IRAN (W/ATTACHMENT)

Created: 1/1/1953

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IRAN

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Situation

etired General Pazlollah Zahedi, who became prime minister onugust after removing Mohammad Mossadeq, appears to beestern-oriented, moderately nationalist government. This regime relied heavily on mob support in coming into power and now appears to have general popular acceptance. Although there is as yet no organized opposition, Zahedi's ability to retain control of thedependsarge extent on his capacity to solvethe country's many problems.

The most immediate problem facing the new regime is totable and loyal government. Zahedi has taken steps to eliminate unreliable employees. Communist and non-Communist, from all government offices. However, serious friction which has developed between Zahedi and the Shah could threaten the stability of the government if the two do not reach an Encouraged by the popular acclaim which brought him back from exile after the Zahedi coup, the Shah hasto become the actual, as well as the constitutional, commander-in-chief of the Iranian armed forces. His issuance of orders to the army and promotion of officers withoutthe prime minister have aroused the latter's

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- Iran's treasury is nearly empty and its debt, inherited from the Mossadeq government, was estimated by the Iranian National Bank to The continuing lack of oil revenue constributesonthly deficit in the Iranian budget of several million dollars. Recent DS emergency aid, in addition ton point IV aid, will help meet Iran's budget deficit until next April, and will be adequate toew projects which will creatework for some of the many unemployed.

he only long-term hope for improvement in Iran's financial position liesettlement of the oil dispute. Zahedi and the British appear willing to begin oil negotiations. The British have insisted on settlement terms which wouldthem to ask compensation for loss of profits upnd prevent Iran from profiting more than its neighbors from its oil resources. Public opinion forces prime Minister Zahedi to work within the framework of1 nine-point oillaw and will notettlement which would appear to denrive Iran of the full benefit of its oil resources. The success of the oil negotiations depends on the ability of Britain and Iran to reconcile these views.

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mmediately upon taking office, Zahediigorous campaign against the Communist Tudeh, which numbers0 Many thousands of suspects were arrested and several hundred have been exiled to the western Iranian-wastelands. The Tudeh program is crippled, although the core of the party is probably intact. Continued vigilance and suppression by the security forces Is necessary tothe party.

Securityhe army and the gendarmerie, on which the stability of Iran ultimately depends, total. They continue to receive some American equipment as well as training assistance from the three small American military missions in Tehran,

Intrigues among high-ranking officers create difficulties for both the Shah and the prime minister. The ability of the security forces to maintain internal security is good. The tribes, particularly the Qashqai in southern Iran, who supported Mossadeq, can cause trouble; buthole tbey probablyno serious threat to the army's control. The Shah is anxious to improve tbe army's equipment and morale through higher pay and better housing. Be has also requested heavier tanks and artillery, and more engineering equipment, as well as jet aircraft and jet-training.

Relations with thehe present government is oriented more toward the United States than was the Mossadeq government. Prompt American emergency aid, and Iranian suppression of anti-Anerican Communist propaganda have, for the present at least,riendly attitude among most Iranians.

The prime minister was disappointed by, what he considered the small amount of the American grant. Heersonalto Washington in late September to urge more aid. The Shah also pressed for additional financial assistance to the extent of0 monthly for the armed forces, upon which he believes the security of his position depends.

Estimate of Probable Developments

It is still too early to reach firm conclusions regarding the prospects for the new regime. Although Zahediew months of grace in which to work out bis problems, he must make some progress on many fronts to avoid the ultimate disintegration of his government. The prime minister will almost certainly have to achieve some solution of the oil problem if he is to obtain an adequate basis for attacking Iran's underlying problems of economic and social

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