OR THE PRESIDENT OF THE UNITED STATES
NATIONAL INTELLIGENCE ESTIMATE
PROBABLE DEVELOPMENTS IN IRAN3
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PROBABLE DEVELOPMENTS IN IRAN3
THE PROBLEM
To estimate probable future developments In Iran
CONCLUSIONS
Iranian situation contains so many elements of instability that It Is Impossible to estimate with confidence for morehort period. 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 specificof this sort as they arise. The government is likely to retain theof the Shah and control over the security forces. Although the danger of serious Tudeh Infiltration of the National Front and the government bureaucracy continues, we believe that Tudeh will not be able to gain control of the government by this meanseither the groups opposing the National Front nor the Tudeh Party are likely to develop the strength to overthrow the National Front by constitutional means or by force
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 lis 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 In.
If present trends In Iran continuebeyond the endising Internal tensions and continuedof the economy and of theposition of the government might leadreakdown of government authority and open the way for atradual assumption of control by 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 companies will probably not buyquantities of oil. We estimate that major Western oil companies will not be willing to make an agreement with Iron so long as the current legal,
economic, and political obstacles exist. Nevertheless, some mode rate-sized oil companies are becoming restive, and It la possible that combinations lor theand transport of substantialof Iranian oil may be made 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 or UK-US solidarity.
Kashani or possibly another National Front leader might replace Mossadeqny successor wouldbo forced to resort to ruthless tactics to eliminate opposition. In his struggle to eliminate his opposition andIt he failed to do so, Tudeh Influence and opportunities for gaining control would Increase rapidly.
The Mossadeq regime almost certainly desires to keep US support as ato the USSR and appears to want US economic and military assistance. Nevertheless, there will probably bo andisposition to blame the US, not only for Iran's failure to sell substantial amounts of oil or to obtain an oilbut also for Iran's financial and economic difficulties.
Therefore, the US Point Four andmissions are likely to find it even more difficult to operate3 than at present. They would probably be placed under severe restrictions If Kashani or other extremists came to power. However, neither the Mossadeq Governmentuccessor National Front regime is likely to expel
The USSR appears to believe that the Iranian situation la 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 covertIn Iran at any time, to the detriment of US security interests.
DISCUSSION
vents since the nationalization or oil In 1BS1 have profoundly changed tho political climate In Iran. The political forces which brought Mossadeq and the NaUnnal Front to power are powerful and luting. The Shah and the formerly dominant landowning class have lost the political initiative, probably permanently. Nevertheless* the coalition ot urban nationalists and religious ncalota which Mossadeq heads has no agreed program for the future, being united primarily by adesire to rid the country of foreignand replace the traditional governing groups. The ability of the National Front to remain In power, as well as Iran's ultimate role In the East-West conflict, will depend In large measure on the National Front's success in wurklng out solutions to tho serious social, political, and economic problems which will confront It during the next year.
lthough unrest in Iran derivesomplex of factor* extending far beyond the oil dispute with the UK, this disputehas become the focal point of political activity. Mossadeq rode to power on the Issue of nationalisation of all, and hta present political strength derives largely from hisdefiance of tho UK.
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EGOTIATED Oil SETTLEMENT
BritUh MtitucU: We believe that Iho UK will almost certainly continue to Insist that there bo aoroe form of neutral arbitration of the amount of compensation for the oeliure of Anglo-Iranian OH Company propertlea oven though nationalization per a$ la no longer an issue. The UK will probably also continue to resist malting payments agalnat Iranian claims without first obtaining firm Iranian commitments to follow through with a
In taking this stand, the UK Is motivated primarily by considerations of preatlga and precedent. Tho Conservative government would face strong political opposition at homo If It agreed to Mossadeq's present terms.more Important, the British feel that capitulation to Iran would threaten their own and tho Western oil position generally In other parts of the Middle Bast. Meanwhile, the British feel under no Immediate compulsion toettlement with Moaaadeq In tho first place. Increased production In other areas has already made up for the loss of Iranian crude oil production, although tho refining capacity at Abadan has not been fullySecondly, although the UK believes that lack of oil revenue* will result Ineconomic and political deterioration In Iran. It doc* not appear to regard atakeover In Iran as imminent.
Moreover, the British are not likely to be induced to make greater concessions to Iran by tho prospect of Iran's selling oil Inettlement with AIOC Tho UK probably believes that In the absence of an agreement between Iranajor UB oil company, It can continue to exert economic pressure on Iran and prevont the shipment and sale of significant quantities of Iranian oil In world markets. The British would probably regard auch an agreement. In the absence of British concurrence,erious breach of UK-U3 solidarity.
is Iranian Attitude: Although the Moasadeq Government desires and needs revenues from the aale of oil, it* attitude toward tho oilla conditioned largely by politicalThe National Front hasoil national la* tlon intoowerful symbol of national independence that nowould be acceptable unless It could be presented to the Iranian publiclearvictory over the UK. Mossadeq ha* been under growing pressure from extremists auch as Kushanl who maintain that Iran'a on resource*urse ratherlessing and that Iran should reorganize It* economy to avoid dependence on oil revenues. On the other hand, Mosaadeq's strength with other elements in the National Front has depended largely on his continued success In persuading the Iranian people that he la doing his best to restore oil revenue* but that he Is being blocked by British lntransigeance. Injustice, and greed. Whether or not Mossadeq ha* the political strength and prestige to perauado tho Iranian public to agree to an all settlement on terms which the UK could accept, histo date provides no Indication that he desires to or will do so. On the contrary, he has made successively greater demands for British concessions.
e bellove, therefore,egotiated oil settlement during the period of thisIs unlikely.
PROBABLE DEVELOPMENTS IN THE ABSENCEEGOTIATED SETTLEMENT The Oil Problem
espite the severance of diplomaticwith the UK, Iran will probably be re. captive during the coming year to further proposalsettlement of the oil dispute. For political as well a* economic reasons It will also make every effort to sell oil to otherboth in the Soviet Bloc and tho West. It will avoid entering into any agreements which could bo construed as violating Irun'sor It* control of tho oil Industry.
IB. It is unlikely that Iran will sell significant quantities of nil duringnless it can make arrangementsajor Western petroleum distributing firmombination of moderate alzed firms. Although It Is likely to sign further trade agreements with Soviet Bloc countries calling for delivery of Iranian
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the extreme shortage of tankers available to 'the Soviet Bloc will restrict shipments to tokent alsonlikely tofinancially significant quantities of petroleum to email independent Western oil companies In view of the difficulties which theaewould have In chartering the noceaaary tankers and In breaking into establishedWe estimate that major Western oil companies will not be willing to make an agreement with Iran so long a* the current legal, economic, and political obstacle* exist. Nevertheless, some modr rate-sized oilare becoming restive, and it li possible that combinations for the purchase and transport of substantial quantities of Iranian oil may be made unlaw there la direct and strong objection by the US Qovernment.
an agreementajorconcern or combination ofIran will not realize sufficientoil to alleviate appreciably eitherfiscal problem or thedifficulties. The principal effectlimited sales would be political.enhance Mossadeq'* prestige byhim to claim aucceaa In defying theto claim that hi* government wa*toward restoring oil revenues.
Economic and Financial
To date the loaa to Iran of oil revenues doea not appear to have been directly reflected In reduced consumption levels, althoughha* been slowed. Wholesale price* and the coat of living Index have risen very little since1 Since the beginninghere has been some drop In realand hualness acUvlty, and arise In unemployment, mainly because of the postponement of governmentunder budgetary pressure.
Untilho government financed it* deficits mostly by selling governmentto the government-con trolled Bank Weill and borrowing from semi-public InaUtuUona. Byhe government had exhausted nearly allold and foreign exchangeexcept for the legal minimum required as backing for the currency. Since
the government has been meeting Its deficit, currently runningonth, principally through unsecured loan* from the Bank Melli
ceaedeq la not likely to make substantial
reductions In government expenditures.he at one time considered reducing the armed force* budget, more recently he appears to have realized the Importance of these forces In maintaining order throughout the country. He cannot afford to stopto the unemployed oil workers at Aba-dan. Although he may attempt to reaettle some of those workera In other areas, he will be reluctant to do so as long as thereossibility of reviving the oil Industry.may. In fact, be forced too provide, forworking capital for factories and to finance tho small economic developmentalready under way. Moreover, he must And funds for relief during the slack winter months, when some unemployed agricultural and construction workers customarily migrate to the cities.
Prospect* for Increasing3 are slight The onlyaourcea of Increased tax revenue are the wealthy landlords and capitallsta.Mossadeq has the authority and will probably make greater efforts to tap these sources, perhaps In some cases by outright conftacaUon. even full exploitation of these sources would not eliminate the government deficit. On the basis of recent experience, further bond Issue* are not likely to raiseamount*.
In (he absence of foreign aidherefore, Hut government will probablyIncreasingly to deficit financing,by unsecured loans from the Bank Melli and by Increasing the amount of currency In circulation. The government may alsoto confiscation of property and the sale of government alocka, such as opium and rice.
Iran's Imports will continue to decline. Although exports are expected to be slightly higher thanevel, they will be sufficient to meet only about one-half Iran's Imjxirts prior to the oil dispute. In view of
the near exhaustion of foreign exchangeimports will have to be reduced tothis level, thus contributing to Inflationary pressures and causing somein urban business activity. Reducing imparts will cause sharp reductions In the availability of luxury goads and someIn capital goodsut Is not expected to deprive Iran of essential Imports. There will alsorend toward barterand the already substantial Iranian trade with the Soviet Bloc will tend to
he net results of the financial andsteps likely to be taken by3 will probably be: priceof perhaps as much asoercent; some reduction in living standards In theubstantial Increase Ineduction of privately held and government stocks; and furtherof the government's ownontinuing low level of capital goods imports will lead to some deterioration of Iran's physical plant; at the same time, upward pressures on the price level, arising In large part from government deficits and declining public confidence, will bring nearer the danger of runaway Inflation. Moreover, the government will have littleof safety for coping with sucheventualitieserious crop failure. Although we do not believe that thesesingly or collectively, are likely In themselves to cause the overthrew of theFrontontinuation of these trends3 willerious effect on political stability.
Political
The principal Internal political problemsational Front regime will be topopular support, to preserve unity In the National Front, and to maintain the morale and effectiveness of the security forces.
3 the dispute with the UK will gradually become less effective as anfor rallying popular support behind the government As the economic effects of the loss of on revenues become more noticeable.
the government will be under greater pressure from large property owners to restore oil In* come. Tudeh and the more radical elements In the National Front will Increase theirfor social and economic improvements. In response, the National Front government will probablyore vigorousof agrarian and labor legislation. Enforcement will be haphazard and willincreased use of force. The agrarian program will be bitterly opposed by someand clashes between peasants andare likely to Increase.
The Illegal Tudeh Party will continue to profit from the gradual economicthat will take place3 and from the haphazard enforcement of trieprogram for social and economicThe party will. continue its efforta to weaken and divide the National Front, will attempt to Instigate riots andby peasants and urban workers, and will Intensify Its propaganda against the US and the Shah. It will probably make some further progress in Infiltrating the National Front und some government agencies.tho government has the capability to take eftYctlve repressive action to check mob violence and Tudeh agltaUon. It hasoutlawed strikes and will probablyto act against specific Tudeh challenges to Ita authority as they arise. We believe that Tudeh will not be granted legal status3 and that it will not developstrength to gain control of theby parliamentary means or by force. There is serious continuing danger of Tudeh Infiltration of the National Front and thebureaucracy, but we believe that Tudeh will not be able to gain control of the government by this means
To 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 tho high command are not believed to have significantly reduced the morale and cfTec-tlvenuss of Hip security forces. These will probably remain loyal to the government and
if given explicit order* will probably beof maintaining order except in theevent of simultaneous nation-wide riou and disturbances. We do not believe that the Tudeh Party will develop sufficient strength3 to instigate disturbances beyond the capability of the security forces to control.
ossadeq will probably continue tofrom the inability of the opposition to unite or exert eflecUva power. In the paat. 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 force.'ul measures against the opposition. The Majlis has granted him authority to rule by decree until mid-February, and we 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 power during 1BS3. It is likely to retain the backing of the Shah and control over the security forces. The groupsthe National Front are not likely to huve the strength or unity to overthrow It we are unable to estimate withwhether Mossadeq himself will remain in power Kashanl, Moasadeq's strongest potential opponent, will probably continue totrong influence onand consequently will probably prefer to remain In the background whllo Mossadeq continues to shoulder responsibility. On the other hand.s building up his own political strength and might, should he so desire, he able to oust Mossadeq by imentary means
ashanl would also be the probableto Mossadeq In the event of the tatter's death. Regardless of how Mossadeq isKashanl or any other National Front successor could not be assured of the support of all the diverse elements of the National Front. Any successor regime would,be likely to resort to ruthlessneas to destroy opposition. In lis 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 and of the budgetary position of the government might lead to aof government authority and open tho way for atradual assumption of control by Tudeh.
PROBABLE DEVELOPMENTS IF THE UK AND IRAN REACH AGREEMENT ON THE OIL QUESTION
f the Iranian Government reached an oil settlement with the UKno matter how favorable to IranIt would almost certainly bo confronted with violent demonstrations In urban centers by tho Tudeh Party andby extremist elements In the National Front. There would also be immediateof Tudeh sabotage of oil. Installations. However, the government would almosthave tho backing of the Shah, the aecurlty forces, and tho more moderateFront elements and would probably be able to suppress these disturbances. Theof large-scale oil exports would go far toward easing the government's budgetary rtlfficultlita and would enable It to take steps to Increase the supply of goods and reduce inflationary pressures, and to expand Itsdevelopment program. Nevertheless, antl-forelgn sentiment, particularly against the UK, would remain strong, and even with substantial oil revenues the government would still have great difficulty In dispelling tho antagonisms aroused between landlords and peuoanta and between the "haves" and "havehich would continue toajor cause of Instability.
PROBABLE DEVELOPMENTS IF IRAN SELLS SUBSTANTIAL QUANTITIES OF OIL WITHOUT BRITISH CONCURRENCE
f Iran were to succeed In making afor the continuing sale of substantial quantities of oilajor Western oilwithout havingettlement with the UK, the economic effects would be substantially the same as those described in paragraphbove. Tudeh reaction would
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certainly be violent, and there might be some opposition from extremist elements In the National Front. In any event, thecould suppress any disturbances that might arise and Its prestige would beenhanced. Basic causes of Instability would remain, but the government would betronger position to arrest the trend toward eventual Tudeh control.
IRANIAN RELATIONS WITH THE US AND USSR
The Mossadeq regime will probablyIts pressure on the US to persuade the UK to agree to Iranian terms In the oiland will be quick to criticise 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.
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 assistance.as internal tensions mount, there will be an Increasing tendency to blame the US, not only for the failure to restore substantial oil revenues, but also for Iran's financial and economic difficulties. The US military and Point Four missions In Iran may therefore find It even more difficult to operate3 than at present.
Kashani or other extremist National Front leaders who might succeed Mossadeq would probably be more opposed than the Mossadeq regime to the exercise of USin Iran and would probably place greater restrictions on US missions In Iron.their recognition or 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.
Iran's official relations with tho USSR will probably remain cool and guarded.both governments will seek to increase trade between Iran and the Soviet Bloc, the National Front will almost certainly avoid any action which would subject Iran to Soviet domination. On the other hand, it will not wish to destroy the USSR's value as ato the West. In the UN, Iran will probablyeutralist, antl-colonialist 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 its objectives. While continuing Its support of Tudeh and Its violent radio attacks on the government and the Shah, the Soviet Union Is unlikely to take any drastic action to Influence the Iranianxcept In tho unlikely eventar more serious deterioration of Iranian internal stability than Is foreseen In this estimate.
he USSR, however, has the capability for greatly increasing lis Interference in Iran at any time, to the detriment of US security Interests. Its capabilities Include: greatly Increased support of dlsaffecUon andIn Azerbaijan. Including the infiltration of Sovietreatly 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 the Tudeh press. Tho USSR would probablyfrom use of Soviet armed farces In Iran, because of tho possible global consequences of such intervention. Soviet Intervention short of the use of Soviet armed forces wouldnot result3 In the directof the Iranian Government or theof Axerbsljan but coulderiously adverse effect on the stability and Integrity of Iran and on US security Interests there.
egotiations on the future of the USSR's Caspian Sea Fisheries concession,ay providehange In Soviet-Iranian relaUons, although both Iran and the USSR willconfine themselves at most to hard bargaining.
Original document.
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