175. Telegram From the Embassy in Iran to the Department of State1

4921. Please pass to FEA for Administrator Zarb. Subj: Shah Comments on Oil Prices.

1. At conclusion of audience evening of May 15, Shah commented that Administrator Zarb’s visit to Tehran was a “washout.”2 Before I had a chance to reply, the Shah continued, “We are not a colony.” When I asked what he meant by that remark, the Shah replied, “Mr. Zarb’s offer to Ansary was so ridiculous that he must think that Iran is a colony of the United States.”3 After I had forcefully remonstrated, the Shah ceased putting me on, his tone of voice changed and he became more reasonable. He stated, “You know very well that it is inevitable that the price of crude oil will rise, if not in the next couple of months then later on. You remember that we sold some oil to independent companies a couple of years ago for $35 a barrel. Obviously this was an ex[Page 526]treme and unusual situation, but even so I would think that the price of oil would eventually rise to $25. Incidentally, I have been doing some figuring and I am willing to wager that your Alaska oil delivered to a refinery in the United States will cost $16 per barrel.” The Shah then noted that the United States seems to have forgotten about the energy crisis and the American public has gone back to a business-as-usual life style. He commented, “Only the price of oil is going to oblige your country to seek alternative sources of energy.”4

2. At this juncture I had an opportunity to make the point that I regarded Mr. Zarb’s visit to Iran as a most useful one. I explained to the Shah why I felt this to be so including the fact that it had provided an opportunity for Mr. Zarb to explain to Minister Amouzegar and other Iranian officials what US policy on oil conservation and alternative sources now is. The Shah snapped back, “Do you have a coherent energy policy?” I then went over in some detail what Mr. Zarb had had to say here about conservation and about work being done in the United States on other sources of energy.

3. Comment: I have put much of the foregoing in direct quotes in order to convey the flavor of the Shah’s reactions. These should not be taken personally by Mr. Zarb or any other USG official. The Shah fights hard for his point of view, but his rhetoric should not be overread any more than he overreads public statements of US officials opposing his oil policies.

4. Commenting on recent gas finds in Iran, the Shah noted that almost every well that has recently been drilled, whether on land or in the water, has demonstrated the presence of quantities of gas. The Shah now estimates that Iran may have as much gas as the Soviet Union “or even more.” This led to a discussion of the NIOC/Distrigas/El Paso LNG project. The Shah ruminated as to why it was taking El Paso so long to work out the necessary arrangements. He noted delays caused by debate over pipeline vs. the Suez Canal route, then over the rate which the Egyptians would charge for use of the canal. He expressed concern re anticipated delays when time comes to obtain rulings of the Federal Power Commission.

  1. Source: National Archives, RG 59, Central Foreign Policy Files, D760189–0959. Secret; Priority; Exdis.
  2. Zarb visited Tehran May 7–10. The Embassy transmitted a full record of Zarb’s meetings with various Iranian officials in telegrams 4694 and 4770 from Tehran, May 10 and 11. (Both ibid., D760179–0725 and D760181–0440)
  3. According to telegram 105198 to Tehran, May 1, the FEA’s Strategic Petroleum Reserve purchase plan required foreign suppliers to deliver crude oil in U.S. flag vessels to salt domes in the U.S. Gulf coast area at a total price of $11 per barrel, a discount of over $4 per barrel on Iranian prices. (Ibid., D760168–0074)
  4. In telegram 5497 from Tehran, May 31, the Embassy noted that the Iranian delegation at the OPEC meeting in Bali May 27–28 agreed to postpone oil price hikes until March 1977, reportedly due to the Shah’s reluctance to disturb Washington prior to the U.S. election. (Ford Library, National Security Adviser, NSC Middle East and South Asian Affairs Staff, Box 5, Country File, Iran (7)) In a June 3 note to Kissinger, Atherton pointed out that Iran was motivated more by Saudi opposition to an increase, King Khalid’s presence in Tehran, and the weak demand for heavy crudes. (National Archives, RG 59, Central Foreign Policy Files, P830160–1779) Kissinger sent the Shah his and Ford’s appreciation in telegram 138939 to Tehran, June 5. (Ford Library, National Security Adviser, NSC Middle East and South Asian Affairs Staff, Box 5, Country File, Iran (7))