NIE-46: CURRENT OUTLOOK IN IRAN

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01012A001400010006-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 9
• Document Creation Date: December 16, 2016
• Document Release Date: April 20, 2005
• Sequence Number: 6
• Publication Date: September 25, 1951
• Content Type: REPORT

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NXE-46 R MRREIT OUTLOOK IN IRAN'
September 25, 1951
This is an intelligence report; nothing
In it is to be construed as a statement
of 11S or Departrnon.tal policy or as a
recommendation of any given policy.
Department of State Contribution
Prepared by;
Division of. Research for Wear East, South. Asia and Africa
Office of Intelligence Research
SE T
State Dept. review completed
Review of this document by CIA has
determined that
Jg[ CIA has no objection to declass
SECRET It contains information of CIA
interest that must remain
classified at TS S C
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Authority: HR 70-2
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TABLE OF CONTENTS
Lie
I . Backgrourld . . . . . . . . .
1
H. Probable Alternative outcomes of the Oil. Issue . .
4
III. Currant and Probable Status of US Interests . . . .
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NIE-46
CURRENT OUTLOOK IN IRAN
I. Background
A. The Oil Issue. Negotiations between the Iranian and.
British a ernments designed to lead to the resumption of
operations of the Abadan refinery, are at an impasse, primarily
over the issue of the operating agency. The British position
is that the operation can be conducted only with the aid of
British technicians who are willing to work only under British
management. They therefore propose that the operating agency,
be a British organization working under the overall policy
direction of the Iranian Oil Company, but with a British
general manager. The Iranian position is that the operating
agency must be Iranian, though with foreign participation,.
that the management consist of a board, and that foreign
technicians sign individual contracts with the Iranian Oil
Company. The British Government on behalf of the Anglo-Iranian
Oil Company (AIOC) has accepted the. nationalization of AIOC
properties within Iran in principle, but has been at pains to
insist upon the company's legal rights arising from the 1933
agreement and upon the British Government's obligation to pro-
tect its nationals abroad. An obligation to protect British
property abroad has been hinted*at, but not stated concretely.
The Iranian Government has taken the position that-the 1933
agreement is abrogated by virtue Parliament's exercise of the
sovereign right of the nation; has offered to indemnify the
AIOC9 and has denied that British lives or property are en-
dangered. At the present time each side asserts the obligation
of the other side to come forth with new proposals, although.
the arit'ish have stated their belief that no settlement will
be possible with Dr. Mosadeq as Prime Minister.
B. The Political Scene In Iran. Dr.?Mosadeq and his
Nat ions ron group are the om~ pant political figures in the
current situation in Iran. They derive their support from
the fact that the oil controversy has been interpreted as a
fight for national independence from foreign interference in
the internal affairs of Iran. Iranians believe that.they have
traditionally suffered from Russian and British. interference
in Iranian affairs, that they have freed themselves of
Russian interference, and that this is probably their best
opportunity to free themselves from British interference,
stemming from the activities of the AIOC. This interpretation
is widely accepted and coincides Leith` a deep-seated Iranian
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sensitivity to foreign criticism and pressure. The hard core
of National Front support comes from skilled workers, small
shop-keepers, teachers, students, and most government employees
below the top political levels% On the oil issue, support'
is almost universal,'including the Communist-dominated Tudeh
membership. The great majority of the supporters of the
National Front are non-Communist. This new fordo of which the
.National Front leaders are the spokesmen has emerged between
the traditional ruling aristocracy and the peasant masses.
Although it is disunited and only partially articulate, its
motivations arise from a general anti-foreign attitude and a
.conviction that a higher' standard of living is within Iranian
capabilities. This growing conviction has been stimulated by
foreign propaganda during the past 10 years, although the
Iranians tend to ignore the contrasting met':iods' of achieving
improvement-.-namely, the West's evolution and the Soviet's
revolution,
The vocal opposition to Mosadeq which has recently
emerged in the Majlis consists of deputies who have long been
regarded as supporters of British policy in Iran; deputies
who represent commercial interests which are already suffer-
ing from Mosadeq's policy; and deputies who sincerely believe
in. nationalization but disapprove of Moaadeq's methods.
Opposition is also stimulated in the Majlis by the fact that
elections for the next Majlis would normally be announced on
September 19, this session ending; its term on February 19,
1952. In elections the advantage lies with the government in
power, Should the National Front remain in power, it is
probable that elections would be somewhat freer than in the
past, although the National Front would probably intervene,
if nede ssary, to assure the defeat of a considerable number
of the current deputies. However, if they oppose Mosadeq now
on an issue which he has presented as a fif.;ht for national
independence, they must face a popular charge of treason.
Although it is possible that Majlia opposition may force
Mosadeq out, any successor without 'osadeq's support would be
faced with a troublesLomo minority in the Majlia and active
outside opposition. Such.a successor would require the active
support of the a1ny, whose sympathies might be predominantly
on Mosadeq's side.
An Wosadeq has proceeded further and further along the
road to nationalization, the Shah's already weakened in-
fluence has progressively declined. The Shah would not have
chosen Mosadeq as Prime Minister., but accepted him in response
to the wishes of the Majlis. For the first time a government
came to power with popular backing. The Shah signed the oil
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nationalization law passed by-the Majlis and Senate. Since
the inauguration of the Senate there has been little evidence
of the Shah's influence with that body,. which has supported-
Mosndeq on the oil issue. As.a patriotic Iranian sworn to
defend his country's. interests he nharo8 the national
aspiration of seeing British internal interference ended.
Although he is-.fully aware of.the dangerous consequences of
a shutdown of the oil operations, he cannot openly support
s proposal to continua, in effect, the AIOC organization
within Iran without running the grave risk of a revolution.
In view of Mosadeq's strong following the Shah cannot risk
the dangers of attempting to remove him, nor is there any
certainty that Mosadeq would leave.' An.outside possibility-
is that the Shah, under strong British pressure, might arrest
Mosadeq and his most extreme supporters, such as if1u11ah
Kashani, and risk the outcome of the civil war which would
almost certainly ,follow.
0. Iran's Ability to Operate the Oil Industr .. The
Iranian 73overnmen a1 m s that ran ans cannot run the oil
industry without foreign assistance. While they would like
to have 3ritish assistance, they do not believe that there.
Is no alternative. They Insist that competent technicians of
other nationalities would work for them should the British
withdraw entirely. They also believe that, if their oil is
sold cheaply enough, customers will come to get it. They are
to some extent. encouraged by the recently signed. agreement with
Afghanistan to purchase gaeoline and kerosene. and by the
reported offers of purchase from Poland and Czechoslovakia.
Their financial position is also currently aided by receipts
from the local sales Of products from Abadan stocks and their
supply of petroleum products 'is partially assumed from the
production of the small refinery at Kermanshah which can con-
tinue operating for some months. They tend to take the
attitude that only partial operation would eventually net them
as much as they have been roceiving;..and that the need for
their oil and refining capacity abroad is so great that
pressure on the 3ritish will eventually' force the latter to.
accept an agreement which will at least remove from within
Iran the old AIOC organization and so free Iran of Internal
British interference. Under those circumstances they believe
Vast !ran could go ahead with. effective.efforts to achieve
economic, social and political reforms, While there is a
large element of wishful'thinking.in the. above Iranian.
evaluation, It is nevertheless-the currently dominant con-
viction among the vocal ele tents..
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D. Iran's Ability to et along without Oil Revenues. The
absence o o revenues won res r c ran an ore an
exchange expenditures to the amount which Iran could earn
from its annual exports and the approximately 40 million
dollars of sterling, In London. Imports from this source
could and would bg supplemented by imports procured through
barter arrange:.aeiits such as exist now with the Soviet Union
and existed before the war with Gerrany. The major imports
excluded would be non-essential items, such as luxury
automobiles, perfumes,,and lingerie, and capital goods, such
as xa.lroad equipment, machinery, and spare parts much of
which is ordinarily Imported for the maintenance and
expansion of the oil facilities. The exclusion of non-
essential items-would affect seriously only'a very small per-
centage of the population whose current political influence
is not decisive. The exclusion of materials for capital
expansion would hald economic, especially industrial develop-
ment which would probably have to be halted. in any case for
lack of sufficient internal financing capacity, Essential
imports are sugar and cotton goods,, of which possibly
adequate. amounts could be procured by barter arrangements
with the USSR, tea and certain essential industrial materials.
If imports were restricted to these essential imports, which
constitute approximately 400 of total imports, they could bo
financed indefinitely by the foreign exchange ordinarily
earned from non-oil exports and through barter trade agree-
ments. Such a sharp restriction on imports could be post -
poned.for-several months, perhaps as long as 6 months, due
to the availability of the sterling exchange held in London
for financing of imports. The absence of oil revenues would,
however, eventually lead to a gradual shrinking of non-
agricultural activity in Iran and. if sufficiently prolonged,
would lead to considerable economic tension and hardship
particularly among the urban groups of the population. It is
however probable that the population would accept these hard-
ships for ' a period of six months. or longer, if their acquiescence
were regarded as the alternative to agreement to, reinstate a.
British oil organization within Iran. Although it is extremely
difficult to guage the relative strength of material versus
idealistic motivations in Iran, it appears probable that for
the next few months,.at least, the latter will continue to
dominate the oil issue. The major danger to the maintenance
of a relatively balanced economy without oil revenues,is the
demonstrated Iranian weakness in enforcing regulations.
II.. Probable Alternative Outcomea of the Oil Issue
A. Continuation cf a Stalemate. This is the most unlikely
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outcome because it is working to the disadvantage of both
the Iranians and the British. British economic-restrictions,
including abrogation of the sterling convertibility agreement,
are not likely within the near future to break the determination
of the Iranian people. If the British personnel in Abadan
withdraws, it. is probable that the Iranian. Government will
eventually succeed in restoring a limited production, even
though at a much greater cost per unit. Continuation of the
stalemate may be expected to result in an increase of barter
trade with the USSR accompanied by an increase of Soviet
personnel within Iran ostensibly engaged in the trade, A
continuation of the stalemate would probably oblige the
government to turn its attention to internal problems of a
more controversial nature. There has already been a notable
decline in the efficiency and effectiveness of activity in
government ministries as a result of preoccupation -:rith the
oil issue. It is probable that the government T s Majlls support
would break apart, although, if the National Front remains in
power during the elections, it .may still maintain a Ma elis
majority. However, resentment against the 'West,, which will
be blamed for wrecking the oil industry will inevitably tend
to turn the people toward the Soviet Union. In the absence
of effective Western aid to check such a development, it is
probable that Soviet-oriented elements would eventually gain
control of the j.;ovexnment, As that time approached it is
probable that significant nuxilbers of the traditional ruling
group would leave the country.
B. Settlement with t,1o des. As the internal economic
Situation worsens, pressure upon T2osadeq to find a solution
.will inoroase, The gradual demonstration of the lack at
qualified Iranian personnel will probably make an impression
on him. Any attempt to operate the industry without British
aid is certain to end in disillusionment, As these factors
combine iosadeq may come forward with a new proposal suggest-
ing an operating company under neutral managements A British
proposal to this effect would probably be acceptable to
Mosadeq and thus might obviate the hazards inherent in del?ay-
Inb a compromise solution.
Co R2lacement of Diosade and Renewal of Conversations.
For the reasons rio e a eve, Isun-Il la..`y-t a j;ios e can
be forced out of office. If he i s forced out, he will become
a martyr with a large impassioned following. There is a
possibility that he might withdraw in favor of some other
member of the National Front, although there is no member of
sufficient stature to retain the post of Prime UinIster with-
out ?osadeq's backing. At the present time Tudoh does not
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have the capability of seizing control. If Mosadeq should.
die, the i' ational Front leaders, in spite of serious internal
friction, would probably hold together in self protection and
.retain Mosadeq's following on the oil issue., If Mosadeq were
assassinated, the British would be blamed and resentment
against them would become further intensified.
Any-successor of Mosadeq would probably reopen. oll con-
versations with the British. It is clearly the British hope
that a potential successor, such as the ex-Prime Minister
Seyyed Zia Tabatabai, would be willing to accept a solution
vhich would, in offset, restore the AIOC organization within.
Iran, Seyyed Zia's stratogy would be to become Prime Minister
If possible before the elections and so control them. If
that is impossible, then to make every effort to obtain the
clectiod of an adequate number of supporters to assure his
selection as Prime Minister by the next legislature. At the
present time it, appears doubtful that he can. accomplish either
objec;ti'tre, Even if he were to succeed, there is considerable
doubt as to his ability, granting his willingness, to obtain
NITajiis approval of a settlement which would restore the British
position in Iran, A compromise settlement with anyone but
Mosadeq would olearly involve less loss of face by the British.,
so Seyyed Zia or another successor would probably have a
better chance of arriving at a settlement. Were $eyjad,Zia
to attempt to force the acceptance of the ourrent British
position re terms for Compromise, he would have to rely upon
the support of the army and police. That that support would
be forthcoming on this issue is very doubtful.
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