COPT TO. 28
-the CHIEF. ct*f
mma distsis-jtioh division
DEPT.OF STATE
ft
NATIONAL INTELLIGENCE ESTIMATE v
PROBABLE DEVELOPMENTS IN IRAN3
anuary
TA*member arpanttanoni o; (Ae*V .
Jrfruon,participated witt (Ae Centralc* - A
aew*Ae preporafcon of this
reJUactce orpar.uarwru o/ the Departments ot'
(Ae 4nni, the Navy, tht Air rorce. ami the Joint '*
Thli estimate, ME-7SII. incorporates certainto the Conclusions of NIK-T$ made by the IAC on II December. It therefore supersedes NIZ-7S, wAtcA
teas publishedH members of the lattlhgence Advisory Committeein this estimate3
CENTRAL INTELLIGENCE AGENCY
Approved lor Roieaao3 SEP IW
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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 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, theTudeh 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 companies will probably not buyquantities of oil. We estimate tbat 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 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 of UK-US solidarity.
Kashani 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 support as ato 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 oil settlement, but also for Iran's financial and economic difficulties.
Therefore, the US Point Four and military missions are likely to find it even more difficult to operate3 than at present. They wouldbe 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 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 tbe nationalization of oil1 have profoundly changed the political climate in Iran. Tbe political forces which brought Mossadeq and the National Front to power are powerful and lasting. The Shah and the formerly dominant landowning class have lost the political initiative, probably permanently. Nevertheless, the coalition of urban nationalists and religious zealots which Mossadeq heads has no agreed program for the future, being united primarily by adesire to nd the country of foreignand replace the traditional governing groups. The ability of the National Front to remain Ln 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 working out solutions to the serious social, political, and economic problems which will confront it during the next year.
lthough unrest in Iran derivesomplex of factors extending far beyond the oil dispute with the UK, this dispute none-
't
theless has become the local point of political activity. Mossadeq rode to power on the issue of nationalization of oil, and his present political strength derives largely from hisdefiance of the UK.
PROSPECTSEGOTIATED OIL SETTLEMENT
ritish Attitude: We 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 seizure of Anglo-Iranian Oil Company properties even though nationalization per se is no longer an issue. The UK will probably also continue to resist making payments against Iranian claims without first obtaining firm Iranian commitments to follow through with a
n taking this stand, 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's 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 East. 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 oil production, although the refining capacity at Abadan has not been fullySecondly, although the UK believes that lack 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 AlOC. 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 oil Ln world markets, The British would probably regard such an agreement, in the absence of British concurrence,erious breach of UK-US solidarity.
ranian Attitude Although the Mossadeq Government desires and needs revenues from the sale of oil. its attitude toward the oilis conditioned largely by politicalThe National Front hasoil nationalization Intoowerful symbol of national Independence that nowould be acceptable unless it could be presented to the Iranian publiclearvictory over the UK. Mossadeq has been under growing pressure from extremists such as Kashani who maintain that Iran's oU resourcesurse ratherlessing and that Iran should reorganize its economy to avoid dependence on oil revenues. On the other hand. Mossadeq's strength with other elements in the National Front has depended largely on his continued success in persuading the Iranian people that he ls domg hiso restore oU revenues but that he is being blocked by British intransigeance, injustice, and greed. Whether or not Mossadeq has the political strength and prestige to persuade the Iranian public to agree to an oil 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.
believe, therefore, that asettlement during the period of thisis unlikely.
PROBABLE DEVELOPMENTS IN THE ABSENCEEGOTIATED SETTLEMENT
The Oil Problem
the severance of diplomaticwith the UK, Iran will probably beduring the coming yearettlement of the oilpolitical as well as economic reasons Itmake every effort to sell oil to otherboth in the Soviet Bloc and the Westavoid entering into any agreementsbe construed as violating Iran'sor its control of the oil Industry.
IB. It Is unlikely that Iran will sell significant quantities of oil3 unless it can make arrangementsajor Western petroleum distributing firmombination of moderate-sized firms Although it is likely to sign further trade agreements with Soviet Bloc countries calling for delivery of Iranian oil, the extreme shortage of tankers available to the Soviet Bloc will restrict shipments to token amounts. It also is unlikely to sell financially significant quantities of petroleum to small Independent Western oil companies in view of the difficulties which thesewould have in chartering the necessary tankers and In breaking into established We estimate that major Western oil companies will not be willing to make an agreement with Iran so long as the current legal, economic, and political obstacles exist. Nevertheless, some moderate-sized 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 agreementajorconcern or combination of moderate-sized firms. Iran will not realize sufficient revenue from oil to alleviate appreciably either the government's 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 making progress toward restoring oil revenues.
Economic and Financial
o date the loss to Iran of oil revenues does not appear to have been directly reflected in reduced consumption levels, althoughhas been slowed. Wholesale prices and thef living Index have risen very little sinceince the beginninghere has been some drop In realand business activity, and arise in unemployment, mainly because of the postponement of governmentunder budgetary pressure.
ntilhe government financed its deficits mostly by selling governmentto the government-controlled Bank Mem and borrowing from semi-public Institutions. Byhe government had exhausted nearly all its gold and foreign exchangeexcept for the legal minimum required as backing for the currency. Sincehe government has been meeting its deficit, currently tunningonth, principally through unsecured loans Irom the Bank Melli.
ossadeq is not likely to make substantial reductions in government expenditures. he at one time considered reducing the armed forces 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 resettle some of those workers In other areas,l be reluctant to do so as long as thereossibility of reviving the oil industry. may, in fact, be forced to increaseexpenditures, to provide, forworking capital for factories and to finance the small economic developmentalready under way. Moreover, he must find funds for relief during the slack winter months, when some unemployed agricultural and construction workers customarily migrate to the cities.
rospects for increasing3 are slight. The onlysources of increased tax revenue arc 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 exploitation of these sources would not eliminate the government deficit. On the basis of recent experience, further bond issues are not likely to raiseamounts.
n the absence of foreign aidherefore, the 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 stocks, such as opium and rice.
imports will continue toexports are expected to bethanevel, they willto meet only about one-halfprior to the oil dispute. In viewnear exhaustion of foreign exchangeimports will have to be reduced to.this level, thus contributingpressures and causing somein urban business activity.will cause sharp reductions inof luxury goods and somein capital goodsut isto deprive Iran of essentialwill alsorend toward barterand the already substantialwith the Soviet Bloc will tend to
net results of the financial andsteps likely to be taken by3 will probably be: priceof perhaps as much asosome reduction in livingtheubstantial increase ineduction of privately heldstocks; and furtherof the governments ownontinuing lowcapital goods imports will lead toof Iran's physical plant; attime, upward pressures on thearising in large part fromand declining public confidence,nearer the danger of runawaythe government will have littleof safety for coping with sucheventualitieserious cropwe do not believe that thesesingly or collectively, are likelyto cause the overthrow of theFrontontinuation3 willeriouspolitical 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 oil revenues become more noticeable, the government will be under greater pressure from large property owners to restore oilTudeh 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
illegal Tudeh Party will continuefrom the gradual economicthat will take place3 andhaphazard enforcement of theprogram for social and economicThe party will continueto weaken and divide thewill attempt to Instigate riots andby peasants and urban workers,intensify its propaganda against thethe Shah. It will probably makeprogress in Infiltrating theand some government agencies.the government has the capabilityeffective repressive action to checkand Tudeh agitation. It hasoutlawed strikes and will probablyto act against specific TudehIts authority as they arise. WeTudeh will not be grantednd that il will not developstrength to gain control of theby parliamentary means or byis serious continuing danger ofof the National Front and the gov-
eminent bureaucracy, 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 the high command are not believed to have significantly reduced the morale andof the security forces. These' will probably remain loyal to the government and if given explicit orders will probably beof mam taming order except In theevent of simultaneous nation-wide riots 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.
Mossadeq will probably continue tofrom the inability of the opposition to unite or exert effective power. In the past, Mossadeq has shown great skill In Isolating his opponents and attacking them one by one. Be is likely to continue those tactics and to adopt progressively forceful 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.
It seems probable that the National Front will remain in powert is likely to retain the backing of the Shah and control over the security forces. The grcupsthe National Front are not likely to have the strength or unity to overthrow it.we are unable to estimate withwhether Mossadeq himself will remain in powerashani, Mossadeq's strongest potential opponent, will probably continue totrong influence onand consequently will probably prefer to remain In the background while Mossadeq continues to shoulder responsibility. On the other hand. Kashani is building up his own political strength and might, should he so desire, be able to oust Mossadeq bymeans
Kashani would also be the probableto Mossadeq In the event of the latter's death. Regardless of how Mossadeq IsKashani 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 nithlessness 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.
If 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 the way for atradual assumption of control by Tudeh.
PROBABLE DEVELOPMENTS IF THE UK AND IRAN REACH AGREEMENT ON THE OIL QUESTION
the Iranian Government reached anwith the UKno matterto Iranit would almostconfronted with violent demonstrationscenters by the Tudeh Party andby extremist elements in theThere would also be immediateof Tudeh sabotage of oilthe government would almosthave the backing of the Shah,forces, and the more moderateFront elements and would probablyto suppress these disturbances. Theof large-scale oil exports wouldtoward easing the government'sand would enable il to takeincrease the supply of goods andpressures, and to expand itsdevelopment program.sentiment, particularlyUK, would remain strong, and evenoil revenues thestill have great difficulty Inantagonisms aroused between landlords
f T-
peasants and between the "haves" and "havehich would continue toajor cause of instability.
PROBABLE DEVELOPMENTS IF IRAN SELLS SUBSTANTIAL QUANTITIES OF OIL WITHOUT BRITISH CONCURRENCE
Iran were to succeed in making afor the continuing sale ofof oilajor Western oilwithout having reached athe UK. the economic effects wouldthe same as thosebove. Tudeh reactioncertainly be violent, and theresome opposition from extremist elementsNational Front. In any event, thecould suppress any disturbancesarise and its prestige would beenhanced. Basic causes ofremain, but the government woulda stronger position to arrest theeventual 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 criticize any signs of what it considers US support for the UK. It will also continue lo 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 USln Iran and would probably place greater restrictions cn US missions in Iran.their recognition of the need of USto counter Soviet pressure and theu 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 the 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, anti-coloniallst position and support any attempt toeutral Arab-Asian bloc.
For 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 Ln the unlikely eventar more serious deterioration of Iranian internal stability than is foreseen in this estimate.
The USSR, however, has the capability for greatly Increasing its Interference in Iran at any time, to the detriment of US security interests. Its capabilities include: greatly increased support of disaffection andln Azerbaijan. Including the infiltration of Soviet Azerbaijanis, 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 the Tudeh press. The USSR would probablyfrom use of Soviet armed forces in Iran, because of the possible global consequences of such Intervention. Soviet intervention short
of ihe use of Soviet armed forces wouldnot result3 ln the directof the Iranian Government or theof Azerbaijan 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 relations, although both Iran and the USSR will prot> ably confine themselves at most to hard bargaining.
Original document.
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