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

Sale to Iran of 150 F–16’s

The Shah has requested a Letter of Offer for 150 F–16’s and the Department of Defense expects to be ready to send an advance notice to Congress within the next two weeks. At a later date, he may wish to order an additional 150 aircraft. The Shah may raise with you the status of the F–16 deal. DOD has produced a plan which it believes will meet Iranian approval. We need your decisions on the sale and the sending of the advance notice to Congress.

Discussion

Over the past two years the Shah has frequently stated his intent to purchase the F–16 or F–17, whichever won the “fly-off,” to replace his F–4’s and F–5’s by the mid-1980’s. He saw a demonstration of the F–16 during his visit to the United States in May 1975. The U.S. Air Force has [Page 534]been preparing a master plan for the F–16 for the U.S. and European production and purchases and to fit the sale to Iran into this plan. Ten F–16 trainers will be provided Iran in the United States during 1979 for instructor pilot training, and delivery of the remaining 140 planes will commence at the rate of four per month in mid-1980. These delivery dates meet the Iranian wishes.

Because of his lowered foreign exchange earnings from oil (particularly in the period October 1975–February 1976) and the enormous financial demands for economic development and other military purchases, Iran has been negotiating with General Dynamics, the F–16 manufacturer, and with Litton Industries, manufacturers of the Spruance destroyers, to arrange a “barter” oil deal. According to this plan, two independent U.S. oil companies will receive Iranian crude—additional to current imports of Iranian oil—and place the sales receipts in a special account tied to the purchase of the F–16s and the Spruance destroyers. Under the terms currently being negotiated, Iran will also gain substantial equity in Ashland Oil (20 percent in non-voting debentures) which is affiliated with Litton, and the New England Petroleum Company (25 percent) which is affiliated with General Dynamics. These deals, coming on the heels of the Iran–Occidental Oil agreement,2 will likely arouse considerable Congressional and press criticism and xenophobic fears that Iran is gaining too large an interest in the United States energy market. Moreover, the questions of the F–16 purchase, and the barter deal, standing alone, can be expected to raise questions with Congress. We are likely to have difficult Congressional hearings in connection with the F–16 LOA.

In the last year there has been increasing recognition that Iran’s capability to absorb effectively large numbers of advanced weapons systems is severely limited by the paucity of trained manpower, long military construction delays, inadequate ports, and internal transportation systems. Also, our management of this huge FMS program (over $10 billion) has encountered problems.

Ambassador Helms has recommended that no further Letter of Offer for an important and complex system be offered Iran for signature until a thorough briefing is given Iranian authorities on the life cycle costs, training and facility needs, et cetera, so that the Iranians un[Page 535]derstand what they are getting into.3 The Department of Defense agrees with this and is preparing such a briefing for the F–16 to supplement earlier material given to the Iranians. We frankly do not expect such briefings to result in negative decisions to buy systems but, at least, we will have specifically advised them on the record of the impact of their decision.

NSSM 238 has highlighted these absorption problems and a report of the Humphrey Sub-committee to be issued soon will do the same.4 Furthermore, the armament program is a heavy drain on the civilian economy, especially regarding trained manpower. It could be argued that we would do the Shah “a favor” by delaying the sale of additional complex systems. ACDA believes that such a delay would also increase the possibility that the F–16’s would replace, not supplement, the F–4’s and F–5’s.

As you know, some Congressional and press critics have expressed alarm at what they perceive as the growing armed might of Iran and will be strongly opposed to the sale of yet another advanced system. ACDA believes that assurances that the F–16’s would in fact replace the present F–4’s and F–5’s on a one-to-one basis could help to assuage such fears and would obviate the possibility of Iran’s ending up with a force of 600 advanced fighters that would raise general arms control concerns.

Because of our 1972 arms sales policy, and subsequent discussions on the F–16, there is no question in the Shah’s mind but that we will sell the F–16. A decision to turn him down at this point would create serious frictions in our relationship. Agreement to the sale now, but a delay in commencement of deliveries—say until 1981–82—would arouse a slightly less serious reaction but the Shah is intent on a 1979–80 delivery schedule and Department of Defense discussions with the Government of Iran have proceeded on this basis.

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To sum up, our existing policy and the political/strategic importance of Iran argue in favor of approving the sale and sending the advance notice to Congress. Iran’s questionable capabilities to absorb the system without an adjustment in priorities, the increasing domestic criticisms of our Iranian arms sales policy and the likely reaction to the oil barter relationship would favor delay or a negative decision.

We need to provide a full briefing to Iran on all aspects of the program and develop a unified Administration plan for dealing with Congress. The Iranian briefing should be given at the same time the advance notification goes to Congress. Any problems which arise from the briefings should be reflected in the final LOA.

Recommendation:

NEA favors a decision to sell the F–16 and to send the advance notice to Congress when it is ready. DOD would brief the Government of Iran as recommended by Embassy Tehran.

ACDA recommends a constraint that each F–16 replace an F–4 or F–5 on a one-to-one basis.

Alternatively, that we turn down the Iranian request to buy.

Or, alternatively, that we try to convince the Iranians that deliveries for Iran should be scheduled for 1981–82 or later. (ACDA favors this option in the absence of a one-for-one replacement constraint.)5

  1. Source: Ford Library, National Security Adviser, Presidential Country Files for Middle East and South Asia, Box 13, Iran (11). Secret. Drafted by Naas on July 28 and cleared in draft in H, PM, ACDA, and S/P and by Oakley. Sent through Habib.
  2. On June 20, Iran and the Occidental Petroleum Corporation signed a Letter of Intent on a proposal for a $125 million Iranian investment in Occidental in exchange for Occidental’s purchase of 50,000 barrels per day of heavy crude oil over 5 years and a series of joint ventures. On August 2, Malcolm Butler forwarded to Scowcroft a detailed examination of the deal prepared by the Treasury Department for the President. (Library of Congress, Manuscript Division, Box CL–153, Iran, Chronological Files, 1 August–1 November 1976)
  3. In telegram 6825 from Tehran, July 6, the Embassy expressed the view that, given Iran’s limited capacity to absorb sophisticated military equipment, the United States could avoid disappointment by alerting Iranian officials to the requirements of new weapons systems. Telegram 7646, July 28, reiterated the view that Iran be fully briefed on the implications of the acquisition of the F–16’s. (Both in National Archives, RG 59, Central Foreign Policy Files, D760260–0439 and D760292–0114)
  4. Regarding NSSM 238, see Document 171. On August 1, a Senate Foreign Relations subcommittee on foreign assistance chaired by Senator Hubert H. Humphrey published a staff study on U.S. military sales to Iran. As summarized in The Washington Post on August 2, the report claimed that Nixon’s decision in May 1972 to allow Iran to buy all it wanted “preempted State and Defense Department review of the sales to that country.” On August 13, Kissinger commented to Ford: “This Humphrey [Senate subcommittee] report was a disaster. We have no better friend than the Shah. He is absolutely supportive.” The Secretary noted that Ellsworth’s former staff assistant “did the study and Bob is anti-Iranian. Then the Jews want to stop arms to the Middle East and there is an anti-arms sale binge on the Hill.” (Ford Library, National Security Adviser, Memoranda of Conversations, Box 20)
  5. There is no indication of which option Kissinger approved. However, in his August 6 meeting with the Shah, Kissinger discussed notifying Congress of the F–16 sale. See Document 183.