As to the Syria-Israeli situation, the Shah felt that the Syrians would be very difficult to handle. He also was disturbed to see evidence of corruption in Israeli political and military leadership.

8. The meeting concluded with reiteration by the Shah of gratitude for support to his country, and reiteration by the Secretary of welcome, as well as our admiration of the stability and strength of the Iranian nation.

  1. Source: Washington National Records Center, OASD Files: FRC 330–78–0058, Box 65, Iran 091.112, 1975. Secret; Sensitive. Drafted and approved by Wickham on May 19. The meeting was held in Schlesinger’s office.
  2. A briefing memorandum for Schlesinger, undated, noted that “our policy remains that of giving the Shah pretty much what he wants, in the apparent expectation that he will serve, for the mid-term at least, as a ‘strong-point’ for U.S. policy in the Gulf area, pursuing policies and objectives either directly supportive or at least not in conflict with our own. There are, however, increasing signs of possible future disagreements (Persian Gulf as a ‘closed sea,’ withdrawal of major powers from Gulf, support for Arabs in event of future Arab-Israeli War, raw material pricing policy). In any event, it has scarcely been the ‘mature relationship’ State describes, since this presumably would require that we discuss differences frankly and seek long-term accommodation of all important issues.” (Ibid.)