167. Memorandum From Acting Secretary of State Rush to President Nixon1

    • Shah of Iran and Oil Consortium Reach Agreement

Meetings in St. Moritz last week between the Shah and a negotiating team from the consortium of international oil companies in Iran produced agreement in principle on the general terms of a new long-term contractual relationship. The main points of this agreement, which will replace the 1954 agreement but retain many of its provisions, are as follows:

  • —The Iranians will be owners and operators of assets and activities in the oil concession area. They will contract to sell oil to the consortium for a twenty year period beginning March 21, 1973.
  • —The consortium will form an Iranian-chartered company to produce, process, and transport Iranian oil under a service contract with the National Iranian Oil Company (NIOC). The programs and budget of this company will be subject to NIOC approval.
  • —The companies will purchase oil at the wellhead, on a cost plus fee basis designed to give Iran the financial equivalent of the participation agreement recently signed with Arab producers of the Persian Gulf.
  • NIOC will be responsible for securing necessary investment funds, but the consortium will have the option to provide these funds as advance payment on oil purchases.
  • NIOC will receive oil to market directly increasing from 200,000 barrels per day this year to 1.5 million barrels a day in 1981.

At first blush both sides seem to have achieved their principal objectives under the new settlement. The companies retain assured access to Iranian offtake, management initiative if not control, and investment [Page 422] rights in an overall formula which lends hope that participation agreements with Arab oil producers will not have to be renegotiated as a result of the Iranian agreement as the companies have feared. For his part, the Shah has achieved increased revenue and management control and direct access to oil in a format which ends the concessionary agreement of 1954 in favor of a sales contract such as he publicly had insisted upon. The Shah’s overriding political objectives have been met. He can now proclaim that Iran is again second to none in protecting its sovereign interests and attaining its national aspirations.

Some difficult issues, such as the means and timing of periodic price renegotiations, appear to remain unresolved. Nevertheless, with the outlines of the new arrangement agreed to, prospects for a fully satisfactory settlement are promising. The need for USG intervention seems to have passed.

Kenneth Rush
  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 602, Country Files, Middle East, Iran, Vol. IV, 1 Sept 71–Apr 73. Confidential.