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5. Memorandum From Acting Secretary of State Irwin to President Nixon1

SUBJECT

  • Iran’s Negotiations with the Oil Companies: Where we Stand

The Shah’s speech of January 23 announcing the two options for settlement he had presented to the oil companies2 reduces his negotiating flexibility. It does not yet amount to a unilaterally imposed result. The announcement reflects the importance the Shah attaches to a uniquely Iranian solution at least as favorable and nationalistic as other recent oil arrangements.3 It has connected the Shah’s prestige with settlement along the lines of his options and he can no longer be expected to retreat from them entirely.

Nonetheless, we believe that reasonable prospects for a negotiated settlement remain. Substantial room for adjustment appears to exist within the frame and spirit of the options which could accommodate essential company interests while meeting the Shah’s needs. Negotiation around his terms has not yet taken place.

The companies are now studying the Shah’s proposals, and we understand their chief executives will meet on January 29 to agree on a joint position. They undoubtedly will let us know their position as soon as framed and almost certainly will renew their request for USG support.4

We have been keeping in touch with company officials. Our studies indicate the companies’ legal position is not iron clad. The present Iranian agreement is quite unusual. Title to all oil and oper[Page 26]ating facilities is vested in Iran, and the companies’ rights are essentially limited to contract expectations. The Shah has also raised questions of company failures to perform properly. The companies are anxious to reach a negotiated settlement and appear to recognize that reasonable concessions or a new approach may be in order. We have reason to hope that their response can bring the parties back to earnest negotiations.

I see no value in taking additional action vis-à-vis the Government of Iran before the companies have reached an agreed position. The Shah is not now planning new action but is waiting to hear from the companies. They plan to respond to him before February 15. When we consider next steps we will bear in mind the important interests we want to serve:

—That the property and contract rights of the American companies in Iran are respected in accordance with international law and our bilateral agreements.

—That the Iranian settlement disturbs the oil industry and other country agreements as little as possible.

—That our political, economic and security relations with Iran are not impaired.

—That our actions are in concert with those of Great Britain which is equally affected.

We will present specific recommendations for action as soon as we have had a chance to study the companies’ position, which will be available next week. While we should move ahead promptly, time is not yet a crucial factor.

The Iranian Foreign Minister came in to see me yesterday as a courtesy. We discussed the oil situation and I took the opportunity to stress our concern with respect to the long-range oil picture in the Middle East and the need in both our countries for stability of oil supply.

John N. Irwin II
  1. Source: National Archives, RG 59, Central Files 1970–73, PET 6 IRAN. Secret. Drafted by Rouse and cleared by Miklos, Sisco, and Armstrong and in L/NEA and EB/ORF/FSE.
  2. In telegram 427 from Tehran, January 23, the Embassy reported that the Shah had announced the oil companies’ options to the Iranian Congress of Free Men and Women. According to the Shah, the consortium could either continue operations under the current contract terms until 1979, after which the oil companies would lose preferential access, or return all responsibility for consortium oil operations to NIOC and receive long-term contracts at favorable prices. (Ibid., RG 59, Central Files 1970–73, PET 6 IRAN)
  3. In telegram 546 from Tehran, January 29, the Embassy noted that the “Shah’s motives for his new position appear to be based on his misconception that companies capitulated to Yamani thus enhancing his image to point of danger to Shah’s oil leadership position plus feeling that participation so established as Arab in world opinion that any form partnership with companies would appear to be following Arab lead.” (Ibid.)
  4. Exxon Chairman L. Kenneth Jamieson met with Rogers on January 29 and asked for U.S. diplomatic intervention with Iran. See Foreign Relations, 1969–1976, volume XXXVI, Energy Crisis, 1969–1974, Document 157, footnote 2.