Foreign Relations of the United States, 1969–1976, Volume XXXVI, Energy Crisis, 1969–1974

157. Memorandum From Harold H. Saunders of the National Security Council Staff to the President’s Assistant for National Security Affairs (Kissinger)¹

Washington, January 30, 1973.

• SUBJECT
  • Meeting with Flanigan on Iran Oil

I understand Peter Flanigan will be pressing to see you about the Iran oil problem. This memo gives you the background and describes Flanigan’s meeting with Ken Jamieson Monday,² which provided the impetus for Flanigan’s move.

The Situation

On January 23, the Shah publicly announced³ that the consortium of oil companies operating in Iran face two choices:

• —They can continue their activities under present arrangements until the expiration of the consortium agreement in 1979, provided they raise production to 8 million barrels per day and that the income per barrel is no lower than that received by other Persian Gulf producers. In this option, the companies would enjoy no special privileges after 1979.
• —They can negotiate a new agreement under which they would turn over all assets and responsibilities to the National Iranian Oil Company, in return for which they would receive long-term purchasing contracts that would insure a supply of oil on favorable terms. Discounted prices for oil might be the means by which Iran would compensate the companies for their assets, or this could be done by a cash settlement. The Shah, however, said nothing about the terms of compensation.

The companies feel that both alternatives could be confiscatory, but the broader concern in the USG is that the second option of immediate nationalization would reopen for consideration the recently concluded participation agreements with Saudi Arabia and Kuwait.

The Issues

Ken Jamieson, Chairman of Jersey Standard and negotiator with the Shah for the consortium members, was in town to see Peter Flanigan and Secretary Rogers Monday. His main points on Iran were that the companies have not decided on a course yet; they do not find either of the Shah’s proposals acceptable; if they had to accept one of them they would probably choose a special deal now, although that is far from certain. Flanigan told him to work out his position and come back; we would see what can be done to support it. Secretary Rogers is much less inclined to have the USG involve itself, despite the fact that most experts agree now that the companies no longer have the leverage to work out arrangements necessary to preserve stable supply at reasonable prices.

Flanigan’s main point, therefore, will be that we must quickly develop a relatively hard position to take with the Shah. Exactly what that position should be will be difficult to determine precisely until the companies decide what course they will take.

Flanigan will make another point—this one on Iraq. Jamieson said the companies are inclined to accept a sales-contract arrangement with Iraq. Flanigan makes the reasonable point that we cannot be expected to make a strong case with the Shah against such an arrangement—if that turned out to be our position—if the companies are going to give on this point in Iraq, which is much less friendly. Our roles in the two countries are quite different, however, and you might press Flanigan to clarify this point. It is not clear to me just what his point is.

At this stage, discussion will be preliminary. The next step is to see what a USG position would look like.

Flanigan may mention how much we are doing for Iran. He is working from something like the following figures:

• —Iran has placed orders for US military and other equipment worth $2.9 billion.
• —Our Export-Import Bank has now outstanding $927 million in credits for Iran. ($216 million of this has been extended since September.)
• —Additional transactions are in prospect that would raise the Ex-Im to $1.1 billion.
• —Beyond the above, Mr. Kearns has indicated that Ex-Im is prepared to extend a further $500 million in credit over the next year, half loan and half guaranteed private credit.
• —The US Ambassador is under instructions to present to the Shah this week a proposal for some 900 technicians (500 military, 400 civilians) to work with the Iranian forces in integrating new military equipment. These are in addition to 42 such technicians already in Iran. (These are the technicians the President promised last May.)

A memo from Acting Secretary Irwin on this subject is attached.⁴ The President is aware of the situation, so it would seem logical not to bother him further until the next recommendation is ready for his consideration.

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Kissinger Office Files, Box 137, Country Files, Middle East, Iran–Oil. Confidential. Sent for information. An attached handwritten note from Scowcroft to Kissinger reads: “Flanigan wants to know if you will meet with Shultz, Ehrlichman and him tomorrow (Jan 31) to discuss the Iranian oil situation.” Kissinger checked the OK line, then wrote, “If I must. HK.” The meeting took place February 6. Kissinger did not attend. See Document 161.
2. No record of Jamieson’s meeting with Flanigan was found. However, during a meeting with Rogers on Monday, January 29, Jamieson asked for U.S. diplomatic intervention with Iran. He called the Iranian alternatives “unacceptable,” noting that the “problem was how to get Shah back to negotiating table without getting hurt in cross-fire between Saudi Arabia and Iran.” He added that there had been no real negotiations with the Shah after the participation deal and the Shah was “burned up” at Yamani. Rogers told Jamieson that the United States wanted to stay out of the negotiations themselves but would urge the Shah to negotiate seriously if he was unresponsive to the company offer. Jamieson accepted this proposal. (Telegram 19185 to Tehran, January 31; ibid., RG 59, Central Files 1970–73, PET 6 SAUD)
3. The Shah’s speech is summarized in telegram 427 from Tehran, January 23. (Ibid., PET 6 IRAN)
4. January 26; attached but not printed.