88. Memorandum From the Deputy Assistant Secretary of Defense for Near Eastern, African, and South Asian Affairs (Noyes) to the Assistant Secretary of Defense for International Security Affairs (Nutter)12

SUBJECT:

  • Financing of Iranian Military Acquisitions

For some time Iran has been pressing us for additional credits to fund the military equipment which it wants to buy. In response to these initiatives, Ex-Im Bank has decided that it would be willing to loan Iran $120 million in FY 71 instead of the $100 million to which the bank had committed itself. Ex-Im is now seeking State and Defense concurrence in a cable informing the GOI of this decision, and State has agreed in principle.

We believe it is unwise, at this time, for the U.S. to offer to increase Iran’s credit for purchases of military equipment for the following reasons:

1.
The requirement for $120 million is based on the GOI acquiring, inter alia, 32 F–4Es, in addition to the 64 already purchased, and 30 C–130s. As you are aware, no U.S. decision has yet been made on the sale of these additional aircraft, which cannot easily be justified in terms of the threat Iran faces. Notifying the GOI of US willingness to loan $120 million would imply the decision has already been made.
2.
It appears that the GOI has made a firm decision to purchase 32 more F–4s but Iran is much less certain that it can afford to buy the additional 41 F–4s included in the recently signed Letter of Intent. We believe there is a strong possibility that if Iran is informed it can have $120 million credit in FY 71, it will assume it can probably get a similar amount annually over the next three or four years. (The history of our dealings with the Shah suggests that this assumption is fair.) The prospect of an additional $20 million per year over tht next three or four years could well be the deciding factor in Iran’s decision to purchase the last 41 F–4s. Since we are not yet convinced that it would be in the best interest of either Iran or the U.S. for Iran [Page 2]to have an 8-squadron F–4 force (128 aircraft), we do not believe that we should do anything to encourage Iran to make a positive decision at this time.

The GOI must convert the F–4 Letter of Intent to a firm contract by 1 December 70 and has already signed, without US approval, the C–130 contract. The US position on those transactions must therefore be established by late October. We are consulting with Systems Analysis and JCS to prepare the DoD recommendatiOn for Secretary Laird and anticipate having this in about two weeks.

Pending the Secretary’s decision on the entire question of F–4s and C–130s, I recommend that ISA non-concur in the Ex-Im proposal to raise the FY 71 credit for Iran to $120 million.

JAMES H. NOYES
Deputy Assistant Secretary
Near Eastern, African and South Asian Affairs

APPROVE [G. Warren Nutter]

DISAPPROVE

  1. Source: Washington National Records Center, OASD Files, ISA Files, Box 19, FRC 330–73A–1975, Iran 000.1–333, 1970, 121 Iran. Secret. Prepared by Peyer. This document was a copy with an indication that Nutter signed the original on October 2. The Export-Import Bank was reacting to Iranian concern that the original agreement only covered $100 million per year for three years, rather than the credit of $100 million per year for four years remaining under the 1968 US-Iran military agreement.
  2. Noyes recommended that the Department of Defense not concur with the Export-Import Bank’s decision to loan Iran $120 million in FY 71 instead of the $100 million to which it had agreed originally.