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

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

Washington, February 13, 1976.

SUBJECT

• Your Breakfast with Ansary—Boston, February 15, 1976

I believe Ansary has two main subjects to raise with you:

1. Additional oil sales to the United States

As reported in my memorandum of February 4 (attached)² the Shah and Ansary have diverted their attention away from a government-to-government oil deal and to a series of private deals running through major U.S. military and industrial equipment manufacturers to U.S. independent oil companies. This approach could avoid a Congressional debate over appropriations for USG purchases and over the whole Iranian oil and arms issue, and enable the Iranians to achieve greater additionality of oil sales than our bilateral deal promised.

Chief executives of five arms manufacturing companies interested in major sales to Iran are being invited by Vice Minister of War Toufanian to come to Tehran and discuss with the Shah and others a vaguely hinted arrangement involving oil and arms contracts. Officers of these companies—General Dynamics, Litton, Boeing, United Technologies, and Westinghouse—have called on General Fish and me to explore the idea and get our advice before responding to Tehran.³ Chairman Lewis of General Dynamics, who is more positive about the idea than the other companies, plans to go to Tehran next weekend.

DOD has told the companies it has no objection to the arms-for-oil idea so long as it is simply a means for Iran to generate dollar bank accounts of the GOI to pay DOD/FMS for equipment made by the companies, in the usual manner. The deals must be strictly between them and the GOI. They will not affect State–DOD decisions on types and quantities of munitions or DOD pricing.

I have told the companies that I believe you would applaud arrangements by them to increase Iran’s share of the U.S. oil market and to help restore Iran’s financial capacity to carry out its regional defense mission and its industrial modernization. I emphasized, however, that the decision was up to their individual business judgment. I said I believed they could find a role that would satisfy the Shah without their taking major financial risks as middleman in a strange business, but this is yet to be seen. They should hire experts in international crude oil marketing before making any commitments.

The companies are puzzled as to what role the Iranians have in mind for them. None wants to get into the oil business. They are skeptical that U.S. independent oil companies would buy from them, rather than directly from NIOC, unless Iran is willing to use the U.S. industrial companies’ participation as a cover for oil price discounts. They fear some form of barter proposition in which the Shah would try to link arms and oil prices. I agreed that this is a proposition they would have to reject because a substantial element of their pricing of military hardware is beyond their control—dictated by the U.S. armed services.

I suggest that you encourage Ansary to think in terms of an agency role for the arms companies rather than the role of long-term contractor for oil. You may need to explain to him why we must avoid USG involvement in the design and execution of these deals, whatever form they ultimately take, because of the risk of uninformed Congressional reaction like Friday morning’s Washington Post editorial.⁴

1—A. Bilateral Oil Deal

Ansary also may argue that any deals they may make with U.S. arms manufacturers are only supplemental to a bilateral oil agreement, which he still wants. I assume you will want to temporize on this matter, making him realize that it is in the Shah’s interest as well as ours to make sure the climate is favorable for Congressional action on an FEA bill to carry out a bilateral agreement. (We also would need enthusiastic FEA advocacy of the deal which is not assured.)

1—B. Consortium Liftings

In the discussion of oil, Ansary is likely to complain of the low level of purchases of Iranian heavy crude by U.S. oil companies in the Iran Consortium. You will recall that I answered this complaint formally last month. The Consortium members are negotiating with NIOC now on a revised agreement in which the Iranians want to bind the companies to a predicted level of liftings, regardless of international market demand and Iran’s prices. Naturally, the companies stoutly resist this proposition. We cannot offer much comfort to the Shah on this matter; only an industrial recovery in Europe will do much to restore his sales of heavy crude.

2. GOI Relations with Secretary Rumsfeld

In our discussions February 3 and by telephone since then, Ansary has indicated that he wanted to smooth things out with Rumsfeld. I assume that this refers to the Evans and Novak column of January 27 (copy attached).⁵ Toufanian evidently was abrasive in his efforts to carry out the Shah’s orders to impress upon us the need for higher oil sales if Iran is to maintain planned arms purchases from the United States.

The Iranians probably have concluded that cooperation by DOD is essential to their oil and arms interests.

Ansary raised with me the possibility of his seeing you and Rumsfeld together. I discouraged this. I suggest that you tell him that you will personally convey to Rumsfeld Ansary’s concern as to good relations. If he presses, I suggest that you agree to ask Rumsfeld to see Ansary before he returns to Tehran.

Attached for your reference is a brief outline of Iran’s military equipment procurement from DOD.⁶

1. Source: National Archives, RG 59, Central Foreign Policy Files, P860112–0171. Secret; Nodis; Sensitive.
2. Attached but not printed. The memorandum reported on Robinson’s meeting with Ansary in New York on February 3, arranged in response to Iran’s deep concern about its falling oil liftings, as conveyed in telegram 694 from Tehran, January 24. (Ibid., [no film number]) In telegram Tosec 10247/18839 to Kissinger, January 24, Robinson reported that, to alleviate the Shah’s suspicions that the United States was stalling on the bilateral oil agreement to affect his negotiations with the oil consortium, he asked Helms to assure Ansary that the U.S. delay on a proposal was due to the inability to gauge Congressional reaction during the recess. (Library of Congress, Manuscript Division, Kissinger Papers, Box CL–153, Iran, Chonological Files, 1 January–14 April, 1976) Robinson’s request to Helms was sent in telegram 15124 to Tehran, January 21. (National Archives, RG 59, Central Foreign Policy Files, P840086–0284)
3. The memorandum of conversation of Robinson’s meeting with the defense contractors, February 12, is ibid., P840042–1498.
4. The editorial in the February 13 edition of The Washington Post, entitled “Iran’s Threat,” urged the Ford administration to take Iran up on its warning to buy fewer weapons if its oil revenues did not increase and thereby allow the United States to “escape from a network of commitments that are becoming steadily more dangerous and onerous.”
5. Attached but not printed. The column by Rowland Evans and Robert Novak in the January 27 edition of The Washington Post, entitled “The Troubles of the Arms Merchant,” reported that Toufanian had administered a “tongue-lashing” to Rumsfeld during their January 19 meeting, demanding that the Secretary lower arms prices and pressure U.S. consortium members to take more Iranian oil. See Document 158.
6. Attached but not printed is a paper entitled “Prospective Iranian Arms Procurement.”