COPT RO.l rOR THE PREflIDEVT OP TBE UNITED STATES
probable developments in iran 3 v ^
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PROBABLE DEVELOPMENTS IN IRAN3
To estimate probable future development* in Iran
Iranian sltuaUon contains so many elements of Instability that it la impossible to estimate with confidence for moreew months. On the basis of present indications, however, It appears probableational Front government will remain in powerespite growing unrest Thehas the capability to takerepressive action to check moband Tudeh agitation and willcontinue to act against specific challenges of this sort as they arise. The government Is likely to retain theof the Shah and control over the security forces.
Even in the absence of substantial oil revenues and of foreign economic aid, Iran can probably export enough to pay for essential Importsthereerious crop failure or an unfavorable export market .Theprobably will be able to obtain funds for Its operation. Some Inflation will occur. Capital development will be curtailed, and urban Living standards will fall. However, we do not believe that economic factors, In themselves, will result In the overthrow of the National Front
Under these circumstances, the Com-munist Tudeh Party is not likely tothe strength to overthrow the National Front by constitutional means or by force during the period of thisAlthough the danger of serious Tudeh Infiltration of the National Front and the bureaucracy continues, Tudeh Is also unlikely to gain control by this meansevertheless,events, sucherious crop failureplit In the National Frontesult of rivalry among Its leaders, would Increase Tudeh capabilitiesAnd if present trends In Iranunchecked beyond the endising internal tensions and continued deterioration of the economy and of the budgetary position of the government are likely to leadreakdown ofauthority and open the way for atradual assumption ofby Tudeh.
Settlement of the oil dispute with the UK is unlikely
3 Iran will attempt to sell oil to other buyers, both In the Soviet Bloc and the West Shortage of tankers will limit sales to the Soviet Bloc to token amounts. Small independent Western
oil com pawill probably not buyquantities of oil. We estimate that major Western oil companies will not be willing: to make an agreement with Iran so long as the current legal,and political obstacles exist. Nevertheless, some moderate-sized oil companies are becoming restive, and It Is possible that combinations for theand transport of substantialof Iranian oil may be nude unless there Is direct and strong objection by the US Government. The British would probably regard any arrangementUS oil companies and Iran, In the absence of British concurrence, as abreach of UK-US solidarity.
Hash an! or possibly another National Front leader might replace Mossadeqny successor wouldbe forced to resort to ruthlessto eliminate opposition. In his struggle to eliminate his opposition and particularly If he failed to do so, Tudeh Influence and opportunities for gaining control would Increase rapidly.
The Mossadeq regime almost certainly desires to keep US supportounter-weight to the USSR and appears to want
US economic and military assistance. Nevertheless, there will probably be an increasing disposition to blame the US, not only for Iran's failure to sellamounts of oil or to obtain an oU settlement, but also for Iran's financial and economic difficulties.
herefore, the US Point Pour and military missions are likely to find It even more difficult to operate3 than at present They wouldbe placed under severe restrictions If Keshan! or other extremists came to power. However, neither the Mcesadeo, Governmentuccessor National Front regime Is likely to expel
he USSR appears to believe that the Iranian situation Is developing favorably to Its objectives. We do not believe that the USSR will take drastic action In Iran3 unless therear more serious deterioration of Iranian Internal stability than Is foreseen in this estimate. However, the USSR has the capability for greatly Increasing its overt and covert Interference In Iran at any time, to the detriment of US security Interests.
vents since the nationalisation of oil1 have profoundly changed the political climate In Iran. The political forces which brought Mossadeq and the National Frontower are powerful and lasting. The Shah and the formerly dominant landowning class have lost the political thltlallrc, probably permanently. Nevertheless, the coalition of urban nationalists and religious sealoU which Mossadeq heads has no agreed program for the future, being united primarily by adesire lo rid the country of foreignand replace the traditional governing groups. The ability of the Nations! Front to remain In power, as well as Irene ultimate role In the East-West conflict, will depend tn largs measure on the National Fronts success In working out solutions to the serious social, political, and economic problems which will confront It during the next year.
II. Although unrest In Iran derivesomplex of factors exleoding far beyond the oil dispute with the UK, this dispute none-
theless has become the focal point of poll Ileal activity. Mossadeq rode to power oo the Issue of nationalization of oil, and his present political strength derives largely from hisdefiance of the UK.
PROSPECTSEGOTIATED Oil SETTLEMENT
e believe that the UK will almost certainly continue to Insist that there be some form of neutral arbitration of the amount of compensation for the seirure of Anglo-Iranian Oil Company properties even though nationalisation per se is no longer an issue. The UK will probably also continue to resist malting payments against Iranian claims without first obtaining firm Iranian commitments to follow through with a
IS In taking this aland, the UK Is motivated primarily by considerations of prestige and precedent The Conservative government would face strong political opposition at home If It agreed to Mossadeq'a present terms.more Important, the British feel that capitulation to Iran would threaten their own and the Western oil position generally In other parts of the Middle Eait Meanwhile, the British feel under no Immediate compulsion toettlement with Mossadeq. In the first place. Increased production in other areas has already made up for the loss of Iranian crude oU production, although the refining capacity at Abadan has not been fullySecondly, altltough the UK believes that leek of oil revenues will result Ineconomic and political deterioration in Iran, It does not appear to regard atakeover In Iran as imminent
oreover, the British are not likely to be Induced to make greater concessions to Iran by the prospect of Iran's selling oil Inettlement with AIOC. The UK probably believes that In the absence of an agreement between Iranajor US oil company. It can continue to exert economic pressure on Iran and prevent the shipment and sale of significant quantities of Iranian oU In world markets. The British would probably regard such an agreement, In the absence of British concurrence,erious breach of UK-US solidarity.
li. Iranian ittttvdt: Although the Mossadeq Oovemment desires and needs revenues from the sale of oD, Its attitude toward the oilIs conditioned largely by politicalThe National Front hasoilon Intoowerful symbol of rational Independence that nowould be acceptable unless It could be presented to the banian publiclearvictory over the UK. Mossadoq has been under growing pressure from eitrernlsts such as Keshanl who maintain that Iran's oQ resourcesurse ratherlessing and that Iran should reorganise Its economy to avoid dependence on oil revenues. On the other hand, Mossadeq's strength with other elements to the National Front has depended largely on his continued success in persuading the Iranian people that he Is doing his best to restore oil revenues hut that he Is being blocked by British Intranalgeancc, Injustice, and greed. Whether or not Mossadeq has tha political strength and prestige to persuade the Iranian public to agree to an oO eettlemont oo terms whkh the UK could accept, hitto date provides no indication that he desires to or will do so. On the contrary, he has made successively greater demands for British concessions.
IS. We believe, therefore,egotiated oil settlement during the period of thisIs unlikely.
PROBABLE DEVELOPMENTS IN THE ABSENCEEOOTLATEO SETTLEMENT
The Oil Problem
IT. Despite the aevcrsnce of diplomaticwith th* UK. Iran will probably beduring the coming year to further proposalsettlement of the otl dispute. For political as well a* economic reasons It wDi also make every effort to sell oil to otherboth In theBloc and the Wort. It win avoid entering Into any agreement* whkh could be construed as violating Iran'sor Its control of th* oU Industry.
IB. It Ii ui.llkely thel Iran will sell significant quantities of oil3 unless It can make arrangementsajor Western petroleum distributing Armomblnetloo of modeiate sized Arms. Although It Is likely to sign further trade agreements vith Soviet Bloc countries calling for delivery of Iranian oil, the extreme shortage of tankere available to the Soviet Bloc will restrict shipment* to token amounts. It also Is unlikely to sell financially significant quantities of petroleum to small independent Western oil companies In view of the dime allies which these com-panics would have In chartering the necessary tankers and In breaking Into establishedWe estimate that major Western oil companies win not be willing to make an agreement with Iran so long as the current legal, economic, and political obstacles exist. Nevertheless, some mode rate-sired oilare becoming restive, and it Is possible that combinations for the purchase and transport of substantial quantities of Iranian oil may be made unless there Is direct and strong objection by the US Government
arring an agreementajor West-era concern or combination of moderate-sited Arms, Iran will not realise sufficient revenue from oO to alleviate appreciably either the govemment'a fiscal problem or the nation's economic difficulties. The principal effect of such limited sales would be political They would enhance Mossadeq's prestige byhim to claim success In defying the UK and to claim that his government was maVing progress toward restoring oQ revenues.
Economic and Financial
JO. To date the loss to Iran of oil revenue* docs not appear to have been directly reflected In reduced consumption levels, althoughhas been slowed. Wholesale prices arid the cost of living index have risen very little stnosce the beginninghere has been some drop In realand business activity, and arise In unemployment, mainly because of the postponement of governmentunder budgetary pressure.
II. Untilhe government financed Its deficit* mostly by selling governmentto the govcrnment-controlled Bank Melli and borrowing from semi public institutions. Byhe government bad exhausted nearly all its gold and foreign exchangeeicept for the legal minimum required as becking for the currency. Sincehe government has been meeting lis deficit, currently running atonth, principally through unsecured loans from the Bank MeUL
Mossadeq is not HXely to make substantial reductions In government expenditures.he at one lime considered reducing the armed forces budget, more recently he appear* to have realised the importance of these forces in maintaining order throughout the country. Be cannot afford to atoplo the unemployed oil workers atAlthough be may attempt to resettle some of those workers In other areas, hs will be reluctant to do so as long as thereossibility of reviving the oil industry. Mca-sadeq may. In fact, be forced to increaseexpenditures, to provide, forworking capital for factories and to finance Ihe small economic developmentalready under way. Moreover, he must And funds for relief during the slack winter months, when some reemployed agricultural and construction workers customarily migrate to the cities.
Prospects for Increasing3 are slight. The onlysources of Increased tax revenue are the wealthy landlords and capitalists.Mossadeq has the authority and will probably make greater efforts to tap these sources, perhaps in some cases by outright confiscation, even full cxploltatlnn of these sources would not eliminate the government deficit On the basis of recent experience, further bond issues are not likely to raiseamount*.
n the absence of foreign aidherefore, the government wDJ probablyIncreasingly to deficit financing,by unsecured loans from she Bank Melli
and by increasing the amount of cumncy
circulation. The government may alao
sort to cocuVcation of property and the eala
government .locks,pium and^^HS'
tarn popular support, to preserve unity In the
ran's Imports will continue toFront, and to maintain the morale
Although exports are expected to beeffectiveness ol the security forces,
higher thanevel, they will-fc _
sufficient to meet only about one halff^J" ft JffiJ ** 5"
imporu prior to the oil dispute. In viewtecome-less effectiveiwtru-
Ihe near exhaustion of foreign exchangefof lnd
logs. Imporu will hare to be reduced to**econamk effects of the
pto.lm.tely this level, thustT*,ou" kt*:om* eable,
duclion in urban business sxUvityAaVlhe more radicalwill cause sharp reductions inhe National Front will Increase theirof luxury goods and some reduc- pauls for social and economicin capital goods during IMS, but Is not jj, response, the National Frontto deprive Iran of essential Imports, will probablyore vigorouswiU alsorend toward batterof agrarian and laborand the already substantialwill be haphazard and willwith the Soviet Bloc will lend toIncreased use of force. Thewill be bitterly exposed by someand clashes between peasants andThe net results of the flnsnclsl andare likely tosteps likely to be taken by the govern-
ment3 will probably be: price^eooltaue to
creases of perhaps as much aso
* , , , . thst will lake place3 and from
percent, some reduction In UrlngBj tte
In theubstantial Increase In thefor ^
tionaleduction of privately heldThe party will continue IU
government stocks; and furtherto weaken and divide the National
ment of the government's own economicrill attempt to Instigate riots and dis-
velopmintontinuing lowby peasants and urban workers, and
of capital goods Imports will lead tointensify its propaganda against the US
deterioration of Iran's physical plant; atthe Shah. It will probably make some
same time, upward pressure* on theprogress In Infiltrating the National
level, arising in large part fromand eome government agenciesand declining public confidence, will government has the capability to
bring nearer thedanger c* runaway
gin of safety for coping withunst spcclflc Tudeh challenge,
paled eventualitieserious cropM authority as they arise. We believe
Although we do not believe that theseTudeh will not be granted legal status
opmenu, singly or collectively, arend that It will not develop suffl-
them.se;ves to cause the overthrow of thestrength lo gain control of the govanv
Uonal Frontontinuation ofby parliamentary means or by force,
trends3 willeriousIs serious continuing danger of Tudeh.
on pohtteaiof the National front and the gov-
ut ve believe that Tudeh will not be able to gain control of the government by thll mean*3
o maintain Itself In power, thewill rely Increasingly on the security forces. As stated above, the government can and probably will avoid substantialin the military budget Recent changes In the high command are not believed to have slgrJrVanlly reduced the morale andof tha security forces. These will probably remain loyal to the government and If given explicit orders will probably beof maintaining order except In theevent of simultaneous nation-wide riots and disturbances. We do not believe that the Tudeh Party will develop sufficient strength9 to Instigate disturbances beyond the capability of the security forces to control.
SI. Mossadeq will probably continue tofrom the Inability of the opposition to unite or eiert efleetlra power. In the past, Mossadeq has shown great skill In isolating his opponents and attacking them one by one. He Is likely to continue those tactics and to adopt progressively forceful measures against ths opposition The Majlis has granted him authority to rule by decree until mid-February, and ws believe he will be able to have this power extended If he considers It necessary,
t seems probable that the National Front will remain In powert Is likely to retain the backing of the Shah and control over the securityhe groupsthe National Front are not likely to have the strength or unity to overthrow Itwe are unable to estimate withwhether Mossadeq himself will remain In powerossadeq'e atrongest potential opponent, will probably continue totrong Influence onand consequently will probably prefer to remain in th* background while Mossadeq continue* to shoulder responsibility. On the other hand, Kuhanl Is building up his own political strength and might, should he so desire, be able to oust Mossadeq bymeans
eshan! would also be the probableto Mossadeq In the event of the latter'* death. Regardless of how Mossadeq IsKeshan! or any other National Front successor could not be assured of th* aupport of an the divers* element* of the National Front Any successor regime would,be likely to resort to rulhleasness to destroy opposition. In Its struggle to do so, and particularly If It failed to do so, Tudeh Influence and opportunities for gainingwould increase, rapidly.
f present trends In Iran continuebeyond the endisingtensions and continued deterioration of the economy end of the budgetary position of the government might lead to aof government authority and open the' way for atradual assumption of control by Tudeh.
PPQEABlE DEVELOPMENTS IF THE UK AND HAN REACH AGREEMENT ON THE Oft QUESTION
f the Iranian Oovemment reached an oil settlement with the UKmatter how favorable to IranIt would almost certainly be confronted with violent demonstration* in urban centers by th* Tudeh Party andby extremist dement* in th* National Front There would also be Immediateof Tudeh aabotage of oilowever, the government would almosthave trie backing of the Shah, the security forces, and the more moderateFront element* and would probably be able to suppress these dlslurbaneea. Theof large-scale oil exports would go far toward casing th* government'* budgetary difficulties and would enable It to take step* to Increase the supply of goods and reduce Inflationarynd to expand Itsdevelopment program. Nevertheless, anti-foreign sentiment, particularly against the UK, would remain strong, and even with aubstanlial eel revenue* th* government would aUU have great difficulty in dispelling the antagonisms arousvd between landlord*
and peasant* and between the "hares" and "havehich would continue toajor cause of Instability.
PROSAJl'. DEVEIOPMENTS If KAN SILLS SUBSTANTIAL QUANTITIES OF OIL WITHOUT BRITISH CONCURRENCE
M. If Iran were to succeed In making afor the continuing aale of subetanUal quantities- of oilajor Western oilwithout havingetUement with the UK, Dieeffect* would be substantially the same as those described in paragraphbove. Tudeh reaction would almost certainly be violent, and there might be some opposition from extremist elements In th* National Front In any event, thecould suppress any disturbances that might arise and it* prestige would beenhanced. Basic causes of Instability would remain, but the government would betronger position to arrest the trend toward eventual Tudeh control
IRANIANII THE US ANDhe Mossadeq regime will probablyits pressure on the US to persuade the UK to agree to Iranian terms In the oilput* and will be quick to crilicUe any signs of what It considers US support for the UK, It will also continue to request financial assistance, arguing that the withholding of US aid increases the danger of ultimate Tudeh control.
would probably be more opposed than the Moasadeq regime to the exercise of VflIn Iran and would probably place greater res trie lions on US miaalon* In Iran. Bow-ever, their recognition of the need of USto counter Soviet pressure and their acknowledgment of the value to Iran of Point Four aid would probably check anythey might have either to terminate Point Four aid or to expel the military missions.
ran's official relations with th* USSR wUl probably remain cool and guarded.both government* win seek to Increase trad* between Iran and the Soviet Bloc, the National Front wfllainlyny action which would subject Iran to Soviet dominaUon. On the other hand, It wtll not wish to destroy the USSR's value as ato the Watt In the UN, Iran wfll probablyeutralist, anU-colonlaiiit position and support any attempt toeutral Arab-Asian bloc
or its part, the USSR appears to believe that the Iranian situation Is developing favorably to It*hile continuing It* support of Tudeh and It* violent radio attacks on the government and the Shah, th* Soviet Union Is unlikely to take any drastic action to influence the Iranianxcept in the unlikely eventar more serious deterioration of Iranian Internal stability than Is foreseen In this estimate.
The Mossadeq regime will not wishto alienate the us Mossadeq almost certainly desires US support as ato the USSR and he appears to desire US economic and military assistanceas Internal tensions mount, there will be an Increasing tendency to blame the US, not only for the failure to restore substantial oilut also for Iran's financial and economic difficulties. Th* US military and Point Four missions tn Iran may therefora find It even more difficult to operate3 than at present
ashanl or other extremist National Front leaders who might succeed
he USSR, however, has the capability for greatly increasing It* Interference in Iran at any time, to the detriment of US security Interests. Its capabilities Include: greatly Increased support of disaffection andIn Azerbaijan. Including th* Infiltration of Soviet Aeerbaljanls; greatly increased financial support for Tudeh; offer of economic and financial Inducements to Iran; stirring up of the Kurds; and heavy pressure for the removal of the US missions, legalization Of Tudeh, and removal of legal bans on tha Tudeh press. The USSR would probablyfrom us* of Soviet armed force* In Iran, because of the possible global consequence* of such Intervention. Soviet Intervention short
weofUiUoni on the future of the USSR's
of the use of SovietBe* Fisheries cc^cesSon wrJch ex-
not result duringto thejmuaryay provide
throw of the IranianrSoviet-Iranian ra.Uonr
Uchment of As.rUi]*n both Iran and^
seriously adverse effect onconfine thernielTe*eat toof Iran and on OS purity InterestsOriginal document.