147. Briefing Memorandum From the Assistant Secretary of State for Near Eastern and South Asian Affairs (Atherton) to Secretary of State Kissinger1

Issues Between the U.S. Government and Iran

Ambassador Helms has alerted you (Attachment 1)2 to a number of friction points between us and Iran. As the Ambassador has indicated, none of the issues is of itself of major significance but the accumulation portends “rough weather” in our relations with the Shah.3 Following is a brief status report on the matters referred to by Ambassador Helms.

Peaceful Uses of Atomic Energy

The Iranians profess irritation with our efforts to place additional bilateral provisions in the agreement we are negotiating, and wish to be

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treated equally with other parties to the NPT. The reprocessing issue is the key problem.4 A new NSSM is in preparation to provide instructions for our negotiators.

Increased Costs of Military Equipment

Costs for arms across the board have skyrocketed for all of us and part of the problem is that the Shah is buying the latest, most advanced technology, the prices of which were not firmly known at the time of order.5 He has also ordered very expensive modifications to much of the equipment. DOD is preparing a study on the three issues of most importance (Attachment 2)6—I Hawk, Spruance destroyers, and a support program for the F–14—and will present to the Iranians, after our clearance, a number of options which can result in decreased costs.

The Shah has complained in the past about our prices and has been mollified when a detailed explanation has been presented. Fundamentally, of course, his external commitments, industrial development program, social improvement measures and heavy military expenditures could seriously strain his available resources.

Civil Air Matters

We expect to have negotiations the week of November 17 to see whether a way can be found to bridge the gap between our legal requirements and Iranian insistence on having heavily discounted air fares for categories of Iranian citizens. I am not optimistic that a quick, amicable solution will be found. We shall keep you up to date.

Oil Agreement

I understand that Under Secretary Robinson has this issue under consideration.7

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Co-Production Agreements

The Iranians are still negotiating with U.S. firms co-production agreements on TOW, Maverick, a utility helicopter and an anti-aircraft gun. The Shah has ambitions to be a regional arms supplier and has asked about restrictions we may impose on sales/transfers of the above equipment. We have informed Helms, for transmittal to the Shah, that U.S. law requires case-by-case, prior approval for third country sales of co-produced items which encompass U.S. technology obtained either by FMS or direct contracts requiring Munitions Control approval; we cannot give advance blanket approval. We do not yet know what the Shah’s reaction will be, but our restrictions should come to him as no surprise.

Project IBEX

IBEX is a large electronic system which will give the Iranians an ELINT capability. [3 lines not declassified] The Department of Defense has suggested that IBEX be put under its wing through FMS in view of its responsibility for overseeing the integration of all Iranian communications—the Seek Switch program. The Iranians have told us that how IBEX is managed is our bureaucratic problem to resolve, but that they would not accept delays or increased costs as a result of a change in management responsibilities. I believe the problems [less than 1 line not declassified] will be resolved satisfactorily next week. If not, I may request your intercession.

LNG and Energy Policy

Future U.S. policy on LNG is slowly moving to a resolution by the Energy Resources Council. Even if the final decisions are not fully satisfactory to Iran, a policy, whenever it is determined, will at least permit firm planning by the Iranians and U.S. companies.

  1. Source: National Archives, RG 59, Central Foreign Policy Files, P830135–3050. Secret; Nodis. Drafted by Naas and concurred in by Sober.
  2. Attached but not printed is telegram 10801 from Tehran, November 5.
  3. INR Report No. 243, December 10, entitled “Iran: Problems Ahead in Relations with the US?,” also noted points of divergence in U.S.-Iranian relations. The report suggested that the Shah was testing his relations with the United States by, for example, leading OPEC in price hikes, digging in his heels on bilateral issues like co-production, and questioning the U.S. presence in the Persian Gulf. (National Archives, RG 59, Central Foreign Policy Files, P830108–1991)
  4. In telegram 11089 from Tehran, November 13, the Embassy reported that in the media, the Shah linked the impasse on a nuclear cooperation agreement to “unsatisfactory” U.S.-Iranian economic relations, a clear message that “Iranian sensitivities in the area of nuclear cooperation run deeper than we had earlier thought.” A backlash in other areas, the Embassy warned, could result. (Ibid., Central Foreign Policy Files, D750395–0697) In telegram 11539, November 26, the Embassy elaborated on the obstacles to a nuclear agreement, notably the amount of enriched uranium supplied by the United States which could be stored in Iran, and the right of Iran to reprocess U.S.-supplied fuel without prior U.S. approval. (Ibid., D750411–1129)
  5. According to a memorandum from Acting Assistant Secretary of Defense Jordan to Schlesinger, October 1, the price of the second installment of F–14’s for Iran went up nearly 30 percent from the original estimate. (Library of Congress, Manuscript Division, Schlesinger Papers, Box 22, James R. Schlesinger—Action Memos, 1 October–3 November 1975) See Document 148.
  6. Attached but not printed is telegram 10758 from Tehran, November 5.
  7. Negotiations for a bilateral oil agreement were resumed in early November, according to telegrams 10696 from Tehran, November 3, and telegram 260609 to Tehran, November 4. (Both in National Archives, RG 59, Central Foreign Policy Files, P850004–1758 and P850011–2001) In a memorandum to Kissinger, November 26, Robinson wrote that based on the renewed talks, “it was clear that the Shah wants a deal if it can be concluded by December 31 and without embarrassing Iran with its OPEC colleagues.” (Library of Congress, Manuscript Division, Kissinger Papers, Box CL–153, Iran, Chronological Files, 5 October–31 December, 1975)