Created: 10/20/1947

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Strategic Importance or Iham.

The strategic importance of Iran lies in Its geographical position in the Middle East bridge connecting Europe, Africa, and Asia, Its consequent position with regard to lines of communications of other powers, and its oil resources. If Iran came under the controlostile power, the Independence of all other countries ln the Middle East would be threatened, and the interests of the US would thus be jeopardized throughout the entire area.

The Soviet Union views Iran not onlyossible base for an attack against the USSR and particularly against its vital Caucasus oil fields, but alsooviet base for political penetration and possible military operations against areas of vital importance to the security of the Western Powers. If the USSR occupied or dominated Iran, It would: (a) gain control of the oil resources now exploited by the Anglo-Iranian Oil Company; (b) threaten the oil fields in nearby Iraq, Kuwait, Saudi Arabia, and Bahrein; (c) acquire additional bases for carrying on subversive activities or actual attack against Turkey, Iraq. Afghanistan, India, and Pakistan, (d) control continental air routes to Iran, threaten those crossing Turkey, Iraq, the Arabian Peninsula, and the Persian Gulf, and menace shipping in the Persian Gulf, (o) undermine the will of all Middle Eastern countries to resist aggression; and (f)iles nearer than any held at present to potential British-US lines of defense in Africa and the Indian Ocean area.

Fvturr Dbveiopmknts.

The USSR will endeavor,relude to complete domination of Iran, to secure control of Iranian territory adjacent to the Soviet Union and toovernment at Tehran subservient to Moscow. The USSR is not expected to resort to military force at this time, but it will increase Its efforts to create internal instability and tothe government by promoting and exploiting dissatisfaction and dissension among urban and tribal elements, capitalizing on the failure of the government ta implement promised social and economic rcforms.

The execution of administrative, social, and economic improvements necessary for Internal stability will probably require strong encouragement and support from the Western Powers. Moreover, the successful implementationrogram of economic development will depend on adequate foreign supervision.

Iran's continued determination to resist Soviet encroachment will depend in large measure upon its confidence in the effectiveness of US support of Iranian independence, and upon its estimate of the prevailing balance of power between the US and the USSR. The future course of British policy will also affect Iran's foreign policy: any evidence of

This paper has been coordinated with Uw Intelligence org ui nations of Uw DepartmenU ol Slate, Army.awl Air ForcM.

a British tendency to appease the Soviet Union at Iran's expense, unless offset byUS action, may result in Iranian orientation toward the USSR Finally, further decline in the effectiveness of the UN in protecting thc independence of small powers will undoubtedly be reflected in Iran's attitude toward thc USSR

3. Political Situation.

The current political situation in Iran contains many factors of weakness. Whileonstitutional monarchy, Iran Is an oligarchy. Control of Parliament and predominant influence in the affairs of the country are In the hands of wealthy landowners and merchants, army generals, and tribal leaders. Within theframework, the two most important political figures are the Shah and the Prime Minister. The great mass of the people Is largely illiterate and politically impotent

The ruling groups are united in their fear of Soviet ambitions, and with the decline of British power in the Middle East, they are turning more and more to the US and the UN forolicy which is consistent with the basic anti-Soviet, ontl-Communist, and pro-US attitude of the majority of the people. However, thc continued failure of the government to rectify critical Internal conditions is seriously jeopardizing Iranian stability. Widespread corruption practiced by civil and military officials and their discriminatory policies against tribal groups are alienating major population elements whose support Is essential to successful resistance to Soviet demands Throughout the country, the authorities' continued failure to give effective execution to long-standing promises of economic and social reforms lends encouragement to leftist elements and other dissident groups. Moreover, despite the determination of all major politicalto resist Soviet encroachment, internal political conflicts and the personalof Iranian politicians may prevent Iran from implementing any effective plans for resistance.

The support of the Western Powers and of the UN against Soviet action prejudicial to Iranian independence will have no lasting effect unless the Iranian Government makes strenuous efforts to bolster its internal stability by: (a) resolving the personal conflicts among the Shah, the Prime Minister, and the Chief of Staff; (b) endeavoring to obtain the loyalty and cooperation of tribal and other population elements; and (c) initiating and executing long-overdue economic and social reforms. Without these reforms andontinuation of the present Iranian technique of solvingproblems by procrastination and by reliance upon the support of other powers, Iran may ultimately be absorbed into thc Soviet sphere of influence. 4. Economtc Situation.

The Iranian economy, based largely on agriculture and petroleum, is relatively stable. Agriculture supportser cent of the population and, in normal years, produces all of Iran's essential food requirements (except tea and sugar) and somefor export. Iran is thc world's fourth largest petroleum producer,urrent production ofillion barrels annually and proved reserves estimatedillion barrels

The financial situation In Iranixture of strength and weakness. The external debt Is small, the currency reserves arc ample, and substantial guaranteed oil

royalties provide the government with large revenues and considerable amounts of foreign exchange (although insufficient dollarn thc other hand, the national budget Is recurrently unbalanced, budget deficits are covered by heavyfrom the National Bank, the taxation system Is Inadequate, and government enterprises and finances are badly administered. The cost-of-living index, which rose from6 level5ow stands at. The Iranian rial has depreciated in terms of foreign currencies to about one-half its official value.

Unprogresslve agricultural methods and inefficient operation of the transportation system also militate against effective exploitation of Iran's economic potential.

A very real threat to the economic stability of Iran arises from theis the USSR. Soviet interest in the northern provinces of Azerbaijan, Gilan, Mnzonderon, Gorgan, and Khorosan will continue. If these provinces, or evenalone, were to be detached from Iran or to come under the control of the USSR. Iran's economic structure would be in danger of collapse, through lossajor food producing area and population center.

5. Poheion Affairs.

Current Iranian foreign policy Is primarily concerned with Soviet efforts to achieve political and economic domination of Iran. The USSR, for political and preemptive purposes, is seeking preferential economic concessions, with special reference toand air rights Moreover, the Iranians are being subjectedirulent Soviet program of propaganda, subversive activities, and military and political Intimidation, designed to "soften up" Iran for Increased penetration.

The Soviet-Iranian oil protocol ofroviding for thc establishmentoint company for long-range exploitation of oil resources in northern Iran, would, If implemented, assure Soviet political penetration and economic control of the area. If, as appears likely, the Majlis rejects the agreement, the USSR may be expected to increase Its pressure on and its intimidation of Iran, instigatingiew toretext for intervention on the ground that Soviet security is Jeopardized by Iranian Instability.-

Traditionally, Iran has considered the Britishounterbalance to Russian ambitions Now, however, motivated by domestic political considerations, by their declining position in the Middle East, and by the desire to protect their own oilin southern Iran, the British have not been willing to give unequivocal support to Iran's resistance to Soviet demands for access to northern oil resources. The Iranians ore therefore counting more and more on the US and the UN to support them in resisting Soviet encroachments. The Iranians hope further that the US will serveoderating Influence on traditional Anglo-Russian rivalry and will also actuarantee against any possible Anglo-Soviet agreement for the partition or Iran into spheres of influence.

6. Military Situation.

The armed forces of Iran are designed primarily to maintain Internal security. They are unable to withstand aggressionarge powerombination ofctober. Ule Majlu rejected lhe oil Agreementoteo Z.


powers. In tho event of Invasionajor power, the Iranian forces would quickly disintegrate unless foreign aid were Immediately available. Moreover, they would be unable to cope with widespread tribal disorders or extensive Soviet-supported disturbances.

The army, whichndmall air force, with outmoded equipment, is maintained by compulsory military service, and onlyer cent of its strength is effective. The gendarmerie, or state police, numbert present, US military missions are working to Increase the efficiency of the army and gendarmerieafeguard of Internal stability. There isontract pending for tho purchaseillion worth of surplus military supplies from the US. Iran has insufficient natural resources and Industrial potentialities to support large-scaleIts manpower reserves could not be welded Into an effective military force. Morale In the army is low because of Inconsiderate treatment given conscripts, inferiorand maladministration.

The tribes of Iran, some of which are well equipped with small arms and are Qrmly controlled by influential chieftains,ara-military factor of somesince their cooperation or obstructionismirect bearing on theof internal order.

In the event that Iran shouldheater of military operations between the great powers, no combat support.could be expected from the Iranian armed forces. These forces and certain tribal groups, however, might render to the Westernimited amount of assistance in protecting lines of communications and Installations, and in carrying on Intelligence and guerrilla activities over Iran's rugged terrain.

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