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220. Telegram From the Department of State to the Embassy in Iran/1/ Washington, March 30, 1968, 0049Z. /1/Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1967-69, PET 6 IRAN. Secret; Limdis. Drafted by Akins and Rostow; cleared in draft by McClelland and by Jacobs, Oliver, and Meehan (S/S); and approved by Rostow. Repeated to London, Kuwait, Jidda, and Dhahran. 138990. 1. In a meeting with top executives of Esso, Mobil, Standard Oil of California, Texaco, Gulf and Iricon (morning March 28) Undersec Rostow said USG wished to have candid exchange of views with them about Iranian oil negotiations in their full political context. We did not wish to cross the delicate line between political and commercial considerations nor did we wish to take responsibility for the negotiations. But there was a deep national interest in a mutually satisfactory outcome for the negotiations at this time. The Consortium came into being with special anti-trust and other privileges by reason of such political considerations. He wished to discuss directly with the responsible leadership of the companies the political factors we saw impinging on the negotiating process. So far as the Persian Gulf was concerned, we faced a national security problem in view of the British withdrawal, and the risk of penetration of weak Gulf States by movements of radical Arab nationalism, as well as by more direct Soviet interventions. In that perspective, Iran was the keystone of American plans. We wished to have equal friendship with Iran and with Saudi Arabia, and close cooperation between them. At this point, Iran was clearly the stronger partner, progressive and developing. But Saudi cooperation with Iran was indispensable from every point of view, political, psychological and geographic, if stability in the Persian Gulf was to be assured. Rostow reviewed recent history and present prospects of efforts to bring Shah and Feisal together, and stressed importance of an oil settlement compatible with the necessities of that process. But Persian Gulf problem was intimately linked to Middle East crisis as a whole. After reporting on problems of M.E. since Nov. 22 S.C. Resolution,/2/ Rostow said we regarded the situation as increasingly grave. UAR was blocking progress on the Jarring Mission. And Syria--perhaps UAR as well--were training and sending out terrorists on a very dangerous scale. Jordan had a Vietcong on its territory, as Laos does, and could no longer control it. In the absence of peace negotiations, Israeli reprisals were inevitable, despite our urgent efforts to prevent them. As a result, there was a serious possibility of renewed general hostilities in the Middle East, with incalculable potentialities. We were working on a crisis footing to head off hostilities, but we could not be sure of the outcome. /2/UN Security Council Resolution 242 of November 22, 1967. The resolution called for a "just and lasting peace in which every State in the area can live in security." (UN doc. S/RES/242 (1967), printed in American Foreign Policy: Current Documents, 1967, pp. 616-617) 2. Rostow referred to Shah's statements that he cooperated with West at his great risk during crisis last June. If he felt this cooperation not recognized through favorable treatment by Consortium, there was possibility he would not cooperate with West in new crisis./3/ Rostow also said withdrawal of British from area made it necessary for Iran to cooperate with Arabs in Gulf and in a new round of hostilities he might not be willing risk their wrath by breaking Arab blockade again. As companies knew, even temporary boycott of Middle East oil, if it included Iranian production, would be catastrophic. /3/On March 19 Enders reported to Rostow that oil analyst Walter Levy told Department officials: "Can't predict whether or not the Shah will make good on his threat. But clearly there is a strong risk he will. Therefore companies should make up their mind on basis of how well they, the United States and indeed the West as a whole could stand another crisis in the Middle East. In Levy's judgment we are all in period of relative weakness given Soviet position in Middle East, threat of another Arab-Israeli blow-up, and payments crisis. We could not absorb a break with Iran. Even if companies are right, they should stand on principle only when strong. We would never forgive ourselves if we superimposed an Iranian crisis on what could be a general payments and Middle East crisis." (Memorandum from Enders to Rostow, March 19; National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1967-69, PET 6 IRAN) 3. Iran, he said, has written $5.9 billion into its development plan and Shah would not change it. We know companies cannot give Iran all it wants for its plan but we also believe that if there is some increase in earlier estimates there will be chance of averting confrontation and new crisis in Iran this year. 4. Rostow asked without prejudice about possibility of investment commitments, raising APQ, altering over-lift arrangements to permit crude-hungry companies to take more oil, on equitable terms, increasing refinery throughput, and making special allowances for British Petroleum if it decided to reduce Abu Dhabi production in favor of Iran. Desirability of equality of treatment between Iran and Saudi Arabia was stressed, and generally accepted. Companies said they are examining all these possibilities and said all offered some room for adjustment but they gave no definite assurances on any. 5. They pointed to certainty more favorable treatment Iran would result immediate demands from Arab and other producing countries which they could not meet./4/ In reference this as well as to willingness French other "oil hungry" companies to take more cost oil they said such oil could only be sold at expense current marketing since demand was being fully met. Rostow said USG recognized all alternatives were impossible, but we would weigh the political value of a settlement with Iran very highly. /4/According to Enders, Levy did not believe that parity with Saudi Arabian production would "cause a problem" in Riyadh. (Ibid.) 6. Companies asked USG attempt convince Iran that Consortium trying help it meet development goals. Rostow said we had done this repeatedly and would do so again, if companies assured us they would make genuine effort to reach satisfactory agreement. This assurance was given. To be effective, companies would probably have to improve their estimates and do everything economically feasible to help Iran. Companies said they knew any approach would have to be on this basis. 7. At end of meeting question was asked whether USG seriously thought risk of confrontation, and of rash and destructive action by Shah, was high. Rostow answered affirmatively, and said our concern over this risk was the subject matter of meeting, and the reason it was called. 8. Company position throughout meeting was neither hostile or negative and we believe they will endeavour seriously to devise new offer before April 20. Clearly any new offer will be below Iranian demands but we hope enough will be offered to avert crisis this year. Rusk
221. Telegram From the Embassy in Iran to the Department of State/1/ Tehran, April 23, 1968, 1005Z. /1/Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1967-69, PET 6 IRAN. Confidential. Repeated to Dhahran, Jidda, Kuwait, and London. 4304. Iran Oil. Ref: Tehran 4300./2/ /2/Dated April 23. (Ibid.) 1. Referring to Tehran press morning 22d which referred to GOI "victory" in negotiations with Consortium,/3/ I told Saudi Ambassador same morning to tell Yamani not to get excited. /3/Telegram 4336 from Tehran, April 24, indicated that "EmbOff has learned from fairly reliable source that NIOC/GOI official discussed Consortium/GOI talks with wire service stringer in such a way as to intentionally encourage press services to draw strictly erroneous conclusions as to outcome these talks, i.e., Iran had obtained all it had asked from Consortium." (Ibid.) 2. Without, of course, in any way getting into substance of negotiations I told Saudi that happy outcome was largely what Arabs call gali gali (slight of hand)./4/ /4/The Embassy called the resolution a "Persian solution which, by adroit placement of mirrors, gives appearance of compliance with Iranian demands." As the Ambassador explained: "By ignoring first quarter of 1968, and counting all revenues from Consortium during Iranian year 1347 (March 21, 1968-March 20, 1969), GOI will apparently receive the $865 million it wants in revenues from the Consortium 'this year.'" (Telegram 4270 from Tehran, April 21; ibid.) Meyer
222. Memorandum From the Director of the Office of Saudi Arabia, Kuwait, and Yemen Affairs (Brewer) to the Assistant Secretary of State for Near Eastern and South Asian Affairs (Battle)/1/ Washington, August 1, 1968. /1/Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1967-69, PET 3 OAPEC. Confidential. Drafted by D. Newton. SUBJECT OAPEC, formed by Saudi Arabia, Kuwait, and Libya after the Khartoum summit conference last fall/2/ to coordinate the oil policies of those states for which petroleum is the major export, recently held a disappointing preliminary meeting of oil ministers in Beirut on July 25. The Libyan Minister of Petroleum failed to attend the meeting, which was to have named a secretary general and set up working committees, and the Saudi and Kuwaiti ministers were able to accomplish little in his absence. /2/The formation of OAPEC was announced on December 21, 1967, by Saudi Oil Minister Yamani in Riyadh. (Telegram 90419, December 28, 1967; ibid., PET 3 ARAB) See Document 268. Libya has approved but not yet ratified the OAPEC charter. While this may have been a factor in the Libyan "no show", a more likely reason was concern that Saudi Arabia and Kuwait would pressure Libya to slow down its rapidly expanding crude oil production, already partly responsible for a substantial decline in Saudi and Kuwaiti production in June. Having been subject to heavy pressure from his two Arab counterparts at the OPEC in Vienna in late June, the Libyans evidently decided to avoid what would have been another unpleasant round of lecturing. OAPEC was formed chiefly to give the conservative, oil-rich states a pan-Arab "umbrella" under which pressures from the radical Arab states might more easily be resisted. (Iraq is eligible for membership under the OAPEC charter, but the UAR, Algeria, and Syria are excluded). But the members do compete and may find it difficult to coordinate their varying interests now that pressure from the radical states has subsided following the Khartoum arrangement to provide budget subsidies to the UAR.
223. Memorandum of Conversation/1/ Washington, October 8, 1968. /1/Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1967-69, PET 1 IRAQ. Confidential. Drafted by Baas. SUBJECT PARTICIPANTS Mr. Wolgast phoned to pass on a report received from a Mobil Oil Company employee who had recently been in Baghdad./2/ He had limited contacts with Iraqi Government officials but he talked with a number of other individuals there including Ghanim Uquaily, former General Manager of the Iraq National Oil Company. /2/The Mobil Oil Company official presumably was Vice President Henry Moses who had informed the Embassy in Beirut on October 7 about his recent trip to Iraq. (Airgram A-1386 from Beirut, October 7; ibid., PET 6 IRAQ) The Mobil representative reported that the GOI is taking extreme repressive measures against opponents of the regime, including the left wing of the Baath Party. Among the prominent people who have reportedly been jailed are Subhi Abdul Hamid and Arif Abdul Razzaq./3/ /3/Moses believed he had witnessed the aftermath of a coup attempt. (Ibid.) The Mobil representative was very pessimistic about the oil situation. He believes that the Iraqi Government has not yet formulated an oil policy. The GOI needs money badly and may offer settlement of specific minor issues as a quid pro quo for cash payments. However, it does not appear that the GOI is prepared to settle any territorial problems. In this connection, there is nothing new on the question of IPC development of North Rumaila under contract to the INOC. When the Mobil representative met with Uquaily he was asked if IPC was still concerned about repercussions elsewhere over any agreement that might be reached with the GOI. He was assured that this indeed was a concern of IPC. Uquaily also wanted to know if the IPC partners had given CFP a green light to negotiate for Iraqi territory. The answer was negative. Former Oil Minister Abdul Aziz Wattari will reportedly return to Iraq as a private citizen in the near future. Uquaily said that no political significance should be applied to his return. In conclusion, Mr. Wolgast said that an IPC team is going to Baghdad this weekend for exploratory talks. The team will not be authorized to negotiate or discuss any substantive points, thereby avoiding any confrontation with the GOI at this time.
224. Telegram From the Department of State to the Embassy in Saudi Arabia/1/ Washington, October 15, 1968, 2346Z. /1/Source: Johnson Library, National Security File, Country File, Middle East, Saudi Arabia Cables Vol. II, 4/67-1/69. Secret; Exdis. Drafted by Davies and approved by Brown (S/S) and Rostow. 255853. From Under Secretary Rostow. 1. Understand Brougham and top command Aramco increasingly disturbed at what they consider unbalanced US posture in Arab-Israel dispute and fearful of consequences to major US interests in peninsula. 2. If your briefing of senior company executives in Dhahran did not cover the recent US-USSR exchange, you may wish to return to fill out the picture in supplementary briefing or pouch copy State 254108, Oct 14,/2/ to ConGen Dhahran to serve as basis for briefing. /2/Not found; the reference should presumably be to telegram 254018, October 11; National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1967-69, POL 27 ARAB-ISR. 3. We believe rationale outlined in our reply makes clear pitfalls we see if we do not persevere in our efforts to bring parties into agreement which will reduce or eliminate the basic causes of Arab-Israel conflict. 4. We would appreciate any impressions you may have gleaned of Aramco concerns during your recent briefing. Rusk
225. Telegram From the Embassy in Saudi Arabia to the Department of State/1/ Jidda, October 29, 1968, 1315Z. /1/Source: Johnson Library, National Security File, Country File, Middle East, Saudi Arabia Cables Vol. II, 4/67-1/69. Secret; Exdis. 5776. For Under Secretary Rostow. State 255853,/2/ 260750;/3/ Jidda 5646./4/ /2/Document 224. /3/Not found. /4/Dated October 16. (National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1967-69, POL 27 ARAB-ISR) 1. I briefed Barger and Dinsmore subsequently briefed Brougham and Hills on State's 254018./5/ While appreciating USG position, their general reaction was negative. All felt strongly that current USG policy risky and is badly hurting American position, both public and private, in Middle East. Soviets gaining at our expense. All argued that Arabs have responded generally in positive terms to President's five points and that we are accepting uncritically Israeli positions. I assured Barger this not so and that USG also pressing Israel be forthcoming. /5/See Document 224. 2. Top Aramco men consider USG has missed opportunity bring Israel to compromise and are pessimistic over likelihood better terms from Arabs. They appear to believe that second round will come in which Arabs (perhaps with Soviet help) will prevail and in process remaining American interests in Middle East will be irrevocably lost. At times their attitude is explosively critical of our actions. I am going make another attempt explain USG position to new Aramco Vice President Knight, who will be my house guest next few days, to broaden understanding of what we are about. 3. I neglected mention in Jidda 5646 that at Aramco board meeting Brougham asked what USG doing to cultivate potential upcoming Saudi leaders. I told him Secretary Udall earlier agreed in principle invite Minister Interior Prince Fahd for three day official visit, but scheduling any such visit not possible until after election. Various Aramco board members strongly endorsed idea and urged that USG do more to cultivate upcoming Saudi leaders, even though some of them may be Princes, by official invitations to US and a bit of glad-handing by American officials. They also indicated willingness extend hospitality. I assured board we fully aware of this need and will continue do best we can arrange such visits. Eilts
226. Research Memorandum From the Director of the Bureau of Intelligence and Research (Hughes) to Secretary of State Rusk/1/ RNA-34 Washington, November 7, 1968. /1/Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1967-69, PET 6 IRAN. Secret; No Foreign Dissem; Controlled Dissem; No Dissem Abroad; Limdis. SUBJECT The temporary settlement in April 1968 of current disputes between the Iranian Government and the group of western oil companies known as the Iranian Oil Consortium gave the companies additional time to determine their joint position for the subsequent round of negotiations, which began on September 30, 1968, at the semi-annual Consortium/National Iranian Oil Company meeting in London. This paper will attempt to present the background and an analysis of the problems involved. Abstract In order to achieve an exceptionally large increase in its oil revenues for several years to come, the Iranian Government will in the next few months bring heavy pressure to bear upon the Iranian Oil Consortium. Wishful thinking plus an error in computation/2/ has led the Iranians to plan upon a level of revenue from future Consortium operations that is, in the Consortium's view, far above the probable figure, and the government has been so informed. /2/See footnote 3, Document 215. The Iranian position, in essence, is that Iran's development needs (in particular, its fourth five-year development plan, covering the Iranian years 1347-51, roughly 1968-72) require a certain level of funds, that oil is the only Iranian resource capable of generating that level, and that the bulk of the necessary oil must come from the Consortium's concession area, which contains by far the most prolific known and presently operational deposits. The Iranians would prefer, as the simplest solution (and the only one likely to succeed), that the members of the Consortium lift enough oil to provide, through the usual royalties and taxes, the desired level of governmental revenue. If the Consortium is unable to do this, it must provide the National Iranian Oil Company (NIOC) with a sufficient quantity of oil from the Consortium area at a low enough price so that NIOC could make up the shortfall in revenue through its own sales or barter arrangements. The oil could be provided by modifying the terms of the Consortium's 1966 agreement to make barter oil available to NIOC, by turning over to NIOC an already producing field in the Consortium area, or by conferring upon the Iranian Government membership in the Consortium. The government has indicated that, in case of refusal, Iran might take unilateral measures to obtain the oil. In spite of the apparent Iranian determination to reach, in one way or another, its revenue goal, the government is very probably aware that this goal is unattainable--that the Consortium is in fact doing its best to increase its offtake but will not be able to meet Iranian demands, that additional sales by NIOC could not possibly close the gap, and that any unilateral measures Iran might take in an attempt to reach its goal not only would not accomplish that end but might prove to be disastrous. There have been indications of Iranian hesitation to enter into an irreconcilable confrontation with the Consortium. The Iranians backed down in April 1968 with a "Persian solution" to the problems raised by their demands. They shifted the time frame of the dispute. Their recent offer to discuss production capacity as well as actual offtake of oil has opened up another avenue which could at least postpone a showdown. If the Consortium remains adamant about future commitments on offtake, refusing to promise the levels the Iranians are demanding, the government can back down again by accepting Consortium assurances that the necessary production capacity will be available in case Consortium offtake or a combination of Consortium offtake and NIOC offtake for barter purposes should by some chance reach the desired level. The Consortium is apparently in a position to make such a commitment for at least one year and possibly two. With room for the Iranians to retreat, we believe they will probably do so. They will make every effort to better their position, such as by obtaining easier terms for barter oil and some additional minor concessions, as well as the highest possible offtake commitments, but we strongly doubt that they are as yet prepared to resort to unilateral measures of compulsion if their demands are not met. Here follows the body of the 26-page report.
227. Memorandum of Conversation/1/ Washington, December 6, 1968. /1/Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1967-69, PET 6 IRAN. Drafted by Eliot on December 8 and approved in S on December 11. SUBJECT PARTICIPANTS The Hon. Dean Rusk, Secretary of State The Prime Minister asked Dr. Fallah to join the meeting for a discussion of oil matters. He said that Iran has no problems in the current year with the Oil Consortium but that it hopes for one billion dollars in oil revenues next year (comment: presumably the Iranian year beginning March 21, 1969). The member companies of the Consortium are considering this request, but have not yet responded. Last year, he said, the Shah told the companies that if they could not meet Iran's requirements, Iran would find its own markets. He decried what he described as the companies' policy of supporting such states as Abu Dhabi and Kuwait that either have no useful way to employ their oil revenues or use them to support radical Arabs. The Prime Minister went on to say that Iran is now looking at the American market. One way to sell oil to the United States would be through the present American quota system, using the proceeds to purchase American goods. Iran might possibly buy into an American firm having an import quota. In any case, the Prime Minister said, two aspects of this situation deserved special mention. One is the fact that the United States needs additional oil reserves. Iran has entered into a contract with another country (comment: South Africa; see below) desirous of stockpiling oil and has asked a private firm for a study on a similar possible contract with the United States. Iran would give this study to the United States Government for its consideration. Iran could use the proceeds from such sales to the United States to buy American products. The second aspect of the matter was possible sales of petroleum products to the Department of Defense. Dr. Fallah said that sales to the Department of Defense pose a problem because DOD purchases on the basis of public tender. The Secretary asked if Dr. Fallah meant that Iran could not meet the price competition. Dr. Fallah said that the National Iranian Oil Company (NIOC) would act as the Consortium's agent. The Prime Minister said that the NIOC would find a market for the Consortium. The NIOC would make no money as an agent, but Iran would profit through the taxes the Consortium would pay on higher production. Dr. Fallah said that Iran desires a three-year contract with DOD, but the latter won't go beyond six months. This and not price is the problem. The Prime Minister said that Dr. Fallah would be talking with DOD officials. The Secretary said that we can be sympathetic provided that the price is right, but we do not want to subsidize the seller. Dr. Fallah said that on the other aspect of the Iranian plan to sell oil to the United States, Iran believes that it is in the US interest to buy inexpensive Iranian oil. The Secretary asked how such purchases would be financed. He said that he couldn't imagine the Congress financing an oil stockpile. Dr. Fallah said that at some time in the future, the United States, like South Africa, might finance a stockpile. Iran could provide credit for that part of the sale whose proceeds would go to Iran. The Secretary said that from the standpoint of national resources policy there was some logic in the Iranian proposal. But to translate the proposal into financial and political terms would be difficult. He asked if such a proposition might not be more attractive for Western Europe. Dr. Fallah replied that Western Europe is already a market for Iranian oil. The Secretary commented that in our case, the proposal would appear to hurt our own producers who wouldn't trust their government to keep the stockpile locked up. Dr. Fallah said that the major American companies would like the proposal. The Secretary said he was interested in the subject and would give it more thought, but there are political and financial problems. Dr. Fallah said that Alaskan finds are not the permanent answer to American oil needs and added that the Iranian proposal would not hurt the American balance of payments. The Secretary repeated that the proposal is politically very difficult. He asked that Iran provide us with its studies informally and that future discussions be on an informal basis. [Continue with the next documents]
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