IRAN: THE SHAH'S ECONOMIC AND MILITARY EXPANSION

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700050012-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 18
• Document Creation Date: December 20, 2016
• Document Release Date: March 10, 2006
• Sequence Number: 12
• Publication Date: February 1, 1973
• Content Type: IM

 Approved For Release 2006/04/19 :CIA-RDP85T00 75,J~0 005 'g2-2! L~
Secret
DIRECTORATE OF
INTELLIGENCE
Intelligence 1l~emorandum
Iran: The Shah's Economic and Military Expansion
CIA
DDCUMENi S~RVIGES ~ ~"":~H
FI~~ C~iY
Secret
ER IM 73-14
February 1973
Copy No.
CIA-RDP85T00875R001700050012-2
 25X1 gpproved For Release 2006/04/19 :CIA-RDP85T00875R001700050012-2
Approved For Release 2006/04/19 :CIA-RDP85T00875R001700050012-2
 Approved For Release 2006/04/19 S~-i~~lbT00875R001700050012-2
CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
February 1973
INTELLIGENCE MEMORANDUM
IRAN: THE SHAH'S ECONOMIC AND MILITARY EXPANSION
SUMMARY AND CONCLUSIONS
1. Fueled by expanding oil revenues and generous foreign credits,
the economy of Iran has been growing at an average rate of I 1 ~% a year
since the mid-1960s. In the same period, defense outlays have quadrupled,
and Tc}van now possesses the strongest military force in the Persian Gulf
area. Iran's impressive economic and military growth gives the Shah a
substantial base for increased influence in the Middle East. (For growth
data, see the graphic.)
2. R-~pid growth has been accompanied by a worsening of some
social ~,nd economic problems. New industries are largely capital-intensive
and are of little bene~7t in reducing the ranks of the unemployed -- now
estin~~tcd at about one-tenth of the labor force. The gap between rich and
poor has widened, with the wealthy benefiting from new business
opportunities and the poor being uprooted from traditional occupations
and ways of life. And finally, although Iran so far has coped with the
rising cost of servicing foreign debt, future financial stability will depend
on a sharp increase in oil revenues.
3. In spite of these problems, Iran's economic/military program
seems capable of further successes under the Shah's strong direction, with
the following implications:
? Rapid economic growth will resrilt in widened
markets for the United States and other Western suppliers. The
USSR also will find outlets for its goods,
Note: This memorandum was prepared by the Office of Economic Research
and coordinated within the l7irectoratc of Intelligence.
SECRET
Approved For Release 200 - 08758001700050012-2
 Approved For Release 2006/04/1 ~F~D~,85T00875R001700050012-2
Iran: Economic and Military Expansion
Economic Military
BIIIMn Currant US $ Units
1985
1972
1985
1972
Gross nellonel product
8.0
16.0 Mod
lum tanks
484
925
Industrinloutpdt
O.B
2.6 Arm
corrl
oredporeonnul
ors
84
1,810
Invostmont
1.0
3.0
Supd
rsonlcalrcran
43
145
O'. uxport oornings
0.5
2.4
Hollc
optora
2
160
Non-all uxport onrnings
0.1
0.4
Tron
spo:l olrcreft
16
50
Forolgn axchango rosarvos
0.2
0.8
Dest
royers end oecort
e 0
3
Patr
ol croft
3
~1
Arm
twra
od forcas
onnel
187,000
226,000
25X1 ~,r,~r~ . ~~ , ,~,
C
s Iran's needs to sell increased a-nounts of oil and
natural gas will help meet the voracious energy requirements
of Japan, Western Luropc, and the United States.
? Iran's growing military slrcngtlr. - a source of concern
to some of its neighbors - will provide the Shah with an
expanding capability for maintaining security in the Persian
Gulf area.
p Even though high unemployment and uneven incoute
distribution will persist, they will 1~ot likely become major
forces of political discontent.
4. Without the Shah at the head ~~f the government, prospects for
Iran would be much less sanguine. L'conomic and military expansion could
be arrested or even reversed if Iran lost this strong and unifying leadership
or cncountcrcd political turmoil.
Approved For Release 2006/04/1 ~~i~1~3~'85T00875R001700050012-2
 Approved For Release 2006/04/19: &.~Q~P,,..~5.T00875R001700050012-2
5. The Shah, who views himself as the successor to Darius and
Xerxes, is bent on restoring Iran to a position of greatness in the world.
1'o this end, he has promot~?~d programs of economic and military expansion
which since the mid-1960s have resulted in a rate of growth unmatched
by other less developed countries. The economy is now more than twice
the size of Egypt's or Israel's. The ral,id economic growth has accentuated
differences in life styles. Much of the large and still basically rural population
remains near tlu scarce supplies of water where it ekes out an existence
based on outmoded agricultural techniques. In the cities and outlying areas,
;et airfields, modern factories, modern hotels, high-rise office buildings, and
posh suburbs have sprung up as testimony to the new economic forces.
Economic Expansion
6. Iran's economy has been on a rapid upward course since the
mid-1960s (see the tabulation), spurred by sharply rising oil revenues,
large-scale credits from the United States and the USSR, and the strong
leadership of the Shah. From 1964 through 1972, the gross national product
(GNP) has grown at an average annual rate of 1 1 "Io.
1964 1965 1966 1967 1968 1969 197(1 1971 197?
Index
of GNP 100 113 123 137 150 1C6 183 209 237
No other less developed country has achieved such a record and, among
the developed countries, only Japan has matched this pace.
(?il in 1Jte Vatt~~tard
7. The oil sector has been leading the advance. In 1971 it contributed
about 23% of GNP, compared with about 12I~ in 1964, the gains coming
from both increased output and higher export prices. Physical output rose
by almost 14% a year during the 1960s, reaching 1.8 billion barrels, or
one-tenth of world output, in 1972 (see Table 1). Growth was spurred
Approved For Release 2006/04/19S~TA=R1~P85T00875R001700050012-2
 Approved For Release 2006/04/19 :CIA-RDP85T00875R001700050012-2
SECP_ET
Iranian and World Production
of Crude Oil
1960
1965
Irar1
385
688
World
8,023
11,470
Iran as
a Percent
of Wvrld
4.8
6.0
1970
1,398
17,410
8.0
1971
l ,655
17,600
9.4
1972a
1,790
18?85
9.8
both by pressure from the Shah on the consortium of foreign oil companiesl
for increased output and by favorable world market conditions. On several
occasions in the 1960s Iran filled the gap when output from various Arab
countries was interrupted by wars or political squabbles. Japan's rapidly
expanding purchases of Iranian crudes (which arc particularly suited to the
needs of Japanese refineries) were another important factor in the growth
of oil output.
8. Revenues per barrel from oil exports climbed rapidly, particularly
after the agreements negotiated with foreign oil companies in 1970 and
1971. The Shah's threats to withdraw oil concessials -backed by Iran's
position as a leading member of the Organi"Latloll of Petroleum Exporting
Countries (OPEC)2 -forced the consortium to increase Iran's revenues per
barrel by 12~l~ in 1970 and to agree to further increases averaging 11.3%
yearly in 1971-75.3 (For oil revenues, see the tabulation.)
1. Roug}ily 90"10 of Iran's oil output is marketed through an international consortium, ~ornposcd
as follows: 4G% British Petroleum, 14% Shell (British-llutch), 6;"~ Compagnic Pranwisc des Pctroles
(French), and 40Ia US companies.
2. [n addition to Iran, OPtiC membership includes Saudi Arabia, Kuwait, Iraq, Abu Dhabi, Qatar,
Indonesia, venezucla, Nigeria, Algeria, and Libya.
3. Including an adjustment in January 1972 to cover higher import costs caused by changes of
world currencies in the last half of 1971.
Approved For Release 2006/O~~CCTia=RDP85T00875R001700050012-2
 Approved For Release 2006/04/19 :CIA-RDP85T00875R001700050012-2
SECRET
Million US $
1964
1965
1966
1967
1968
1969
1970
1971
1972
Oil
revenues
470
514
653
752
854
955
1,144
1,995
2,440?
9. Iran's natural gas resources, third largest in the world, provide
a second and potentially most significant form of hydrocarbon exports.
With assistance from the USSR, Iran completed the 690-mile Iranian Gas
Trunklinc in late 1970 that transports natural gas, which otherwise would
be wasted, to the deficit areas of the USSR in repayment for Soviet
economic and ,;,ilitary credits. In addition to expanding the capacity of
this line, which also feeds domestic industrial and consumer needs, Tehran
is increasing its facilities for production and export of liquefied natural
gas. The United States and J-~- .., -both in quest of increased natural gas -
are assisting in some of tiic new plants being built at Kharg Island, Bushire,
and Qeshm Island. The head of the US Export-Import ,.ank, which made
a preliminary commitment of more than $750 million on one of the gas
projects, estimated roughly that Iran's natural gas and oil reserves are worth
more than $300 billion.
Cruwth i~r ONrer Industrial Brainclres
10. Other branches of industry also shared in the advance, aided by
(a) an "infrastructure" of transportation, comnnmications, and banking
facilities; (b) a readily available labor supply, albeit deficit in technical skills;
(c) a rich base of natural resources, notably iron ore, lead, zinc, and copper;
ar~d (d) a system of government incentives for private investors. In the
rnid-1960x, the assembly of refrigerators, automobiles, trucks, radios,
televisions, and other modern consumer goods had already joined the list
of traditional manufactures. During 1965-72, output of capital goods
expanded rapidly as several new industries including iron and steel,
nonferrous metals, and petrochemicals) went into large-scale production.
Expa~tc~,~q of Services
11. The services sector has grown in size and sophistication to
accommodate the need for expanded trade, banking, and administrative
services. b greatly expanded civil service and defense establish;nent
contributed to the e;;pansion of the service sector, which now accounts
for more than one-third of GNP.
Approved For Release 2006/04/19 SEI~R~P~5T00875R001700050012-2
 Approved For Release 2006/04/19 :CIA-RDP85T00875R001700050012-2
SECRET
Agrictrlhtre -- The Hardest Row to Hoe
12. In contrast to heady progress in other areas, agriculture has done
rel.Itively poorly, dropping from 28% of GNP iIt 1964 to 16% in 1972.
Droughts, the bane of Iran's largely non-irrigated agriculture, have played
a big part in holding growth in output to 3% yearly, which was less than
the growth in population but still not a bad record for a less developed
country. The government also has contributed to the lag in agriculture.
Althoug}t the Shah's land reform portion of the "White Revolution"
converted some 1 million or more former sharecroppers into farm owner,
many retained their old ways of inefficient farming because of the
government's failure to provide adequate technical assistance, credits, and
price incentives. Returns to the farmer have been held down in favor of
lower food costs to the urban dwellers.
13. Technological changes in Iran's traditional agriculture have
centered on government sponsorship of large-scale farming operations. Some
27 agricultural corporations, in which local farmers pool their land in return
for shares, have sprung up with favorable credit, preferential crop purchase
contracts, and extension services from the government. The efficiency of
these corporations and of the few private agricultural industries (based on
California's large growing/processing enterprises) clearly exceeds the
efficiency of the individual farmer. Nonetheless, disagreement exists within
the government between the proponents of large-scale and small-scale
farming. The spread of the large r units, for example, would cause further
dislocations of a rural populace that already is un~~eremployed and
unmoored.
14. In summary, the major long-term constraint on Iran's agriculture
is a lack of water. The major short-term constraints are (a) the lack of
adequate priority for the agricultural sector in relation to the industrial
and military sectors, (b) the shortage of technical skills necessary for
extending irrigation and improving agricultural methods, and (c) the
inadequacy of organizational forms for translating material and human
resources into increased output.
Ro% of tire Shah in Ccononric Gxpa>sion
15. The Shah - a formidable, hard working, capable, and decisive
ruler - is the prime mover behind Iran's rapid economic progress. While
open to the counsels of his officials, including some able economists, the
Shah reserves the ultimate decision-making to hinae?If. To date, most of
his decisions appear to have turned out well for iran. In the mid-196Us
the Shah reversed the policies of financial restraint recommended by outside
agencies and launched a program of government-sponsored investment that
Approved For Release 2006/~~~~~1'ATRDP85T00875R001700050012-2
 Approved For Release 2006/04/19 :CIA-RDP85T00875R001700050012-2
SECRET
got the economy moving into high gear. His maintenance of internal stability
provided the climate for investment that was lacking in many neighboring
countries.
His strong position was a critical factor in Iran s obtaining credits
from both the West and the Communist countries.
~Zole of Foreign Credits
16. Iran has relied increasingly on foreign credits for economic
development. Drawings on foreign loans have mounted from about $30
million in 1964 to an estimated $950 million in 1972, as shown in the
tabulation.
Foreign
credits
drawn 27.6 80.3 146.6 256.9 474.6 5:6.8 624.1 700.0 950a
The bulk of the foreign credits has gone to public development projt cts,
making up about 10% of all government development funding during
1964-67 and 7.5% during 1967-72. Iran has secured credits from private
foreign banks, international organizations such as the World Bank, and
foreign governments. Direct loans from foreign governmen?s made up about
40% of the debt outstanding in early 1972. Credits have been supplied
by both Western and Communist countries, bar . tlie~e is considerable
variation i;l the size and nature of such credits.
17. The United States and other Western countries with longstanding
aid and investment ties to Iran accounted for about 60?Io of all governmental
credit deliveries fo Iran during 1964-71. Western assistance leas been spread
across all lines of economic development from basic infrastructure -roads,
railways, electric power, and telecommunications - to social development
and industries including refineries, petrochemical plants, and plastics
production. US assistance since 1967 has been largely in the form of
commercial loans by the Export-Import Bank. About half of US assistance
to Iran was in the form of grants until 1967 when Iran, in consultation
with the United States, opted out of the aid category.4
4. Because of Uan's high rate of economic growth and sizable oil revenues, the ecronomic program
of the US Agency for International Development (AID) was terminated in November 1967 by mutual
agreement, and the US Military Assistance Program (MAP) began phasing out.
7
Approved For Release 2006/04/19 : ~AAT00875R001700050012-2
 Approved For Release 2006/04~1~~i~i~DP85T00875R001700050012-2
18. Economic credits from the USSR and other Communist countries
have developed largely since 1966 with the lessening of political tensions
and a mutuaL'cy of economic interests. Communist credits have carried more
favorable tercns than those received from the West. Moscow's usual
repayment terms are 12 years at 2.5`/o interest, with repayment in natural
gas ar.~1 other commodities. Communist assistance has been allocated largely
for ir~3ustrial development -some 60% for heavy industry. At least two
of the largest Soviet aid projects were undertaken after the West had
expressed little interest in providing credit assistance. The first stage of the
Isfahan steel mill was completed in 1972; the second stage is now being
developed. The Soviets also provided assistance for construction of the
690-mile gas pipeline that funnels formerly wasted Iranian natural gas to
the gas-deficit regions of the USSR in repayment for Soviet military and
economic credits. The West later joined in providing credits for the pipeline.
Other industrial projects undertaken with Communist credits include a
Soviet machine tool plant at Arak, a Czech machine tool plant at Tabriz,
arYd a Romanian tractor plant at Tabriz. The Communist economic
assistance, albeit not as technically advanccct Us that from the West, has
not only been of assistance in ban's industrial development but also has
given Tehran some flexibility in dealings with the Wcst.
hole of Private Investnrc~nt acrd Private hrcerrtives
19. Private investment has been an integral factor in Iran's rapid
economic progress, having more than doubled since 19(,4 and presently
accounting for an estimated half of total national investment. Private finance
has gravitated toward the highly profitable assembly-type industrial
operations and to the service industries that have supported Iran's economic
boom. The government has done much to encourage the expansion of
private investment just by maintaining a high rate of public a:cpenditures
and a stable climate for investment. Government exemptions or low duties
on imports of components together with heavy protection against competing
foreign products have spurred private investment in industries catering to
the expanding consumer markets. In addition to high profits
included loans through thy; Industrial Credit Bank ~? ,ran and programs
for training of managers and technicians -scarce commodities in Iran.
private investors frequently are given
a eve-year tax o r ay. t cr a ements of government assistance have
Problems Acconrpanyirrg Gxparrsiar
20. One of the problems that has persisted despite the economic
expansion has been the high and growing number of unemployed. Th:, rapid
growth of population in already overpopulated rural areas and the
dissolution of many of the old traditions and bonds of authority have
Approved For Release 2006/04~1~~P85T00875R001700050012-2
 Approved For Release 2006/04/19 : ~~I~K.C~ 1T00875R001700050012-2
resulted in the migration of hundreds of thousands of rural people to urban
areas. Most of these people lack the basic education and technical skills
to participate effectively in the new growth sectors. Furthermore, because
the petroleum, iron and steel, and other new industries are capital-intensive,
jobs made available by the industrial boom can take care of only a small
fraction of the jobless. Government officials concede that unemployment
is about 10% of the labor force. Widespread andere ~ployment adds to the
overall problem. It is not uncommon, for instance, to find two or three
workers standing by on a Tehran construction project while one performs
the actual work. The situation will get worse before it gets better, according
to recent studies by a team of experts from the International Labor
Organization. During the next five years, 300,000 persons will enter Iran's
labor market annually, compared with 200,000 yearly in the past five years.
21. Another problem is the widening of the already large gap between
rich and poor. The wealthy have profited from investments in the fast
growing industrial and service sectors. One such wealihy investor is Prince
Abdul Reza, who not only owns a highly profitable farming enterprise but
also has extended his investments to include a partnership in Iran John
Deere Ltd., which builds, imports. and sells farm machinery. For the lower
income groups, money wages have increased somewhat and consumer
goods - e.g., bicycles and transistor radios -are more plentiful. In general,
however, these groups have not reaped significant benefits from Iran's rapid
economic growth. Inadequate housing, poor sanitation, lack of educational
opportunities, and the uprooting of traditional social supports continue to
afflict large numbers of the poor.
22. In between the rich propertied classes and the great mass of
peasants and urban poor, a small but growing middle class of scientists,
engineering and technical people, teachers and other professionals, and
merchants is developing. This group is sharing in Iran's industrial expansion,
through the increase in number of opportunities for advancement and
through the greater availability of cars, television sets, and other previously
scarce consumer durables.
23. The problems of unemployment and poverty have not been
reflected in large and vocal opposition to the regime. The victims are the
inarticulate and powerless members of society. Moreover, discontent
continues to lack fon~m for expression -labor unions and political parties
~~~~ mere showpieces. There is, however, a potential breeding ground for
exploitation by domestic and foreign dissidents should the strong leadership
of the Shah be lost.
24. The cost of servicing the large foreign debt poses a problem for
Iran's balance of payments. Drawings on foreign loans increased from about
Approved For Release 2006/04/19 SClA=R6PS5T00875R001700050012-2
 Approved For Release 2006/04/19 :CIA-RDP85T00875R001700050012-2
SECRET
$80 million in 1965 to $700 million in 1971 and an estimated $950 million
in 1972. The accumulated foreign debt is now pr;~bably close to $3 billion.
The debt is large -amounting in value to about 20Io of GRIP -- and is
mounting. The cost of debt repayments is increased by Iran's heavy recourse
to short-term high-interest-bearing loans. Repayments now claim about I S%
of Iran's foreign exchange earnings, compared with less than 10% in 1965.
This debt service situation will be comfortable only so long as oil earnings
maintain their expected rate of growth of about 15% yearly.
Military Expansion
The Shal:'s Objectives
25. The Shah views the security of the Persian Gulf against potentially
hostile neighbors as vital to the all-important export of Iran's oil. Defense
interests were extended to include the Gulf of Ornan in 1971 when the
British withdrew militarily from the area. In November 1972 the Shah
expanded his definitional scope of Iran's security interests to include the
Indian Ocean. The Shah obliquely informed the big powers that Iran and
its littoral neighbors wanted the Indian Ocean to be free of their hegemony
and competition.
Growing Military Mrisc%
26. The Shah has translated his security concerns into accelerated
expenditures on defense. Defel~se outlays amounted to about $1.1 billion
in 1971, or roughly half of Iran's non-development spending. Outlays in
1972 were substantially higher, perhaps $1.3 billion. Since 1965, defense
expenditures have quadrupled. In addition to budgeted defense
expenditures, Iran has made extensive use of non-budgeted foreign credits
for purchases of Foreign military eq~aiplnent.s
27. Imports of defense and defense-related items6 currently account
for roughly on:-fourth of Iran's imports of goods and services, rising
threefold since 1)65. Iran's acquisitions of armaments (guns. tanks. planes,
etc.) during 1955-71 were the sixth largest among the less developed
countries, the total value reaching nearly $1.8 billion.
28. The Shah, in an address to the F-aduating class of the Iranian
Command and Staff College on 30 September 1972, said, "We will arm
5. Although the Iranian budget dots not include foreign credits used for armaments, payments
of interest and principal on military debts are included in the budget.
6. Defense-related items include equipment and raw materials used in defense industries,
construction equipment used in military projects, communications equipment, ant other items oC
defense needs. Defense and defense-related imports are believed to make up most of the
balance-of-payments item "other government agencies."
Approved For Release 2006/04/1~~1~[~P85T00875R001700050012-2
 Approved For Release 2006/04/19 :CIA-RDP85T00875R001700050012-2
SECRET
you with weapons so that the armed forces arc able to fact, any possible
regional events.." Accorc!ngly, Iran has purchased large amounts of
sophisticated US military hardware, including F-4 supersonic jet fighters,
C-130 transport aircraft, radar, missiles, and naval craft. Purchases from
the United Stales in 1955-71 totaled about $1.4 bil!ion, or almost 80i~
of all military imports. 'fhe United States was practically the sole supplier
of military equipment prior to Iran's graJuation from the category of US
aid recipients in 1967. Iran moved then t~ diversify sources of arms supplies
and contracted with the United Kingdom for $570 million worth of tanks,
air defense equipment, and naval craft; deliveries by the end of 1971
amounted to only $70 million, or 4% of total arms supplied to Iran in
1955-71. Italy and other Western countries delivered another $70 million
in arms in the period.
29. In 1967, Iran made its first arms deal with the Sovicl Union,
vpcning the dnor for a continuing, mutually advantageous relationship. As
was the case for economic aid, the Shah's acceptance of Soviet arms grew
out of the lessened political tensions between the two countries. In 1967-72
the Shah signed at least seven arms deals with the Soviet Union totaling
$4$0 million. Purchases included vehicles, antiaircraft guns, ammunition,
and non-sophisticated equipment which limited the need for contacts
Ix;twecn Iranian and Soviet military and technical personnel. Arms contacts
with the USSR have given the Shari some leverage in dealings with the
West. Gn at least one occasion dur~,ng negotiations for advanced aircraft
from the United States, the Shah has implied a threat to purchase aircraft
from the USSR. Repayments to the USSR for military equipment are made
with ,rreviously wasted natural gas to the advantage of both countries.
30. The Shah has succeeded in building the strongest military force
in tl.: Persian Gulf area. Iran's air, ground, and naval equipment (see
Table 2) is palpably superior to that of Iraq, which has been supplied largely
by the Soviet Union. Within the next several years, considerably larger
supplies of advanced weapons and equipment will b~ in the hands of Iran's
military forces. During the last half of 1972, Iran ordered from the United
States advanced air and naval weapons valued at about $1.6 billion --
exceeding total US deliveries in the 17 years ending 1971. These purchases,
which feature F-4 and h-5 fighters ar,d KC-707 aerial refuelers, will give
Iran a wider strike capability.
31. The Shah has made limited offensive use of his strong military
power. The only direct military action undertaken in recent periods was
his armed occupation of three small islands fn tl~e Persian Gulf in November
1971. This use of force -though limited in scope -was taken in defiance
of other countries in the region whose responses were limited to verbal
outcries. In 1972 the Shah aided the regime of Yemen (San'a) with an
ll
Approved For Release 2006/04/19 :CIA-RDP85T00875R001700050012-2
SECRET
 Approved For Release 2006/0~r4,/19(: CrIA-RDP85T00875R001700050012-2
SlsCIZErj,
Iran: Inventory of 1Major Military Equipment
Iva
undetermined number of ar,ns during conflicts with Yemen (Aden). The
Sliah also has supported the moderate Arab re ime of Jordan's Kin Husa n
with economic aid
Iran s growing
military force serves as a protective shield for its oil lifelines and for other
militarily weak countries in the Persian Gulf area. 'I'o Iraq, at least. Iran's
military buildup seems to be a threat.
Plans and Prospects
T/te New dlea~edo~~rrerrt f'luu
32. The Fiftlt Development Plan (March 1973 -March 1978) calls
for GNP to increase by 1 1.4?o annually, or at roughly the rate maintained
since the mid-1960s. Aggregate investments of $32.5 billion are to be more
than double investments under the Fourth Development Plan (March 1963 -
Approved For Release 200~~~-RDP85T00875R001700050012-2
 Approved For Release 2006/04/19 :CIA-RDP85T00875R001700050012-2
sLClzr~.r
March 1973) with t~ac ttovernntent providing (~2'/. of the. IoLil. The I;u?tccsl
share of investment is to go to social welfare - a nuirkccl departure I'ronr
previous spending -- but details lurvc Wert been spcllecl out. The second
largest share is to t;o to agriculture, where cntpluisis is being placed on
cxp;tnrling the supply o1' credits and lechno~oL;ical services. Crowlh in
agriculhiral output is planned at S.5`J,~ yearly. Industrial invesUttents will
1'calurc electric power, gas clistribulion, expansion of steel output, and
dcvciopntenl of copper resourres -projects already antler way. 'I'o judge
from the Shah's statements, spending on dcf~cnsc will continue at high levels.
/'rosprcls fnr ;1 c?hieve?nrer~!
33. Prospects for achieving the ambitious economic and nrititary goals
hinge on Iran's ability to finance the heavy imports necessary for these
programs. Tehran has projected the cost of imports of goods and services
eluting 1973-77 to he $30.5 billion (sec 'I'ablc 3). Import payments, thus,
would grow by somewhat more than 22'/~ yearly -slightly faster than the
rate that has prevailed since lbe mid-19GOs.
34. To finance the expanded purchases, the Shah will rely on
expanded oil earnings and foreign credits. Revenues front oil during the
period have been projected by Tehran at $Z~ billion -- about $I billion
more than could be expected under the current oil agrccmm~ts. The Shah,
however, is demanding new contracts from the private oil companies which
could conceivably yield even larger revenues per barrel for Iran. Non-oil
Approved For Release 2006/04/1~~~~~q~85T00875R001700050012-2
 Approved For Release 2006/04/19 :CIA-RDP85T00875R001700050012-2
~1~;(;IZ3~;'I'
exl)orls -- furrr;lsl al '~.;.7 billion - al,lm;u well within Iran~s ral,abililics,
t!ivcn the ul,warcl Irrncl in rxiu,rl ul' Iracliliunal I!uocl>. ;Intl Ills I'avurablr
outlook fur nrw c~l,orls such ;ts col,l,cr, liclucl'ircl n; 1111;11 I!;IS, ;Intl new
inlluslrial runtnloclilirs. tirrvires will tarn :ut ;IClclitiunal '~~ billion clurinl!
I hr I>rriocl.
.35. 'I'o rovrr Ihr I,rojrrlrcl clcfiril in t!oocls :ulcl u?rvires of `~:~,~{ billion,
Ir;ul will rely on inrrrasrcl furrit!n rrrclils. III rrrrnl yr:us, Ihr shah has
rxiu?ricnrrll liltlr llil'I'irult~~ in ublainint! fur ~il!n towns brrausr of thr
ruunhy~s l;oca crrclil slanclinl! in ll~, Wrst I~:urc~l,c:nl, ;Intl .lal,anrsc nluncy
nuu'krls. Ir;ut now hats `f; I billion or nlurr av?~lilnblc in unuscll cconunlic
rrrclils.
Implicalionx
. ~). I Ill' l,Illll'll .llaleti tiialiti:; !!! l;;tilt 11'1,111 II'all s I,I:IIIIIrII C\IY.IIISI1,11,
;tlthuut;h conll,rtitiun Irunl other ruunhirs will br ~arunl~. tiinrr ~lulrh of
Iran's cahit:~' outlay clnrint! the Wert several yr:lrs will ttu fur allvanrrcl
rcluihnu?nt and trrlutiral assist;Inrr, ll~ I'irtns with rst;lblishrcl connections
in 'frhran arc in a la,ull I,usition to fill Iran~s nerds. In M:u~rh Ic)7;,', Iran
srlrrtrll tl?^ nnaconcla ('ul,l,rr ('unlir,uty Imnl ,t nunlbrr of other fu)ri}at
Cl,llll)rtltl,IS tl, :ISSISt In lll'Vrll,l>III!! 11';II1~S IIIII',r rl)I,I,rI' lirl,USItS ;It ~al'
('hashnmh the award rviclrnllV hau?cl un nnaronlla's I,rrvi,)us rzl,rrirnec
and I~rrl'ornlanrr in Iran. Othee I,runtising :bras fur llti venture rnl,ital
inclullr the natural ~!as industry, h~-?Irorhrlnir;ll~, ~Irrl I,rullurtiun, and
modern at;rirultur..
37. In tltrir durst fur a second steel mill. Ir;uti;ut rrlursrnt;ltivrs h;lvr
luurcll lhr ltnitrd Slates, Mexico, and 1Vrslrrn I';urol,r, rather th;ul the
l1SSl~. I:rv;lluatiuu ul' I~.urol,c:ul ;Intl .lair,utrsr rurrrnrirs in the ~,rr,~nd halt
of 1')71 sl,urrrd sunn? inrrrax? in Irani:ul I,nrrhax?s front the llnttrd St,llr~,.
ant! ecntlinurd signs ul inllatlon in I'.urulx? would su!rt~r?t that t!S inll,orts
w?,uld continue to be l'onllu?titivr. I'he I:trttr heavy ordrr~ I,I;I,'rd with the
I Wiled States (~ur adv;ntrrd wr;tiunts in the u?cond h:llf of I'1-" have I)ut
the llnitrll Slates in an excellent lu,sitiun lu adv:utcc its, ,h;ul? ul this nt;ukrt.
~S. Iran will I,I;ry ;In inrrrasittt;ly inll,ortanl role in ttllint~ the r;Il,idl~
r.xl,andinl; world drnuuni fur rnl?rt!~ -- rxl,retrd to double in the next 1 _'
years. Its uutlnlt of oil durintr the I ~)711s should rise by ;It Ir,nt `t" annually .
curnirlrcd with only about (,' % fur all world I,roduirr~. Iran will hr ~ul,nlvinl~
nlor?? than 10;~ of the world's oil durinl~ this (,eriud. I art;r rr`rrvrs ul natural
has - tltr third lart;rst in the wutlll -- arc undrrl;oinl~. r;ll,id dcvrlol,ntrnt,
and rxix,rt of I;as is rxl,cctrd to t~ruw at ;ul even hit!hrr rate than that
of oil. Iran, moreover, offers ;I stability and surety of ull,hly sur;l)~ larking!
in -nany other inllu,rt;utt rnrrt;y-I)rudurint; countries.
Approved For Release 2006~~f~~~~j~-=RDP85T00875R001700050012-2
 Approved For Release 2006/04/19 :CIA-RDP85T00875R001700050012-2
SEC;It]?'I'
'1'hc Pulilic;tl I~ramcwork -- Kulc of the Slttth
:;'1. 'T'his otttimistic Iticturc ol? Ir;ut's future, hasc~l stn cccmontit:
t;onsitlc?'alions, is continlccnt on a Ixtlitical I?ulurc not t;rratly tlif?fcrrnt from
that ol~ the recent Itast. 'I'hc Itolitic:al slahilit;~ ;Intl stront, clircrtional
inl?lurncc on tlcvclottntcnt inttru?tct) by the Shah havr been r~srntial clt?mcnls
in Iran~s cconontrc growth to tlatc. 'I'bis catnomic outlook would chanpr
nt;trkctlly it? Iran inht~ri( .1 a weak antl vacillalint~ Icatlershih or encuunleretl
Itolitica) turmoil.
Approved For Release 2006/04/195~A~~~F35T00875R001700050012-2