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

6506. Subject: Views of Shah on Oil and Other Prices. Ref: (A) Tehran 62/79, (B) Tehran 6462.2

1. At end of audience granted to introduce General Duval Brett, new Chief of ARMISH/MAAG, Shah referred to increased crude oil prices in Indonesia, Nigeria and Venezuela. He commented, “Granted that much of this oil is of low sulphur content, it would not make sense for us to ask less for our oil than they are getting for theirs.” The Shah then switched to a discussion of commodity and other price rises stating, “It is fantastic how prices of food and other items have risen in the United States. Some are up 3 and 4 hundred percent. Where is all this going to bring us? As oil prices go up, it will cause even further increases in the price of goods and commodities which we must import. I never anticipated that the increases would come so fast or be so large. If you and the Europeans do not get together and do something about these spiralling prices, I cannot see how serious trouble for the Western economy can be avoided.” At this point I moved in to emphasize favorable crop reports from the United States which would have some effect on existing food prices. I also pointed out that the United States had this year planted 55 million additional acres of food which in ten months to a year would inevitably have an effect not only on availability but also on prices. From the expression on his face it was clear that the Shah had not appreciated the significant dimension of this U.S. agricultural move.

2. As indicated in reftel (B), the Shah is not only deeply concerned but also torn over how to proceed in the economic field. He said that he intended to keep down the price of domestic wheat since he had found it difficult to reduce prices once they had been raised, and he emphasized the problems he has with prices and shortages on such items as sugar, vegetable oil, fertilizer, and particularly cement. It is interesting [Page 142] to note that his preoccupation with the economy has suddenly come into focus within the last two weeks since he made no mention of these matters when I had an hour’s talk with him on August 28.

3. The Shah said nothing to indicate that the prognoses about oil prices in reftels (A) and (B) are inaccurate.

4. Comment: There have been many indications from GOI Ministries of growing concern over the effects of world inflationary pressures on Iran’s own price stability.3 The Shah has long been proud of GOI extraordinary record in this regard. However, it is becoming more and more expensive for Iran to continue to subsidize wheat, meat, sugar, vegetable oil and other sales to the public. Failure to do so now would cause serious and perhaps active dissatisfaction.4 These concerns have obviously found their way to the Shah in concentrated form. He appears to be seeking, so far without success, to find a rational way to approach these multiple problems. It seems clear that he is torn on the one hand by the need to keep his international image as a leader in petroleum affairs intact and on the other by a growing realization of the direct effects of international price increases on Iran’s own economic development.5

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 603, Country Files—Middle East, Iran, Vol. V, May 1973–December 1973. Secret; Exdis.
  2. The reference to 62/79 is an obvious error. Telegram 6462 from Tehran, September 12, described an article in the officially-inspired Iranian press, which argued that policymakers in Iran wanted the industrial nations to adopt zero growth policies and to receive a moderate shock from OPEC’s meeting on oil prices, which was scheduled for September 15–16. (Ibid., RG 59, Central Foreign Policy Files, [no film number])
  3. In airgram A–166 from Tehran, November 17, the Embassy observed that Iranian inflation was seriously affecting the poor, who found various essential food items either unavailable or too costly, and that the recent strike in Abadan (see footnote 4 below) showed the importance of quick action. “As it has in the past, the government has taken notice of the complaints but GOI actions, made doubly difficult by inefficiency and corruption, have been largely cosmetic and have sometimes tended to worsen the situation.” The Embassy concluded that the most important domestic reasons for the inflation were an increased money supply, too few goods, booming economic growth, and large budgetary deficits caused by high military expenditures. (National Archives, RG 59, Central Files 1970–73, E 8–1 IRAN)
  4. Telegrams 6747 and 6796 from Tehran, September 22 and 24, reported on the strikes at the Abadan and Bandar Mahshahr oil refineries, where, to offset recent price hikes, workers demanded new ration cards for the company store and a 20 percent salary increase. (Ibid., Central Foreign Policy Files, [no film numbers]) In telegram 6822, September 25, the Embassy noted that the government was refusing to give in to workers’ demands and that refinery officials were blaming Iraqis for orchestrating the strike. (Ibid.) According to telegram 6900 from Tehran, September 27, the strike had ended due to management’s threats of violence, but that future disturbances were likely. (Ibid.)
  5. According to telegram 7127 from Tehran, October 8, the Shah’s opening speech to Parliament included a pledge to cut back on imports and increase domestic production, while promising a salary increase for government workers by 1978, ongoing government subsidies for staples, and committees to combat profiteering. This speech, the Embassy wrote, “emphasizes ineffectiveness to date of government control programs. Imperial proposals for solution show no intention to abandon past policy of favoring industrialists and industry-related imports. However, proposals do seem to presage belt-tightening for consumers in some sectors.” (Ibid.)