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

SUBJECT

  • Report to the President on Proposed Oil Agreement with Iran

FEA, CEA and Defense have aligned in opposing our proposal to negotiate a bilateral oil agreement with Iran. Their relevant objections are concerns that the oil industry and the Congress will not respond as we expect. It is clear that we would face an uphill struggle in persuading the President to authorize proceeding with our proposal and a lonely task on the Hill in getting appropriations for it. Furthermore, the other agencies are advising the President that if he decides to proceed with the negotiations we should demand a firm price discount of at least $1 per barrel, a demand we anticipate the Shah would reject as offensive.

Under these circumstances, and in accordance with your comments last Saturday morning,2 I have worked out with Frank Zarb this agreed conclusion of his report to the President:3

“While State disputes some of the disadvantages outlined above, State joins Defense, CEA and FEA in concluding that a decision to proceed with the proposal should be deferred for further evaluation of the likely responses of the oil market and of the Congress.”

I have Zarb’s assurance that he will look at the questions of oil industry and Congressional attitudes in a positive way, and perhaps we can find an acceptable compromise on our proposal. It is now obvious that if there is any hope of resolving this issue it will be with FEA and not Defense.

  1. Source: National Archives, RG 59, Central Foreign Policy Files, P820117–0309. Secret; Nodis.
  2. January 10. Kissinger’s comments have not been found.
  3. Zarb’s January 13 memorandum to the President is printed in Foreign Relations, 1969–1976, volume XXXVII, Energy Crisis, 1974–1980, Document 92. On January 17, Scowcroft forwarded the memorandum to James Connor, with the message that it fairly outlined the advantages and disadvantages of the proposed oil deal. Although an arrangement might not be immediately possible, Scowcroft recommended that the administration move forward to resolve the outstanding issues. He supported Zarb’s suggestion that the administration try to enter an oil purchase agreement to fill the Strategic Petroleum Reserve, as mandated by the Energy Act, even though such an arrangement would be unlikely to weaken OPEC’s unilateral pricing ability. (Ford Library, National Security Adviser, Presidential Country Files for Middle East and South Asia, Box 13, Iran (8))