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

7611. Refs: (A) Tehran 6142; (B) Tehran 6326; (C) Tehran 6860; (D) Tehran 7361; (E) Jidda 5138; (F) Tehran 7511.2 Subj: Shah on Crude Oil Prices.

[Page 237]

1. In extended remarks about crude oil prices at audience on September 10, the Shah indicated that Iran’s approach at the upcoming OPEC meeting will be to press for a single price on crude oil attached to some yet-to-be determined index to compensate for “inflation and deflation.”3 The Shah is also going to push for a one and one-half percent rise in royalties which will make for an increase of about ten cents a barrel. He points out that this move is designed to cut into oil company profits, not to raise the price as such per barrel of oil. (Royalties are divided 50–50 between the companies and the country involved.) Simultaneously the Shah will ask the other members of OPEC to bring royalties world-wide in line with those which Venezuela now charges. To summarize, the Shah through Minister Amouzegar will go at the OPEC session for a one-price system hitched to inflation and deflation plus a new royalties approach designed to reduce oil company profits and stabilize the overall royalty procedures.4

2. In discussing crude oil pricing, it was clear that the Shah has his dander up about being accused of leading the rise in crude oil prices. He pointed out that he is currently playing a distinctly moderating role. He said that it is public knowledge that Venezuela, Algeria and others want an increase in process [prices] at the September 12 OPEC meeting, citing specifically Venezuela’s demand for a price upping of fourteen percent. (At this juncture the Shah expostulated “Venezuela is in the vanguard of countries charging high prices for oil, yet I have never seen a single word of criticism about Venezuela in any American newspaper despite the fact that your country imports much oil from there.”) The Shah went on to comment that he does not want to see an additional rise in oil prices but that he does feel it absolutely essential that he be able to protect his purchasing power. In the event of “deflation,” he is prepared to see the oil price go down. At this point he stated that the GOI is now paying $840 a ton for sugar, $225 a ton for wheat, $1,060 for vegetable oil, all imports of Iran. He indicated that in one year’s time the price charged by the USG for the jeep used to haul the TOW missile has gone up one-hundred percent. “The inflation in your country is not caused essentially by oil prices. They contribute only one and one-half [Page 238]percent to your inflation. The remainder is due to other factors, the prices of other commodities, and your system of doing business,” the Shah commented. “If you want to bring the price of oil down, why don’t you reduce ‘the monstrous profits of the oil companies’? Also, why don’t you and particularly the Western European countries take the domestic taxes off oil and its derivatives? That would be doing something to reduce the price rather than asking us to give up what is our rightful due. The day has passed when the big industrial countries can get away with political and economic pressure tactics. I have no idea what the meeting of Western Finance Ministers in Paris last weekend was cooking up, but I want you to know that the Shah will not yield to foreign pressure on oil prices.”5

3. It was clear that the Shah does not buy the contention that current oil prices are going to bankrupt the industrialized world. He points out, also, that the LDC’s which the United States seems so concerned about are obliged to pay the same high prices for American wheat, other agricultural commodities, and manufactured goods which Iran does.

4. Referring to his meeting with Prince Saud on September 2,6 the Shah indicated that he went over with him in great detail the various points made in reftels, plus a step-by-step explanation of what will happen to oil prices if Saudi Arabia insists on 100 percent participation in Aramco at current buy-back rates. The Shah promoted as wisest for Saudi Arabia an arrangement with Aramco similar to the one Iran made with the consortium. As a result of this presentation, it is the Shah’s impression that Prince Saud is beginning to understand the viewpoint of other members in OPEC. He claims that Prince Saud assured the Algerians that Saudi Arabia would not try to lower oil prices. This information, he intimated, was conveyed to him on September 9 when he was visited by Algerian Minister of Industry and Energy, Belaid Abdessalem, who was pushing the Shah for a price increase at the OPEC meeting. (In order that there be no ambiguity, the Shah is not entirely clear as to exactly how Prince Saud reacted to his presentation and to his arguments.)

Helms
  1. Source: National Archives, RG 59, Central Foreign Policy Files, D740251–0731. Secret; Priority; Exdis. Repeated to Jidda, Abu Dhabi, Brussels, Caracas, Dhahran, Jakarta, Kuwait, London, USOECD Paris, Tokyo, Tripoli, Vienna, and Algiers.
  2. Tehran 6142 is Document 68. Tehran 6860 is Document 73. For telegram 6326, see footnote 4, Document 69. For telegram 7361, see footnote 5 below. In telegram 5138 from Jidda, September 5, the Embassy explained Algerian President Boumediene’s involvement in composing Saudi and Iranian differences on the question of oil prices. (National Archives, RG 59, Central Foreign Policy Files, D740246–0010) Telegram 7511 from Tehran, September 8, described the meeting that the Shah set up between a visiting U.S. Congressional delegation and Iran’s leading oil expert and Iran’s representative to OPEC, Amouzegar. (Ibid., D740249–0789)
  3. The Embassy commented on the “single-price” proposal in telegram 8767 from Tehran, October 16: “Single-price idea seems to us preferable to existing chaos in pricing arrangements, but proposed level is very high. We feel consumer/producer talks must be held before this idea catches on and hardens at so high a level.” The Embassy noted that the proposed level would bring Iran additional revenue of $2.2 billion. (Ibid., D740294–0844)
  4. At the OPEC meeting held in Vienna September 12–13, the members rejected a price increase but agreed to a tax increase of almost 5 percent on oil exports by foreign-owned companies, effectively raising the price of oil. Amouzegar stated that the tax increase would offset the rise in prices caused by inflation in the industrialized world. Saudi Arabia refused to apply the tax increase. (The New York Times, September 14, 1974)
  5. Finance Ministers and central bank governors of the United States, United Kingdom, France, Germany, Japan, and Italy met near Paris the weekend of September 7–8. According to The New York Times, one of the topics of discussion was the coordination of policies to “recycle” petrodollars through investment in Western economies. (September 8, 1974, p. 53)
  6. Telegram 7361 from Tehran, September 2, reported that Prince Saud was visiting Tehran to reassure the Shah that Saudi Arabia would not proceed with its plan to auction its oil in order to bring down prices, but would maintain solidarity with its OPEC partners. (National Archives, RG 59, Central Foreign Policy Files, D740243–0008)