NIE: IRAN

• Document Type: CREST
• Collection: Library of Congress
• Document Number (FOIA) /ESDN (CREST): LOC-HAK-152-7-49-2
• Release Decision: RIFLIM
• Original Classification: S
• Document Page Count: 17
• Document Creation Date: January 11, 2017
• Document Release Date: July 20, 2010
• Sequence Number: 49
• Publication Date: May 1, 1975
• Content Type: NIE

SECRET ..M.
No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2 ''.
MJ
CONTENTS
Page
PRECIS ..................................
The Shah ........................................................ 4
The Institutional Context ......................................... . 5
Supporters and Challengers ........................................ 6
A Contingency: The Shah's Demise . . ................. . ............. 7
II. NEAR-TERM ECONOMIC OBJECTIVES AND OUTLOOK ......... 8
Outlook ......................................................... 9
Implications for the US ........................................... 10
III. MILITARY DEVELOPMENTS ................................... 10
IV. IRAN'S FOREIGN RELATIONS .......................... . ....... 12
The Shah's Perspectives ........................................... 12
The Persian Gulf and the Arabian Peninsula ......................... 12
Iraq ............................................................. 13
The Middle East ................................................. 13
The Indian Ocean ................................................ 14
CENTO ......................................................... 14
The USSR ....................................................... 14
China ........................................................... 14
Relations with the US ............................................. 14
Problem Areas ................................................... 15
No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2
 No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2
IRAN
PRECIS
A. We see little prospect during the next few years for a serious
challenge to the Shah's authoritarian control over Iran's internal affairs
and programs. Nevertheless, the Shah's monopoly of decision-making
and his trend toward greater repression of opposition will incur certain
political costs:
- growing alienation and dissent, including terrorism, on occasion
with anti-US overtones;
- limited bureaucratic and governmental effectiveness in im-
plementing the Shah's ambitious objectives;
-- - the stifling of political institutions which could maintain sta-
bility after the Shah's demise.
B. The Shah is unlikely to change his course materially; hence
strains within Iranian society seem destined to grow as other sectors
of life modernize and the pressure for political participation becomes
more insistent. In the event of the Shah's early death, competition for
power could lead to serious instability.
C. In the short run, Iran will be able to obtain the finances neces-
sary to accomplish the Shah's dramatic economic development objec-
tives but will be constrained by:
- an inadequate agricultural base;
- serious shortages of skilled and semi-skilled labor;
- port and transportation bottlenecks.
I
SECRET
No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2
 No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2
As a result, we anticipate a slowdown in the rapid pace of Iran's eco-
nomic expansion over the next few years. In the longer run, if oil
revenues do not rise significantly there will be current account deficits
due to increased expenditures in military, industrial, and agricultural
products. Even so, Iran will provide opportunities for significant eco-
nomic gains for the US in investment and trade.
D. By the end of this decade, Iran will have acquired a formidable
military arsenal capable of projecting significant ground and air forces
into the Arabian Peninsula and South Asia and a blue water navy
capable of routine operations in the Indian Ocean. Iranian combat
effectiveness, however, will remain limited by lack of training and the
ability to maintain sophisticated equipment. Foreign support, par-
ticularly from American technicians, will remain essential to Iran's
military establishment for many years. The Shah is not likely to seek
nuclear weapons in the near future, but he will probably attempt to
acquire the necessary technology.
E. The Shah is likely to grow increasingly assertive in his foreign
policies. He would risk confrontation with the Arabs, the West, or even
the Soviet Union in order to assert Persian primacy in the Gulf or to
maintain what he considers a sufficiently high level of oil revenues.
Although he will remain suspicious of Soviet intentions and will con-
tinue to rely on the US as the ultimate deterrent to the USSR, the Shah
believes he has taken out insurance in the form of economic and po-
litical ties and that he can deal effectively with the Soviet Union on his
own under foreseeable circumstances.
F. Iran will be prepared to deploy forces unilaterally in order to
forestall a radical upset in the Gulf. There are also prospects for greater
cooperation with Saudi Arabia's Prince Fahd and, following Iraq's re-
cent regional overtures, for a reduction in Iraqi-Iranian hostility. Iran's
relations with South Asia will remain limited over the short term; the
Shah is likely to limit his financial backing for Pakstani arms purchases.
In the Middle East, the Shah will probably continue to expand his
relations with Egypt, and it is becoming less likely that Iran would
supply Israel with oil in the event of resumed hostilities.
G. US-Iranian relations are likely to become more difficult in com-
ing years. The Shah is seeking to remove both the US and Soviet mili-
tary presence from the Persian Gulf and the Indian Ocean and to es-
tablish his own regional collective security arrangements in the Gulf;
while he will tacitly approve of US naval operations in these waters as
2
SECRET
No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2 -,..,,
 No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2
SECRET
long as the USSR keeps naval vessels on station there, we cannot de-
pend on him to provide access to Iranian facilities to support fleet
units, and he will probably use his influence to end our use of Bahrein.
H. Specific problem areas include:
--- the Shah's efforts to maximize oil prices and the buying power
of oil;
--- arms procurement and the pressures that the Shah may levy
to ensure his perceived military and security requirements
are met;
- the growing number of Americans in Iran, expected to reach
about 50,000 by 1978;
- Arab-Iranian rivalries forcing the US to choose sides;
- the question of safeguards for nuclear equipment and fuels.
1. The Shah's strategy in dealing with the US is likely to continue
to be based on efforts to expand economic ties with the US to offset
strains developing from his growing political independence. He pro-
vides important intelligence facilities for use against the USSR and
would probably cooperate in facilitating US political initiatives in Mid-
dle Eastern diplomacy. While over the short term, US and Iranian
interests are likely to be largely compatible, we can no longer rely on
the Shah to accommodate US interests in the increasing number of
areas where his interests diverge from ours.
J. While US-Iranian relations would come into question if the Shah
should leave the scene, much of the relationship has become institution-
alized to the point where it transcends the Shah. Power would rest at
least initially on a military-bureaucratic coalition, but they would come
under increasing pressure and we cannot now foresee the nature of the
regime which will ultimately succeed the Shah. But even a more ex-
treme regime probably would not immediately seek to restructure the
present relationship in drastic ways given the Iranians' view of their
interests and the importance of the US connection.
3
SECRET
No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2
 No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2
DISCUSSION
The Shah
1. In Iran today, the state and the Shah are
virtually one. The Shah has succeeded in concen-
trating power and decision-making firmly in his
own hands. In the process, he has removed or
neutralized every official who might challenge him
and has stifled the capacity of the political system
to act without him. Thus to understand the Iranian
political system one must understand the person-
ality and character of the Shah himself.
2. Since his earliest years, the Shah has been
imbued with a sense of specialness. This has been
translated into his mission to modernize his coun-
try economically and militarily so that he and
Iran can play a major role in world affairs and
dominate the Persian Gulf. Proud of his image as
a royal revolutionary, he has been directing the
"White Revolution" for over a decade to transform
Iran into a modern state. To the Shah social justice
means primarily closely-supervised economic devel-
opment to raise the living standards of the masses.
He regards Iran's growing prosperity as an essential
antidote to pressure for far-reaching political trans-
formation.
3. The Shah has no intention of sharing political
power. He views Iranian politicians as by nature
fractious and uncooperative and prefers to work
through a small coterie of loyal and tested assist-
ants. His willingness to tolerate limited party com-
petition stemmed from the desire to appease critics
in the West and among Western-influenced ele-
ments of the population. But he has long been
mistrustful of the parliamentary process. In his
view, representative government is at best a distant
goal suited for a successor, although he feels de-
fensive about the anachronistic appearance of abso-
lute monarchy in the last quarter of the 20th
Century.
4. The Shah is a man in a hurry. He is only 55
years old and is in good health. But he appears to
fear that unless he impels Iran much further along
the path of modernization, his successor will be
unable to sustain the momentum. His urgency is
also stimulated by the conviction that Iran must
develop before its oil runs out or the value of its
oil is undercut by alternative sources of energy.
The forced-draft nature of all his projects suggests
that he has a deadline in mind. The Shah probably
wishes, by staying ahead of demands for changes,
to move fast enough that when his son comes of
age six years hence Iran will be at the point of
self-sustaining development. This concern may be
evidenced in the Shah's remark last year that while
the Crown Prince could do much good as king
in the future if he were willing, "we arc fixing
things so he can do no harm."
4
SECRET
No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2
 No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2
SECRE1
5. In this situation, the Shah will not give up
his exclusive responsibility for all major and many
minor decisions. If anything, this method of op-
eration is likely to become more pronounced.
Particularly since his celebration of the 2,500th
anniversary of the Persian monarchy, his sense of
infallibility has become more apparent and he
has become more isolated from opposing views.
Several recent major decisions appear to have been
taken by the Shah with little consultation even
with his coterie: for example, the creation of a new
single-party system, and the agreement with Iraq
at the expense of the Kurds. The Shah seems
likely to make more decisions without reference to
his advisers. While his judgment has proved gen-
erally sound thus far, and is likely to continue so,
nonetheless, his monopoly of the decision-making
process inhibits the development of institutional
mechanisms and imposes an even greater burden
on his energies and wisdom.
The Institutional Context
6. In Iran, politics revolves around personalities
and cliques, not formal associations and institu-
tions. Parties, cabinets, and parliaments are merely
the stage on which these cliques interact. The
crucial questions, therefore, center on the quality
and competence of particular individuals, the posi-
tion of these individuals vis-a-vis the monarch,
and the coalitions and rivalries among these cliques.
7. The most important political clique in Iran is
the coterie of individuals surrounding the Shah.
This group consists of a dozen old classmates,
trusted advisers, loyal military and civilian officials,
and relatives. A key figure is Empress Farah, the
mother of and designated Regent for 14-year-old
Crown Prince Reza. Although the other members
of the inner circle remain deferential to the monarch
and isolated from the rest of Iranian society, the
Empress, his own private network of informants
and consultants, and SAVAK (the national intelli-
gence organization), are his principal means of
keeping in touch with developments in Iran. The
Empress has a reputation for integrity unusual for
the inner circle and enjoys considerable, although
diminishing, respect among educated Iranians.
8. Cliquishness, personal insecurity, and inertia
dominate the Iranian bureaucracy. While the Shah
recognizes that these traits have hampered the
implementation of his policies, the administrative
transformation mandated by the White Revolu-
tion has foundered on the Shah's own reluctance
to reward individuals who display initiative, effi-
ciency, and judgment. The first requirement of
Iranian administrators is loyalty; the higher one
climbs up the bureaucratic ladder, the greater the
salience of this factor. Consequently the higher
levels of the bureaucracy have come to be stocked
with technocrats and administrators who choose
bureaucratic survival over accomplishment. Cor-
ruption is endemic but is no worse than in other
countries in the region. Bureaucratic inefficiency
will delay some of the Shah's programs and to that
extent will frustrate the expectations of both the
Shah and the people. We do not expect significant
improvements and the government will face in-
creasing administrative challenges.
9. Political party activity in Iran has no autono-
mous life. The Iran Novin Party was designed to
mobilize mass support and to provide a channel
for limited feedback to those in power. It became
instead a collection of competitive cliques directed
by Prime Minister Hoveyda, Elections, parliamen-
tary debate, and shifts of personnel were inconse-
quential to the actual course of developments. The
existence of the loyal opposition, the Mardom Party,
however, provided an appearance of political com-
petition which permitted a number of Iranians to
rationalize their participation in the Shah's system.
10. The replacement of this structure by a single
party last March represents no change in the basic
machinery of political decision-making. The crea-
tion of the Iranian National Resurgence Party shows
that the Shah has lost interest in the facade of
competitive politics. The new party, run by the
old group of politicians headed by Hoveyda, ap-
pears to have little potential for mobilizing grass-
roots support for the regime. The Shah rejected
the previous notion of a loyal opposition as a
5
SECRET
No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2
 No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2
vehicle for expressing a variety of opinions and
thereby has reduced the ability of the system to
accommodate differing points of view.
11. If, as we believe likely, the new party fails
to deal with dissent and to provide greater outlets
for the demand for political participation, strains
within Iranian society will increase. The Shah is
unlikely to act on his declaration that all who do
not join the new party should face jail or expulsion
from the country. More likely, he will use party
membership as just one of the many criteria for
allowing participation in the system. He will con-
tinue to rely on SAVAK to manage and control
political activity from behind the scenes. In so
doing, the Shah is counting on the flexible and
resilient nature of the Iranian social system which
has traditionally allowed the ambitious to become
influential as long as they played by the rules
established by the ruler. But the operation of this
system breeds widespread personal insecurity and
cynicism which discourage voluntary cooperation
and national commitment. As a result, some capa-
ble Iranians will increasingly be left on the sidelines,
benefiting materially from the development process,
but assuming no responsibility for the success of
the Shah's program.
Supporters and Challengers
12. Only rough assessments are possible on the
extent of support for the Shah. Opposition senti-
ments are taboo in public and expressed in private
only with great discretion. The bulk of the popu-
lation, mostly peasants, has been traditionally apo-
litical; it generally has supported the monarchy
as an institution, although not necessarily any spe-
cific monarch. The peasants have gained in abso-
lute terms from the reforms, but there is no indi-
cation that their higher standard of living has been
translated into support for the Shah.
13. The major source of strength for the Shah
has been his military and security forces. The Shah
takes particular care to keep his officer corps con-
tent, mostly through the provision of extensive
perquisites such as salaries and housing. However,
the increasingly high level of education required
by the modernizing of the Iranian military forces
may affect the political reliability of the officer
corps. Present commanders, like their civilian coun-
terparts, are selected primarily on the basis of
loyalty to the regime. Those at the top of the mili-
tary establishment today are not particularly com-
petent. As better educated officers, who are more
likely to have imbibed some of the intellectual
dissent of their civilian peers, come into middle-
grade positions, it will become more difficult for
the top-ranking generals to maintain their present
tight control.
14. The most wholehearted backers of the Shah
are those few thousand who profit personally from
close association with the Court; they would also
suffer most if the system were eliminated. Besides
the inner circle of the Shah's principal assistants,
this group includes bureaucrats, cronies, hangers-on,
and business and professional men whose impor-
tance arises from their access to the Court advisers.
15. A far larger group---administrators, middle-
class professionals and probably even the bulk of
the urban lower class---go along with the Shah not
so much out of conviction but because they have
profited from the system and do not see an alter-
native. Unenthusiastic about the Shah as a person,
many perhaps even unenthusiastic about the mon-
archy as an institution, most of this group would
probably switch loyalties easily as long as they
perceived no threat to their personal interests. This
lack of enthusiasm leads to considerable passivity,
and the services of many upper-class, experienced
administrators are denied either by their own choice
or by what the Shah considers their political un-
reliability.
16. Prominent in the opposition are the religious
leaders and through them the religious establish-
ment. They have longstanding objections to reform-
minded monarchs and a particular antipathy for
the Pahlavi dynasty. Religion has been a major
influence among the urban lower classes and the
bazaar merchants. Even the intelligentsia, who in
other circumstances would be scornful of the re-
ligious establishment, now apparently perceive the
religious leaders as sharing common grievances
against the present system.
6
SECRET
No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2
 No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2
17. Opposition to the Shah and his regime is en-
trenched among intellectuals. Writers, poets, and
artists, who traditionally have played an important
role in Iranian political life, are contributing to
the emergence of a class of alienated intellectuals.
Their demands for political participation and free-
dom of press and expression have no place in the
White Revolution. The Shah's style of government
forecloses relaxation of police repression and an
end to corruption desired by this opposition. Edu-
cational excellence and administrative efficiency
did fall within the Shah's program, but he has de-
plored the lack of effective action in these fields.
Student unrest is endemic. There seems almost
no chance that the Shah's regime, however suc-
cessful in material terms, will be able to satisfy
these elements. Their desire to share political power
is more troublesome for the Shah than the na-
tionalist demands of reformers of the Mossadeq
era who have been satisfied merely to participate
in the process of economic development.
18. Intellectual dissent has produced a climate
in which acts of terrorism are increasing. Ideo-
logically, the extremists range from anarchist-com-
munist to the radical religious right, but they are
principally interested in violence against the re-
gime. This accounts for the seeming anomaly of
terrorists financed by merchant money and espous-
ing a combination of Islamic and Marxist principles.
In the past two years, members of several small
extremist organizations have been responsible for
at least ten assassinations and a score of bombings.
Their main aims appear to be to demonstrate the
inability of the security forces to prevent their ac-
tivities, to eliminate security officials who have been
a danger to then, and to force the security forces
into actions which would arouse widespread popu-
lar resentment. On occasion, terrorism will spill
over and become directed against the US and US-
sponsored activities.
19. Although individual acts of violence are
likely to increase, they pose no immediate threat
to the regime. The security forces have had con-
siderable success in detecting and breaking up
individual cells. The agreement with Iraq may
have cut off some of the external support for ex-
tremist activities. But the growing sophistication of
the extremists and their willingness to die for their
cause make it almost impossible to stamp out the
terrorist organizations. Moreover, they will not lack
recruits as long as students and their allies among
the intelligentsia remain opposed to the Shah. In-
deed, the alienation of these elements is bound to
grow, especially as the security forces take an in-
creasingly hard line toward protests of any sort,
even when the demands are nonpolitical.
20. As a master political strategist, the Shah will
probably seek new ways to head off growing dis-
content. He may announce new welfare programs
to bring tangible benefits to the masses. He may
attempt further political rearrangements to infuse
greater vigor into the Iranian National Resurgence
Party. But the main lines of his policy seem already
laid down and will not accommodate major po-
litical changes. Hence, strains within Iranian so-
ciety seem destined to grow as other sectors of
life modernize and the pressure for political par-
ticipation becomes more insistent. Nonetheless, we
see little prospect during the next few years for
a serious challenge to the Shah's total control over
Iran's internal affairs.*
A Contingency: The Shah's Demise
21. The Shah's death by accident or natural
causes would be less traumatic for the Iranian
*The Assistant Chief of Staff, Intelligence, Department
of the Air Force, believes that this Estimate overstates the
extent and significance of dissent in Iran and prejudges the
Shah's capacity to effect successful reforms. Problems as-
sociated with the modernization program in Iran are not
necessarily unequivocal danger signs for the regime. The
country's economic boom continues to attract many Iranian
students back from foreign universities and, while they have
indeed absorbed the experience of living in non-monarchical
societies, the promise of material reward has proven suffi-
cient to deflect the great majority from political opposition.
Nevertheless, the Shah remains cognizant of the need for
diffusing political power and responsibility, but he believes
that this process must be gradual and need not necessarily
reflect Western standards or forms of government. Whether
he can he successful in ensuring the smooth transition from
a modernizing autocracy to a bourgeois-nationalist consti-
tutional monarchy must therefore remain an open question.
7
SECRET
No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2
 No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2
system than his assassination. There are probably
enough persons with a stake in the established
order to ensure continuation of the monarchy, at
least in the short run. Although popular, Farah
as Regent for Shah Reza would have difficulty
in maintaining political stability because of the
variety of politicians and military officers jockey-
ing for dominance.
22. Support of the armed forces would be cru-
cial for any succession arrangement. General
Khatami, the Shah's brother-in-law and air force
chief, would probably be a main prop for the suc-
cession, but his relationship with other military
officers is not known. While over the years the
Shah has exerted great care to weed out disloyal
elements in the upper ranks of the military estab-
lishment, we do not know how the military com-
manders would act once he is off the scene. Among
the politicians, Prime Minister Iloveyda would
have a strong initial position. He has many enemies,
however, and would have great difficulty in con-
solidating his power.
23. The violent removal of the Shah would im-
mediately threaten the system. The Shah is paying
increasing attention to his personal safety. While
this makes him more isolated and remote, it
heightens the chances that his security forces
would detect and forestall an assassination which
was part of a comprehensive plot to seize control
of the government. On the other hand, the Shah's
forces still could not be sure of preventing acts
by an individual or a handful of plotters willing
to sacrifice their lives. If assassins should succeed,
the death of the Shah would profoundly shake
government officials and the public in general.
Under these conditions the senior generals might
feel all the more impelled to band together to act
swiftly to preserve the system to which they owe
so much. But in time they would probably come
under increasing pressure from more nationalistic
and more radical elements in the middle 'and lower
ranks. Thus the monarchy would face an uncer-
tain future whatever the manner of the present
Shah's passing.
II. NEAR-TERM ECONOMIC OBJECTIVES
AND OUTLOOK
24. The Shah is embarked on an ambitious re-
structuring of the Iranian economy over the next
decade or so. He is determined to carry out rapid
industrialization, capable of supporting a large-
scale civilian sector as well as producing late-model
weapons systems. Although industrial development
is his primary goal, he is willing and able to allo-
cate resources to other sectors which support eco-
nomic modernization. He recognizes Iran's strong
reliance on oil and plans more efficient use of this
finite source of wealth. Over the longer term, how-
ever, he believes Iran must look to its other re-
sources and, in particular, must transform its poorly
educated masses into a nation of skilled laborers
and technicians to build a strong industrial base.
In the same vein, he proposes to shift the country's
energy sources from oil and natural gas to nuclear
power. This ambitious prograrn is to be accom-
plished by injecting massive doses of oil-generated
revenues into key sectors with the hope that they
will trickle down to provide economic incentive
and advancement even for those at the bottom of
the social order.
25. The Shah is building on an already fast-
growing economic base. Since the mid-1960s, Iran's
GNP has grown annually at a real rate averaging
12 percent to about $40 billion in 1974. The rapid
expansion of Iran's oil industry and the applica-
tion of oil earnings to development have been the
dynamic forces behind the rapid growth. Foreign
lending which earlier enabled Iran to finance its
deficit spending on development and defense was
attracted by Iran's oil potential. In some cases,
repayments were linked directly to oil or associated
natural gas output.
26. In 1974, as a result of the dramatic price
rises, Iran's oil revenues quadrupled to about $20
billion, or roughly half of GNP. The unexpected
surge of some $15 billion was far too great for
Iran to devote immediately to economic growth. Of .
this amount, about one-fourth went for expanded
imports, while less than another fourth went for
increased domestic development expenditures. The
8
SECRET
No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2
 No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2
SECRET '
remainder was disbursed in other areas, including
loans, and to expand Iran's official reserves which
at the end of 1974 were over $8 billion.
27. The Shah's program for rapid development
is creating strains within the economy. By far the
greatest problem is a shortage of skilled and semi-
skilled workers. The shortage is presently about
700,000 and rising. Introduction of foreign labor,
largely from East Asia, can fill only a small part
of the gap. Large numbers would greatly add to
housing and food supply problems. The 20,000 or
so that have arrived are causing resentment among
Iranians.
28. There are a number of other problems as
well. Port and railhead congestion, resulting from
the heavy influx of imports in recent periods, and
an inadequate internal transportation network will
remain bottlenecks at least in the short term.
With production and imports lagging behind the
surge in demand, shortages are prevalent, causing
significant economic and political problems. There
was an inflation rate of about 25 percent in I.974-
a serious problem in a country accustomed to nearly
stable prices. Iran also is faced with the problem
of rising expectations: those who come to the cities
from rural areas are unemployed or are relegated
to the lower jobs and incomes and cannot find
housing or other accouterments of the "good life"
they see around them. There is little hope that the
new oil wealth will trickle down far enough or fast
enough to prevent growing socio-economic dis-
parities.
29. Agricultural production in recent years has
barely kept up with population growth and has
fallen increasingly behind the growth in demand.
Once a net agricultural exporter, Iran has become
increasingly reliant on imports of foodstuffs. In
face of a particularly poor harvest last year due
to inadequate rainfall, imports grew at least sixfold.
Irrigation and other measures to relieve the heavy
dependence on erratic rainfall are belatedly being
emphasized but have little impact in the short run.
More promising in the short term are the efforts
to expand rural credit and services. These will not
meet Iran's needs, however, and the Shah has in-
dicated that Iran expects to import $10 billion in
agricultural products from the US alone in the next
five years.
Outlook
30. Given the problems now confronting the
economy, we foresee a slowdown in the rapid pace
of industrial expansion and a somewhat lower rate
of growth of real GNP over at least the next few
years. Many of the projects on the drawing board
probably will be deferred or implemented at a
slower pace. Military expansion, however, will be
largely unaffected by the economic slowdown; the
Shah plans purchases abroad averaging about $5
billion annually over the next five years.
31. Oil will continue to finance Iran's develop-
ment. Earnings, dependent on production rates
and price, are not expected to rise appreciably
over the next five years. Iran's oil output is cur-
rently about 10 percent below last year's 6 million
barrels per day. Although small increases are pos-
sible during 1976-77, the longer term outlook is
for lower production. Accordingly, oil prices take
on increasing importance in the Shah's future rev-
enue plans. He will continue to work for higher
oil prices, both making bilateral deals and acting
through his leading position in the Organization
of Petroleum Exporting Countries (OPEC). He
probably will push simultaneously for production
limitations to eliminate oversupply and for some
form of commodity indexing to protect the value
of oil against rising import prices. His allegiance
to these policies will find him at odds with the
interests of the US and other industrial consuming
nations.
32. The Shah's focus on industrial development
will include expanded use of oil and natural gas
for manufacturing. Ile is seeking foreign assistance
to build oil refineries and petrochemical plants and
to market their products abroad. He also is trying
to build up markets for Iranian manufactures, partly
by tying credits extended to Romania, Egypt and
other LDCs to future purchases of Iranian ma-
chinery, buses, and consumer goods. Although they
should increase rapidly, these non-oil exports cannot
replace oil revenues in the foreseeable future. At
9
SECRET
No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2
 No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2
best they will grow from about $1 billion to $4
billion in 1980-less than one-fifth of current oil in-
conic.
33. Iran's foreign earnings should continue to
provide large surpluses for a few years, but there-
after, if oil revenues do not rise significantly, there
will he current account deficits. Aware of this pros-
pect, the Shah is adopting restrained lending
policies. Increasingly he is attracted to investments
which will return badly-needed technology, equip-
ment, and commodities in the coming years. Equities
such as those in West Germany's Krupp steelworks
are in keeping with this judicious use of current sur-
pluses. This year he acquired a 25 percent share in
a West German machinery and construction firm
and a 10 percent share in an uranium enrichment
plant to be built in France. Loans to the IMF and
IBRD further his desire to promote Iran's image
and at the same time obtain a respectable return
on investment.
Implications for the US
34. The economic and military development un-
der way in Iran provides opportunities for signifi-
cant economic gains to the US. The US already has
the largest investment in and sales to Iran and has
favorable opportunities to expand both over the next
several years. By 1980 the US investment in Iran
could triple to at least $2 billion. Returns on this in-
vestment, as well as repatriation of earnings from
the 50,000 US citizens likely to be in Iran by 1980,
would be appreciable. Non-oil trade with Iran
over the next five years should easily exceed the
$15 billion total mentioned in the earlier Kissinger/
Ansari communique and now appears likely to
reach some $25 billion. It would be balanced
strongly in favor of the US.
35. Iran's investment and development strategy
will also pose problems for the US. Iran is ap-
parently determined to engage in some development
whose viability would depend on preferential ac-
cess to the foreign markets the Shah has been seek-
ing. Iranian exports to third countries under such
conditions might affect competing US exports in
the late 1970s or early 1980s; increased Iranian
production for domestic consumption will certainly
affect certain US exports to Iran itself in the longer
run. The Shah's strong interest in US Government
participation or involvement in his commercial re-
lations may raise problems for the US. The Shah
sees the US Government as a guarantor for the per-
formance of the US private sector and could hold
Washington responsible should US industry not
meet his expectations.
36. We see, however, little threat to US markets
from Iranian export industries in the near terns.
Iranian exports of non-oil goods will probably not
be competitive with US products and will be con-
fined mainly to regional markets in which the US
does little business. Military production in Iran will
continue to require US and other Western tech-
nology and, given the lag in introducing new weap-
ons, will not compete directly with the high value
sales of sophisticated US military equipment.
37. Iranian equities in US firms are unlikely to be
important from the standpoint of earnings outflow
or leverage within any sector of US industry, but
may pose problems from the standpoint of industrial
firms. Moreover, such equity investment would
impose a need on Iran to act responsibly toward
the US. Increased Iranian investment in the US
would tend to offset risks to US investment in Iran.
38. US sales and proposals will meet increasingly
stiff competition from other nations, abetted by an
Iranian bureaucracy which is adept at comparison
shopping. Furthermore, concern over reliability of
supply and fear of being too dependent on any one
source will lead the Iranians to disperse projects
and purchases widely among the industrial states.
III. MILITARY DEVELOPMENTS
39. Central to the Shah's ambitious plans for
Iran's future is the expansion and modernization of
the military establishment. Believing that Iran's as-
pirations as a world power must be based on re-
gional military strength, the Shah is developing a
military force stronger than that of any-and all-
his neighbors except the USSR. He wants the capa-
bility to project military power anywhere in the
Gulf area. Ile particularly desires supremacy over
Iraq, which is receiving a continuing inflow of
modern arms from the USSR. And he judges that
10
SECRET
No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2
 No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2
merely a slight edge over all the states in the region
is not enough to deter actions hostile to Iran.
Finally, he is insistent on acquiring a blue water
navy to extend Iranian influence in the Indian
Ocean.
40. Iran has been trying to meet these goals since
1968. Military manpower has already increased from
about 200,000 to nearly 350,000. The ground forces
have been reorganized and reequipped to include
three infantry and three armored divisions with over
1,200 late-model tanks. The air force has acquired
over 100 F-4s and several ICC-707 aerial tankers.
The navy has obtained a large hovercraft fleet and
four of the latest model destroyer escorts. The mili-
tary establishment also includes over 70,000 gen-
darmes charged with keeping order in the country-
side.
41. These forces can do much of what the Shah
considers necessary. They are already more than
capable of maintaining internal security and of
defending Iran's territory against any hostile neigh-
bor but the USSR. Indeed, they have a clear edge
in military capabilities over all states in the region
and could seize and hold any of the smaller ones
on the Arab littoral of the Gulf. But aware of the
problems encountered by his expeditionary forces
in Oman, the Shah recognizes that in practice their
performance leaves something to he desired.
42. The Shah hopes by acquiring additional
quantities of the latest-model weaponry to overcome
present deficiencies and keep far ahead of Iraq's
continuing military modernization. He plans to ex-
pand his armed forces by another 50,000 men to
nearly 400,000 by 1978. Much of this growth is in
conventional ground forces, where the scheduled
acquisition of over 400 additional helicopters des-
ignated for trooplift and attack roles will give the
Shah a major offensive capability. He will bolster
Iranian naval power by purchasing the most modern
destroyers, additional hovercraft, submarines, and
anti-submarine aircraft; he appears to be preparing
eventually to add some type of aircraft carrier to
the fleet. By 1980 the Iranian air force should have
nearly 24 fighter-bomber squadrons of over 400
late-model aircraft, including 80 F-14s with asso-
ciated Phoenix missiles.
43. The new weapons for this force will cost at
least $25 billion over the next five years. One of
the considerations motivating the rapid buildup
is the Shah's desire to avoid future price rises by
purchases at today's lower cost. Thanks to the cur-
rent high oil prices, Iran has the funds to purchase
the military equipment the Shah desires and to
set up the factories necessary for the military in-
dustry he now envisages.
44. To reduce Iran's total dependence on foreign
suppliers for the sophisticated weapons systems he
desires, the Shah wants to coproduce late-model
weaponry in Iran under license, mostly in conjunc-
tion with US firms. Coproduction will not signifi-
cantly lower the cost of these weapons, and is likely
to increase it somewhat. The Shah, however, be-
lieves it will give Iran a more dependable source
of supply. Much of this gain is illusory, however;
components for the more sophisticated items will
still have to be imported, though it may be easier
to purchase parts on the world market than to
procure the entire weapons systems.
45. Iran has the financial resources to carry out
its ambitious military modernization program with-
out cutting severely into development projects.
Nevertheless, the expansion and upgrading of the
armed forces, by increasing the pressure on the
limited pool of skilled manpower, may inhibit
growth in the developmental sector. The competi-
tion for manpower poses a difficult problem of
priorities for the Shah, who is deeply committed
to both economic development and military mod-
ernization.
46. Deliveries of sophisticated military equip-
ment will increase Iran's dependence on foreign
technicians. Even if foreign technicians reach cur-
rently projected levels-perhaps as many as 15,000
by 1980-lack of trained manpower will seriously
impair operational effectiveness of the armed forces
over the next several years. Indeed, it will be a
long time before the Iranians can use on their own
the complex weapons systems they have begun to
acquire.
47. The largest group of these foreign technicians
will be Americans, who already number about
11
SECRET
No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2
 No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2
4,000. The US is committed to supplying and, in
some cases, coproducing advanced weapons sys-
tems; it is also committed to training Iranians in
their use. By 1978 foreign personnel will make
up a significant proportion of all Iranian support
and maintenance personnel. Moreover, the US will
he deeply involved in building a blue water navy,
maintaining and supporting tactical and support
aircraft systems, and establishing communications
systems.
48. The Shah's preoccupation with keeping ahead
of regional rivals raises the question of his intent
to develop nuclear weapons. Iran is a party to the
nuclear non-proliferation treaty and has also pro-
posed a UN resolution calling for the establishment
of a nuclear weapons free zone in the Middle East.
But India's nuclear testing program is probably
giving the Shah second thoughts about Iran's re-
nunciation of nuclear weapons. Moreover, his pro-
posed nuclear power program would give him some
of the essential elements needed to develop the
weapons. The facilities needed for the domestic
production of fissionable material, however, would
require extensive foreign assistance. The time re-
quired to build and operate these facilities would
depend on the priority given and the amount of
foreign assistance provided. In any event, it would
take at least a decade to overcome these basic
deficiencies.
49. The Shah would like to move toward a posi-
tion where he could eventually produce nuclear
weapons on short notice if he believed it necessary.
Nevertheless, in view of the difficulties in develop-
ing the facilities needed to produce such weapons,
he does not seem likely to decide to launch a nuclear
weapons program in the near future. We can ex-
pect, therefore, that Iran over the next decade will
make a major effort to acquire facilities and de-
velop the know-how and technology to manufacture
nuclear weapons, but without taking a firm de-
cision to undertake actual production. The Shah
would hope that by avoiding a definite program
to produce nuclear weapons he would forestall
problems with the US over his nuclear intentions.
The Shah's Perspectives
50. Basing his foreign policy on a historical per-
spective, the Shah is acutely conscious of the con-
trast between past Persian glory and present Iran-
ian reality. He sees Iran confronted by an untrust-
worthy Soviet Union, while he sees the remote
bastions of Western power in a state of disarray
and decay. Although he would count on US sup-
port in a confrontation with the USSR, be has taken
out insurance in the form of economic and political
ties with the Soviet Union and does not feel him-
self directly threatened from that quarter. Massive
oil revenues give him confidence that he will be
able to secure whatever military and industrial
equipment he considers necessary. Against this
backdrop, the Shah will seek:
-.-- domination of the Persian Gulf;
- a preeminent role in OPEC;
--- the extension of Iranian air and naval power
into the Indian Ocean;
- expansion of Iranian influence in the Middle
East, Europe, Asia, and Africa.
51. Ile would accept confrontation with the
Arabs, the US, or even the Soviet Union if neces-
sary to assert Persian primacy in the Gulf or to
maintain what he considers a sufficiently high level
of oil revenues; in other matters and areas he is
likely to be more cautious. The Shah's past be-
havior has reflected a relatively realistic apprecia-
tion of Iran's capabilities and of the interplay
between regional and international power. But as
he grows older and more convinced of the sound-
ness of his own judgment and as Iran's military
strength increases, he is likely to take greater risks
to achieve his ambitions.
The Persian Gulf and the Arabian
Peninsula
52. The Shah sees the Persian Gulf as studded
with inept backward regimes susceptible to radical
subversion. To deal with this danger, he is pro-
posing a regional collective security arrangement.
12
SECRET
No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2
 No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2
btLKt l
While the Shah hopes that Saudi or other Arab
elements will prevent or suppress radical move-
ments on the Arabian Peninsula, he will be pre-
pared swiftly to deploy Iranian forces across the
Gulf to forestall a radical upset. He would prefer
to act in concert with the conservative Arab states,
or at least on invitation of a beleaguered regime-
as in Oman-but would not wait for Arab agree-
ment if he considered Iran's interests at stake. The
Shah recognizes Arab suspicions and anti-Persian
sentiment and will seek where possible to avoid
an unnecessary confrontation. However, with the
1971 seizure of the Tunbs and Abu Musa Islands
as a background, Iran is likely to take further
unilateral action in the Gulf if it perceives a po-
tential threat to its regional hegemony.
53. Iran will probably have more possibilities
for cooperation with Saudi Arabia now that Faysal
is off the scene. Prince Fahd, who appears to be
the real power in the Saudi monarchy, is likely
to be less rigid and more open in dealing with
Iran than Faysal was. On the other hand, even
the present climate of good feeling cannot com-
pletely allay the traditional mistrust of these his-
toric rivals in the Gulf. Hence, coordination between
Iran and Saudi Arabia will be difficult, and actions
will often be complementary rather than taken in
concert. The potential for conflict of interest will
remain high. On balance, however, we believe that
both states will be alert to this danger and we do
not foresee insuperable differences arising during
the next few years.
Iraq
54. With the Algiers accord of March 6, Iraqi-
Iranian relations moved from the brink of hostilities
toward a semblance of coexistence. The accord
eliminates the Kurdish problem and the disputed
Shatt al-Arab river border as immediate sources
of conflict. The Kurdish drive for autonomy in
Iraq appears to have been effectively crushed and,
following its abrupt abandonment of the effort,
Iran probably could not revive Kurdish opposition
for some time.
55. There are, however, traditional antagonisms
and long-standing basic differences that cannot be
swept aside overnight. Iran sees Iraq as a potential
threat, especially by virtue of its Soviet-equipped
armed forces and the Soviet military presence there.
Baghdad, for its part, fears Iranian hegemony in
the Gulf backed by massive arms purchases from
the US. Moreover, the Iraqi Baathist regime and
the Iranian monarchy remain the antitheses of each
other. Yet recent Iraqi moves raise the possibility
of a fundamental revision of Iraq's approach to
the Gulf. Relations between Iran and Iraq, there-
fore, may be less volatile than in recent years and
there appears some prospect of gradual improve-
ment and more stability in this relationship.
The Middle East
56. Events since the 1973 Arab-Israeli war di-
minished Iran's traditional aloofness toward the
Arabs and weakened covert cooperation with Israel.
While Iran's new Arab posture extends to Syria
and Algeria, it centers on Egypt and seems to pro-
vide for a certain amount of cooperation between
Cairo, Jidda, and Tehran. The major considerations
for Iran's shift appear to have been Sadat's mod-
eration, his growing leadership of the Arab cause
and his ability to negotiate directly with the US.
Iran's opening toward Egypt also facilitates coop-
eration with Saudi Arabia. These trends seem likely
to continue.
57. While the Shah continues to welcome Israel
as a strong pro-Western and anti-Communist bal-
ance to Arab nationalism in the Middle East, he
sees Israel as a diminishing asset. He recognizes
that a continuing Arab-Israeli impasse encourages
the growth and unity of Arab radicalism. He has
also noted the lessons of the 1973 war-the diffi-
culty-of US access to Israel, the retreat of European
support, and the growing risk of a US-Soviet con-
frontation because of Arab-Israeli hostilities. Iran
is not likely to turn against Israel and will probably
continue oil shipments and covert intelligence ex-
changes. In the event of resumed hostilities, how-
ever, we cannot be confident that Iran would
continue to supply Israel with oil.
13
SECRET
No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2 _._
 No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2
The Indian Ocean
58. The Shah wants Iran to be a leading-if not
the dominant-power in the Indian Ocean. Seeing
India as a major potential rival in this region, he
has recently stepped up efforts to improve relations
with India in order to reduce the likelihood of
friction. Iran is seeking raw materials from India
and will probably supply a major portion of India's
fuel requirements at manageable prices at least for
the next few years. The Shah has also begun culti-
vating conservative, pro-Western governments such
as Australia, New Zealand, Indonesia, Singapore,
and South Africa, but in low key to avoid irritating
the nonaligned states. Over the longer term, the
Shah will work for the elimination of both Soviet
and US military presence in the Indian Ocean.
While he will tacitly approve a US naval presence
as long as the Soviets keep naval vessels on station
there, we cannot depend on him to provide access
to Iranian facilities to support fleet units.
CENTO
59. The Shah regards his CENTO alliance with
Turkey and Pakistan as a useful adjunct to his
regional policy. He is concerned about the possi-
bility that Pakistan and Afghanistan might come to
blows over their volatile tribal populations, a con-
flict he fears would spill over into Iran's tribes as
well. He is also mistrustful of the course of Indian
relations with Pakistan. Despite his concern, the
Shah is likely to weigh carefully and limit his fi-
nancial backing for Pakistani arms purchases.
While he might provide Bhutto some equipment if
Pakistan were threatened by its neighbors, Iran
would probably not become involved in hostilities
in support of Islamabad except perhaps in the
event of unprovoked Indian attack. As for Turkey,
the Shah's sympathies for its efforts to circumvent
the US arms embargo are strong, and he might
permit some "leakage" of spares to Ankara, but
would be circumspect in order
relations with the US.
to avoid risking
The USSR
60. The Shah has no doubt that Iran's natural and
most vital interest is with the West, but he regards
normal, if cautious relations with the USSR as nec-
essary to permit freedom of action in pursuing his
goals. By expanding trade with the USSR and by
regular high-level political exchange, he believes he
has provided strong incentives for Soviet coopera-
tion and has thus reduced the Soviet threat to man-
ageable proportions for the foreseeable future. In-
deed, the Shah is now confident of his position. He
has already forced the Soviets to accept large in-
creases in the price of gas and introduced surface-
to-air missiles into areas of Iraq over which Soviet-
piloted aircraft were operating. In short, he still
considers the US as an ultimate deterrent to the
Soviets but he no longer feels that a US military
presence is currently necessary in the region to pro-
tect Iran and he believes that he can deal effectively
with the Soviet Union on his own. Moscow, for its
part, is unlikely to take action in the Gulf area
which would risk its good relations with Iran, and
probably sees little alternative but to tolerate the
Shah's increasing assertiveness.
China
61. Relations with China have been relatively
inactive since Iran's recognition of Peking in 1971.
Both countries share a strong interest in blocking
the spread of Soviet influence in the Middle East
and South Asia. China has endorsed Iran's military
buildup and, apparently at the Shah's behest, termi-
nated its support for the Dhofar rebellion. For its
part, Iran sees China as useful to balance its rela-
tions with the Soviet Union and the US. While we
do not envisage a rapid strengthening of Sino-
Iranian relations over the near term, we would
expect a growing mutuality of interests and a con-
tinuation of exchanges of high-level visits including,
perhaps, a trip to Peking by the Shah.
Relations with the US
62. The Shah is ambivalent in his view of the US.
On the one hand, he believes US interests in Iran
are sufficiently great that he can rely on US support
in a confrontation with the Soviet Union. Moreover,
he counts on the essential compatability of basic
US and Iranian interests and regards the US as the
14
SECRET
No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2
 No Objection to Declassification in Full 2010/07/20 : LOC-HAK-152-7-49-2
only practical source of late-model weapons and
industrial goods he believes necessary to turn Iran
into a world power. On the other hand, he is con-
cerned that the US may not be able to resolve its
own foreign and domestic problems. Ile wants to
be as independent of the US as possible and would
like to see the US role (as well as that of the USSR)
in the Gulf reduced or eliminated. Indeed, he even
is going so far as to inspire increasing press criticism
of US foreign policy, at least in part to drain lower
and middle class opposition away from himself by
portraying himself as a progressive nationalist fight-
ing American economic imperialism.
63. The Shah's primary strategy to assure con-
tinuing military supply involves seeking to deepen
ties with the US. He hopes by offering lucrative and
tempting economic deals to make certain that Wash-
ington would find it inexpedient to turn down his
future requests. He is also actively wooing American
educational institutions, at least partly in order to
improve Iran's image in the US, and is participating
in a series of joint commissions to concert efforts
to develop Iran in economics, social welfare, and
culture. He has long provided important intelligence
facilities for use against the USSR. He would prob-
ably cooperate in facilitating US political initiatives
in Middle Eastern diplomacy. In taking such deci-
sions, he will pursue what he considers Iran's basic
interests and we cannot rely on hire to accommodate
the US in the increasing number of areas where his
interests are expected to diverge from ours.
Problem Areas
64. Expanding and deepening relations with an
increasingly unpredictable and assertive Shah will
create vexing problems for the US. In the first place,
he is likely to be a very tough bargainer in pressing
to meet what he considers his vital military and
security requirements. He believes Iran's oil money,
its relative pre-eminence in the region, the stability
of his regime, and-not least-the soundness of his
own judgment give him high cards to play with the
US. While in the final analysis he would avoid a
showdown that would damage his ties with Wash-
ington, he generally has little fear of pressing his
case too far. As a tactic to extract firmer American
guarantees of performance, he will question US
reliability as a supplier, citing the experience in
Pakistan, Indochina, and Turkey. Ile also may from
time to time raise the possibility of turning to
Europe as an alternative to the US, though he
probably does not regard this as a practical option
for large-scale procurement, especially of weapons
systems.
65. Rapid growth in the numbers of American
personnel to service the multiplicity of projects
which this expanding relationship entails also carries
potential for trouble. At the very least, it raises the
prospect of a multitude of problems in cultural ad-
justment and intercommunal relations. With nearly
50,000 American civilians (including dependents)
assisting in the Shah's program by 1978, the chances
of friction in the relationship would undoubtedly
grow. More serious would be the risk of involving
US personnel in roles supporting Iranian military
action in the event of regional conflict. The accord
with Iraq diminishes the prospect of hostilities over
the next few years. But the inability of Iranians to
operate all the late-model equipment Iran will ac-
quire in this period poses a continuing concern.
66. Oil policy forms an area where collisions be-
tween the Shah and the US are all but inevitable.
The Shah has already proved quite adamant in re-
fusing to cooperate to secure oil price reductions.
His interest in receiving the maximum return for oil
is so intense that he is likely to continue to take the
lead in urging continual increases in oil prices in
order to maintain at least the present relative ad-
vantage of Iranian purchasing power. Though he
will seek to keep the image of reasonableness and
moderation as a bargainer in petroleum matters, the
Shah will thus be likely to run afoul of US interests
in oil questions as he seeks to maximize his income.
67. The Shah's regional policies also carry risk
of conflicting with US interests. This is particu-
larly true of the Gulf, where the specter of Iranian
military power increasingly will alarm Iran's neigh-
bors. Thus far, the Shah has been relatively ju-
dicious in his actions. He has been particularly
aware of Arab sensitivities in providing troops to
assist the Sultan of Organ, and we would expect
15
SECRET
No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2
 No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2
him to continue to act with restraint. But the Shah
has little respect for the capability of the leaders
of neighboring Arab states. As he boosts his Gulf
forces and finishes construction of naval facilities
over the next few years, the opportunities for fall-
ing into more overt rivalry with Saudi Arabia will
grow.
68. Even the Shah's desires for economic de-
velopment raise issues that will be troublesome
to resolve, For example, his ambition to purchase
from the US a large-scale net of nuclear generating
plants to supply Iran's future power requirements
poses potential problems. For reasons of national
pride and to keep his options open, the Shah is re-
luctant to agree to US demands for safeguards for
these reactors more stringent than those imposed
by IAEA; this reluctance is unlikely to abate. As
in other matters, he will seek to hold the Executive
Branch responsible for bringing the Congress along
behind this deal with Iran. In this situation his
nuclear program may become a continuing thorn
in US-Iranian relations as he presses hard to get
these plants on his own terms.
69. Underlying these problems is the dependency
of the close US-Iranian relationship on the attitudes
and perceptions of one man-the Shah. This offers
the possibility of an erratic course for personal
reasons. More important, it raises questions about
US-Iranian relations if he should leave the scene.
There is some reason to believe that over the past
two decades much of the relationship has become
institutionalized to the point where it transcends
the Shah. Whether or not the Shah's succession
arrangements succeed, power will rest at least
initially on a coalition of key military officers and
establishment bureaucrats. But this coalition would
be likely to come under increasing pressure from
diverse elements in society, however, and we cannot
now foresee the nature of the regime which will
ultimately succeed the Shah. If a more extreme
nationalist regime took charge, it might loosen
present close political ties to the West, but prob-
ably would not immediately seek to restructure the
present relationship in dramatic ways, given the
Iranians' view of their interests and the importance
of the US connection.
16
SECRET
No Objection to Declassification in Full 2010/07/20: LOC-HAK-152-7-49-2