Created: 12/7/1954

OCR scan of the original document, errors are possible




estimate probable trends in Iran In the light of tbe oU settlement, withrespect to: (a) tbe prospects for continued control by Zahedl or other moderate leaders; (b) the outlook for economic political stability: (c) tbe probable extent cf Iran's will and ability to contribute to US-backed regional security programs; aad (d) the extent to which continuing US assistance and Influence will be Important factors In the situation.


Mosaadeq'a downfall, political power in Iran has largely reverted to the Shah and the conservative traditional ruling group. The principal new features of the situation are: (a) the extent to which authoritarian means have been used to curtail opposition; (b) theof the US as an acknowledgedinfluence in the situation; end (c) the re-emergence or British pollUcal and economic influence. )

Zahedi's chances of survival5 are considerably lesr than even We believe that the moat likely time for his replacement will be shortly after the Shan's return to Iranran will probably remain, at leastn the hands of predominantly conservative governments acceptable to the Shah and Western-oriented Now that the oilhas been resolved, however, there ls Likely toarked Increase in political ferment which may weaken theof the government andevival ofnff uence. Moreover, even If the conservatives succeed In re-Uinlng controlhey willvulnerableudeh or natkonal-ist-lnspired ftareup of popular feelingthey make some progress In satisfying popular grievances and in reducing;distrust of the government.)

The Communis* Tudeh Party, havingeries of setbacks, will be In no position to challenge the government seriously in the nextoonthsit may be bard pressed to maintain an effective organization. Nevertheless, it Is the only political opposition group in Iran which has some organization and discipline, and it Is likely to rt-emerge as an active threat unless tbe government both continues effective suppression and succeeds In allaying popular grievances.)

The resumption of oil production,with Interim US aid. wi'J provide Iran with substantia] funds for an eco-

COOiC development program which CO'Jd

do much to meet popular aspirations. However, the ulumate efftctivtnesj of any tueh program will defend not only on the money available but also on the way Ln which the government tackles the managerial and political problemsand on the Shah's willingness to provide Arm support This, in turn, is likely to depend on the ability of tbt US and UK to work together effectively and influence the Shah and other Iranian leaders against allowing the programs to be unduly weakened by corruption,and political maneuveringn any event. Iran is likely to remainumbe; cfasically unstable country, plagued with continuingandl difficulties. Itssocial and economic problems areort which can be solvedelatively long period of time and which. In the process, will generate new tensions and strains. The disruptiveof popular discontent acompany-leg such tensions and s'rains willbe increased unless the ruling group adjustsharing of power withmiddle class elements.

6 In time Iran will almost certainly seek increased participation Ln theand profits of the oil Industry. However, the oil question Is unlikely to re-emergeurning issue so long as oilolicies pay dut heed lo Iranian sensitivity and aspirations and Iran reinains re&sonably stable and pro-Western in outlook. . The Shah and many Iranian leaders are convinced that Iran must maintain close ties with the West if It is to avoid

and ether keyIn Iran.

U accompanied by Improvednd liv-ing conditions,rogram would also tend to lessen the vulnerability of the ar-oei forces to Tudeh appeals andto improve their long-term reliability.

he USSR would almost certainlyit as provocative Lf Iranestern-backed regional defenseand would probably respond with strong diplomatic protests and Increased subversive and propaganda efforts. The USSR might also threaten to invoke1 Iranc-Soviet Treaty, which itas permitting it to introduce troops into Iran in case of threatened invasion from Iraniin lerrv.ory. If establishment cf Western bases on Irznian sell appeared to be tn prospect, the Sovietn would te strongerould probablyshows of force tlong the border.his case, the USSR might claimbase rights in Iran which would result in the movement of Soviet forces into Iran. 2 Iran, under any foreseeablewill continue to resist Soviet attempts to interfere in Iranian affairs. At the same time it will be careful to maintain superficially correct relations with the USSR, to avoid giving Moscow solid grounds for intervention.

rOUTlCAl Prevent Situation

tuct the overthrow of Mouedeo.olitical powei in Iran haa largely re'Crted to Uioac who eORtroUed the country prior io the oil cauonaIiiation crisishe Shah has beer, confirmed In bis central role in the goremreentalitrueturi as the most important focus ot prestige and pout-leal influence in the country, and, through his continuing personal control of the armed forces,owerful force In political affairs The mature of leatou, demagagues. and rt-fonrfis who rote to promineoce In therrave been forced Into the backgroundwilh th* mobs they led. leaving tha traditlonaJ landowning, commercial, endgroups once again in control of the offices and perquisites of government The tribal situation Is quiescent, except for the curientlyrelations between the Shah and *he four principal Qeahcai leaders who arein southern Iran.

ht principal new features of the present power situation are: (a) the extensive use of authoritarian meansmartial law.and prosecution or repression ofto curtail opposition lo the regime and to th* government: (b) the emergence of the US. which many Iranians hold responsible for effecting Mouadeq'i downfall and which haa since been ths chief financial backer of the government, as an acknowledged major Influence In th* situation: and (c) th*of British political and tcenoaue Influence.

IS. Under General Zahedl, reasonably orderly and liable government has been established In Iran. The Majlis and Senate have beea reconstituted, and aa yet then has been no resumption of th* irresponsible bickering and obstrucliorusm which has marked th*lv* process In the past Zahedl has sought and successfully retained tha support of th* Shah and has thus been able lo stav* offemergent politka! conspiracies to repine* him. The government has recoerniied Ita prcbebl* inability to appease the exl-emisti and has generally dealt firmly with ihem. It hasorjcler.uoui effort to crush th*

Cormunlst Tudeh Party, anda NieaTj break leading to the uncovennguceh ring in the insect, forces hu probably given theerious setback.ushed through legislation foe reforming the currency, haa setlanning Council to control the allocation tnd expenditure offunds, hu presented ne* anii-Communisl legislation, and hu ;rreuures for land reform and reduction of corruption in government.

ost of all. the rahead with an oil settlement, whichagreed to In principle Innd finallylight opposition, inctober While the one-sided vole for ratificationmainly the result of strong pressure by Zahedi and ihe Shah, thahu apparently succeeded tnonsiderable part of tht public, at leul for Lie present, that some form of oli seltlement wu necessary and that the present one iu the best obtainable under existing

It, Despite theseealbuj for luting stability is still lacking. The events of the last year have not eliminated the strain* and discontents which accounted for much of tha success of Mossadeo/sappeal (and for much of the appeal of the Tudehxtremeeen repressed rather lhanajor political force. The government hu failed to achieve widespread support and al best appears to bene which hu restored law and order, which may with CS support and oil revenues be able to provide some benefits for the country, and which In any event presently hu the will and ability to put down opposition. It hu not succeeded In checking inflation or la making much tangible progress toward economic and social bettermenttwo point* of particularbecause of their impact no thepolitically Influential urban middle and lower class element*.

la Because of tht ir.dltloMl practice of us Jig public office .'or private snd family gain, many officials, including Zahedl himself, hive been accused of the same hra_'i and corruptionourajeci popular cvnioisnthe government. The use o:aran rr.ethods has tended io create somerelet.on of itsit has probablyopposition sndiva semereformats Inco tht arms of Tudeh or other extremist groups.

It. Moreover, despiteuccess to cute in retaking the support of the Shan and Ln obtaining the cooperation cf ihe Ma;u* and Senate, he hu few reliable supporters in either body. His success ts largely due lo general recognition that an oil settlement wuand that the removal of Zahedi would hart jeopardised the settlement and incurred thi disapproval of the US and tht UK. Many legislators probably also reasoned lhat Zahedi could be macit the scapegoat in cue theatmosphere chatted and opposition lo the oil settlement became active and widespread.

ow that the oil settlement hu been achieved, It Iso how long Zahediikely to remain in offer. Thera Is also tht more buic queation whether, under Zahedi or any lUtely successor. Iran willuis for political and social

Proboble Developments3

t leutS. we believe thewill reman In the hands ofconservative forces acceptable toand willing to continue with apolicy. Despite tht Tudehlong-range potential. It will beposlt.on to eha..'enge the governmentduring the nestoard pressed to maintainorganiiallon. SoahediMinljter, the governmentairlv firm policy of Tha will inhibit the effectivenessviolent critics of pro-Western policiesKuhanf, Mouafer Saghal ofParty, and the leaders associatedpro-Mossadeq National Resistance Some of these, however, may bedevelop contacts and influence among


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here Is llkvly toarked increase in peiiticai Unreal. The settlement or theu removed an important deurrtnt to resumption of the political maneuvering and ir.ingue characteristic of ihe pre-Mcssa< deq era and has probably increased the desire of deputies and senators, many of whom paid beanl* to Insure their elecUon, to benefitfrom the oil settlement. The efforts of the goiemmert to move ahead wilh aa In-temal reform and development program are likely to encounter strong opposition from some deputies aad senators and indiffrrence from many others At the same time the government It UXely to be confronted vith demands, sincere and otherwise, for speedier action to control inflation and Improve living standards, for improvements In education, public health, corking conditions, and for restoration of freedom of the press andPersonal antagonisms and are also likely to come to the surface andand tribal resentment* against themay be intensified.

ahedl could probably survive theseIf he had the strong support of the Shah, tlnce the various aspirants for his Job are Likely to remain too weak and divided among themselves to bring effective pressure for his removal without active encouragement from the Palve. The Shah's continued wu> ingneu to such backing, however. Is uncertain Fus underlying distrust of any strong personalty, his predilection forLotngue. and oil tendency lo vacillate ail mlllUte against his supporting Zahedlustained bes;s. particularly sow that the oil settlement has been achieved- Moreover, th* probable increase In pohtlcu activity in th* months toikely to make it easier foe Zahedj'i rivals to persuade the Shah, who It keenly sensitive to pollilcal currrnU within Iran, that Zahedj noccepUble lo tha political enlty and should beThe Shah may be dissuaded from making an early switch by the difficulty ofatufactory replacement, by fear of losing US or UK support, or by concern over the future of the reform and development program. However, his personal Inclination* appear ton the Itrrssioa of e'-entua^r*

ahedi's of survival throughare eonsideraaiy sett -han even We believe that the most Ukrtyor ha rep.aeee.ent will be shortly after the Shah returns to Iran In unseat hira may develop during th* Shah's protected three months tnp to Europe and the US beginning in1 but would be unlikely lo succeed in view of the Shah's probable desire to have no change of government during rusahcdi's position will be open to furtheroes through with his plans to go to Europe for necessary medical attention following the Shah's return. Moreover. Ih* possibility of assassination is always present. Finally, the terms of the eniire Majlis and one-third of tbe Senate anil *spir* in the spring of lflSfl, and toward the endl the Shah may take the occasion to remcr* Zahedi andservice- government for the electoral period aa hai been donein the past. On the other hand, should the Shah still be prepared to back Zahedl as Ih* year ends, the letter's posiuon would be strengthened, since h* would presumably have some part in deciding which candidates wouldh* all-Important support ol theand the Shah.

ahedi's removal would not necessarily lead to any significant change In the over-ail sUbility and orienU'.Son of the government, sine* the Shah would remain the mostsingle figure in the governmental structure and since the presentajor policies are as much his as Zahedi's.uccessor might not be as willing as Zahedl to use fore* to maintain order. Furthermore, successful eflorU to remove Zahedi would encourage similar atUrks on hit successor and might accelerate the return of eauemitt groups to positions of pebucal in-fluer.eeevelopment would lend lo reviv* the pre-Mossadeq pattern of poliucal LnsUbllity. In this situation, each prime minister in turn wouldemporary majority in parliament byedia-tnbutloo of spoils Soccer or later, sever.



*euM SCe abit to meet theerrancs ft! his lup-pcr'.ers end wouldou: in favor of someone eJ* who was willing to promts* mors. If. in the meantime, thebid net taken action in the faceuccession ofernmenta.ouptrong rnlliUry leader would have been created

one of the leading candidate! for Zahe-dJ'i posiiion has any solid poiitrcai rupport and. moreover, none shows any great promiseational leader. The most prominent current candidate is Senator Mar.uehehr Fqtal. an experienced government official,to be particularly well-disposed toward the British and to have Lhe confidence of the Shah- The Shah might also appoint Ms Km-later of Court, Hoseln AJa. as an intenro primen any case, the efTecUveaess of any successor to Zahedi would depend oo the willingness and ability of the Shah and the Prune Miduim to cooperate.

long-Rons* Problemsspech

he coruen-atlv* elemenU now inrobably be able to retain thru control5 if they remain prepaied tothe authoritarian methods now in effect. Kocerer. unless they make some progress in satisfying popular grievances and reducing popular distrust of the gcr*emm*nt, they will remain vulnerable to the sort of Bareup. under Tudeh er nationalist auspices, which was touched off by Raraare's assassination and du oil Issue inIn the long run,unless the traditional landowning group adjustshailng of political power with growing urban rruddi* class elements, there win probably be an increase In the disruptive potential of popular discontent. While the armed forces willairly reliable instrumentality for coping with popularthey are not immune fromcommon amongarked decline in popular acceptance- of the present

'CHber ajpirinu far thr prime aUnliienhlp la-tker SetaVX /areareared lecermJArra; aerator Dr. WghammeoADorraerBUtUiier udivji, te the CX. and Afcol aiUUiUr of finance.

ruling group may therefor* hate sn ad-erse edict on the reuanUHy sf :fce seeuntf forces.

IS. The Shah appears to recognise the netd lo attack these problems beforeereaches dangerous proportions. Huwever. mane euffl-cullies wul be enccuniered beforeodest start can be made Th*urrent allempt* lo eurtull corruption and build up public confidence in the bureaucracy will mak* Utile progress without the active eupport of lhe Shah Even if gut*mment and military salaries are raised sufficiently to pr>ecent living, corruption wllJajor characteristic of Iranian political life untu such timeradiilan of public seme* has become esUblished tfforti to spur social reform will aimosl certainly encounter strong resistance from vested Interests. Moreover, aa the government may fall to reccgruxe, the development ef greater political stability wul probably require, in addition to materialgieater effort to enlist the support of tb* opinion-forming intellectual and reformist elements So long as these eleuents remain excluded frompartleipauen inaffairs and prcen'-cd by censorship from expressing their views freely, they are likely to maintain an attitude of siroog opposition

e believe thai progress wul be made on the strength of the oil revenues and th*provided by U3 aid. In view of theLikely to be encountered, however, th* extent of that progress wul probablyon the wulingness of the Shah toactive, continuous, and consistentOlven lb;ersonalthis willingness In turn is likely to depend on the ability of the US and UX to convince the Shah of the necessity of sucb support and io keep hisocused on the problem

n any event, however. Iran la likely toa basically unsteady country for aof years. Iran's underlying social and economic problems areort which can be solved onlyelatively long penod of luxe and which. In the process, gene.-ate new tensions and stresses. Wl'h oil revenues in process of being restoredenrfVlalwith the Wot aaUDluhed, Iran is




elter position to sVac's hese probte-rj thanasowever, they will te successfully solved onlyontinuous and sustained effort.

The Succession to then view of the key sole of the Shah In the Iranian political system, the death of the present monarch coulderious blow to Iranian stability, particularly since he has no male heirs of his own and has refrained from openlyuccessor* His death would at least create an opportunity forpolitical bickering over the succession, In which Tudeh and the uliranatunallau mghltheir demandsepubUc-Should the Shah's death lake place in the present political er.tironment. th*elements now la tbe ascendancy, with the military high commandrominent part, would probably succeed ts slabLUxing Ihe situation. If the Shah were assassinated, the present leadership'! ability to maintain control would probably be enhanced byrevulsion against the assassins. Even if the succession vere quickly established,the new Shah would hava to establish his authority, and initially, at Ic'St, his tbuity to exercise the positive leadership which Iran need* would be leas than lhat of the present monarch.

f Iht Oil Issut

he recent oil settlemeat, though actvictory fjj Lanian eyes. Involvedsubstantial concessions totoignificantof good wU] and sense ofthe oil settlement removes aihe recent death ot the Shah* onlrAll fteta. then Due ts the a! half-broth- 0! i- Rtra.ean t Uttiu

old AM or fteta. turner bead of the Sevea Tea* f Both brother* ue weeum-

an behe present eoniUtuUon oteauM theirarttt thtI la that irewould Qtemrrt Ibe ten-euiiiUon In fax* of one ef Ursa If be' ehOMa bf theto luccied to Uii throne.

clpllr.e' Strong populartoup it the tune

*'C Sincearty blltubjfC'fd

to mn restrictions andpress and radio attacks velopmer.ts have almost certainly laJtenheavy toll among iu sympathisers and'cut into Ita membership aj well. Th* uncovering tn4udeh net-cork Ined forcea and thearrest of hijidreds of persons who were implicated haseverehe dls-cover? and eon/location of therinting plantsdeh and of its youth or-ganiia'.roo hasurther setback, as has been the recent in lens ideation of government efforts to root Tudeh members and syrnpe-thUers out of th* burvaucracy. For th*In th* face cf government plans toatnngent laws penalizing Cwnmunjt memoership or actlvlliM. th* part/ is almost certainly primarily concerned withto maintain an effectivehe recent apy ring discoveries bare Dot yet established the exten; of Tudehof the Iranian armed forces, andtrength in th* bureaucracy Eveninimum, however, tndl-cations are thai Tudeh penetration of the armed forces was aufflcient to carry on anintelligence collection effort,apability for strategic sabotage and political assassination, to acquire weapons and *quipm*nt. to protect Tudeh members from the police, and to facilitate clandestine transit across Iran's hordes of Soviet and Iranian of this Tudeh penetration of the armed forcesprevious ndicatioeis that variousnotably Justice and Education, also have beenat*d. It also points up bclh the weakness ofunty against espionage and the success of the Communist* in recruiting Iranian personnel for ihciroperations. The fact that the Tudeh ring in th* armed forces apparently confined lu effort* to espionage and th* development of

iht !art rear et De Mautdeq'iTuOeh mtmbenhip prot-ablf rescuedof about SSio1 la Iubciage roitnual sugtesunsmt circums'ancts the VSSft recognizes ihatgram must ba confined to develops? asseu rather than fostertsg an early attempt to ten*f ih* armed forces

; least for th* short run. rec rnt stringent measures against the Tudeh Parly haveIU ability to promote overt opposition to the cil agreement and lhe Western position In Iran andtimulated public and official awareness of the Tudeh threat. If these measures are continued against Tudeh ad-herenU and not used to ha-asa political ep-ponenU. the dependability of the armed forces acthe bureaucracy wul incriase. On th* other hand, th* severity of official action against Tudeh members may adversely affect popular attitudes toward th* govarnistnt,lready condemned In many quarters for oppressive measures, andesult may enable lha Tudth Party to share in popularor other opposition elemenu which also bat* been targets of th* government crackdown. Tb* go**mm*nl'i long-rang* chances of success in iu anU-Tudeh measum wul depend both on iU readiness to remain conslsienUy firm aad alert, and on IU ability to make aome progress in allaying social, political, and economic grievances which make Iranians vulnerable to Tudeh exploitation. Tht government's effectiveness, La both of these respecu, will in turn depend on firm backing from the Shah

II. KONOMIC Present Sifvofion

he ehief economic acjompllshmeat of th* Zahedl government has been thebetween Iranorisortiuro of eight Western firm* (or restoiation of Iran's oilThis agreement, which calls forof Iranian oJ production by the end of Ul* Uurd full year of optrauoaielding th* Iranian Governmentof approximately JITSr, will provide Iran wilh substantia] fundsregram of economic rthablliUtwn and de-

Major provusooa ef the settlement are

. eh th* oil eomparje* hit made no fvrihtr specific commitments, tht" hav* formally irdicsieo that theyrani nvtWIM to average out at leui that level for ihe rtrnainOr ofyear contract period In addition. Operating Company purchase* of rials for local operating expenses will addtllioo annually lo Iran's foreign exchange income. Thtof od production hu relieved the government of the eoat of meeting the NIOC payroll and eruJ also have various Indirect economic benefits In tht southern oiln othe;nian economy hu done iit'Je more lhan toa*fc time In the period since Zahedi's advent to power. The previsionmllicn In Dd emergency usisianct hu tnabled Zahedi to pay therunning evpenses. and the oilhu bolstered general businessand Iran's foreign credit standing On the other hand, there hu been littleccllv-ty other than thatn connection withillion USassistance program. Moreover, during the put year the urban cost of living hu continued to rise sharp.y, thus Increulng the already heavy economic pressure onemployees, factory workers, tnd others in the fixed income groups In add-tion. the government's financial position hu been weakenedave of uncoordinated credit purchases this summer from foreign suppliers eager to cash In on the expected resumption of oil revenues. There credit deals. Involving rails, buses, and othet items, art estimated to total up0he government has obtained US pledges of an additionalillion In grant aid and loans during5illion for direct tudgelary support. In addition It hu taken some Sleps, In part at US urging, to improve ii* future financial management Currency refcrm legttlatloa wu pushed through inroviding lh* government with increised fiexlblllcy In

*ConioeU-.vto Iru will be In iterucg Cnderaiea ecr.vertibliiif aftee-aveot,rmntrteayment*be eoDVlfUblt lolo dollar*



efiortsurtail. andoiher revenues may be bringingreturn. Plan Dlrvcto: Ebtafiajsomewhat optimistically, lhatmeasures wiL enable

iii. mlutakv

ran's present armedre orjanued primarily forof thether interna]Then traditional loyalty is torather than to the governmentll but the gendarmerie reportto the Shan aslhan through any civilianrecent uncoveringidespreadwithin the armed forces indicateshave been vulnerable lo subversiveHowever, most of the currentlyelements appear to bs veIdentified and we believe that thecan be presently considered fairly

0 ON US hased In efiort* to modenui* and Improve lb* armed forces through maintenance of military missions to the arm, and the gendarmerie, and through provision of military equipment Of the SIiilicn in such equipment aid allocated thus far. about gig million had been thippoi by The mission to th*o be augmented by five US training teams ator division levsl in3 "The IrvuU arced fortes ceosUlfeieDee fere* el ro coo;irau airhe taller for border patrol aad cuicxi dul'ei Thece. Hi- udf the Arse. Tbe oer.Sarmer'e tatheli'ii of tht i: icepi In qrne ot war,

support itself out ol ordinary revenue* byhereby treeaag the entire oUlor developmentaln any event, theffectiveness of any development prog*am will depend not only on the amount of money available but also on the manner in which the government tackles the managerial and political prcclemi connected with it Since most Konomicproject* are aloar u. gettiag under way and even slower in producing th*lr fi'U economic ejects, thereanger thst wiin-out programs which have an Immediate social or economic Impact public confidence in therogram may be dissipated Theseill be compounded if lethargy, corruption, and mlsmaragement are allowed to delay the program or to divert lu funds to private pockets or unproductive ventures. Moreover, the desiredill not be obtained unless specialaken to assure sufficiently broad participation in the benefit* of lies*h* Shah fiO Zahedi appear convinced of the oeed lor an effe:Uve development program and have some capable men associated with then, tn this effort However, the problems ahead cannot be solved without effective US and UK guidance and support. Given such guidance and support, the Economic Planning Council may be able to commit theto worthwhile project* wtieh. though unpopular with certain vestedould be difficult lot subsequent governments to repudiate. Iran wUl also have continuing ond for technical assistance in carrying outin the field.

inally, while the *eonomic development programs currently envisaged shouldresultignificant increase in over-all outputise in the general standard ofIran will eontimit to be pinguid by recurrent eeorocue and financial problems which will require firm government action.

While Kci improvements havehen programs, theestablishment it still erff.unlity Althoughenerallyerfts primary mjiwo ofinternal security, it vould beoffer signJkaat resistanceorieltart has been made atadequate sturxlarCj of leadershipproficiency Because of aof technical skills and experience andlogistic system, Iran has hadabsorbing even the limited amounts efthus far made available. Lowlhe general atmosphere ofand favoritism have weakenedamong the junior officers,were probably in large measurefor Tudeh'* success in winningamong the armed forcesi. for defense aglinst ais weakened by lis lack of atradition and of any strongof nationalThe development of theofregional defense system basedTurk-Pakistani agreement haspotential Importance of the Zm{tqachain In Iranajor barrier tomilitary advance inio the Kiddlean Iranian military force could bewhich was capable of effectingdelay in th* Zagros passes, it wouldin defense of the


Si An effort to create such an Iraniancapability wouldong termInvolving US expenditures verytn eicess of present levels The first and basic requirement would be to provideombat uruis with sufficient modern equipment and technical and tacticalto bring them up to adequate standards of combat effectiveness Moreover, fororce to function effectively additionalwculd be required for redeployment of troops and military Installations from their present exposed poellions to more defensible pcmta in the Zagros Mountains area; th*or new construction of military store*.


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dominant western infiuenc* in th* Irani intn*-. Th* present leaders cf Iran appear to welcome iru*5 Th* Shah and important leadrrs ba>ethemselves generallyo VS advice ever sat Dement of th*ssue, resumption ol seiation* irttr. the UK methods ot* armed fcrcrs. and certain internal matters sucii a* economic plannng and administration. Iran has generallyth* US in issue* before th* UN uid tend* to (olio* US advK* Ln ita relations with other Asian states Moreo'-er. since theot the Turk Pakistani agreement and the start of US military aid to Pakistan and Iraq, Iranian leaden, particularly the Shah as Commander-in-Chief, hav* expressed growing interest in eventual participation in US-tacked segional defense preparation* Iran hasirm position in the face of Soviet protests over the prospects for Itscooperation with the West, and thehas rukedj leisure by Arm measures against the Tudeh .'arty andi

o long as the Iranian Governmentto expect US economic, financial, and military assistance. It will remain responsive to US influence. As oil revenues are restored and US aid l* reduced Iranians may become Increasingly determined to manage their own affairs and more resistant to US guidance, w* do not believe, however, that developing Iranian seif-reuane* is Uk;ly to alterthe conviction of the government, and of the Shah In particular, that Iran requires Western support and friendly relation* if It is to avoid isolation and eventual Soviet domination. The Shah is especially desirous of building up the army and regards the US as the only feasible source of theassistance required to do so He may also believe that obvious US concern about Iran givesavoracle bargaining Even If he is unsuccessful tn obtaining assistance on the Kale he believes necessary to give Iran efleeUve forces, his urgent desire for such assistance as he eaoj continue to give the US bargaining power with him. The willingness of Iranian Oovernmentmcludin; th* Shah, 'c raie fir-:mer.tsh* West Uto bei by indifferenceonet darker Sitby the pftximity ei Scvie: power, syiitrost and disTike cfy uneertsjtly as toffectiveness of Western Ruutary support tn the event ol War.

Iran ondhe Shah and many Iranian leaders would like io pariieipat*egional de.'ense arrangement backed by the Weit. and they will probably continue to advance the idea both for motives of prestige andeans of securing maximum USndsupport. Under present circumstances however, they would probably be reluctant to Join any regional grouping until: (a) the Iranian military establishment bad beenstrengthened, and they were confident thatove would notserious opposition wi:hin Iran. Neither condition ts likely to be net within the next year or two at least. However. Iran might engage intaff talks with Iraq and possibly Turkey or Pakistan within this penod.

Motions with th* UKranian-UK dlplomatle relations have been resumed and. with the oil settlement, tension between (he two government* hu subsided. However, widespread suspicions of the Bntish persist. Because of the fact that most Iranian traders now lend to look more to the US than to the UK for support aadheofiomatic influence is Lkcly to be slow, and the UK wUi not, in thefuture, regain It* formerhe dominant western pewer in Iranian affairs Nevertheless, many prominent Iranians have long-standing British llu and theirto British infiuenc* Is likely to ln-creue with the revival of British commercial activity. At leut some restoration of former Bntish commercial and banking connections with Iran, which were close and mutually profitable, will almost certainly lake place, particularly since more than half of Iran's oil revenues win not be trans'rrrabi* into dollars The Bntish arc also likely toomeback

in cons ruction and engineering,will probably encc-unler increasi-jfrom the West Ocrmari* in this

urrently agrees with lhe USdesirability of Zahedi's reraa.rung invarious differences are Ukely tothe US and UK Tte roostof major US-UK differencesrole it Middle Easl defense. Theonlyow opinion of Iran'sand reliabtLty, and looks withreserve on the Shah's militarybut also appears to believeefense arrangementprovoke the USSA withoutcompensating benefits to thethe UK ii apparently lessis the US of the urgency of the needwidespread social and economicin Iran. Other US-UKiarise over commercial andof Interest

Relations with rhehe Zahedi government's actions andwith respect to tbe oil dispute,of relations with the UK. desire for in-creased US nuhlary aid. the uncovering of Tudeh labotage and espionage rings, and firm action against tha Tudeh Party have almost certainly appeared to Soviet leaders as ato their Interests in Iran. Nevertheless, the USSR Is unlikely to respond with force, estimating that such action wouldiolent Western reaction.

The USSR wul prcbably continue Ita props-ginda effort* to discredit the od consortium ano US uuVienct in Iran, and sill te alert v> exploit any oppoeturjtlei for subversion and Internal disunity in Iran. At lhe samet *UJ probably continue Its trade with Iran so long as conusercia: and political advantages seem to warrant It. and may make further conciliatory gestures toward Iran It has. for example, now ini'.iated anth Iran on boundary disputes and on theof gold and foreign exchange which the USSR has owed Iranh* USSR would almost certainly regard It as provocative if Iranestern-backed regional defease organisation, and would probably respond with strongprotests and Increased subversive an1 propaganda efforts The USSR might also threaten to invoke the1 Irano-Sovlet Treaty, which It Interpret* as permitting It lo Introduce troops inio Iran in case ofinvasion from Iranian territory. If es-tablishment of Western bases on Iranian soil appeared lo be In prospect, the Soviet reaction would be stronger and would probably include shows of force along tha border. In this case, the USSR might claim comparable base nghts which would result in the movement of Soviet forces into Iran.

ran, under any foreseeable leadership, will continue to resist Soviet attempt* toin Iranian affairs At the same lime It will be careful to maintain superficiallyrelations with the USSR, to avoid giring Moscow solid ground* for intervention.



Summory of the Term* of tha OH Agreementth* Inttmotlonol Oil Consortium ond thtof Iron. Signed4


Thi OpenVoB of the Iranian oil Industry. Includingaploration asperation of the refinery at Abadan, will be conducted by two Dulch-regiatered companies formed by the international Oilach of the operating companies, one ofe responsible for production and erpioration, and the other for refining, wul have seven directors, two of them nominated by Iran. The companies -UJ enjoyuse" ol the former Anglo-Iranianand properties in Iran, with the excep-tlon of the Kennanshah refinery, thehah field, and Internal distribution facilities which will be operated eaciusHely by th*Iranian Oil Company. Legal tlUe to all former Anglo-Iranianroperties is transferred immediately to the government of Iran.


Th* eiclusiv* exploitation rights of the Consortium over an areaOQ square miles will run for twenty-five years, wiih pto-Tisiont for threeearfter the Initial twenty-6v* year period, th*must surrenderercent of It* total

efCoMortiW" (and theirbartiUc!pauoo>il CooiEwnr teOfti; Oolf-ImemaUonal Cob-metoeonr-VacuumpirMl)OUuadard Oil Companr forru*i; Teas*an* Coaapafu* rraacaiae dia r- iSwi.

area with each five-year extension of theterm.


To compensate the Angle-Iranian Oilfor th* Kermanahah.hah, and internal distributionnd for the losses and damages arising fromIran wul pay the Companyillion inqual annualwithout Interest,ollateral agreement, the Anglo-Iranlan Oil Company will receive0 million from tb* other Consortium members a* payment for their jartieipating interests)



Th* Exploration and Producing Company guarantees to produce during th* first three years of the agreement th* following:

ubic meters of crude oil

ubic meters Of crude oil

ubic meters of crude oil

Th* Refining Company willbut does not guarante* to refine theubicO.0CO cubic0 cubic meters


Iran will receiveercent of the net profit* of the Consortium and will receive It*In sterling,ercent of which,eparate and secret VX-Iraman convert!-

illlon In the second, and


The highest level ofroduction, and of direct oil rt*enu* to Iran, wss reachedJOC then produced aboutillion cubic meters of od snd paid to Inn in Uses and royaltiesillion. Iran's rt* ceipts for the same level of production,Is guaranteedjl amount to

Original document.

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