approved for release
CENTRAL INTELLIGENCE AGENCY Directorate of6
INTELLIGENCE MEMORANDUM"
US-Iranian Relations
US-Iranian relations mayritical point this month over the issues of Iranianpurchases and the Iranian drive to increase oil revenues. An annual joint survey of the Iranian economy is under way now, and the report of the US Military Survey Team to Iran (Peterson Report) has been completed and was submitted to the Shahay. Analysis of these two reports in Washington will determine the extent to which large Iranian military expenditures in the US are economically feasible In addition, the Oil Consortium will determino this month how much to increase its oil offtake (exports) from Iran. The Shaharge increase essential to finance his military and economic programs.
The Shah is determined to make majorpurchases in the near future to bolsterin oil-rich southern Iran and in the Persian Gulf, which he believes arc endangered by theof Bgyptian President Nasir. The Iranian parliament in November approved additional military expenditures of up0 million. The Shah would prefer to make these purchases in the US, but has made it clear that he will turn elsewhere if this proves too difficult.
The US takes the position lhat thesecan be approved only in the context of an annual joint review of the Iranian economy. The annual review grows outS-Iranian Memo of
Understandingn essence, the revieweconomic information which Washington will analyze to determine whether Iran can affordmilitary expenditures and still maintain rapid economic development. The Shah finds such limitations irritating and insulting, particularly in the light of his new "independent" foreign policy.
The arms issue is complicated by theof the Peterson Report. This report appears to be more in line with tho Shah'sthe Arab threat to Iranian security and stronger defenses in the southern provinces and the Persian Gulf. The additional recommended armaments wouldredit8 million over0 million credit extended under4
However, the State Department has tentatively determined (pending completion of the annual review) that the new credit must not4 million, thus requiring that the Shahubstantial portion of the arms purchases until In addition, the US Embassy in Teheran has expressed
its concern over the magnitude of the prices listed in the Peterson Report, and fears that the Shah will be disturbed also. Thus, although all the Shah's wished-for purchasesrestigious destroyer apparently will be approved in principle, the Shah may well find the delay on some items, and the prices, unacceptable. Completion of the annual probably will not substantially alter the US position. It is quite conceivable that the Shah will use the Peterson Report to counter Statearguments against immediate heavy.
oil issue is locked in closely with Members of the Oil Consortium maydecision this month on the rate at which theyoil offtake. As of late April, thewere thinking in terms of aatpercent, increasehah insists, however, that the rate mustercent if Iran is to carry out itsmilitary programs without "reorienting" its Both the US and British companies in the
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consortium argue that they are producing as fast as possible, and each group accuses the other ofback production. inal meeting was scheduled foray, but apparently has been temporarilybecause the Shah has invited some company heads to Teheran for discussions later in May. The US fears the consequencesajor confrontationIran and the consortium, and has beenUS companies to raise their production as much as possible.
7. The Shah, bolstered by his rapprochement with the Soviets and by political stability andgrowth at home, has exhibited an increasingly independent spirit in the past year. He is to obtain new military equipment soon, and there is little doubt that he will turn elsewhere if the US does not sell quickly and on favorable terms. He has felt for some time that the US takes Iranian friendship for granted, and he regards the arms questionrucial test of US support and He is equally determined to increase oil revenues, and may well be serious in his threat to shift at least part of Iran's trade to the East, where export prices are lower and terms are easier. This could, In turn,rake on the growing US private investment In Iran, as well as affect our general politico-military relationship with the country.
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Original document.
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