Foreign Relations of the United States, 1977–1980, Volume XI, Part 1, Iran: Hostage Crisis, November 1979–September 1980

69. Briefing Memorandum From the Under Secretary of State for Economic Affairs (Cooper) to Secretary of State Vance¹

Washington, November 28, 1979

Iran; Proposals for Tightening the Financial Noose; Thursday’s SCC Meeting

The SCC will discuss ten options for broadening and toughening our financial actions against Iran. A brief evaluation of each of these proposals is attached at Tab A.²

The meeting will probably focus on the fourth, fifth and sixth options, which Bob Carswell and Tony Solomon believe would be most effective in increasing the pressure on the Iranians. These three options are basically a more detailed restatement of option 2, which would in effect extend the freeze to other major countries. The impact of these would ultimately be something like a de facto embargo on export to Iran from all major countries.

A cost benefit calculation for these options is not very favorable. As posed, the financial options involved considerable long-run costs to the international economic system and to individual countries. Achieving them will therefore impose great strain on the willingness of our allies to cooperate along these lines.

At the same time, we doubt they will be immediately understood by Iranian leaders except insofar as they represent a demonstration of solidarity among the key industrial countries.

The eventual impact of such actions will not be immediately apparent to those unversed in finance, and their full effects on Iranian trade will not appear for several months. The disruption will mainly affect urban dwellers, who are dependent on foreign foodstuffs and on foreign inputs for industrial and commercial activity.

There are other ways, and probably more effective ways in terms of their immediate impact on Iranian leaders, to demonstrate solidarity of other countries with the U.S. One would be a drastic coordinated reduction in the size of embassies in Tehran. Even stronger collective action would be a Chapter 7 embargo in the United Nations, on the grounds that the Iranian behavior represents a threat to the peace. Chapter 7 action would be a striking demonstration of global solidarity, it would put much more economic and political pressure on Iran, and at the same time, by virtue of being a sanctioned collective action, it would sharply limit both the perceived and actual damage to the international economic system over the longer run.

None of these actions, including financial options through six, will be easy to achieve. Tentative contacts suggest it will not be possible to engage the cooperation of financial officials alone on the financial measures suggested. Therefore, a high level and perhaps a high pressure political approach, will be required.

Our approach at the SCC meeting should be to clearly distinguish between our objective—to secure the hostages’ release—and the many possible means to attain that objective. If it is decided that one of the means to this end is a demonstration of Western solidarity, then we should search for actions that will be most effective on the Iranian leaders and followers.

To the extent that the other financial options are seriously discussed, our approach should be the same. Several of the remaining options would have only a marginal impact on events (3a, 7, 8, 9). Options 3b and 10 would be regarded as a disguised political act. More generally, they would not impress the Iranian leaders and would require an unprecedented degree of cooperation from foreign central and private banks in taking hostile action against a customer. They would be impossible to enforce and, for the private banks, easy to evade.

In political terms, it is doubtful in the current mood that these economic measures would do anything but stiffen the backs of the Iranians. Our move to block assets on November 14 drew a swift reply from Khomeini, who regarded the freeze as an act of economic warfare. The announcement by Bani-Sadr that Iran would repudiate its debts was mainly triggered by the President’s decision.³ By taking these actions at this time, we would reduce rather than strengthen or expand our influence with Khomeini and those Revolutionary Council members who count. There is also a question of timeliness since the actions could not be expected to produce any strong effects for three to four weeks, and the principal results will not come for months afterward, regardless of the outcome of the present situation.

1. Source: Carter Library, Plains File, Box 23. Secret; Nodis. Drafted by Cooper and Milam. Cleared by Precht.
2. Tab A was not attached but is in Department of State, Official Files of [P] David D. Newsom, Under Secretary of State for Political Affairs, Iran Update Nov 1979. For the options, see the attachment to Document 70. The Department of the Treasury informed a November 28 interagency meeting that it would back Options 4, 5, and 6 as putting the most pressure on Iran. As related by Ernst of the Office of Economic Research, CIA, these three options required the “active support” of the central banks of major allies and such support was “extremely unlikely at the present time.” Ernst continued: “We do not believe that the ayatollah would change his position because of these measures which in any event would be viewed as extensions of US aggression.” The options, however, would disrupt Iranian international trade and finance. (Central Intelligence Agency, Office of the Director of Central Intelligence, Job 81M00919R: Executive Registry Subject Files (1976–1979), Box 14, Folder 11: C–372 Iran)
3. See Document 30.