143. Memorandum From the Under Secretary of State for Economic Affairs (Robinson) to Secretary of State Kissinger1

SUBJECT

  • Bilateral Oil Agreement with Iran

Ansary cabled through Helms Sunday night a wholesale rejection of the compromise terms I suggested last week in an effort to find a [Page 431]basis for an oil agreement with Iran.2 He suggested that the matter be left in abeyance for possible renewed consideration after the OPEC price decisions are announced, if we then are interested in further negotiation.

I conclude that there is no basis for agreement now. The Iranians clearly developed cold feet as they approached the hour of explaining to their OPEC partners a deal in which Iran would cut them out of a substantial share of the U.S. market by breaking the price line. To alleviate this concern, Ansary proposed increasingly unreasonable terms, including:

(a) backdating the agreement by many months,

(b) starting the indexing calculation from January 1975, thereby wiping out our initial discount, or, alternatively, basing indexing on the unknown October OPEC prices, and

(c) requiring that the U.S. Government enforce a prohibition against switching by U.S. oil importers from their 1974–75 average level of purchases from Iran at the new OPEC price to purchases under the discount-price agreement.

These heightened Iranian demands probably would not have been made if we could have concluded an agreement in August committing us to a firm “take” of the oil from the outset. This intention was frustrated, however, by the Treasury’s refusal to permit use of the Exchange Stabilization Fund to cover possible losses. Our consequent introduction of new elements—an interim period in which the U.S. Government would act as Iran’s agent, without risk of loss, and a debate in Congress over appropriations to back up the long-term arrangement—gave Iran an opening for its own second thoughts.

There remains the risk that Iran will try to use within OPEC the fact of our having negotiated toward an agreement involving U.S. acceptance of higher prices through indexation. Selective disclosure of this sort could embarrass us with Saudi Arabia, other OPEC countries, and our IEA partners. My judgment is that the Iranians are unlikely to do this because they must assume that it would set off a process of counter-disclosure by us which would severely embarrass Iran within OPEC.

Despite Ansary’s strong language in rejecting our compromise proposal, my conversations with him assure me that our inability to reach agreement on this matter will not adversely affect our other relations with Iran.

[Page 432]

The negotiations have given us a better measure of Iran’s objectives and tactics and some insight into OPEC’s internal politics. It also has led us to devise for ready use with Iran or other countries a mechanism for executing bilateral oil deals if the need arises on short notice in the future.

Recommendation:

I recommend that I agree with Ansary that the matter should be held in abeyance and, I would add, in absolute confidence, until we can both determine, after the OPEC price decision, whether any basis exists for renewing negotiations.3

In order to suspend these negotiations in the best atmosphere, you may wish to send a personal message to the Shah. A proposed draft is attached for your signature.4

  1. Source: National Archives, RG 59, Central Foreign Policy Files, P870050–2454 Secret; Nodis; Cherokee.
  2. Robinson sent the compromise terms in telegram 208751 to Tehran, September 3. (National Archives, RG 59, Central Foreign Policy Files, N750004–0125) Helms transmitted Ansary’s response in telegram 8760 from Tehran, September 7. (Ibid., P850004–1831)
  3. There is no indication that the Secretary approved or disapproved this recommendation; however, Robinson asked in telegram 214610 to Tehran, September 9, to convey to Ansary his agreement to hold the matter in abeyance. (Ibid., P850047–2583)
  4. Attached but not printed. There is no indication that the Secretary approved or disapproved this recommendation, but he sent the Shah his personal concurrence in suspending the negotiations in telegram 214381 to Tehran, September 9. (Ibid., P850047–2581)