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

6860. For Secretary from Ambassador. Subj: Amb Zahedi’s Report on His Talk With Secretary. Ref: Tehran 6741, State 175395, Tehran 6159, Tehran 6142, Tehran 6326.2

1. [less than 1 line not declassified] saw Shah August 15 on certain intelligence matters. Shah, who had returned from holiday at Caspian resort Tuesday,3 asked him to give me a message. Text of [less than 1 line not declassified] report to me reads as follows: Begin text:

A. At the beginning of my audience last night, the Shah said he wanted me to take a message to you. I took notes as closely as I could while he was speaking. The Shah’s statement was as follows:

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B. Please tell Ambassador Helms that Ambassador Zahedi has reported that Secretary Kissinger told him that he was encouraged by what the Shah had said about oil to Ambassador Helms and that Kissinger would be taking it up with the Shah when he comes to Tehran.4

C. H.I.M.’s oil policy remains what he told Jamieson and Steel it was. He is sure Ambassador Helms would not have reported it otherwise after their talk about oil since Ambassador Helms knows what the Shah’s policy is and it has not changed.

D. H.I.M. told Jamieson: A) Either we fix a price for oil as we have done and H.I.M. will defend this price in OPEC and will maintain that it will not go up except to compensate for possible future inflation of the prices of things OPEC countries have to buy and provided you do not give a higher return to the Saudis or Kuwaitis; or, B) if the oil companies do give more to the Saudis or Kuwaitis or other Arabs (as a result of 60–40 or 100 percent participation) the Shah will tell OPEC: All right, let’s stop at that price, and any further increase will be pegged to prices of other major commodities and goods.

E. We will defend this in OPEC, but we will not accept Secretary Simons’ principle that you will force prices down. You are talking about taxing the oil companies to take away their windfall profits. Thus, your government would be getting a bigger profit from the price increase. Yet you want us to get less! Why should your government get more and we less? We told Exxon we think 50 cents a barrel profit is enough for the oil companies.

F. If the oil companies give more to the Arabs through things like 100 percent participation and the result is that the Arabs get something like $11 a barrel, then we are going to get it too. We told the same thing to Jamieson and Steel.

G. Your government and Jamieson and Steel now know that the Saudis fooled you. They did not bring down the price of oil. And if they had gone ahead with the auction, the other OPEC members would have countered it.

H. What raised oil prices above the $7 per barrel which I (the Shah) had originally suggested, was the oil companies’ agreements with the Arabs. Iran sells 80 percent of its oil production to the consortium. Under the 60–40 participation the Arabs get 60 percent of their oil [Page 227] which the companies pay more for when they buy it back. We will not accept less than the Arabs get.

I. H.I.M. said he will be reasonable and helpful along the lines he explained to Jamieson and Steel, but he will not respond to pressure. End of text.

2. Comment: Clearly issue here is exactly what Ambassador Zahedi reported to the Shah. ([less than 1 line not declassified], who is not oil expert, would not want his text taken as sophisticated recital of all the Shah had to say on oil prices, but it is close enough to provide backdrop.)

  1. Source: Ford Library, National Security Adviser, Presidential Country Files for Middle East and South Asia, Box 14, Iran—State Department Telegrams, To SECSTATE–NODIS (1). Secret; Priority; Nodis.
  2. In telegram 6741 from Tehran, August 13, Helms congratulated Kissinger for his handling of the oil question during his August 10 meeting with Zahedi, which was “precisely right in setting the stage for a constructive discussion with the Shah in contrast to the negative tone that has been expressed by other would-be spokesmen for the USG.” (Ibid.) Telegram 175395 to Tehran, August 11, reported that Kissinger informed Zahedi that “he did not believe way to get lower oil prices is to concentrate on Iran, but there should be a discussion.” (Ibid., Box 13, Iran—State Department Telegrams, From SECSTATE–NODIS (1)) Telegram 6159 is Document 69. Telegram 6142 is Document 68. For telegram 6326, see footnote 4, Document 69.
  3. August 13.
  4. According to a memorandum of conversation, August 10, Kissinger, responding to Zahedi’s query, said that he did not think Helms had made much progress in his July 23 conversation with the Shah on oil but that “I believe the approach of asking Iran head-on to reduce oil prices is not the way. We need a comprehensive discussion of all factors.” (National Archives, RG 59, Central Foreign Policy Files, P820097–1323) Regarding Helms’s July 23 meeting with the Shah, see Documents 6870.