29. Executive Summary of a Study Prepared by the Interdepartmental Political-Military Group1

NSSM 238: US Policy Toward the Persian Gulf

I. Introduction: Purpose and Scope of Study

In examining US political and strategic goals in the Persian Gulf area and identifying near and medium (ten-year) term policy alternatives, the NSSM 238 response:

—concentrates substantially on politico-military security aspects of policy goals, although treating briefly other aspects such as economic policy. Energy policy questions are addressed in depth in NSSM 237;

—considers these security factors, however, in a framework of overall US interests in the area;

—incorporates suggestions made in various other studies, inspection reports, etc., regarding possible operational improvements in the conduct of present policy; and

—presents a range of broad policy options and sub-options on specific issues, for promoting US interests and achieving US objectives in the area.

This Executive Summary of the NSSM 238 response provides the historical and strategic framework for our present Persian Gulf policy, notes those issues and problems which are likely to be of particular importance to the United States over the next decade, and examines three security-related questions on which urgent policy focus will be required.

This revised Summary also takes into account major developments which have occurred since completion of the study response and formal agency comments on the draft Summary.

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II. Background and Current Policy Considerations

Background

US policy toward the states in the Persian Gulf since World War II has been predicated on three major premises:

—the vital relationship of the region’s energy resources and financial policies to the economies of the US, its European allies, Japan, and developing countries;

—the geopolitical importance of the region, particularly for our Middle East and Soviet policies; and

—the common US-Saudi-Iranian interest in limiting Soviet influence and resisting other radical influences in the area.

During the Cold War period, the US gave a high priority to relations with Iran and Saudi Arabia out of concern that their vast oil reserves not fall under Soviet control and out of a desire to use strategic locations in these countries for military and intelligence purposes. The strong anti-Communist and anti-Soviet views of these countries’ leaders inclined them to close association with us and our interests. Both countries, especially Iran, enjoyed the benefit of our security umbrella and support against Soviet pressures. During this period we viewed the paramount British security role as adequate to guard US and Western interests in the Gulf shaikhdoms.

The British military withdrawal from the Gulf in 1971, coupled with the rapidly increasing importance of Gulf oil to the West, prompted a review of our policy options. NSSM 66 (1970) and the derivative NSDMs 92 (1970) and 186 (1972) on Persian Gulf security problems reconfirmed—and events surrounding the 1973 Arab-Israeli War proved—the great importance of the Persian Gulf to US interests. We concluded that our interests would best be served by (1) encouraging Saudi-Iranian cooperation; (2) developing a special military supply relationship with those two countries, while restraining arms supply to the smaller regional states; (3) not reducing the US naval presence in the Gulf, subject to review if it proved to be politically unacceptable to US friends in the region; and (4) tacitly supporting regionally initiated security arrangements, with the small states looking to larger neighbors for their security. Implicit in this policy direction was a determination that we should encourage regional powers to assume responsibility for maintaining regional as well as their own security. Our premise has been that Iran and Saudi Arabia have the potential to fill this role in a manner compatible with US interests. On this basis we have supported what has become a major effort to assist them in developing their defense capabilities, recognizing that even in the case of Iran this capability is primarily regional and can have only a dissuasive, delaying effect vis-à-vis the USSR.

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Current Situation

Since the end of 1973, two interrelated factors have greatly increased the importance of the Persian Gulf to the United States and the world as a whole:

—The increasing need of the Free World for Middle East oil, with the potential strains on traditional alliances which this has produced; and

—The economic impact of the quadrupling of OPEC oil prices, including both domestic and international effects.

The major oil states of the Gulf currently account for over 70 percent of total OPEC productive capacity and almost 50 percent of total Free World capacity. They have almost 60 percent of the world’s crude oil reserves and over a third of the natural gas reserves. They now provide about 25 percent of United States imports and 10 percent of consumption, 65 percent of Western European imports and 61 percent of consumption, and almost 75 percent of Japanese imports and consumption. The percentage for the US will continue to increase. The Gulf states’ oil revenues were $72 billion in 1975. Although they spent about $35 billion for imports from the United States, Western Europe, and Japan, and disbursed $4 billion in concessional assistance, reserves stood at $53 billion at year’s end. (Saudi Arabia holds approximately half these reserves, virtually all of which are deposited in Western Europe and the United States.) Reserves continued to grow in 1976 as revenues and imports increased and foreign assistance declined.

The recession which has affected the global economy over the past two years has been significantly deepened and broadened by the inflation caused by higher oil prices. Economic recovery and stable growth, particularly for certain Western European and most developing countries, will continue to depend on effective recycling of foreign exchange from the key Gulf states (Saudi Arabia, Iran, Kuwait, UAE, eventually Iraq) and on the willingness of these states to moderate oil price increases while maintaining adequate production.

Iran and Saudi Arabia have used their greatly increased economic power to expand their political influence in the Middle East and to play a more active role on the world political and economic scene, as well as to undertake massive economic and military modernization programs at home.

The increased importance of the Persian Gulf is evident to states outside the area. The Western Europeans and Japanese appear prepared to pay a relatively high political price if necessary to obtain assured supplies of oil, and are actively attempting to expand their markets for military and industrial equipment as well as consumption items. The USSR and its allies have also sought—with less success—to main[Page 145]tain good relations with Iran and to expand their influence beyond existing political, economic, and military supply beachheads in Iraq, Syria and South Yemen, and they await an opportunity to exploit any radical change in Iran or the moderate Gulf Arab states.

In response to this new situation, primary US policy objectives toward the area (particularly Saudi Arabia and Iran) have evolved gradually over the last two years, supplementing the essentially security-oriented policy guidelines of NSDMs 92 and 186. Current policy objectives include:

—Maintaining access to oil supplies at manageable prices and in sufficient quantities to meet our needs and those of our allies;

—Obtaining the support of Saudi Arabia and Iran for US policy on such key political issues as Arab-Israeli negotiations, South Asian stability, the resolution of major African problems, and on international economic issues;

—Maintaining a vigorous and increasing level of exports to and investment from the Gulf states;

—Satisfying US requirements for military communications and intelligence facilities, landing and overflight rights, and port facilities in the region and ensuring unobstructed sea lanes for movement of vital resources; and

—Denying the USSR a predominant role in the Gulf-Northwest Indian Ocean region.

In the main, we have been successful in realizing these objectives. The political orientation of the region has remained moderate and pro-West. Bilateral relations with the US have become closer. Iran and Saudi Arabia have moved effectively, although not always with the speed or manner we would have chosen, to support the smaller states and help them establish and maintain political stability since the British withdrawal. With Iranian assistance, Oman has withstood a radical rebellion fomented by South Yemen and supported by Iraq, Libya, the USSR and Cuba. North Yemen has shifted its political orientation toward Saudi Arabia and the West, away from Iraq and the Soviet Bloc, thanks in part to an agreement with Saudi Arabia and the US on the supply of military equipment and training. The Saudis have also had limited success in moderating South Yemen’s foreign policy, though the radical coloration of the government remains roughly the same.

The major Gulf states have also been supportive of US political interests outside the Gulf area and their influence and wealth have contributed significantly to our Arab-Israel peacemaking effort. Iran has also contributed to stability in South Asia by balancing its support for Pakistan with economic assistance to India and Afghanistan. Iran maintained its flow of oil to the West (and Israel) despite the 1973–74 Arab embargo and continues to oppose the idea of an embargo (even [Page 146]though it strongly advocates higher prices). Since the 1973–74 embargo Saudi Arabia has been particularly instrumental in maintaining adequate supplies of petroleum products to the West and, in the past year, in resisting additional increases in price favored by other OPEC nations. The nations of the area have acted in a generally responsible manner in their handling of petro-dollar investments in the West and in increasing assistance bilaterally and multilaterally to developing nations, although on a highly selective basis. They have also shown a degree of preference for US goods and services despite increased competition, although certain US actions against the Arab boycott of Israel could have an adverse impact on the ability of US firms to compete for business in Saudi Arabia and other Arab states.

Both Saudi Arabia and Iran have deliberately chosen to link their extensive security development programs to the United States. They have come to rely on the United States not only for the provision of weapons systems and modern military technology but also for professional advice in shaping their security forces and for training of their military personnel. This reliance on US cooperation and assistance extends to nearly every aspect of their military development and is likely to increase rather than decrease over the next decade as they face the problems of integrating new systems and new technology into their force structure and as the bulk of goods and services which these nations have purchased from the United States through the Foreign Military Sales program is delivered. This very close association ensures that the United States will have considerable influence on the structuring of the military forces of these states, the development of their military doctrine, the skills and basic attitudes of their military personnel, the evolution of internal security, and to some degree the general orientation and direction of national military strategy. Although there are definite limits to our general influence and specific policy leverage, the dependence of these states on US cooperation and assistance in the security field clearly constitutes an impetus for the military establishments, and to a lesser degree, the governments of these countries to act in a manner generally consistent with US interests. As such, our security relationship represents a policy asset of significant importance, which is not currently available to any other external power.

Prospective Problems

Nonetheless, it is evident that the accelerated pace of change in the Persian Gulf region, particularly over the last two years, requires a fresh look at US policy. A number of problems have emerged, in some cases due directly to the very magnitude and intimacy of our security relationship with the larger states of the area, and economic and political trends which were hardly visible in the early 1970’s have [Page 147]become much more clearly defined in the wake of the events of 1973. The spectacular rise of oil prices and the consequent accumulation of revenues have permitted the Gulf states to undertake massive economic and military modernization programs. These programs have brought with them increasing domestic strains and have created problems in bilateral relations with the US while heightening national ambitions. Incipient movement toward regional political cooperation remains troubled by subsurface rivalries and mutual suspicions, and effective formal regional cooperation remains elusive. The traditional fabric of Gulf societies has come under heavy strain as a result of the massive influx of foreign technology, foreign technicians and workers, and the rapid growth of personal wealth and urbanization among the populations of these states. The increasing involvement in inter-Arab affairs and Middle East diplomacy of Saudi Arabia (and Kuwait and the UAE to a lesser degree), and the active involvement of Iran in the Middle East, South Asia and the Indian Ocean could open the Persian Gulf increasingly to the issues and rivalries of these areas. Of immediate importance for the United States is the strong interest of Saudi Arabia in maintaining momentum toward a solution of the Arab-Israel dispute. The Saudis have indicated that progress on this issue will be an important element in the evolution of their relations with the US.

Iraq’s ideological radicalism continues to pose a political threat to the rest of the region despite its growing economic pragmatism and the suspension of its active dispute with Iran. Although not explosive, the relationship among the Lower Gulf states is uneasy in that the traditional rivalries between the former Sheikhdoms and their tribal leaders persist and they are not prepared to join fully with Iran or Saudi Arabia in a regional security grouping. This poses an immediate problem for the US in the increasing demands of the smaller states for assistance in building up their own military forces.

Important questions remain unanswered about the long-term balance of power in the Gulf where Iran, by virtue of its size, population, and developmental edge, possesses a growing preponderance of military strength. The relative tranquility of the Gulf since the British withdrawal has been due in part to the successful resistance by generally conservative regimes to the pressures of revolutionary Arab nationalism (spearheaded in the area by South Yemen, Iraq, the PLO and the Popular Front for the Liberation of Oman). The future stability of the area and the willingness of the traditional Arab regimes of the Peninsula to cooperate with Iran, on the one hand, and with Iraq and South Yemen, on the other, will depend in large part on the dynamics of the struggle between the ideological appeal of Arab nationalism and the pragmatic approach of the traditional regimes. Failure of the recent meeting of Gulf Foreign Ministers to agree upon even a limited step [Page 148]toward regional security cooperation, and the split among Gulf states on the OPEC oil price decision of December 17 at Doha, are indicative of the differences still prevailing in the region, and of the different views of Iran and Saudi Arabia on certain issues. On the other hand, successful Iranian and Saudi cooperation in dealing with South Yemen—both in ending its support for the Dhofar rebellion in Oman and in handling the problem of the Iranian F–4 shot down in South Yemen waters—is indicative of the strong mutual interest the two regimes share, despite undercurrents of acrimony between them, in resisting radical change and threats to regional security.

In view of the vital importance of the Gulf area and transit routes from the regime, and in view of the increasing Soviet naval and air presence, the United States began in 1973 to maintain an increased military presence in the northwest Indian Ocean by means of routine periodic deployments of naval and air units from the Pacific Fleet. The only US military facility capable of providing support for these deployments is the joint US–UK installation on distant Diego Garcia. The US presently is able to use some additional airfields and ports in the general vicinity of the Persian Gulf on a very limited basis for routine operations. However, the current level of access to support ashore is only adequate to sustain a low-level, routine military presence; and the uncertainty surrounding the future status of Middle East Force illustrates the tenuousness of even these arrangements. The initial apprehension which the smaller Gulf states experienced at the British withdrawal and which led them to welcome a continued US military presence, has largely been replaced by a sense of growing self-confidence in their own ability to maintain regional stability without outside assistance. So long as this attitude persists, US access to military facilities in the Gulf will be subject to severe constraints.

Finally, current US arms policy has emerged as an issue. The vast surge of oil revenues since 1973 has permitted both Iran and Saudi Arabia to go much further much faster in development of their military capabilities than could have been foretold in 1969. The high visibility of the large defense purchases by Iran and Saudi Arabia from the United States, the difficulties both nations are having in manning and supporting their complex new weapons systems, the asserted effect of the sales in fueling arms races, and concern about potential uses of large quantities of sophisticated weapons, have raised questions in this country about the ability of these countries to absorb this weaponry and about the consistency of this policy with long-term US interests in the region. It has also raised questions about the effectiveness of our management of these programs (and the prospect of being blamed for potential program failures), and about the long-term impact on the economic and social structure of the two countries. At the same time, [Page 149]Iran and Saudi Arabia have indicated their sensitivity to the questioning of our established security assistance relationship as potentially undercutting the close bilateral relationships they have established in other important areas with the US. Iran recently concluded an important arms deal with the USSR, justifying this action in part by the failure to acquire certain similar weapons from the US. The Soviet view of US policy is shaped, inter alia, by the level of US weapons, advisors and facilities in regions adjacent to the USSR.

In looking ahead to how to deal with the potential problems confronting US interests in the Gulf region over the next decade, we should bear in mind the general approach which has been responsible for the policy successes achieved to date, and particularly in the past decade. This general approach has relied on the balanced use of three principal foreign policy instrumentalities to promote and strengthen cooperation in those areas where the major Gulf states have come to see their own national and regional interests as generally compatible with those of the US:

Security assistance and training, as a tangible demonstration of mutual confidence based on shared interests in regional stability and opposition to the growth of Soviet influence, and as the most effective means to develop a capability to maintain their own security and to assume primary responsibility for security of the entire Gulf area (in this regard, the military presence of MIDEASTFOR not only serves to underscore US interests in the area but, together with other US military elements, has supported our security assistance effort by providing training for regional military forces);

Political cooperation, by lending support to the Iranian and Saudi governments and by working closely with them in pursuing parallel policies toward other countries in the Gulf (e.g. opposing radical threats from Iraq and South Yemen), in the Middle East (e.g. working for a just and balanced settlement of the Arab-Israeli dispute, supporting Sadat’s government in Egypt), and in South Asia, the Indian Ocean, and Africa;

Economic cooperation by assisting Iran and Saudi Arabia with their ambitious internal development/modernization programs, working with them on international economic policies in order to increase their participation in the international economy, attempting to resolve without confrontation the Arab boycott issue, increasing two-way trade and investment, and attempting to minimize any increase in OPEC oil prices and maximize production levels.

Given the difficulties we may face in the future with respect to energy questions, it will be particularly important to consider carefully the interrelationships between the key US role in supporting the Iranian and Saudi defense establishments and the key role of these two states in determining oil production and price levels. The manner in which we attempt to use our security assistance relationship to provide leverage on oil and other issues of interest to the United States will remain a basic element of our decision making on Gulf policy.

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III. Key Issues for the Next Decade

By direction, the NSSM 238 study addressed 17 security-related issue areas, some of which will be critical to the development of US policy over the next decade. The study presents four broad policy options: (1) continuation of current policies and procedures; (2) a reduced US security role; (3) an expanded US security involvement, and (4) more active encouragement of regional security cooperation, along with enhanced policy management. The study provides illustrative decisions which would logically flow from adoption of one of these broad policy lines, regarding military supply, US security facilities, etc., making clear, however, that some of the subsidiary options, according to the mix, could be consistent with more than one of the broad policy alternatives.

The key issue areas are summarized below. The first three of these issues (in upper case type) concern security-related issues which require high level policy review and decision early in 1977. In considering these issues for the future, the US must keep in mind three broad questions: (a) the level and type of local forces we would like ideally to see in the Gulf; (b) the desired distribution of power among the regional states; and (c) the optimal US military/security presence in the area. The remaining issues are also very important to the evolution of US policy relationships in the Gulf over the next decade. The evolution of Soviet influence in the area and the growing importance of Iraq for US policy are developments which should continue to be monitored carefully; however, in neither case have the trends advanced to the point where a change of US policy would appear to be required. The policy implications of energy and related economic issues will need to be addressed in parallel with these essentially political and security issues. This can best be done in the context of NSSM 237.

a. SECURITY ASSISTANCE RELATIONSHIPS. The experience of the past few years resulting from the extensive US involvement in the security field in the Gulf, particularly with Iran and Saudi Arabia, has dramatized both the opportunities and the potential risks involved in responding to requests from regional states for major military programs involving complex technology and rapid development of modern military structures. The quantities and increased sophistication of weaponry purchases by Gulf countries, particularly Iran, are straining the absorptive capacity of purchasing governments and adding to the potential for social and economic stresses. Programs which exceed the technical, manpower and financial capabilities of recipient states will in the long run weaken rather than strengthen our relations with the country concerned and in some cases could eventually undermine their internal stability. Large scale purchases of advanced weapons systems by Gulf states have also prompted concerns that an arms race may [Page 151]have developed between rival states which could contribute to political destabilization of the region and thus work to the disadvantage of US interests in the long term.

The presence in certain Gulf states, particularly Iran and Saudi Arabia, of growing numbers of American personnel, both government employees and employees of private American companies, poses new and potentially difficult problems. There is the risk that American citizens might become involved in international and domestic conflicts involving their host government or that their presence might require US intervention or otherwise limit our options in a crisis. There is also the problem of potential negative economic and sociological impact of large numbers of Americans upon peoples of very different cultures, with resultant internal and bilateral political problems which can be exploited for anti-American and anti-government ends.

The dramatic increase in US sales of defense articles and services has resulted in domestic concern and closer Congressional scrutiny of the Administration’s response to military supply requests from Persian Gulf nations. These developments, plus US setbacks in Angola and Indochina and the arms embargo against Turkey, have heightened concern by Iran and Saudi Arabia as to the reliability of the US commitment to support them politically as well as to continue our support for their military establishments.

Although all of these problems are real, none of them appears to be unmanageable or to make imperative a fundamental shift in US policy, although alternative policy approaches should be given careful consideration. At the minimum, however, these problems point to the need for ensuring a continuation of the careful review presently given major arms requests at the highest levels, and of the close attention given to security assistance programs. A recommended set of systematic procedures has been developed in conjunction with this Executive Summary, and the NSSM 238 study. It takes into account certain Congressional observations as well as Agency recommendations derived from the lessons of the past few years. Use of these procedures should ensure systematic interagency review and decisions on future requests for defense articles and services and that on-going programs are managed as effectively as possible in order to minimize the difficulties inherent in such extensive and complex relationships as the US has with Iran and Saudi Arabia.

b. LOWER GULF ARMS SALES. The practical effect of our relatively stringent case-by-case review of arms sales to the Lower Gulf states, following the guidelines in NSDM 186, has been to discourage requests from Qatar, the UAE, Bahrain and Oman for military equipment from the US. Although this policy has effectively avoided US participation in the introduction of more sophisticated equipment into the smaller [Page 152]Gulf states and in some cases may have slowed the pace of military expansion by these states, it is becoming increasingly difficult to maintain in the face of their growing requests.

Over the past year, the smaller nations of the Gulf have been approaching the USG more insistently to provide weapons systems such as fighter aircraft, air defense missiles, TOW anti-tank missiles and other military equipment and training. They are aware of what the US has been doing in the way of military supply for other Gulf states, particularly Iran and Saudi Arabia, but also Kuwait. France and Britain have not exercised the same restraint as the USG in their own sales policies to the Lower Gulf. There is no demonstrable desire by the smaller states to content themselves with a regional security umbrella from their larger neighbors and the acquisition of advanced weaponry is tending to become a political status symbol for the smaller states of the Gulf. In some cases, the governments of the smaller states have told us directly that US willingness to supply or not to supply certain advanced weaponry will be an important factor in our bilateral relations, influencing such issues as whether or not the US can have access to desired military facilities, e.g. homeporting of MIDEASTFOR in Bahrain. It is clear that some form of security assistance or other quid pro quo will be required if a continued military presence in Bahrain and the use of military facilities on Masirah are to be continued.

The political and security benefits which the US might gain from individual Lower Gulf states by entering into a substantially more liberal military supply relationship must be weighed against the possibility that this would touch off an accelerated mini-arms race among all the Lower Gulf states, thereby increasing pressures on the US (and the UK and France) to sell still more. This could create problems with Iran and Saudi Arabia, if they perceived the US as deemphasizing its policy of relying upon the two larger states for regional security and providing them with military assistance to this end. We should also anticipate vigorous opposition within the Congress to any major modification of present restrictions on Lower Gulf arms sales.

c. MILITARY PRESENCE AND ACCESS TO FACILITIES. Safety of the shipping lanes from the Persian Gulf will continue to be critical to the interests of the US and its friends and allies. This interest is strongly shared by the oil-exporting nations of the region, and they could be expected to react strongly to any localized challenge to free navigation. A modest US military presence has been maintained to demonstrate concern for our vital interests, to contribute to the credibility of regional defense, to counterbalance the presence of Soviet military forces in the Arabian Sea, and to act as a deterrent to actions by any country against US interests by demonstrating US capability to deploy military forces to the area.

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In the past, this US presence has consisted of the three ships of MIDEASTFOR, occasional surveillance flights by military aircraft using airfields at Bandar Abbas, Iran, and Masirah Island, Oman, and periodic deployments of other forces for regional exercises and operations in the Arabian Sea. Support of these activities requires continued overflight rights and access to port and airfield facilities consonant with the present and projected level of US military presence. At the present time, the only US-manned, operational facilities in the area, apart from the support elements of MIDEASTFOR on Bahrain, are the Defense Communications System facility and the intelligence collection sites operated by the USG in Iran. The Department of Defense has proposed the relocation of a communications station to Tehran, Iran, or other suitable locations, to compensate for the anticipated closure of the station at Asmara, Ethiopia. Presidential mission communications support (MYSTIC STAR) is the prime function requiring relocation from Asmara. Upgrading of existing communications facilities in Iran has also been contemplated as well as the construction of several smaller facilities to compensate for restrictions on our use of certain aeronautical functions presently located in Turkey, [1 line not declassified].

The Department of State has taken the position that piecemeal submission of such projects for Iranian approval is not in our interest, since (1) the Shah may balk at additional projects that fulfill essentially US rather than Iranian requirements and either refuse to approve some of them or request an additional quid, and (2) we may be increasing our official presence in Iran to a level beyond that consistent with our own long-term interests.

A policy decision is required in the near future to determine the level of US military presence in the Gulf area in the context of overall US interests, the strategic balance in the northwest Indian Ocean region (particularly vis-à-vis the USSR), and the long-term nature of our relationship with Iran.

d. Energy. The Gulf region will account for two-thirds of all oil moving in international trade in the next decade. Despite US efforts at conservation and energy diversification, the Gulf will account for a rapidly increasing share of US energy imports and will continue to be a primary producer for Japan and Western Europe. Beyond 1985, Saudi Arabia and Iraq will be the principal Gulf oil suppliers. Saudi Arabia’s production capacity exceeds that of any other country and by 1985 will account for almost 40 percent of total OPEC capacity—yet Saudi Arabia currently needs to produce at only one-third of capacity to meet its revenue needs. This gives Saudi Arabia tremendous leverage to be the market-maker, influencing heavily both OPEC supply and price levels, but it also exposes the Saudis to considerable pressure from other OPEC members for higher prices and, if necessary, lower production [Page 154]to sustain those prices. (The ability of Saudi Arabia to impose its policies on other OPEC nations is being tested following the two-price decision at the December 1976 OPEC meeting in Doha.) Energy issues impact directly or indirectly on virtually every aspect of US policy in the Persian Gulf, and future decisions on security and political issues should be carefully coordinated with the examination of energy policy, e.g., the NSSM 237 study currently in progress.

e. Soviet Influence. The extent and nature of this influence in the Gulf area over the next decade cannot be predicted with confidence. The USSR is now the major military supplier to Iraq and can be expected to continue to seek to increase its influence there and elsewhere in the Gulf, pursuing its usual multi-track tactics with the aim of lessening Western influence. Much will depend on:

—how the Soviets calculate the tradeoffs between stress on support for radical versus conservative regimes, and pursuit of good bilateral relations with the maximum number of governments;

—the Gulf leaders’ perceptions of the condition of the superpower balance and of Western responsiveness to their security and economic needs and desires;

—the evolution of Arab-Israel relations, particularly whether prospects for an overall settlement are such as to encourage Arab moderation or extremism and whether perceptions of US policy in this vital area are positive or negative;

—the nature of relationships among the principal Gulf powers and the internal political stability of the Gulf regimes (e.g. Iran, Saudi Arabia, Iraq).

f. Iraq. The exploitation of Iraq’s extensive oil and gas reserves is increasing rapidly, and its ambitious development plans (largely Western-oriented) are also proceeding, creating a situation whereby its oil production will approach that of Iran by 1985. This growing economic importance and pragmatism has been partially paralleled by a new political look, notably the 1975 agreement resolving Iraq’s long riparian boundary dispute with Iran. It is also noteworthy that the US has become one of the major sources of Iraq’s non-military imports. However, Iraq has remained obdurately opposed to an Arab-Israeli settlement; continues to back extremist Palestinian elements, even in the face of solid opposition by the Arab moderates; is apparently dedicated to overthrowing the Asad regime in Syria; and is still regarded with fear and suspicion by the moderate Gulf states. Recently it has used its armed forces to threaten militarily and to try to intimidate politically both Syria and Kuwait.

Iraq’s increasing importance will demand continuing close attention to the question of whether and how the US might be able to [Page 155]influence the evolution of its policy along moderate lines over the next decade. At present, our policy of quietly encouraging the growth of economic ties with Iraq and making clear our willingness to consider sympathetically any Iraqi initiative for closer political relations, without taking the initiative ourselves, appears to be correct. Current Iraqi animosity to policies and regimes favored by the United States in the Middle East is so great that an initiative by the US would be misinterpreted by our friends and would be unlikely to have any useful effect on Iraq’s leadership. However, there are reports of internal differences over Iraq’s extremist policies, and the US should be prepared to encourage moderation should the opportunity occur—preferably after consultation with key states friendly to the United States in the area.

g. Economic. The Gulf states, led by Saudi Arabia, have over $70 billion in foreign exchange assets, which should triple by 1985. The IMF has accorded them a larger institutional role, and Iran and Saudi Arabia play key roles in CIEC and other international economic bodies. The formidable economic reserves of the Gulf states give them the potential to intervene massively in world investment markets. However, they realize that their economic future is tied to that of the developed countries, and it is strongly in our own interest to integrate them further into the Free World international financial system. Their foreign investment behavior has been conservative, oriented toward OECD countries and tending to move slowly toward longer-term maturities and, to a lesser degree, equity investment. The US share of investment and imports is already considerable (one-fifth of both total investment and total imports) and can increase substantially by 1985. In 1975 the Gulf states provided more than $4 billion in economic aid to developing nations. Although this assistance went primarily to Islamic states and particularly the confrontation states, the nations of the Gulf can be expected to play a significant future role in bilateral and multilateral development assistance. A growing problem for these states will be the demands of Third World nations for economic support and protection against the effect of increased oil prices.

h. The Impact of Modernization. Rapid modernization and the introduction of advanced technology, extensive reliance on foreign manpower, and rapid urbanization could be seriously destabilizing to the traditionalist Gulf regimes. For instance, many of the Gulf states are beginning to encounter difficulties in reconciling the pace of civilian and military expansion programs with their deficiencies in skilled manpower and physical infrastructure. Inflation is also a serious problem. These problems, if not resolved or at least mitigated, could have a serious negative effect on the moderate policies of these regimes, their ability to remain in power, and in particular on their close relationship [Page 156]with the US. Given the intimate US public and private involvement with both the civilian and military development programs, we could become the target for opprobrium if things began to go seriously wrong. Our policy should take full account of these risks, and acceptance of new programs and additional involvement should be carefully weighed against the responsibilities and risks inherent in such a close association, as well as the potential risks of possible alternative strategies.

IV. Broad Security Policy Postures for the Next Decade

Section III addressed the issue areas which are central to the development of US policy toward the Gulf over the next decade. For dealing with these issues, there are three broad security policy postures: (1) continuation of current policies and procedures; (2) a reduced US security role; and (3) an expanded US security involvement. In determining our optimal policy in this region, our desired strategic stance vis-à-vis the USSR must be borne in mind. In general, a decision to pursue one or another of these three broad policy lines would logically entail a certain set of decisions on the individual issues for which options are presented. Given the diversity and complexity of the issues, some of these options do not conveniently fit into a single policy posture; there are a great number of possible permutations and combinations. This strongly suggests that decisions on some issues might involve a selection of options from more than one policy “package.”

Two aspects of our Gulf security relationships—military supply and military presence—raise interrelated contradictions and ambivalencies. The “powers” on whom we rely primarily for the region’s security—Iran and Saudi Arabia—are consequently major recipients of US military supply. Iran’s willingness to allow the US to operate its own technical facilities is of vital importance (particularly given the US problems with Turkey). Access to Iranian air and naval facilities as well as to Saudi facilities is also useful. Yet both Iran and Saudi Arabia are increasingly less supportive of such presences as US military “bases,” and other evidence of extraterritoriality and agreed privileges in their own countries and elsewhere in the Gulf. Iran is sensitive over any increase in the size or number of US facilities while Saudi Arabia is not disposed to grant the US such facilities. The weakest states, Oman and Bahrain, who have received very little security assistance from the US, are torn between a desire to achieve a “special relationship” with the US, in part to forestall slipping irretrievably into the Saudi/Iranian spheres of influence, and sensitivity to the stigma of retaining a “colonial” image by granting military presence privileges to a “Great Power.” They, along with the UAE and Qatar, want an entree to US military supply comparable to that the other “ministate,” Kuwait, enjoys; and the appetites of all are whetted by our extensive supply relationships with Iran and Saudi Arabia. In return for US facilities, the weaker states [Page 157]tend to seek something in return, and the evidence to date is that their preferences will be in the security assistance area, either special consideration in terms of what we might sell, or concessional financing for their purchases, or both. The stronger states also see a clear if not explicit link between US security assistance and US facilities.

As we seek to cope with the dichotomy between relying on regional powers to ensure Gulf security and seeking to preserve our own military presence in the area, while trying to find a security assistance relationship consistent both with our several goals in the Gulf and growing pressures for limiting arms supply, we are faced with classic policy dilemmas. Moreover, our economic and other non-military relations with the Persian Gulf countries interact with our security relationships and their impact needs to be taken into account in making final policy choices. Our choices will depend on how we weight our interests, how we link them strategically to proximate objectives—and our own time preferences.

Posture One: Continue Current Policies and Procedures.

Under this policy, we would retain current military sales, training, and technology transfer policies for all the Persian Gulf countries—essentially a five-level policy on military sales to the Gulf in descending order of sales latitude: Iran, Saudi Arabia, Kuwait, Lower Gulf, and Iraq.2 We would maintain the level and scope of sales to Iran—helping to ensure that it continues to develop as the major power in the Gulf while acquiring a limited Indian Ocean strategic capability by 1985—and to Saudi Arabia. We would undertake further analysis to determine whether new intelligence and support facilities should be established in Iran, recognizing that they would probably require a quid pro quo in the security assistance field if the GOI were to accede to a US request. We would seek either to negotiate an extension of the Middle East Force in Bahrain or otherwise to maintain it in the region, and inform Oman that we are interested in regular access to the Masirah Island airfield. In the economic field (apart from energy policy, the subject of NSSM 237), we would continue close cooperation with Iran and Saudi Arabia in their economic development. We would continue an essentially passive stance on regional cooperation.

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Posture Two: Reduce Regional Involvement and Roles.

An objective of this policy would be to arrest the upward trend of our security involvement in Iran—where the policy would be felt most sharply—and to reduce military sales and our military presence on the other side of the Gulf.

This policy would entail a somewhat more restrictive approach to US military sales and transfers of technology to the Gulf region, with the US making decisions on what to supply based upon its own assessment. The US assessment would use such criteria as: external threat; military balance considerations; our best estimate of the absorptive capacities of the recipients; and the long-term, rather than short-term, effects of such sales and transfers on US interests. We would attempt to dissuade West European arms suppliers from selling weapons in excess of the Gulf countries’ own defense requirements as we see them. In Iran we would: implement currently approved sales but reduce the level and scope (i.e., variety of systems) of future sales, and suspend approval of new military coproduction proposals for an indefinite period. We would maintain the restrictive sales policy toward the Lower Gulf states, adding Kuwait to the future application of this policy. We would encourage the British to maintain their training and advisory roles in the Gulf and encourage smaller states to obtain training from neighbors. US security assistance would be related more directly to regional security cooperation, encouraging bilateral or multilateral arrangements among or between Gulf states in such sectors as air and coastal defense.3 We would augment neither the US military advisory nor operational presences in the area and would withdraw the Middle East Force from Bahrain, though we might move it to an afloat command. We would not express interest in increased use of the airfield at Masirah, or adding other military facilities there. On the economic side (apart from energy), we would limit the official US role to primarily encouraging sales of non-controlled commercial goods and to assisting development projects clearly within the absorptive capacity of the Gulf states and of clear benefit to the Peoples of those states.

Posture Three: Expanded Security Involvement.

While generally maintaining the scope of our sales of weapons and technology to Iran, we would liberalize policy on military equipment [Page 159]transfers to all friendly Gulf countries. In Kuwait and the Lower Gulf, we would in close cooperation with Saudi Arabia expand training availabilities and permit sales of more advanced weapons systems than allowed by current policy. We could consider on a case-by-case basis matching or replacing the British and others’ advisory roles. Regarding the US operational military presence, [1½ lines not declassified] eventually seek access to increased use of Iran’s ports by the Middle East Force and increased use of its military airfields by US aircraft. We would also seek Omani approval of increased use of Masirah for air [less than 1 line not declassified] operations. Our economic policies (apart from energy) would resemble those outlined under Posture One—current general policies would be continued.

V. Specific Security-Related Options for Near-Term Issues.

The options in the following section deal with the specific security-related questions requiring early decision. Many of these options, which are generally structured to reflect the policy postures described above, entail adjustments and refinements of current policies and procedures, proposed in the light of experience as well as the identification of urgently required decisions, incipient problems, discernible trends, and Congressional concerns.

As indicated in Section III, specific decisions are required in the near future which bear on three major policy areas: (1) management procedures for our security assistance relationships with Iran and Saudi Arabia; (2) the nature of our arms supply policy toward the nations of the Gulf; and (3) the proposed establishment or continuation of military rights, authorizations and facility arrangements in the Gulf area. Proposals flowing from each of these broad policy areas are presented below:

a. Management Procedures for Security Assistance.

A proposed set of guidelines for dealing with major military supply relationships in the Gulf area is attached at Tab B. These guidelines have been derived from recent practice in the Departments of State and Defense and are intended to codify and institutionalize the lessons which have been learned in managing these very large programs over the past few years. The purpose of these proposals is to preserve the benefits of our close security relationship with Iran and Saudi Arabia while minimizing the likelihood of unexpected or undesirable long-term policy consequences.

b. Sales Policy.

A key question requiring urgent decision is whether and when to notify the Congress about all or some of the current accumulation of 36(b) military sales cases for Persian Gulf countries. The total value of [Page 160]those cases which are being held approximate $279 million (see Tab A). The Administration must consider in this regard the Senate Foreign Relations Committee’s September 24, 1976 resolution requesting, inter alia, that no further arms sales agreements to any nation in the Gulf be concluded until the Committee has been informed on the substance of “findings and decisions” resulting from this NSSM study. This presents a dilemma in that these and expected additional cases cannot be deferred for long without shaking the trust of the recipients in our concern about their security, yet decisions on anticipated formal requests for major new weapons (e.g. F–18L for Iran, F–15 for Saudi Arabia, F–5 for Bahrain) should be made in the context of overall Persian Gulf policy.

One approach would be for the Executive Branch to consult the Congress on the following formula: The rapid institution of improved procedures for managing our security assistance programs; a pledge expeditiously to reach decisions on fundamental policy issues for the U.S. in the Gulf area; and meanwhile, proceeding with the less controversial 36(b) cases which have been delayed but not with major new and anticipated weapons requests.

We might also consider the pros and cons of adopting a temporary “pause” in additional sales of all major lethal end items while undertaking a searching policy and program review. Specific options on military sales policy are as follows:

Option I. Continue our five-level arms sales policy for Iran, Saudi Arabia, Kuwait, the Lower Gulf and Iraq. Maintain a forthcoming sales policy with respect to Iran (and to a lesser degree Saudi Arabia) in order to promote their mutual capability to provide for the security of the Gulf area and to cement our close working relationship with both nations, but also consider the impact of Saudi requests on the Arab-Israel dispute. Continue the military sales policy for the Lower Gulf and Oman, set forth in 1972 by NSDM 186, that has been applied stringently to preclude the supply of sophisticated or destabilizing equipment. Maintain a clear distinction between our policy on the transfer of sensitive technology and the supply of military equipment and training.

Option II. Continue present restrictive policies toward the Lower Gulf and Iraq, and our temporary freeze on major new programs for Kuwait. Deliberately reduce the scope of future Iranian and to a lesser extent Saudi purchases by applying more stringently our present case-by-case review procedures, critically analyzing it in terms of its impact on the absorptive capacity, regional military balance, postulated threat and proposed mission, the status of our existing relations, desired level of US presence in each country, and other primary criteria; and then explaining fully to the requesting country the difficulties which we [Page 161]foresee in acceding to any request deemed to be excessive. This would be accompanied by a firm decision not to entertain requests for the sale of certain types of systems to any Persian Gulf state (e.g., man-portable air defense systems, amphibious vessels above a certain size, surface-to-surface missiles with extended ranges, and equipment incorporating highly advanced technology such as AWACS, especially if such equipment has not yet been approved for production for US forces, etc.

Option III. Continue present policy with respect to Iran, Saudi Arabia and Kuwait, while liberalizing our policy in the Lower Gulf by allowing greater flexibility than in the past on other items such as TOW missiles, anti-aircraft guns, APC’s, naval and coastal patrol vessels, etc., particularly in those cases where we will obtain something tangible in return, such as access to military facilities, or in the context of joint defense programs which we support. In those cases where non-military quids are insufficient, be prepared to provide military surveys with no commitments regarding willingness to supply equipment, when it is clearly consistent with US interests to provide advice on a comprehensive military development program including equipment, training, and support facilities.

c. Military Presence and Access to Facilities.

With respect to access to military facilities, there is need urgently to address the following:

(1) By mid-February, how far to go in seeking to retain Middle East Force, which is slated to lose access to its homeport at Bahrain on June 30, 1977;

(2) What we want on Masirah Island, Oman where our present arrangement for occasion use of the airfield expires on March 31, 1977;

(3) [3 lines not declassified]

The facilities questions outlined below can be approached on a case-by-case basis independent of other policy considerations, but the options obviously parallel the three broad policy postures discussed above. Similarly, periodic deployments of naval and air forces to the region from the Pacific and European areas for exercises and visits could be increased or decreased in response to decisions on these broad policy postures.

(1) U.S. Facilities in Iran.

Option I. [1 line not declassified]

Option II. Concomitant with a reduction of our regional arms sales, retain access to intelligence facilities in Iran so long as Iran agrees to their continuation, recognizing that a more restrictive arms sales policy may affect Iran’s willingness to host those facilities.

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Option III. [1 paragraph (6 lines) not declassified]

(2) Middle East Force.

Option I. Continue present efforts with the Government of Bahrain to permit MIDEASTFOR, perhaps in reduced configuration, to remain beyond mid-1977, but be prepared to relinquish homeporting at Bahrain if the requisite quid is so high as to be inconsistent with our prospective arms supply policy toward the Lower Gulf.

Option II. In the event of Bahraini refusal or excessive quid demands, withdraw MIDEASTFOR from the Gulf or continue to operate it in some configuration elsewhere in the Gulf or northwest Indian Ocean by obtaining augmented access to other regional ports.

Option III. Be prepared to establish a significant military cooperation relationship with Bahrain if required to maintain MIDEASTFOR.

(3) Facilities on Masirah.

Option I. Inform the Sultan of Oman that our present requirements for Masirah Island are limited to continued occasional aircraft visits, recognizing that Oman will probably require at least a modest quid pro quo.

Option II. Cease occasional use of Masirah airfield.

Option III. Approach Oman for expanded use of Masirah airfield, including a commitment to permit supporting operations in a contingency involving a threat to US security interests in the area, as well as US operation of the present [less than 1 line not declassified] site at Masirah and placement of any required facilities that Iran might be unwilling to accept—recognizing the quid likely to be sought.

  1. Summary: The NSC forwarded to Scowcroft the Executive Summary of the response to NSSM 238, designed to provide the incoming Carter administration with a policy framework and a set of options.

    Source: Ford Library, NSC Institutional Files (H-Files), Box 42, NSSM 238–U.S. Policy Toward the Persian Gulf (3 of 3) (3). Secret. Brackets, except those indicating text not declassified, are in the original. The Executive Summary was transmitted under a January 17 covering memorandum from Oakley to Scowcroft. (Ibid.) Annex A, not published, is a brief table entitled “Military Sales Cases Ready for Submission to the Congress.” Annex B, not published, is the paper “Recommended Procedures for Management of Security Assistance Programs in the Persian Gulf Area.” Also attached is a brief note from Scowcroft to Zbigniew Brzezinski, dated January 19, which reads “Zbig: Here’s another one.”

  2. US sales policy has been forthcoming to Iran and somewhat less so for Saudi Arabia due in large part to fewer requests by the Saudis, their lower absorptive capacity, and the Saudi relationship with the Arab-Israel dispute. Sales of defensive materiel have been approved for Kuwait, although we are not presently undertaking any major new programs at least until those already approved are functioning smoothly. Policy for the Lower Gulf states (NSDM 186 of 1972) has been interpreted restrictively in practice to include only equipment suitable for internal security, or non-sophisticated weapons of a defensive nature. No military sales are approved for Iraq. [Footnote is in the original.]
  3. Specific US initiatives in this regard are spelled out in greater detail in the NSSM 238 study response in the form of options available for “Regional Cooperation and Enhanced Policy Management.” One potential benefit of linking our security assistance to regional cooperation might be to enable the smaller Gulf states to obtain more advanced types of equipment in the context of a working arrangement with Saudi Arabia or Iran than we might wish to supply in isolation. [Footnote is in the original.]