55. Telegram 1019 From the Embassy in Iran to the Department of State1 2

Subject:

  • Shah’s Views on Procurement Military Equipment

Ref:

  • (A) Tehran 167
  • (B) Tehran 965
  • (C) State 39101
1.
Met with Shah for almost two hours March 18. He was in somber mood and went over and over again reasons why, in his view, we should help him obtain more credit or funds (through oil) for Iran to purchase US military equipment and thus carry out its military build-up which he believes essential if peace and stability in Gulf is to be maintained. Following is summary of talk.
2.
Shah first referred to recent Kurdish-Baghdad accord which he said would improve Iraq Govt’s capacity for mischief in Gulf and, for present at least, strengthen its over-all position. This agreement was reached in good part as result of Moscow's pressure on Baghdad and efforts of Iraqi Communists who had been represented in both delegations that conducted talks. Shah’s hope was that accord would not last but time alone would tell.
3.
He then referred to our Jan 14 talk (ref A) and reviewed what he refers to as Soviet “grand design” for penetrating Arab peninsula and Middle East via Iraq with long-term objective a Communist influenced independent Kurdish state to form contiguous corridor between Soviet and Arab worlds. He saw Soviet influence in Baghdad[Page 2] steadily increasing with Soviets supplying MiGs, 130 mm artillery, tanks and other items of military and economic aid. He referred to Soviet assistance in creation of Iraq naval force in Gulf and port facilities in Basra to service Iraq and Soviet naval vessels. Just as Soviets had penetrated and established major presence in Mediterranean they now (rpt now) working to establish similar type presence in Gulf through Iraq.
4.
He convinced Gulf can only be saved by cooperation of Iran, Saudi Arabia and smaller moderate Gulf states. (He said he told King Faisal when latter felt threatened that Iran’s defensive frontier was on Red Sea just as Arab Gulf states’ was on Caspian.) At same time Iran-Gulf Arab security cooperation is meaningless unless Iran possesses strong and credible deterrent military power. “Who else in the area,” he asked, “can supply a credible military deterrent in the Gulf? Pakistan, Saudi Arabia, the small weak Gulf states? Of course not.”
5.
He then said he had again carefully reviewed his planned military build-up in light of my comments to PM Hoveyda and Alam (ref B) on non-availability of more than $500 million FMS credit over next five years. He did not see where his force plans could be cut back.
(A)
For Air Force, after next two F–4 squadrons received in 1971 he planned four additional F–4 squadrons beginning 1973 to be phased in one each year through 1976. These acquisitions, with what Iran already possessed and with some additional C–130s “essential to give ground forces greater mobility,” would total about fourteen (14) squadrons. Furthermore he would eventually have to replace F–5 squadrons but that was in future. Even then he would have less aircraft than Iraq to say nothing of what Syria, Egypt, and other radical Arabs had, although he believed his American trained and equipped Air Force would be much more effective
(B)
Because of limited resources his ground forces had been cut back on our advice to six divisions to make them more combat effective. They would be permanently maintained[Page 3] with 80 percent cadres with balance to be filled in by reserves and light territorial forces needed to supplement gendarmerie. Six Iran divisions exactly same number as Iraq possessed and was absolute minimum. Furthermore these divisions still needed some costly qualitative improvement through M–47 retrofit (which he “planned to carry out”), additional artillery, and greater mobility including an airborne capability through additional C–130s.
6.
He stressed hostilities in Gulf could come about through (a) weakness of moderate riparian states and/or (b) miscalculation on part of radical Arabs unless there is strong and credible Iran deterrent. He had very recently told Soviet Ambassador that Iran had no rpt no intention of attacking Iraq but that if Iraq created trouble in Gulf Iran “would punish Iraq very badly.” It was all very well to talk this way, he said, but Soviets as well as Iraq must see that this threat of retaliation was credible and could be carried out. This would be a major deterrent to radical aggression or massive subversion against moderate Gulf states.
7.
In sum, he did not see where it was possible to materially cut back his forces if peace and stability in Gulf are to be maintained after British pull-out. This why he needed to either (a) obtain $800 million in credit from US over next five years (FY 1970–74) or (b) be able to sell more oil in US which would enable him to pay for equipment with oil money using 100 percent of proceeds of additional sales to US for purchase of American equipment as he had promised to do.
8.
In reply, I took same line with Shah as with Alam (reftel B) explaining very serious difficulties we faced, why I could give no encouragement more than $100 million FMS or other credit would be available annually, and why it seemed very important to establish priorities of equipment acquisition within realistic calculation of available resources and credit taking into account available trained manpower and Iran’s absorptive capacity.[Page 4] I also mentioned I had heard privately that large US banks were keeping close eye on Iran’s foreign debt servicing ratio in light of recent report on it by IMF which indicated ratio climbing rather sharply.[Page 5]
9.
Shah reacted at length and with considerable emotion reviewing again threat to Gulf and Iran’s vital interests; fact Iran is defending vital interests of US, NATO, Japan and free world in Gulf; special offer he had made US to tie additional oil revenues from US to purchase of US equipment; unhelpful attitude of consortium members; fact that if we would not help him he would be forced to turn elsewhere. He said he hears France is offering Greece 15 year credits at three percent interest for purchase of Mirages; UK prepared to offer substantially lower rates than our shockingly high FMS credit offer which Samii indicated would total about 9 percent; and Soviets are offering two and half percent interest over long term. Why could not we offer credit on terms like our NATO Allies and Soviet Union? He concluded with statement he could not understand why we did not what to help him implement Nixon Doctrine in Gulf area where our and our allies’ interests were also threatened. Only course open to him was to reappraise his plan for acquisition of US equipment in light of fact we would not extend additional credit and fit what he could into $100 tranches for next five years turning elsewhere for remainder. For US it was matter of credit or permission to sell oil in US: for him it was Iran’s security and survival.
10.
I said with all due respect him mistaken to believe we did not “want” to help him. I reviewed in detail “very [Page 6]special consideration” we had shown Iran precisely because we did want to do all we possibly could to help him (i.e. pilot training, blue suiters, FMS credit; maintaining in Iran one of largest MAAG missions in world; favored Ex-Im Bank treatment; etc.). However I thought our friends should recognize we were bearing unbelievably heavy burdens, had desperately difficult financial and B/P problems, and we just did not have resources to solve all problems of rest of world brought to our doorstep. Insofar as Iran having to turn elsewhere, he must of course do what he thought best and we would respect his decision. However, if he turned substantially towards Soviets for equipment, I wanted to say on purely personal basis resulting from my first-hand experience in congressional relations, that such a development seemed bound to stimulate intensive congressional examination during consideration of future FMS credit legislation. This was in no rpt no sense a warning but simply a statement of obvious.
11.
Shah said he did not want us to think he was ungrateful for what we had done for this was not case. However what we had done originated largely in previous administration: As result of his Washington visit last year he had thought we were prepared to help him on oil problem which would solve his very difficult financial situation. He felt we hadn’t rpt not really done much new for him although we had continued programs of previous administration and he was grateful for that. I said with smile his latter comment reminded me of a family story my father-in-law used to tell about a constituent whom he had helped in many ways over thirty years. In an important election Sen. Barkley said to this constituent he assumed latter would vote for him. When constituent said he not certain Barkley recounted at length all he had done for him and his family over 30 years to which constituent replied, “Yes, but what have you done for me lately?”
12.
Shah laughed, seemed to relax and then became serious again saying he appreciated we were trying to help him but we must understand it was future of his country and his people that was at stake. He still trusted most earnestly President would find way to help him with some special [Page 7] oil arrangement and that we would also do something to ease very onerous FMS credit terms discussed recently with Samii as to interest rates and ratio of USG to private credit. A special arrangement on oil would do more than anything to solve problem of financing purchase of US military equipment, with which he wished to equip his forces, and would also enable him to continue his program of economic and social progress for his people. At same time it would benefit US industry (he mentioned DOD obliged to bail out Lockheed); substantially help difficult US balance of payments situation; and service our own vital strategic interests in Gulf and Middle East. I replied I could not honestly hold out much hope on a breakthrough on oil in near future but that I knew we would do our best on FMS credit, although I obviously could give no assurances till legislation enacted and we knew what we had to work with.
13.
Comment:
(A)
Although Shah was serious and at times emotional re our inability to help him more with things he feels are essential for Iran and free world interests in Gulf, he was friendly and, as we talked it out, appreciative of all we are doing and seemed more understanding about our problems. From what he said I think he will take a hard new look at his military acquisition problem realizing we are not going to be able to do better on FMS credit. This, I believe, is most important outcome of talks with him, Alam and PM Hoveyda.
(B)
If he can possibly avoid it he does not want to acquire equipment piecemeal from variety of sources because he fully appreciates logistic, training and other complications that will result. On other hand, he clearly feels that his present force and equipment projections are indispensible minimum to assure security of his country and its life-line, the Gulf. While I believe he may cut back a bit or postpone acquisition of some items of US equipment presently in his five-year shopping list, believe he will probably turn to West European sources for at least some items he had planned to buy from US.[Page 8]
(C)
Also believe he will continue acquire from Soviets non-sensitive items such as vehicles and probably some artillery (130mm) on barter basis to conserve his foreign exchange, but I do not believe he will turn to them for sophisticated equipment for he knows dangers and recognizes, as he said to me, that “Russian imperialist ambitions in the Persian Gulf have not changed one bit over the years.”
(D)
Despite my pouring cold water on prospect of oil breakthrough, he is still “counting on President” to do something.
MacArthur
  1. Source: National Archives, RG 59, Central Files 1970–73, DEF 12–5 IRAN. Secret; Priority; Exdis.
  2. Ambassador MacArthur summarized his recent audience with the Shah in which the latter reiterated his arguments for more U.S. credit to purchase military equipment.