In the name of Allah

the most Compassionate and Merciful

The Center for the PubLicaPion of the U.S. Espionage Den's Documents

P.O. BOX: Wl5 - 3489 Tehran' lslgmic Republic of Iran

Tel: 824005

IN THE NAME OF ALLAH.

THE MOST COMPASSIONATE AND MERCIFUL

TABLE OF CONTENTS

1 - IRAN: RENEWAL OF CIVIL DISTURBANCES ..................... 1

SUMMARY ........................................ 4

BACKGROUND ........................................ '. 4 RESURGENCE OF DISSIDENCE ........................... 6

POLITICAL LIBERALIZATION A FACTOR .................. 8 OUTLOCK ............................................ 9

2 - INTERNAL SITUATION ..................................... 10 3- ORGANIZATION OF PRO-SHAH COUNTER-MEASURES .............. 1 2

4- SUMMARY OF AMBASSADOR'S MEETING WITH SELECT GROUP OF

AMERICAN BUSINESS COMMUNITY REPRESENTATIVES ............ 1 5

PERSPECTIVE ON CURRENT EVENTS ..................... 1 6

POLITICAL REALITIES ............................... 1 7

WHERE WE ARE ...................................... 1 7

U.S. COMMUNITY SAFETY AND WELFARE ................. 18

MISCELLANEOUS ..................................... 1 9

5 . INSTRUCTIONS FROM AYATOLLAH KHOMEINI TO STAGE ANTI-GOVERNMENT

DEMONSTRATIONS DURING MOHARRAM ........................ 21

6- FRENCH ECONOMIC INTERESTS IN IRAN ...................... 25

FRENCH POPULATION ................................. 25

EFFECTS ON FRENCH BUSINESS IN IRAN ................ 25

RAILROADS ......................................... 25

NUCLEAR ............................................ 25

............................... AYATOLLAH KtlOMEINI 26

BIO(;RAPHIC ....................................... 26

7 - I S R A E L AND 1)lVlil.OI'MlNTS I N IRAN ....................... 27

....................................... 8 - CLOUDY FOR IRAN 3 2

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2

ISFAHAN P E R S P E C T I V E ON THE BAKHTIAR GOVERNMENT ... 3 2

PROBLEMS FACING THE GOVERNMENT .................. 3 3

SCENARIO FOR ( L I M I T E D ) S U C C E S S .................... 34

I M P L I C A T I O N S FOR THE U . S . AND AMERICANS .......... 35

9 - A S S I S T A N T SECRETARY SAUNDERS' STATEMENT ................ 38

THE PRESENT S I T U A T I O N I N IRAN AND I T S I M P L I C A T I O N S .. 38

INTRODUCTION ..................................... 38

............................ PROBLEM I N IRAN TODAY 4 2

AMERICAN I N T E R E S T S AND ROLE ...................... 4 3

HOW THE PRESENT S I T U A T I O N CAME ABOUT ................ 4 6

THE "WHITE REVOLUTION" ........................... 4 6

CONFIDENCE AND GROWTH: 1 9 6 3 - 7 6 ................... 4 8

PROBLEMS AND PRESSURES: 1 9 7 6 - 7 8 .................. 4 9

TODAY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

................................ WHY AN EXPLOSION? 54

................................. THE I S S U E S AHEAD 55

............................... REGIONAL I M P L I C A T I O N S 55

....................... FOUR P O I N T S NEED TO BE STATED 5 7

......................................... U . S . P O L I C Y 60

.................................... WHAT L I E S AHEAD? 6 3

1 0 - FRENCH FOREIGN M I N I S T E R FRANCOIS-PONCET'S V I S I T TO

COPENHAGEN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 5

1 1 - ECONOMIC D I S C U S S I O N S O F THE SUPPORTERS O F AYATOLLAH

KHOMEINI .............................................. 6 7

1 2 - WHAT WENT WRONG I N IRAN? .............................. 7 0

1 3 - SPEECI-: IVATERIAL CLEARANCE: REQUBST FOR ................ 74

PROLOGUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 5

THE BEGINNING ..................................... 7 5

THE DOWN TURN ..................................... 7 9

END O F A DYNASTY .................................. 8 0

KEYS TO DOWNFALL O F PAHLAVI DYNASTY ............... 8 1

KEY UNANSWERED QUESTIONS .......................... 8 2

1 4 - CALL BY I R A N I A N CHARGE ................................ 8 3

1 5 - CHARGE'S CALL ON AGRICULTURE M I N I S T E R DR . MOHAMMAD IZADI 8 6

1 6 - A LETTER TO CYRUS VANCE FROM EBRAHIM YAZDI ............ 9 0

1 7 - SCHEDULED ANTI-AMERICAN DEMONSTRATIONS ................ 9 5

1 8 - IRANIAN ECONOMIC TRENDS ............................... 9 7

SUMMARY ........................................... 9 7

CURRENT ECONOMIC S I T U A T I O N AND TRENDS MARC0 ECONOMIC

S I T U A T I O N ......................................... 9 7

............................... F I S C A L DEVELOPMENT 1 0 0

MONETARY AND P R I C E DEVELOPMENT ................... 1 0 1

TRADE DEVELOPMENTS ............................... 1 0 2

.................................. I N F L A T I O N I S S U E 1 0 2

................................. LABOR CONDITIONS 1 0 3

THE ENVIRONMENT .................................. 1 0 4

IMPLICATIONS FOR THE UNITED STATES ................ 104 19- IRAN'S FOREIGN ASSISTANCE. INVESTMENT. REVENUES AND DEBT

SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 20- AMIR ENTEZAM STATEMENT ................................ 109 21- REPORTING SUBJECTS .................................... 110 22- IRANIAN CONSTITUTION .................................. 112 23- U.S..IRAN COMMERCIAL RELATIONS ........................ 115 24- PGOI TRIES TO CONTROL THE REVOLUTIONARY MOVEMENT ...... 118 25- IRAN: MARCHERS SUPPORT KHOMEINI ....................... 120 26- YAZDI IN NEW YORK: WHERE NOW? ......................... 122 27- ECONOMIC RECOVERY-WHERE NOW? .......................... 128 28- POST-REVOLUTIONARY INDUSTRY IN TABR1Z:MERCEDES BEN2 ... 134

Documents No . 21. 23 . are retyped becuase of pale origins .

IRAN:

16 AUGUST 1978

,,8,,,C ',a,,,.> Lnl.,,r , " l ; . ~ . P i.,. .1 _,,I &,.Old, 48.

halmnl :w. I) In.rm.mon ulu,im.ou alr*ur. D10*cta, mnrrl i

I~~rc-lligt*~lc.c. IRAN

Appr~isrtl RENEWAL OF C I V I L DISTURBANCES (u)

PREPARED BY

Mq. Don Adurnick. LISA .

RECENT UNRESl' INCLUDED ANTI-AMEk?li'I\N ACTIVIT'I

27 l111y Shira, All w i ~ ~ ( i o w s Iran , A ~ ~ I . ~ I I , ; I I I Stv< ivl y (11lS) I I I I I ~ I I I I ~ brok~:n by tlcmo~~atrdlor~

6 August Shiraz Crowd uttempts to et11t.r li\ 1.c1n11bound ~ n d Ibn-A vfintlowfi

U A I I ~ U S ~ Shiraz C:rowcl, m~~rcll irx frolo Moqltc: towards 1AS l~uiltli~tl:, ix dispersed by policc

Early Augunt idahan Several America118 rewrt that tbry Ilavc I~ccn tl11ealcnc11

(:ONFII)k.N'I'IAI. NOFOUN

IRAN: RENEWAL OF C:IVIL D1SllJRRAM:ES (U)

Summary - f'C,/NOFOHN) Since 21 July, Iran hfls c?x[>eriertced f l wave of dissid~111 activity sirnilar to that which plagued the country for the first five morltlls of the year. Religious ekments opposed to the Saali have sparked a seri~?s of confrontations with the government that have resrllted in 12 t o 20 killed, scores injured, and several hundred arrested. Other ~pponents o f the Sh<!h include those of a more liherul bent, students, and 1 jssihiy terrorist grouos operating on the fringes. Whilt! these groups mu), . I have a tiefinite pl4:n regarding Iran's future, t h y are united in their oppostl ,rl to the Shalr.

(C,/NOFORN) The recent rcund of disturbances seems l o indicate art ifl- creasing anti-US tone. In their cornpetition to out do one another, tile variou.s dissident groups may escalate the level of anti-American rhetori.:, ant1 the latent xenophobia in the Iranian character may =rface. This could lead to some trouble for the large American community in Iran, particularly for those who might get caught up in events in the more co:~- servalive cities.

(C,'NOFORN) The recent deaths may set off 11 ew cycle of religio~ls demonstrutions such as those experienced earlier h i s year. Thc? Islarrric monxh of Ramadan, now in progress, and the special mourning days in late August increase the chance for further demonstrations. The governrneilt will probably be able to handle the situation, but the Shah is still faced wit ti a dilemma: How to continue liberalizing Iranian soc'ety and maintain order ot the same Lime without cracking down too harshly bn the dissidents.

Background

(CI'NOFOKN) The resurgc:nc:e c f civil disturbances $n Iran during the paa;t few weeks is similar in many ways to that e:cperiqnced from 2anuary to May. It has i ts roots in traditional oppositior~ to the Shah by religious corlservatlves who oppose his secularization ant1 mdderrrjzation of Ir;~ni.~n society. The targets o f demor.strators are the same bar,ks; movie t~obse,, behicles, and ordinary business establishments. 0 .e,- opporlents IenJing their support, i f not actual participatio.~, include t t ose of a rnore liher r l outlook, s~c:h as students, followers o f the now defunct National Frorrt, arid p0ssib.y terrorist groups. Whilt the disturbar~ces are similar to previolis dernc~nstrat~ons, they have taken on some new t,w~sts.

(C/NOF-URN) The recent troubles began on 21 July, L rel~gious holrday t)f some- s~gn~fic-ance to the O i i ~ t e Musl~ms of Iran. 11, t tad of holding thv usual celebrations, followers of Ayatollah Khorr.eir, c.llled for pol l t icd meetings. Comrnernoratrve services for Ayatolld3 h f i , a respected rel~gluur leader i n the holv city of Mashad, were f lowed by a v~olent confrontat~on between governmerlt securlty forces d der~lonstrator s the next day. Other cltles also reported some inc~dents, u JIG h apparently were perpetrated by religious extr emlsts.

(CINOFORN) During the following week, rnoul-r~ing i:erelnonies for K;ri~ and for those killed the previous week led to further disturbances. The rumor that Kaf i was killed hy government security off~cials furl:her incited his following. lsfahan suffered the most violence, consisting largely of breaking windows. Casualties, as reported in the guvernment-contrallrd press, indicared that some 300 were arrested, up to sir persons killed, and 26 in'ured in the two weeks of violence. Events culminated in the b~rr~bing of id l l S Consulate i n 1sfah.m. While there were no injuries and only niinor damage was done, i t was i.he first clearly anti-4meric.an act in sevc!rai monr hs.

(C/h'OFORN! The period from 5 to 10 August vras sonlewhat calmer ;ll- though viole:r,ce occurred in the theological center of Qan~ and the c~t ies of Shiraz and Isfahan. Alrnost any occasion has been explaited by the religious extremists, to include contiiiuing commemoration of Kafi, Iran'!; C:cns.~itu- tion Day, and the start of tne Muslim month of ~Xarnadan. The arrest of a pronrirrent religious leader in Isiahan by SAVAK, the Iranian Vatitrnal Intelligence and Security Organization, also contributed to antigovern~r~erbt demonstrations.

(C/NOFORN) 011 11 Augus~, tk#e lranian Governrnent decldred rnarridi law in the nation"s second largest city, Isfahan. Police attempts to break up ,i religious derr.onstration led to rioting, and military forces were called ill to restore: order. A curfew is in effect, and the gathering of three or Irrore persons is prohibited. The martial law is to remain i n effect for one month and reportedly will be extended to other cities as necessary. Unconfirrr~ed press rrportr. indicate i t may already have been imposed i n three snlall cities near Isfahan. The swift imposition of martial law i n thtr intlustriai and toiirist center indicates the seriousness of th,: situation and the governrrlent's intention to confrorit e):tremists with t r ~ e force ~.equrred to restore order. Casualties in 1:ilatlan and other cities . nce I I August have raised tile tm~1-a; killecl anc: injured, but relidble figures . e not yet avail3h.e.

16 Aug 78 I)IP Ir,tel ,lgence Appraisai Page 2

fSOFJFIDENf 1A.L.

EXILED RELlGlOClS LEADER STILL IMFLdFNTIAL IN IRAN

AYATOLLAH RUHOLWH KHOMElNl

ACE: 76

Has attacked Shah and his refoim m e a r e & Opposed ,~rea?nce of American8 in Iran. Exiled to Imq i~ 1964.

LAL NOFORM

I'o11tic:al Liberalization J k'ai.tor

(C/NOFOKN) As t h e anti-Sh.311 demonstration:, ci clsturbanc.es we) e wlr~ding down in May and the g o v e r ~ ~ m e n t announc-t .. 8. rdtk:lo\dn o n d:c.- sldence, most religious l eade r s seerned t o favor a c , nirtl: of I h e s i t u ; ~ t i o ~ ~ . There were signs t h a t a dialogue was taklng pla'zt! ht. dtserl tht: Shall and t h e r e l ig~oub rc~rnmunity. At t h e siirnr t ime, the f r , i r~~. : I~ . . id~r reempha: i~~c,r l his policy of political I~ne ra l i za t ion , and prep. ~ . . . . o ~ l s for ntv.1 year ' s pa r l i amen t i~ ry elecl.ions dominated t h e news. Tllc .)r;m polltical ict.iioi- phe re prompted much deba te dncl ge r~e ra l ly s e t t l e d tt.. v o l ~ t l l e s i t u d t ~ o n .

(C/NOFOKN) The re l a t i \ , e ca lm evident ly did r o . \ i t 1:oo veil with the monarch's m o r e e x t r e m e opponents. The anti-Shah ,Ilowers of the ex11ec1 Khomeini appea red t o havc: been behind much of t h e \ ~ o l e n c e , o r a t l eas t I:O have e x p l o ~ t e d the genuine cornmemorat ions of t h e religious rnajoritv. Reportedly, t h e out lawed TUDEH o r Communist P a r t y of l ran i s raci t ly supporting religious groups. loyal t o Khomeini. Old t i m e nat ional is ts of a l e f t i s t persuasion a lso lend their support to t h e anr igovernment activity. While these groups rnay not'have t h e s a m e plan fo r Iran's future! -- if indeed they have a plan -- t hey a r e uni ted in their opposition t o t h e Shah ant1 the present form of governmer t .

(C/NOFORI\I) The r e c e n t ou tb reaks suggest t h a t a n increasing anti-US tone is clevelop~rlg in t h e govern.nent 's opposition. Those eat-orla1 frontist: lonp- opposed t o t h e Shah have c la imed t h a t he i s a puppe; of t h e US a n d w ~ l l d3 wh.it Washington bids. They point t o his liberali::,ition policy and t h e improvement of human r ights in l ran as exampl*:s t h a t t h e Shah i s fol~uwir;: CIS i r~st ruct ions . Lately, t h e r e have been signs t h a t t h e Shah's opposition believes th;t t h e US i s not pressuring him enough o n irnproving tht: poli ticiLl s i tuat ion in Iran.

(CINOFORN) The ant i -American t h e m e i s reportedly a l so being exploi ted by religious e lements , par l icular ly in Isfahan. Korneini has lcng preached against t h e American presence in Iran, c la iming t h e US is t h e principal supporter of t h e Shah and exploi ts Iran's wealth, while Americans in t h e country enjoy special privi:eges. Iranians typicslly b l ame their trouble:, 0.3

outs iders , and Americans a r e a convenient t a rge t . In o rde r t o {:ail pr imacy over rival dissidt:nts, some religious 1e.iders rnay l a k e a m o r ? e x t r e m e s t and on opposition t o t h e government. This could b e r e f l ec t ed is? increasing anti-US s t a t emen t s , and t h e l a t en t xenophobia in t h e Irania,) populace: rn3y surface. This could pose trouble fo r t h e l a r g e American con~nl i tni ty of about 37,000 t o 40,000.

(C/NOFORN) The anti-American t o n e has not thus a; su r faced p u b i ~ a y , and ~t may b e l imited t o t h e m o r e e x t r e m e oppo, tlon. However , t he number of ant i -American Cc t j in t h e past f ew weelts . unusual. considerln::

16 Aug 7'8 I3IA ~nre i l igence Apprai:ial

CC. N FIDENTIAL.

Page 3

I i

there were very few signs of anti-US feeling in tl: Ilv~? rncr.ths of clr i l disturbances earlier this year. Moreover, the 1.1rgc ~ornber c~f Americarks within the country, particirlarly i r ~ the rrlore conscar? . I I I ve c~ ties of lsfahan and Shiraz, could lead t o some being caught up In thcs events. Most placczs that Americans visit in Isfahan, such as res t ;~~r i ln ;> .and shops, a r e in a relatively small area. The concentration of Arnerlcans 1s therefore high, increasing lhe possibility of incidents.

outlook

(CINOFORN) The old dilemma ?or the Shah remains -- how to continue the liberalization of Iranian society and maintdin orc .r al- the same tirile without too harsh a crackdown on dissidents. His cyposttion is presswins him t o be even more liberal, and a t the same t1ri.e security forces a r e probably getting impatient with the restraints placed on them. The ma- jority of the populace is no doubt up.set with the constant disruption cf normal living, and they may make demands for law and order. For the near term, the Shah is likely t o continue with his sarne tactics, and rnay make another a t tempt t o hold a dialogue with the religious 01,position. Nonethc- less, firm action by security forces will be used if i t is necessary t o clue11 the new round of violence. The martial law in lsfahan is an e x a r ~ ~ p l e of th- Shah's determination t o maintain law and order.

(CINOFORlrl) The possibility o-: further disturbances is high. In the past those killed in demonstrat..ons have been commemorated in cer.emonies 4 3 days later, which have led t o further violence. Thus, a new cycle crf religious disturbances may have been s e t off on 22 July. Meanwhile, the Islamic month of Ramadan -- a time of fasting and prayer -- is now i.1 progress, which may increase tensions. The v r i o d of 24 to 26 Au$;ust, when Iranian Shiites mourn the death of Ali, their most vtmerated spiritual leader, will be a potentially dangerous time. The opening of school next month will probably add the student population t o the unrest.

(CINOFORN) The months ahead a r e t o likely be turbulent ones for Iran. There is no threat t o the stability of the Shah'r rule, but continuirig tests between the government and the opposition a r e in sight. (CDS 84)

16 Aug 78 DIA Intelligence Appraisal

CON FIDENTIAL.

SECRET

MEMORANDUM OF CONVERSATION

PARTICIPANTS: Cdr. Alain DE BEAUPUY, Assistant Military Attache, French Embassy

Ambassador Panayotis ECONOMOU, Greek Embassy George B. LAMBRAKIS, American Embassy, Tehran

DATE & PLACE: September 15, 1978, Lambrakist Residence '''(+<-. SUBJECT: Internal Situation

DISTRUBUTION: AMB, DCM, POL, POLM, ECON, OR, ICA,DAO, B I O NEA/IRN,IRN/RNA, INR/OIL/B

De Beaupuy has the distinction of being the only member of the Diplomatic Corps who predicted the severity of the religious challenge to the government and the Shah which we have just witnessed. Cassandra-life, he has been talking to all and sundry about the wrath building up in religious circles and the historic precedents of Islam acting as a sounding board for people's complaints. Historically, the mullahs have many more allies than they did in 1963.

De Beaupuy said we should not allow the temporary moderation of Shariatmadari's views blind us to the trend. Shariatmadari is not in control of the extremists and has to yield to them. Being a "holy man" he is not a politician and acts differently than a politician. In response to my invitation for a prediction, De Beaupuy said, if the Shah does not undertake extensive activity in the next two weeks, he would predict the Shah's departure by the end of October.

The scenario sketched out would be a million moslems marching out of the bazaar in South Tehran as a tide neither the army or police would dare to stop. He then could see Gen. OVEISI, accompanied by Majles Speaker RIAZI and perhaps even the American Ambassador ( 1 1 , marching in to invite the Shah to take a plane and leave the country.

The only way to avoid this, in De Beaupuy's opinion, is for the Shah to take a more direct role vis-a-vis his people. He cannot hide his responsibility for governing over the past two decades by bringing subordinates to trial. People will no longer believe his promises except those given directly as public commitments perhaps over television. People would

SECRET

SECRET

want him to get rid of his family and the whole Ministry of court. The opposition ifs clearly not going to settle for anything less than a constitutional monarchy reigning but leaving the governing to politicians.

The Greek Ambassador identified himself with De Beaupuy's views. He said Americans should realize that the Shah stands alone at present. No one will stand with him. Both De Beaupuy and the Ambassador admitted the Shah had been a very good influence for Iran and should be saved if possible. "If you Americans have any influence left with him, try to get him to take the necessary action before it's too late."

I n elaborating on his views, De Beaupuy said he had personally followed the mobs in Tehran and had others following. Septem- ber 4 had seen 100-200,000 people turn out because moderate religious leaders joineo the extremists. September 7 and 8 were demonstrations carried out only by the extremists. The highest number reached September 7 was 50,000. This can be seen as the high-water mark of extremist capabilities. Thus the crucial issue for the Shah is to prevent the moderates joining the extremists in the near future.

Incidentally, De Beaupuy works for French Intelligence.

47 POL: GBLambrakis : hg 9/18/70

E.0 11652: TAGS:

SUBJECT:

AMB P o 1 cnu

I- . -

ACTION : :;.L:CSTATE :.?;SiIDC PRIORITY -1

CONFInENTIAL TEHW.1: 10 7 7 4 CADIS ;?* ?., ,, ,, L -u

i2a. E.O. 11652: GUS TAGS : b PINE, J i. I SUBJ: ORWLNI%ATION OF PRO-SHPJi COUNTEL-?.!EASURES

1. ACCORDING TO A SOURCE WSTll GOOD ACCESS (ACCU1VS.Y UNSl'T\S-

TANTIATED) THE S ~ I A W ,Ins TWO C O M M I ~ E E S or FIVE PJ:MBERS

I EACH WORKING ON BUIT,"ING SUPPORT FOR 1,IM I N THE COUNTRY.

1 ONE CONCERNS ITSBLI' WITH BUILDING PPO-SIIL" DI:NC~L:~TPA~'IOXS.

I I T I S HEADED BY, TflC SHAH'S GOOD FRIEtII, 4 N D S;:RVANT GENERAL

A R S L A N / ~ F ~ ~ ~ ~ & MARYTAL LAW RDMIPISTP.I\TOR GENERAL OVI:ISI,

PRO:4INLNT RUS1IiCSSPV.iP.I AHANCIIIhN, AND bi;NL!RAL I:IIC!:l CIVANI . 2 . THE OTHER COEltIITTCF: CONCEIINS ITSEi,? WITH PRESS AND

I PROPAGANDA. I T CONSISTS OF MlF ASL(tWIF1, EDITOR OF

"ATESH, " OLD M.P. (I'nCIP.1 1953 ' D ~ Y S ) ' GkIANATADfinI , 0l.D

1 P.M. (FRO14 1953 DAYS) IUTI::, ' mWI&R bE3'5EH OP E:I:iISTRY

OF COURT (UNDER ALAl4) I 4 ~ h G ~ , & w. BUSLNESSM! il BUY llR SABER.

IT IS PLANNING A HEW, O".,,CD .rs

-- - --4 ------ CLL..."CII

; . ' &FT~E~"T..~?,L' .-- ----.-- -- - O C ~ I O P nr C O W 1611

+g...*%""""* *CJ,,7urly F I .1III

.: ....I 4.n.w I!. .,d"l. .I .L

! I

1 1 SHOHI'LI. I T IS A I S O BUYING S T O R I E S I N OTHER PODLICATI<,F:.S,

SUCH P.:; ONE l'iiAT HAS J U S T APPEARED I N "KBONDI.NI%AN"

DEING l:t!I?R.~CEG I:Y A L I T T L E G I R L (DURING l 9 4 O 1 S ! ) .

3. IrLl NAGBI :.1ISARI. FORMER AMBASSADOR T O ITALY AND

BM#IC7:iTI<l( C H I R P OP CABINET T O P R I N C E S S S H M S 1.9 THE

MONLi' WAN. EFFORTS

4 . 'I'HESE =KOn:SL ARE SEPARATE FRON SAVAK-LED "AGENT

PROVOClrTEUR" Ac'PIONS WHICH, ACCORDING T O ANOTHER SOURCE,

HAVE BEEN BEHIND S C E N T DESTRUCTION AND CLASIIES I N KERMAN,

RAVAH, KERMhNSIIAII, HAMEDAN, GORGAUI RBZAIYUH, W L ,

PANEH, MARAGBEH, SANANDAS, ETC. A8 T H I S SOURCE TOLD

P O L I T I C A L COUNSI:LOR, PARVIS S A B E T I HIMSELF (WHEN HE WAS

S T I L L O F F I C I A L O P s ~ v A K ) CALLED TO BRAG O F THE F I R S T TWO

INCIDENTS AND 1'0 SAY HE WAS ON H I S WAY TO KURDESTAN;

SBOR1'I.Y THEREAFTER PRO-SHAH DEEaDNSTRATIONS AND ATTACKS

DEGAN TIIERE.

5. COWWNT: WE HAVE ALREADY C O W N T E D ON COUNTER-MEASURES

I N CONl'EXT O F ZAHEDI EFFORTS (TEHRAN 10699) . I T I S QUITE

L1KEI.Y THAT FOILWTION O F THE 'TWO COMMIWEES WAS I N S P I R E D BY

ZAIILDI. S I N C E WB CANNOT B E L I F M S l U H 18 UNAWARE O F SAVAK

A C T I V I T Y ON H I S BEHALF, WE D I S M I S S POSSIBXLITY

TlIAT ZAIIEDI CALL- T O SMH At& $RAIl'S REPLY I N PRESENCE

O F U.S. AND B R I T I S H MBASSADORS WAS STAGE MANAGED TO IMPRESS

TH1.M V?lW SHAII'S INNOCENCE AS PRO-SHAH INCIDENTS

L

( N U W E R OF IRANIAN OBSERVERS WITH GOOD SOURCES CLOSE 10 j llIM SER T H I S A S DLINDIZESS ON SHAH'S PART T F THE PUBLIC'L

IMAGE OP IlIM AT PI<BSIINT TIME AND B I S CONCOMJTTGJT FAJI,t, iG

TO APPRCCiATE TRL: (;P\AVITY OF H I S OWN, AND MOEIARCIIY'S,

PREDTCAI:!:tJT. ZAI;EUl1S REI'ORTED OPTIMISM I S PROBAULY

NO I1EI.P TN THAT REGARD.

CONFIDENTIAL .-

~ i ; ; * i ~ ~ . I l . m

B"Ld. w . 5 UNITED STATES GOVERNMENT

memorandum 1 .u . ,Lcr Summary o f Amba s&dorls Meeting with Select Group of Amerl'dn

B u s ~ n e s s c O m m ~ t y Representatives

ro E/C - Mr. John L. Mi

I John, I thought it would be useful to document the torte azbd substance o f Ambassador Sullivan's remarks t o the busirbexs community ob 15 November, for the Embassy and for the desk. This Memorqhdum of Conv reation is attached for your ;led~dilra.

,, .. I 7 c..,

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Buy U.S Savings Bonds Regularly on the Payroll Savings Plan o,r,,,,,,,, ,, (IIN 7-70) O U R Y ~ U I V I I I I O ~ I*. UIMU

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DATE 6 1'I.ACE: ~ovimber. 15, 1978; Caravansaral

PARTICIPANTS: Amb. William H. Sullivan Principal U.S. Embassy Staff Members U.S. Business Community Representat~v,.'.

iAyproxlmately 1501

SUBJECT: Summary o f Amb. Sullivan's Remarks to H a l o r U.S. Buslness Representatrves in Iran

- The Ambassador began his statement t o the businus, community by explaining that two reasons brought us together for thrs brleflnq: flIst, it's time for an assessment o f the situatron and secondly. it's trme for candid interchange o n the situation for the American community here in Iran. H e had been reluctant tll now to bring the community together for this meeting because thlr8qs have not been structured t o the point where we could examine d+rectlons and alternatives intelligently. Nbw it seems thlnqs have stabilized somewhat. The g:oup assemblqd was rather a seleci group, representlng the overwhelming Qulk o f employed Americans in Iran. The meeting was off the fecord and not for the press. in order that the Ambassador's reparks could be made candidly and without attribution by the medlp.

Perspective o n Current Events:

The Ambassador first reviewed the series of siqnlflcknt polltical events d u r ~ n g the last ten months in Iran, starting wlth the perceived changes in February, when the reglme determined wlth lntelluctual convlctlon of h ~ s Majesty, that the I ~ a n l a n soclrty is tao complex for one man t o continue to make all malor d e c ~ \ l u ~ l - . The Shah declded that a .haring o f the decision-making p r o c r . . . . must be developed and passed o n t o his son, who would need a type Of dynasty different from that o f the last 37 years. The Shah accepted that it was a diff%cult political change t o b r ~ n g about and that the rellef o f long-standing pressures upon the soclety would tend t o upset the surface stability o f the country, and might even be explosive. Iran had not experienced thls klnd o f rellef of pressure before, because a pervasive police involvement 11 the society had existed throughout the Shah's reign. The Ambassadol traced the events from Tabriz where the young from the villages who had been displaced in the citles, saw opulent behavlor different from traditional village behavior taking hold.

DRAFTED BY; Vernon E. Adler

DATE :- November 2 0 1 1978

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l'he attack, which was allowed by authorities, was repeated in mdny a lties and spread to the universities. Khomeini revived his dctive role from Iraq, feeding on this new atmosphere o f open nxpression. Opposition galvanized and polarized in Khomeini followers.

1,olitical Realities:

11y the end of Ramazan, the moderates began to realize that they ,.auld not continue in a truly independent moderate role. Along through the summer when the politicians began to see that they c.ould not amass a following of the type Khomeini had, they began t o shift toward Khomeini; this, despite the fact that the shah espoused an Islamic Republic, a constitutional government. with a committee of five mullahs to verify that proposed legis- lation was consistent with the Islamic code, etc. The Septem- ber 7 peaceful march was followed by the September 8 imposition of martial law and the Jaleh Square occurrence, with troops and damonstrators. In September the government's position was to vlacate moderates and break them off from Khomeini. Therefore. lhere were freedoms given -- t.v. debates, raises in salary and benefits to government employees, and other conciliatory measures within the constitution that would lend support to the moderate ~~osition. Toward the end of October, politicians pilgrimmed to I,dris for discussions with Khomeini. We remained implacable and ,,tolid.

Ihe Shah realized that the Emami cabinet was not stemming the t ~ d e of anti-Shah sympathizers. By mid-October the Shah decided he had two options: either a coalition or a military government. tie never did get any positive response with regard to coalition. on Nov. 4th. Sanjabi after going to Paris, said he supported Khomeini entirely; thin was unacceptable to the Shah since Khomeini's position starts and ends with the removal of the '7hah and the Pahlavi dynasty, with a return to an *Islamic Republic" as yet undefined. On November 4th. there was a university confrontation and people were killed. On November 5 . lroops were conspicuously absent and did not interfere in the r ~ o t o u s demonstrations to any significant extent, although they ~'rotected a few places. Then, of course, Emami resigned, recommending the military option, and that evening Gen. Azhari was installed.

Where we are: -

N O W we are at 4 point where there is a test o f wills and of .trength. No one knows how atrong the opposition is. The rnllitary has proceeded with subtlety and sophistication, toncentrating on not just law and order, but the closely ~ o u p l e d link of "back-to-work", starting with'oil production. Prime MinisterAehrriannounced that people would be fired and loved from company housing, plus arrests. Oil production has

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baen boosted a bit, although it's up and down. The strike is andad in the Abadan refinery. (Normal production at this time is 6.2 million barrels daily.) Production this week is about 3 or 3 + million per day. Increasingly, people are resuming work but the strike is not broken yet. The Iran Air strike is over. There are sporadic strikes in the ministries (for example, Customs in the Finance Ministry is still on strike). So we see a trend moving back to work, with production increasing. The general strike called by Khomeini for last Sunday worked effectively in Shiraz, Isfahan and the bazaars in Tabriz, but not in Tqhran.

The regime has put off testing the school situation until the 18th for the lower grades as a starter. We'll see if the teachers return and then the students in the lower grades, before testing the waters for high schools and (possibly) universities.

Khomeini's position is that the country will be brought to its knees by general strike and that he reserves the right to tell his people to raise arms. We believe an armed rebellion might not be successful and that the ability of the people to bear arms is really limited. We do not believe that Yhomeini can call for a "Jihad' or holy war, because that can only be issued against an infidel and the government is clearly taking the position of retaining its Islamic code of behavior. So the test may not be decided sharply as we might decide in Americd through elections. Rather, the tides may move in one direction then another. If there is a state of normal civilian behavior, the fence sitters or "silent majority" can surface and support the Shah, otherwise, if there is a sullen return to work with slowdowns and foot-dragging by the populace, the tide could shift against the Shah in a major way. The government wishes to diminish the influence of Khomeini and move toward a democratic role within a constitutional monarchy over the long- term. Rolling back of strikes at this time could, o f course, reverse itself and swing in the other direction. The government would not move toward a democratic solution then, but we feel the government has the levers of power in its hands now and that's to the good.

U.S. ~ o m m " n f t ~ Safety and Welfare: - The Ambassador then discussed the security of the U.S. community and contingency measures which will p e taken, the details of which would be discussed by Mr. Naas with small groups of company representatives, 4 or 5 companies at a time, during the coming weeks. The Ambassador conceded that contingencies will vary, depending upon the degrees of emdrgency; however, he scoped out some of the following factors: We will be dependent upon the Iranian military for our own physical security.

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They in turn rely on our military for the integrity of their defenses. U. S. defense contractors are essential for retention of the Iranians' military integrity.

Echelons will be used for. contingency planning because in any approaching emergency the smaller the numbers involved in preparatory action the simpler the task of execution. So there will be a continuing "fine-tooth gauging* of decisions as emergency situations may evolve.

Miscellaneous:

The disruptions'of approximately a billion dollars ill lost revenue and the slow-downs and atrikes which have caused most of the country's commerce to become inoperative have been extremely costly and the budgetary load being borne by the G O 1 is incredibly great. Government payments are slowing down; there will be a natural attrition o f the U.S. community. The 40-odd thousand Americans will shrink in the coming months. The Ambassador's final point was that he was proud of the way the American community has responded t o the pressures and the rumors t o date.

Questions were then taken from the audience o f business people. Some odds and ends follow:

A. Prime Minister Azharihas put forth the legislation to set up a special court. It should be enacted soon for prosecution and conviction of prominent people o n a rapid basis. Azhari is sensitive to this potentially becoming a witch hunt and intends to do something effective rapidly and then cut it off, bringing it to an end before an unhealthy momentum is gained.

B. Iran's reserves are still $11 billion, but they have suspended borrowing internationally and will have to go back to it, because of their internal liquidity problem which is major at this time.

C . We'll arrange a distribution of radios so that in the event we lose telephone communication upon which we rely, we call establish a set of links with the U.S. community. (The Ambassador stressed U.S. communications vulnerability because of our total reliance on the Iranian telephone system.)

D. Don't expect English newspapers for a while and don't rely on news broadcasts for accurate information.

E. We don't anticipate sudden deterioration, but rather in the event of an emergency, we'll probably see some phasing from the tensions developed, such as sabotage, isolated terrorist actions, etc. The Ambassador stressed we don't foresee or predict it, but it is a possibility.

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P. There will be assembly points for the American community. This is a sensitive subject, s o the information will be closely held. We will use echelons for dissemination of information, including the subject of departures. The Ambassador stressed Iran should not see "abandoningn by the American community o f Iran, but "there is nothing wrong* with sending people home for Christmas or filling the remaining vacant seats o n regular Pan Am flights which have been recently resumed.

G. On stability o f the rial, the Ambassador said it was over- priced and if it floated free, the ratio would be higher. (The Persian press wants 6 0 to 1 instead of 70 to 1 because of lost revenue due to reduced dollar values tied to oil purchases.)

H. Within tho armed forces we see no absence of loyalty; however, the senior officers are concerned about their con- scripts since these come from the same group a s d o the masses of demonstrators.

I. Mr. Naas will begin on November 16 to call representatives of 4 or 5 companies in and ask that they bring statistics with them, such as numbers of employees, addresses, telephone numbers, deyerdents, vehicle information, etc. He stated that an Information Center will be open 7 days a week to take calls. qufstions, etc. from 0730 until 2000.

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R C P O R T C L A S S S E C R E T WNINTEL - NOFORN - NOCONTRACT - & COUNTRY: I R A N

SURJECT: I N S T R U C T I O N S FROM AYATOLLAH KHOMEINI T O STAGE. ANT GOVERNMENT DeMONSTRATIONS DURING MOHARRAM (001: L A T E NOVEMBER 1 9 7 8 )

SOURCE : A CONFIDANT O F A S S H I O R , L O * G T I M E MEMSER O F AN IKPORTANT O R G A V I l P T I O N I N T H E PODERATE I R A N I A N D I S S I D E N T MOVEXFNT s'HO WAC r r lNTTh ' l lFn CI O S F P F R S O N A L CONTACTS W I T H T H E L E A D E R S ) { I P . " - -- - - - - - -- O F T H I S ORGANIZATIOY. HIS P A S T R E P O R T I Y G HAS BEEN

I. AYATPLLAH RUHOLLAH K H O M E I N I H P S I S S U T D I IYSTRUCTIONS, F I R S T R F C E I V E D TN TFHRAN ON 25 OR 26 NOVEMBER 1 9 7 8 , FOR H I S S U P P O R T F R S A F D "BROTHFRS-IN-ISLAM- T O STAGE DIRECT V I O L ~ N T CONFRONTATIONS V I ~ H I R P I I I A N GOVERNIENT A U T H O R I T I E S D U R I N Q T H E HOkY MONTH O F MOHARRAM ( 1 - 3 0 DFCEllBER 1 9 7 8 ) . KHOMEINI HAS I N S T R U C T E D HQ S U P P a S T E R S T O

D I S R E G A R D THE K I L I T A R Y GOVERNKENT'S R E S T R I C T I O N S ON M E E T I N G S , DEmON- S T R P T I O N S AND MpRCHES CURING MOHARRAM. I T IS K H O f l E I N I ' S I N T E N T I O N T O H A V E ANTI-SHAH DFWONSTRATORS BROUGHT I N T O VIOLENT COYFLICT W I T H M I L I T P R Y AND SFCLIRITY F O R C S S DURING MOHARRAM, A S KHOMEINI B F L I E V E S T H I S \,!ILL LEAD T O T H E REMOVAL O F T H E SHAH AND T H E C O L L A P S E O F T H E

9 . t s n l l R C r COMXLYT : I N D t S C U S S I N G K H O M E I N I ' S I N S T R U C T I O N S FOR V I O L E N ~ ' A Y I ~ % H A H DFNONSTRATIONS ~ U R I N G i'!OHARRAM NATIONAL FRONT L E A D E R S BELIEVE THAT IT IS K H O M E I N I * ~ BELIEF T H A ~ THE I R A N I A N M I L I T A R Y I N 1 T I F . L L Y W I L L (IBEY O R D E R S T O S H O O T DFMOIYSTRATORS, P U T , P S D F ~ O N S T R A T I O N S CCNTINUE AND T H E DEATH T O L L ROUNTS, T H E RANK AND F I L E O F T H E M I L I T P R Y W I L L REVOLT, AND T H U S B R I N G ABOUT T H E S H A H ' S

3. C I R C I I L R Q S BROAOCASTING K H O M F I Y I ' S CALL FOR V I O L E N C E DURING KOHPRRAM ARE R E I N G O I S T R I E U T E D I N TEHRAN AND P R O V I N C I A L I R A N I P N C-lFS. DEMONSTRATORS ARE B E I N G ASKED T O WEAR W H I T E CLOTHING T O DFMOPSTRATS T H C I R W I L L I N G N E S S T O ACCEPT OEATH AT T H E H A N n S O F T H E M l l ~ T A R Y . N F F T I N R S ARE REPORTEDLY E E I N G H Q n AT MOSf3UF.S - - - . . . . - &!ID OTHER PLPCES T O O R G P N I Z E D A T E S AND PLACES FOR L 9 R G E - ~ C P L E ~EIONSTRAT IONS.

4. (SOUffCE COlkELVT:, IJO OI4E I N I R A N CAN A T T H I S T I M E P R E D I C T WITH C E H T A I k T Y k ~ t l L T l l E f i S I G N I F I C A I ~ T NUMBERS O F I R A N I A N S W I L L RALLY T O KI lOI . IE1NI 'S CALL A ~ D . D E F Y T H E E i l L l T A R Y A T RISK' OF DEATH.. I T S E E N S I . I K E L Y , iibVEVJiR, T H A T M A S S DEPIOIJSTRATIONS A G A I N S T T H E SHAH W I L L TAKG' P L A C E D U X ffi NGHhrf RAM. A N T I -SHAIt S E N S I M E N T AMONG S T U D E N T S , L ) A Z A A R I I S AND OTIiEt l " E X C I T A B L E " E L E l l E N T S IS A T A H I G H P L T C H , AND T I i E S E E L E l l E N T S \ J I L L P R O B A B L Y FOLLOW K H O M E I N I 'S I N S T R U C T 1 0 NS/) 8

5 ( F I E L D .COl;iMENT: T H E FOLLOW1 tiQ I S 'A SUMMARY T R A # S L A T I O N OF. K H W E I H I ' S PROCLAliiATIUN T O T H E P E O P L E O F I h A N O N T H E CuirlING PluNTH O F AOHf,Filit.i~l" V i l I C H I S THE k E S S A G E R E F E l l R E D TO ABOVE(

TI!.. tIULY IlOrrTlt Or. i IUHFdr lAN I5 b E l l b Q A N T I C I P A T E 0 U I i H t i l 3 i O l S M . J i 8 h V l ; t Y . AIJD S A C J ~ I F I C E - T H E NOBTH b L O O D N C I L L T t , I U # P H O V E R ' THE. SVORD, THE I;LIVTH O F THE STRENGTH OF ~ I G H T , THE MONTH THE U P P H E S S O A S V1I.L Li J U D G E D AND T H E S A Z A N I C GOVERNMENT A 6 0 L I S H L D / T H I S EdONTH V I L L bE FAI+OUS THROUGHOUT H I S T O R Y . T H E MONTH THAT TIdL PUWEC- F U L W I L L U L br.OKEt4 b Y THE WORD O F BIGHT; T H E MONTH THAT TAE IMAN O F 1 t l E Ii1OSLLitS V I L L SHOW U S T H E P A T H O F S T R E N G T H A G A I N S T T H L b P P H L S S U R S . T l l E I.IUkTH T h E FIiLCDOi'l F I G H T E R S A k D P A T R I O T S W I L L CLENCH T H E I R F I S T S AirD WIN A G n I l r S T T A L K S AlvD MACHINEGUNS. T H E IMAN OF' T H E FIOSLil*IS H A S TAUGHT US T o UVErtTtrliUw TYRANTS. YOU SHOULD ub1T.i: A H I S E AND S A C R I r I C 3 Y u U n bLUUD WilEN ISLAIrI IS I N DAEtGEH.

T l i t G U V ~ ~ I ~ I ~ ~ L N T H A S b E E N P U T I N T H E HANDS O F ANTI-I 'rOSLEM ( I r r I C I P . L S TO E 6 1 : t F I T T H E S A T A N I C R U L E R AEtD H I S P A h A S I T l C HENCHMEN A k D I T H U S , R U I L L D T H E COUNTHY. .THE P L O P L E DEMAND THAT A L L T H E I R F O R C E S L E EXc'iiTED T O D E P O S E T H E SHAH.

THE I l I L I T A R Y GOVEiiNl jENf I S I L L E G I T I M A T E AND UNHOLY. AND YOU SHOULD OPPOSE IT A N D REFUSE TO' PAY TAXES TO THIS CRUEL ~ E G I N E ; YOU SHOULD H E L P T H E R E B E L S AND ENCOURAGE T H E N I O C WORKERS TO S T R I K E . D O T H E h l O C kfOi!Ktl(S KNOW T H A T WEAPONS BOUGHT W I T H O I L MONEY ARE B E I N Q

KIJOW T t I t . 1 THI. PltAtl S E h D S A C O N S I D E ~ ~ A B L E A I ~ I O L ~ N T O F O I L TO I S R A E L TO a E USED A G A I N S T HOSLEMS? CAN THE GOVEHMIBNT FORCE THE O I L VORKERS T O C O N T I N U E T H I S TtLZASON?

INFORllEO P E O P L E KNOW. THAT A L I S T IS B E I N G PRU'AREO UI ; G O?ERI\'PIENT O F F I C I A L S ALL OVER T H E COUNTRY WItO AIiE G U I L T Y O F C l t I ~ 1 i . S . GOVERNbiEEtT O F i I C I f i L S KNOW THAT I F THEY UPHOLD T H E SHAH .AGAIi lST I!:l.hl~l T H E Y W I L L B E P U N I S H E D I N T H E NEAR I X N R E .

D U R I ~ G THE MONTH OF MOHARRAM W H E N THE S@I~D IS I N T H E : I A ~ D S O F T H E S O L D I E r t S O F I S L A M , T l i E H I G H CLERGY W I L L LEAD T l l E S l i I I f c S PihU T l l I S T R E E OF O P P N L S S I O N AND TREASOlv ( T H E GOVEHNNLN'I) V I L L Uk: C U I DOYN S O WE W I L L NOHLOHGER B E S U b J E C T T O I T S S A T A I d I C d U L E A1.D

I T HICKERY.

THERE K I L L E E A G R E A T I S L A i d l C V I C T O R Y O F FREEDOM AND J U S - T I C E . O V E R CRUELTY ACD TREASON, AND AN I S L A M I C GOVEJt lMENT V I L L b E PXOCLAIMEO. AkO T O R R E N T S O F BLOOD W I L L B E S P I L L E D O N ASHURA '10 IlARK T H E DAY O F VENOEANCESAGAINST CRUELTY AND U P P R E S S I O N .

P R E A C H E R S W I L L R E V E A L T H E HOLY D U T I E S AND T H E C R I M E S O F T H E R E G l h E TO EXALT T H E NAME O F A L I . PROCLAMATIONS WULL b E I S S U E D T O REACH THE V I L L A G E R S TO E X P O S E M E C R I M E S O F T H E SHAH. T H E Y S H O U L D B E TOLD THAT T(1E I S L A M I C GOVEREtMENT IS FOR THEM AND A G A I N S T T d E C A P I T A L I S T S AIgD LANDOWNDRS. ON T H E A D V I C E OF T H E A M E R I C A N S , T H E SHAH HAS K U I N E D A G R I C U L T U R E . H E H A S WEAKENED THE COUNTHY T O b C N E F I T THE C A P I T A L I S T S . T H E NEW GOVEkNl4ENT W I L L P q O T L C T YOUR r t I G H T S .

Y O U ~ G P ~ P L E OF R E L I G I O ~ CIRCLES, SCHOOLS, U N I VERSITILS, KEWSPAPER W R I T E R S , FARMERS, WORKE~S, BAZAAR MEN, AND T R I B E S , E T C . -- LVERYBODY -- J O I N I N T H E S T R U G G L E FOR T H E A I M S O F ISLAM. THAT IS, UVERTHKOW M E O P P H E S S I V E P A H L A V I DYNASTY AND THE S H A H ' S R E G I M E AND F Z T UP AN I S L A M I C R E P U B L I C B A S E D O N T H E P R O G R E S S I V Y P R I N C I P L t S O F I SLAM.

IrIOUANIhrG S E S S I O N S SHOULD B E F R E E AND k O T HAVE TO HAVE P E R l l l S S l O N F J O N T H E f i U N I C l P A L 1 T Y O R S E C U R I T Y O R G A N I Z A T I O N S . YOU S H W L D HOLD THEM WITHOUT G E T T I N G P E R M I S S I O N .

T H E S E AAE C h I T I C A L D A Y S FOR I k A k Ai$D YOU Ti(E P E O P L E I.1I.L LE RE&JriEhEELEO I b I i I S T O k Y FOR ClHAT YOU DO. I T IS h C C E S S A i t Y F O L YCU T O H E L P OVERTHROW T H E G O V E R h f l E b T . YOU rlAVE TO P k U T L C T T i l L h h l l b h A G A l h S T THE E L E E I I E S O F ISLAM. T H E T R A I T O A S WANT TO P L U T E C T 'I:IC

SllAH BUT T M Y ARE MISTAKEN. THE SHAH HAS TO GO AND THESE' P A R A S I T E S CANNOT SAVE HIM.

I I C

AYATOLLAH RUHOLLAH KHOMEINI

6. ACQr IRA)(, T ~ H R A N (29 NOVEMBER 1978). F I E L D REPORT NO. N I T - 1 0 , 1 9 4 .

7. F I E L D ) I S S E N : EMBASSY AT TEHRAN (AMBASSADOR, DCM, P.ND POI l T I C A L COUNSELOR, DEFENSE ATTACHE, AND RSO ONLY). SENT T O P A R I S , H W DELHI, KABUL, ISLAMABAD, KARACHI, MUSCAT, ATHENS, ABU DHABI, I~JWAIT, J IDDA, A M M A N , TEL AVIV, CAIRO, MANAMA, A N K A R A , ISTANBUL (AMBASSADOR, DCM, AND P Q L I T I C A L COUNSELOR ONLY). SENT T O EXCLUSIVE FOR 5-2, USCINCEUR ; EXQUSIVE FOR C I NCUSAREUR ; EXCLUSIVE FOR CINCUSAFE; EXCLUSIVE FOR CINCpSNAVEUR; EXCLUSIVE FOR COMIDEASTFOR; EXCLUSIVE FOR COMSIXTH FLT; L~XCLUSIVE FOR CINCSAC) CINCPAC (EXCLUSIVE FOR CINCPAC, COEIIPAC, A&D POLRD; uw SHAPE (FOR GENERAL HAIG) .

REPORT CLASS S E C R E T WARNING NOTICE -- S E N S I T I V E I N T E L L I G E N C E SOURCES AND METHODS INVOLVED -- NOT RELEASAB~E :O F O R E I G N NATIONALS - NOT RELEASABLE T O CONTRACTORS OR CONTRACTOR/CONSVLTANTS -- DISSEMINA- TION AND EXTRACTION O F INFORMATION CONTROLLED BY ORIGINATOR.

Q A S S I F I E D BY RECORDED REPORTING O F F I C E R XQDS-2.

S E C R E T

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MI:MOKANl)IIM Of: CONVERSATION

I'AR'I'ICI PAN'I'S: S e r g e D e g a l l a i x , F i r s t S e c r e t a r y , French E r ~ ~ b a s s y

C lyde D . T a y l o r . F i r s t S e c r e t a r y , America11 li~l~l>:~s:;!.

A I ' f A : I )cccaber 3 , 1978, M i r a h e l l e R e s t a u r a n t

SIJXJEC'I': F rench Economic I n t e r e s t s i l l I r a n

IIIS'I'KIHIJ'I'ION: AMU/I)CM, I'OI., OR, .JI.If/RI:, NLiA/IRN, Com~~lercc/(:AI:NI: '1're;ts111~y/oAsIn/l~l~~v

I:!.ench P o p u l a t i o n

Mr. 1 l cgs l l ; t i x c s t i m a t e d t h e F rench p o p u l a t i o n i n 1r:in : ~ t 4 , 5 0 0 . Ile s a i d t h a t t h e F rench Government s c h o o l , t h e I.ycce, had a1rr : ldy d e c i d e d , and t h i s i s by December 3, t o c l o s e down f o r t h e two rcscaining weeks b e f o r e C h r i s t m a s v a c a t i o n . Thus , h e a n t i c i p a t c d .I l a r g e exodus f o r t h e l o n g C h r i s t m a s v a c a t i o n . Ile s a i d t h a t hef'ore t h i s c l o s i n g t h e Lycee had droppet l i n e n r o l l m e n t f r o n ~ 3 5 0 t o a1,out 375.

l i i f e c t s on C g c h B u s i n e s s i n I r a n

Mr. D c g a l l q i x knew o f o n l y o n e F rench f i r m t h a t had c l o s e d i t s 01 - f i ce d u e t o t h e p rob lems h e r e and t h i s was a c o n g l o m e r a t e s a l c s o f f i c e and n o t a l a r g e o n e a t t h a t . Ile d i d s a y t h a t h e had h c o r d o f an i n c r e a s e i n s l o w payments d u e F rench f i r m s . He s a i d t h a t t h e r e i s somc c o n c e r n by COFACE, F r a n c e ' s e x p o r t bank , c o n c e r n i n g t h e i r I : i rge e x p o s u r e w i t h Rank Omran, a n e x p o s u r e which e x c e e d s $100 m i l l i o n c q u i v a l c n t . Ile s a i d t h i s e x p o s u r e r e l a t c s t o a number o f j o i n t v e n t u r e s t h a t h a v e been u n d e r t a i e n w i t h f i r m s ~ n v o l v i n g t h e i ' ahlavi F o u n d a t i o n o r Bank Omran. C o n c c r l ~ i ~ i g t h e 'Tehran Mlil'RO, he c h a r a c t e r i z e d t h e p r o j e c t a s a t i v c bu t 11crhaps h e i n g suh , l cc t t o s t r e t c h o u t .

1Ka.i I ro_i!_J

' l h c F rench llavc n o t r e c e i v e d a c o n t r a c t y e t f o r t h c i r p o r t i o n (11. t h e r a i1 ro ; rd c l c c t r i f i c a t i o n b u t t h e y do have a g e n e r a l plill111ill.c ;rl~d t e c h ~ ~ i c ; ~ l ; ~ s s i s t a n c e c o n t r a c t w i t h t h e I r a n i a ~ ~ S t a t e Rai 1w;lys and t h i s c o n t r a c t i s c o n t i n u i n g .

Ile s a i d t h ; ~ t t h e s t r i k e a t t h e n u c l e a r s i t e s l a s t e d f o r a l i t t l c o v e r two weeks . He s a i d t h e r e was a d i s p u t e o v e r w h e t h e r o r n o t t h e workc r s wo111d b e p a i d d u r i n g t h e s t r i k e p e r i o d . The m i l i t a r y s a i d t h a t t h e y s h o u l d be p a i d and y e t t h e AEOI s a i d no; a compro- ~ n i s c was agrc.c.d and t h e employees were p a i d a t h a l r r a t e .

LIMITED OFFICIAL USE

A y a t o l l a h Khomeini

D e g a l l a i x s a i d t h a t t h e r e s h o u l d n o t b e s p e c u l a t i o n o v c r what l ~ a p p e n s t o Khomeini when h i s t h r e e months ' v i s a r u n s o u t i n France . He s a i d t h a t h e c a n s t a y up t o a y e a r and t h a t h i s Government views Khomeini a s j u s t a n o t h e r one o f 25 ,000 1rani:inh i n t h e c o u n t r y . He s a i d t h a t t h e r e was "no problem c o n c e r n i n g h i s s t a y i n g up t o a y e a r . "

' I r . D e g a l l a i x , who h a n d l e s v a r i o u s p o l i t i c a l i s s u e s b u t macro- economic r e p o r t i n g a s w e l l ( a s d i s t i n c t from t h e commercial o f f i c r i n a n o t h e r l o c a t i o n which d e a l s s t r i c t l y w i t h t r a d e m a t t e r s ) h a s been i n Tehran f o r a b o u t two and a h a l f y e a r s . He is l e a v i n g t h e end o f December; h i s w i f e h a s a l r e a d y l e f t . He w i l l assume i n P a r i s one o f t h e Deputy p o s i t i o n s i n c h a r g e o f comn~oi l i t i cs t o former French 1:mbassy M i n i s t e r d e Sedouy.

/

LIMITED OFFICIAL USE --

I' * r - I , I ESEi'*ZERA224 C O N F I D E N T I A L

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F.('. 12065: GDS 1/4/@5 (FEIFZR, TBEODORE P.) OR-P T l b F : PEPR, PGOV, I S , I i l , XF SuYJrcT: ISLAEL A N D DLVELOPEENTS IN'IRLV

1 . SUYI~ARY: ISYA5LIS PAVE KATCEED VITP. AWmL rASCIE:A- 7 1 0 V I R A N ' S PRCCRESS1O.r TO TEE LOYPR DSPTHS. TEE rHUMSLINC 0 7 TEE SEAr'S REG1042 I S EXPECTED TO STilENGT3EN N A ~ C E V T I s L A n I c P A V R T I C I S M I N TIE MIDDLE EAST, SIGNIFI- C A N T L Y AFFECT ISRAEL'S OIL SUPPLY, ENDANOXS IRAN'S P@,Zia JEYS, AND FUaTiiZR TBRSATEN REGIONAL STABIbITT T U d T I S A rEY UNDERP1N"ILC TO TEE MIDDLZ TAST PGACE 'IiCCErS OVER TSE YFASS AEEAD. FEJ DOUBT T AT 'WE SEX? CuV~:P.#YBNT IN TSERAN *ILL CUT TFI IsILA~U-2RhNiAN LINE.

T I N A ! ANALVS I F 9EPIVD ON WAS3INGTOY. ZUBTaER, ISBAELIS ) F A ? THAT Ti!& IRirCSTBIALIZED STATES AN?-FSPECIALLY T' IZ U .S., i ILL BECONE 3VEN MORE B L P H N ~ ~ ~ ~ . ON SAUDI AhbBIA AND TLUS LESS YILLINC T3 EXEIIT.'~Y~@SUR%ON TEE ' t1IuIS TO STPPORT PEE S U P DAVID 4GOOj4&NB'4 HODBRATP :OILTION TO TAE A R A B - X S F ~ Z L I COY~&$UXSI I W R 1 6 N S .

" -..-.- .. s,>,CP f 3 I 'd? ?'?.ELTI YInE 'AYPP. TZERS I S i X T A T Ph::I31Y PSRE A30UT T5E: EFFECT A SBSICAL I W , I 4C'JLD FAY3 OIk TLZ !AIDSLY FASr Iii SZKLSAL AND IS'AAZL Iid ? A ~ ? I C L ! L ~ ? . . I - bUT ! :3 ?.TCOGNIlI3:! T i A ? S 2 I P C L I C I E S '*/ILL I<! VX SOSE C O h $ I L E A 3 L S IYFLiTFNC' OK Y E FATE 0 1 MO2EXP.TION IN i TBE ARIA. END SUMYAbY . ., . 2. L I I Y TLE 3TST 0 1 US, I S X ~ C L I S ' EaVZ WATCtE9 YITH r

An'FUL IASCINATICb,I IRA'J 'S PBG:RFSSIOE! 1 0 T 3 6 LO it33 I DZPTCS. TFXY B Z L I E V 2 TEE FZISNDLY AKD STAUKCFLY P a 3 - Y6ST 95GIME OF "BE S X E P A S CXCMBLED BEYOND REPAIR A:13 AWAIT K I T E POREBOCIf4~ I T S SUCCPSSOR. FgV DOU3T TEAT TEF FJE:<T GOVTTtiL:.lfiENT. liHO-iVBn ITS-'LEACER, IN T533AN Y I L L i T2RMIhP.TB YOST, I F NOT ALL, ASPXCTS OF THP CAiiFP3LLY 1 CONSTRUCTED AND CLCSF I S 2 A I L I - I R A V I b N RELATIONSHIP. ONLY A COUP BY T!!F H I L I T A 3 Y , IN TEZ VIEY OP SOMZ ISRAZL ANALYSTS, JCULD L$'A3tf I S 3 A 3 L TO SALVAGE AT LEAST SOX: I T S L1W':S S I T E I?A:l. L 3 3 : E 3 AT ' J ITZIN THZ RR3:IONAI, PRAMEWCR?, T J E SUCCESS 0 1 "BE ISLAMIC OPPONEYTS 03' TBX SPAR I S ZXPXCTED T3.E TO ST2FYG'TBEN NASCENT FOECSS OF ISLAYIC FANATICIS?l IN TEE MIDDLE EAST Y3ICH WILL COIGTRISUTX TO REGIONAL I N S T I S I L I T Y AkD OPEN THE YAY TO INCREASED SOVIET PFt4ETRATIOY OF TEE AREA. DEVPLOP- MENTS IN IRAY ARE TBDS PESCXIVkC BY I S R A E L I S AS HAVIkG DISTURBINS IWPLICATIONS, 7 0 T ONLY FOR THE I S S A S L I - IRANIAN QILATEBAL R 3 L A T I O Y S t I P , BUT ALSO FOR TRP RE- GIONAL STA?ILITY TEAT I S A LZY UNDERPItlNING TO TEE MIDDLE ZAST PEACE PkOCESS OY3% TEE YEARS AZLAD.

3. A CLOSE RELLTIONSHIP Y I T E IRAN EAS IMPORTANT SUB- STANTIVI AS YELL AS S Y n P o L I c IMPORTANCE FOR ISRASL. UNTIL ELCENTLY IEAN #AS T93 SOURC6 OF TJO-THIF3S OF ISRAEL'S O I L SVPPLY. SU?STANTIAL H I L I T A a Y AND INTSLLI GENCE CCOPEEATION 2AS DEVELO?ED BETYEEN THE TYO STATES OVER T P 6 YEARS. ISRAELI F I ~ P I S FiAVZ BZEL CONSTRUCTICN AND DEVELOPMIKT PROJSCTS I N TOGEIEER WITH EXP03TS, EA?P EARNED 3n6 MT ANNULLLY. SYMBOLICALLY, ISP.~XLISI^ ~ A V Z VI CLOSE 7tPLATIONSkIF WITE XUSLIM IRAK AS A T9E J F d I S d STATZ lRS hOT A P A R I d S TO ALL EAST. PLTEOZGEIIRAN DID NO? ESTABLISH D I RELATICbfS L I T E I S ~ I S L , f i I A I S O N OFFICES S E DIPLOKATIC ?'ISSIO'.S I N ALL 3UT N A M I 3 I N

[NVOLVED IEi !RAN ;d31 CH, .LInN ll[1T.T.AF.S N E D Ti iEIR ;IGN TBAT . N THE MIDDLE 'LOIYATIC [BED AS DDITIOPI.

I S R A X L :]AS C ~ L T E E CBE SSCUBZ E X I S T E ~ C E - E N J O Y E ~ 6 1 - I R A N ' S &@,a23 J E X S , THE LARG3ST J E Y I S g COMMUNITY S T I L L LIVING IN A MUSLIM STATE#

4 TEUS, I T I S d I T H GROYING TBEPIDATION'THAT I S S L E L I S

V A S E THREE C 0 N F I D E N T 1 A L 285

s[:,P CLEP.? ZI3NS G""TCll\G: 7' S S 1 q . i 1 "J5?IR EILdTZilAL ELLATIO~SFIP* iITr: IFih,~I. T 5 . P NCTS FRI;IE MIEII5T2.D- CESIGNACZ EA;HTIAR'S S T A T X Z K T THAT ISSAEL FROEA3LY BT , U9278

RUOHRA/AXEi4aASSY JI DDA 0898 R U Q P I K W / A X E I ' ~ ~ A S S Y KUWAIT 121 1 RUDTC/Ai'lEIE;BASSY LONDON 4873 RUFNPS/A~ 'Z~~ASSY P A R I S 7824 R U Q M Z N / U S M I S S I O N S I N A I 1424 R U Q I ~ W d / A F i i 4 8 A S S Y T E H R A N I M l t D I A T E 1622 R U E H D T N S I I I S S I O N USUN NEW YORK 6329 B T C 0 N F I D E N T I A L S E C T I O N 02 O F 02 T E L A V I V 00270

W I L L NOT B E R E C E I V I N G P E R S I A E I CRUDE I N T H E FUTURE. W H I L E T H I S NOT-UNEXPECTED D E V E L O P I E N T C R E A T E S A D ~ ~ F ~ C U L T P R O B L E M F O R I S X A E L , T H E G O 1 IS ROT A N X I O U S 50 I N V O K E T H E U.S. 1975 S I N A I I1 COflMITi4ENT T O S U P P L Y I S R A E L W I T H U.S. O I L U N T I L O T H E R A L T E R N A T I V E S HAVE B E E N l O R E F U L L Y EXPLORED. NOT ONLY D O E S T H E P R O S P E C T O F Y E T F U R T H E R DEPENDENCY ON WASHINGTON P R O D U C E MUCH H S I T A N C Y H E R E , B U T B U Y I N G U.S. O I L WOULD B E E X T R E l E L Y E X P E N S I V E AND IS T H E R E F O R E T O B E A V O I D E D I F P O S S I B L E . 5. F E E D I N G T H E GLOOi4 H E R E P R O D U C E D B Y T H E S E W O R R I E S IS T H E ENORMOUS S T R A T S G I C S E T B A C K FOR THE WEST W H I C H A R A D I C A L I R A N WOULD S I G N I F Y . NOT ONLY WOULD A MAJOR O I L E X P O R T E R HAVE LURCHED OUT O F T H E WESTERN C A W , . B U T T H E U.S. P O S I T I O N I N T H E NORTHERN T I E R WOULD HAVE UNRAVELED F U R T H E R , W l T H S O V I E T I N F L U E N C E L I K E L Y T O I N C R E A S E . N R T H Z R # O R E , S I N C E T H E W S L I M O P P O S I T I O N T O T H E SHAH IS NOT E X P E C T E D T O B E A B L E T O E S T A B L I S H A S T A B L E S U C C E S S O R REGIf i iE , T H E I S R A E L I S T H I N K T H A T I R A N IS I N F O R AN EXTENDED P E R I O D O F TURMOIL. T H E NEXT GOVERNt4ENT MAY NOT B E A R A D I C A L ONE. B U T N E I T H E R

R E V ~ U T I O N A R Y FORCES AT WORK I N IRAN, THEY BELIEVE THE U.S. COULD HAVE MOVED MORE ENERGETICALLY AND EFFECTIVELY 0 A S S S T ONE O F T H E I R MOST ONOSTAND YO AND C O N S I S T E N T

&.LIES# AND T H 3 S E I S R A E L I & K P P T X C & F Im VALUE O F AMERICAN COMMITMENTS P O I N T 3 I S P A R A S i U a l . Y 10 I R A N A S AN I L L U S T R A T I O N THAT I S R A E L CANNOT I N f#E F I N A L . - A N A L Y S I S DE?zND ON Y A S M I B T O N .

I A L

-:.3[iZ ~ R O A D ~ Y , SD LOirG AS IRANIAN 4I.L PRODllCTIOM ;i DRASTICALLY REDUCED ISRAELIS F E A P THAT THE INDUS- i . . IALIZZ3 STATES !)ILL QECO~CI EVEN MORE DEPENDENT ON Z 'L3 I ARABIA. AS SEEN FRON HERE, THE U.S. WILL BE ZJZl4 LESS WILLING TO EXERT PXESSURE ON THE SAUDIS TO .5PPORT THE CAW DAVID ACCORDS AND A NODERATE SOLUTIOM TO THE AZA3-ISRAELI CONFLICT. FURTHERNORE, WITH THE Z L D I S EVER MORE I N THE DRIVER'S SEAT, SADAT TOO UIU idVZ EVEN LESS UANEUVERIND ROOM I N THE PEACE NEOOTIA- T I JNS THAN AT PRESENT.

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FROM: I L ,i 11652

TAGS: .-L rrJECT.

MlERICAN CONSULATE ISFAHAN DATE: Janusz y 6, 1971

CIIS 2-1-79 (MCGAFFEY. D.C.) OR-M I'IIJS, PGOV, IR FORECAST: CLOUDY FOR IRAN

Si~mary: A cfvilian government will take over Iran facing problems sufficient to defeat the luckiest and most experienced politicians and there appear to be :)either. r\lmost the most hopeful prospect for chis povernment is a shaky, embattled care-taker status lending to elections in early sunnner. More likely is its failure precipitating a renewed crisis. In either c :lent, the future looks dangerous ft~r individual Americans. End Sumnary.

.--- i5iahan Perspective on the Bakhtiar Government 4 > t h e r u m o u r ~ d of a B a ~ d O i i ~ E , I sough the opinioir of Isfahanis about his chance for success. The responses were basically a weak po;itive. blost r .pondents stated that if Bekhtiar \ in% able to ohtain ii,, endorselwnt of Khomeini and (mop!- impcrtant) the departure of the Shah, and if he found competent and unexcepriondble cabinet members, they had noth~ng agai hlm, and he would have a chance. No one I spoke to wn excited about him, but no one was displeased. They stated that he was probably more accoptnble to the n~litar:; than any of I-he other opposltlon names ~llention I n the past and was probably acceptable to the l4ationsl Ftont as well. Tbc Inore sophihticated pointed out that Llie combination of competence and no p.articipnt~on in

--- , .ti. .XO Dl., l lh l*Ul public life in the last twenty years or so (necessary to be unexceptionable) was most unlikely and chat

I CONFIDENTIAL

-- -- - CL.*.I.IC.,IO* . '+ . - - - on~rrono dr z wo*r uo sovr=nrr ~ N O CLI..IFILIIION ACP.O*~O

-k-' -= 4y (11-6-79 \ I 1p.O. :DCMcGaffc~ < 1 r .<.I

L CI - .l e ,- w lu,

,111

CONFIDENTIAL --- 2 .

b~hl~tiar wot~ld have to choose between competence and support. :;Laice Iran faces now all the problems which toppled previous fiovcrnments, exacerbated by the last six months of strikes a ~ ~ d disturbances, it is most unlikely he will find a Cabinet aljlc to funccion effectively and he is likely to become the Ilrst post-Shah scapegoat. It is possible that last mintte a:lacuvering will push forward someone else in place of n . ~ l : l i t iar. However, any civilian forming government at this tl;r,e will have the same constraints and problen~s as Bakhtiar, ro !,he following serves whatever the name of the new Premier.

1'1 oh lens Facln~ the Government ,,, , , , . -

new Eovernzient will first have to perform a subtle and tricky balanci.ng act. It must prove acceptable to the Shah, u r - will not be appointed, but too much approval by the SII.:!I will i:~ake it unacceptable to the dissidents. It must Llc approved by the Parliament, which most nearly represents tl~c populace, but as the Parliament itself contains many ~:~c*~~~bcr.s unacceptable to the dissidents (and as a body is c.~r;lsidered a Shah puppet), it must distance itself from 1111. Parliament. It must gain.the acceptance of the striking we^.-!ters, so that they will return to work, but: Irmt distance ~:..:;llf from the wage promises made by the laet government if I L hopes to deal with inflation.

. f . r J first problem the government will face will be a..rsce I ,f .*vecn the departure of the Shah, a necessity for

) - t . ;. ~ability, and the organization of resistance by competitor ~1 '(,:;ition groups. The Shah is likely to delay departure I : I I ; i l he is sure of the stability of the new government, but t , : ~ ~ e s s his timing is very good, his delay will fix the image (.I ?h+ Bakhtiar government in the public mind as just another !;l,dh Government, thereby rendering it unacceptable.

f , l : t . : accepted, the government will have to handle the ~ ~ i ~ i ~ , ; e factor. In Isfahan, lists have appeared with over I ; i iisiaes scheduled £0, death and larger numberb for "punish- :IJ::I r." (unspecified) or imprisonment. These lists, locally 11:oduced by the opposition, supposedly list SAVAK personnel, . : ; litary personnel who ordered or caused the deeth of Jissidents and private or government figures who are ,,orlsidered corrupt or profiteers. The names on the list t 8 s ry with the presenter, and it is known that many names .firs put on the list to settle old, personal scores. :Jar.~usedly, such lis,ts exist in every city and town in Iran. In Isfahan, some of those on the death list have already been ..,;assinated. The new government will have to take steps to :. .~:i.:;fy this lust for vengeance, but to also afford the

.: ,: :::.-ance of justice. Floreover, there are such large il~;i!iers of military and security authorities on the list, t:,a: :he military would not stand for anything more than !.ul:en 'sacrifices. If the mobs are not satisfied with govern- o . z r i ~ action, however, they are likely to take action themselves,

A m-

CONFIDENTIAL

and SAVAK and the military to difend themselves--with blood fighting a real possibility.

In a broader sense, the govetnment will also have to find a way to restore order, faced with bands of youna toughs--use to and c:;joying the violence of mobs--continuing their activities. Again a delicate balance is necessary, because anything approaching martial law or an autocratic order wil cause Lhe general populace to rise again.

The larger problem will be the economy. The goveqnment mus get the workers back to work and at the same ttmqmust ask them and the entire country to accept sacrific 8,-shortages and probably high prices. The workers werk prhi'sed wage increases the country cannot afford, and the ca ts of returnin% the economy to an even keel will be a$tronomical. When che workers refused to return to work for wage increases of 50-125%, will they now return to work for their old wages? The capitalists and entrepeneurs, and those v!io control the capital which fled Iran in the last six months, will watch closely the actions of the governmen: If they see policies designed to appease the workers at the cost of inflation and depression, they will refuse to expenl any risk capital. Unemployement is certainly high now and will increase unless the businessmen are willing to partici] in the economy. The business community is in a critical cash flow situ?tion. Those factories which continued oper.~~i:.,: hove largely used up all bank credit they possesst drawing down on stocks (particularly fuel) and currently possess large stocks of unsold goods but no money. Bazaar: mostly closed for up to two months are also cash poor, and customers paying profiteering prices while getting uncertai~ wagcs are also cash poor. From somewhere, there must be a major inEusion of cash or credit to prime the pumps, and f o ~ a !cl-%, ;c!riod of time as business is normally conducted on : Jay ;L ,.,<!L.ce basis. Unless the flight capital can be prrsuac to return to make this infusion, new money will automaticall creste major inflation, fueling a new economic-political cri

Scenario for (Limited' Success r s e e i i s unlikely thatttlisntried government can survive, faced with the above problems. One scenario for limited success, however, follows: drawn from reflections on commenl of Na~fonal Front activists in Isfohan. This presumes the Shah x ~ l l leave as the Khomeini/National Front opposition tc Bakbtiar nears a peak, causin the protest movement to colli i.i he surge of joy at this etement of success. All workerr will rciurn to their jobs as part of thar joy, without i - - c . ' " . t5 . discussions about wages. Khomeini will lose any inf~~ie~ice, as he will continue demanding protest when most peoplc .re tired of it. The government will schedule in,c,c di 3~ 'ly several major show trials, and somehow "endorse' rho ~ a . . ~ >us reverge lists, without acting on them, focusin yru;l<' attention on the major tirals and vowing an "unenj:

CONFIDENTIAL -.--

CGNFIDEWTIAL ---. 4 .

ursuit" of all malefactors. Mcanwhtle, ttic in~portant gave their Iranian Property confiscated whcr, the gcl\.t?:.nnlent: learns of their flight. As it will not be fair to punish underlings when the big fish escape, only a few symbolic arrests will be made. Any workers who attempt strikes or protest about che lack of raises will be attacked as proL'iteers, following the model of the Shah, and jaw-boner1 back to.work.

The cabinet will be in a state of constant shuffle, gradually bringing in reixesentatives of the various National Front and other opposition party factions, and playing them bff agai.nr;t the other, with Ministers abruptly dismissed as incapable of dealing with various problems, thus shifting the blaale and buying time. A great deal of attention will he paid to upcoming elections, with numerous committees appointed, including opposition figures and probably a few minor delays, just to keep people anxious. The government will icself take a major part in the campaign, declaring tlie country's prob1ems.a~ serious and demanding that cznditlates address the problems, not personalities. The cl)posi.tion will have one eye on the elections, so will be u11abla to maltc a united front against Bakhtiar. The economy will illuddle through, with the government making many announce- n,ents about the need for sacrifice, 80 that Iran will belong co Irsnians . Finally and perhaps most imp0rtar.t. the Govern: nleill: will focus attention on a new enemy, probably foreigners, z ~ i d ;or:t li!:ely Americans. They will be accused of trtial.l;orously abandonri~g necessary projects as a last gesture of support for the Shah, and simultaneously of attempting to . rake advanrage of the country's precarious economy of profit-- damned if they stay or if they leave. Among the symbolic punisllments will be of foreigners working without work and residence permits, or otherwise in violation of any Tranian rcpulations--probably nothing more than expulsion but given e h t ~ p1.a~. 'there is little room for maneuver in tt1i.s sccnzrio, but if all :he elements fall into plece, the Bakhciar Government could maintain itself until elections, and perhaps even after, depending on the level of cpposition discord.

1ii:alicntions for the U.S. and Americans . . ., -, . . - ii tl~eTZhtiar government falls, the 1ikeli.est result will be n new autl~oritarian regime, either by military coup or by En uprising of the radical right (elevating Khomeini) or che radical left (unlikely to be friendly to the U.S.). A military coup, while likely to be both successful and friendly to t h c U.S., is unlikely to last long, as the populace have l e a r n d how co fight the military--civil disobedience and econom!c pressure rattler than direct violence--and there is no cvi~lcncc- the military--has learned a proper response. I f

CONFIDENTIAL

CONFIDENTIAL -

it did sric~eed, it would be only if it adopted radical right or left p l uiiagc. A Khomcini government would be, at I east initially, hostile to the U.S. and foreigner- and would be likely 'i1.0 to di.ssolve shortly of its own i7:ompetence if nothing t>J\e. A radical left government, like that in Af';;hdnibl,'n, is likely to be correct in its relations Lo the U.S., but lcan l~cavily on the USSR for support and would become quickly entangled in internal disputes with the re,ligio~,s ;ight, again like Afghanistan. Any of these results will lead to the disinte ration of the economic s; rengt h o f Iran, the increased fikelihood of further groups or.d stru;:yles, and the loss of a U.S. ally.

On the otl~er hand, a Bakhtiar success is likely, at least in the short run, to be seriously dangerous for Americans living in Iran, or at least in Isfahan. The anti-foreign/ n11:i-Am(-ricnn feeling continues here, accompanied by \violence of increasing intensity. If a government in Tehran 110th restricts revenge On SAVAK and security figures and ,laopts an anti-American attitude, there will almost , levitably be an jncraase in violent incidents against .i;sricans, and at present of higher levels of ;iolence,

c resul~; will bc serious injury and death. It appears :I~at w h a ~ is in the better interests of the U.S. will work ins in st ir~dividual Americans and probably will require a l~ln]or reduction in the American presence here, for several wths .it Lcatrt.

MC FFEY 9

COIW IDENTIAL ----

ACTION J 3 ( 1 4 1 A~DIISA(I~I'

O ISTH C J C S I ( B 2 ) C J C b ( 0 1 1 DJSCE3) I J C I ( 0 2 ) J l ( 8 2 1 J S l J R C JOINMCC O I C REVW(011 S L C O E f i B 7 1 S S C D E f l A d D l P A ( 0 1 ) D I A I O l A ( l U ) NMIC - CMC CC YASMZNGTON DC - C8AF k A S H I N G l O N OC - CNO NASHINGTON DC - CSA WASHIkGTON DC - STATC OPCEN WASHINGTON DC F I L L

( 0 6 5 )

0 t7YOS7Z JAN 7 9 r n SECdTATL nrenoc IMMEDIATE 10 R u e n A n / A n L n e A s s v rnnrn x m n t i o x r r r 7 a 7 a r u o ~ ~ c / r n c n ~ r s s ~ B~IRUT x n n c o ~ i ~ r e a o 2 - AUBHEOfAMEMBASSY CAIRO IMMEDIATE 4 9 7 6 R u C n D n / A n B n B r s s Y O A M A S C U I xMnLOIAT€ P 7 o a UUinJM/AMCONSUL JERUSALEM IMMEDIATE O I 6 S RUOMRA/AMEMUASSY J I O D A IMMEDIATE 7 1 0 8 AU&kTV/AMEHBASSY TEL A V I V IMMLDIATC P I 8 7 ~UQMHR/AMEMUASSY TEHRAN XMMEOJAT€ 9 6 7 1 YUOMA~/AMEMBASSV MANAMA 3 0 U 4 RUOUBl/AMlMBASSY RABAT 0 8 7 9 WU4MNl/AMCMBAS8Y B A N I 1 3 7 0 UUOMlI/AMEMBASSY T R I P O L I 7 1 7 6 ~UOIKR/AMCf iBAYSY T U N I S 8 5 1 6 AUOMZN/UEMl8SlON S I N A I 7 8 8 8 a u v ~ i n i ~ n c o ~ e u ~ ~ IHR~N 2 1 0 1 R U f H G V / U S M I I S I O N ECNLVA 1 8 8 6 auonnw/rncnerssr K n r R r o u n 0171 AUOTClAM~MBAY8V LOhOON 6 3 0 1 ~ U E H M O / A M E H ~ A S S Y noacon 5 8 4 0 RUCHNA/USM18SION USNATO 2 1 1 5 t4UfNPS/AMeMBASSY P A R I S 5 6 5 2 WUfHUO/AMEMBASSY RUM€ 4 7 2 7

PAGE 1 C O N f I O € N T X A L

PAGE 2 C O N ~ I O E N T I A L R U L H U T I U l M l S S I O N USUN NLN YORl 6 l S I RUOMBIIAMLMBASSY ABU OHABI a 4 3 1 RULHCRIUSINT BAGHOAO 9 1 B 9 R u u n o o I A n E n a r a s v o o n A 8 0 3 1 RUUMUIIAMEnBASSY NUMAIT 5 3 5 0 RUCHOLIAMCMBASSY BONN 2 2 9 9 R U E K J C S I I k C O L F IIAIHOC -2730 RULKJCII JCS r h r n o c nsvs R U E A I I A I C I A I A I H O C 9 9 1 2 RUEAONWI NSC MAIHDC l74D R U f H l A / U S l C A RUINAAAIUSCINCEUR VAIH INGCN GL z P n / A n c n u A s s v ALGIERI POUCH BT C O N C I O L N T I A L

L I n I T t o o r r I c x r L ure IECTION 11 or mu BTATE 11ta2841mi

C INCkUN FOR POLIO, T L L A V I V FOR PAOI OEL IVCR BY U A.M.

C.O.tI2UbB N I A

TAG11 SOPN

I U U J L C T I ASSISTANT I E C R i T A R V I A U N O L R I I ITATgMENT

FOLLOWING I S THE TEXT O f A ITATLMENT I H X C H A 4 8 I I T A N T l L C R L T A R Y SAUNOCWr I1 O E L I V L R I N O TO AN OPLN l E I I I O N OF THE HOUSk INTERNATIONAL R L L A T I O N I COMMITTLE ON l 0 l e U A.M., IABHINGTON T lML . P L L A I C NOT€ T C M ~ A R G O E O FOR P U B L I C UIL UNTIL THC TXME TOMORROW OF ITS OELIVC~Y s c r o n E THE c o n M r r t r r .

B E G I N T l iXT -- T k L PWCYENT I I T U A T I O N I N I R A N AND I T 1 X M P L I C A T I U N I

T H l B HEAUING PROVIOL( AN OPCORTUNITV ?OR UB TO R C V I L N TOGCTHER THE PREBLNT IXTUATION IN IRAN ANO ronc or r t r IMPLICATIONS FOR THC PUTURE or UNITCO rrrtcr P O L X ~ Y TOIAROS X R A N ANO tnr MIOOLE crrr,

R- UEYAKTMENT OF DEFENSE JOlW CWEFS Of STNf

I E s * O E CtNlER

PAGE 3 C O N F I D E N T I A L

; PROPOSE TO DEAL # l T n THE FOLLOMING QUESTIONS IN T n I a INTRODUCTORY PRCSLNTATIONI

--#HAT HAVE UEEN THE INTERESTS AN0 HOLE OF THE UNITED

8TATES I N IRAN?

.-anrT 18 rnr PRESENT SITUATION ANO now DID IT r w z r e ?

--#HAT AblL THE REGIONAL AN0 GLOUAL I M P L I C A T I O N S OF lHESE DEVELOPMENTS I N I R A N ?

--#HAT L I E S AHEAD?

I N SHORTI I M I L L UE OCVELOI ING THE POLLONING P O l N T S l

--THE UNITED STATES ULNAINS FIRMLY c o n M ~ ~ ~ ~ o - - ~ a nrs CVeRY AHERICAN AOHINI8TRATXON S INCE l O R L D MAR 11--TO A FRtB, STABLE, AN0 INOCCENOENT IRAN. I R A N 1 8 INDCPLNO&NCL I S C R I T I C A L I N PUOTECTING'THE FRkEDOH OF OTHER NATION8 I N THE MIDDLE EA8T. F I F T Y PERCENT OF THE PLTROLEUH CONSUMED UI me ? R ~ E ~ O R L D r r s r r s tnnoucn Tmr rrwrlss OF nounuz ON IRANIS SOUTHERN FLANK.

--INAN, L I I L OTHkR NATIONS THAT HAVE DEVELOPED NAPIOLYr HAS LXCBRIENCED FUNOAMLNTAL AN0 ACCELERATING CHANGE OVER rne FAST T W O OECAOCS-WECONOHIC OEVELOPMCNT, w x o c 8 r n E A o SOCIAL CHANGE, AND ornrnoa FOR GREATER PUPULAR INVOLVE- *ENT IN 8 n r C I N G TnE OECISIONS rmxcn AFFECT r n h n l s LIFE 4 ~ 0 FUTURE. IN THE COYNSE OF T n I a C n o c t s 8 OF rrrlo ~ 0 U L Y N 1 Z A T I O N , ECOkOHIC PYOGRCSS HA8 OUT-PACE0 THE OEVliLOPMENT OF P O L l T I C A L I N 8 T I T U T I O N S . 8OHY I R A N I A N S #AVE CELT THAT THEIR T R h D l T l O N A L ROLES AN0 RELIGXOUS CONVICTIONS HAVE BEEN THRCATENEO BY THESk DEVELOPMENTS &NO BY THE INTHOOUCTION 01 AN U N F A H I L I A R CULTURE, MANY 4RE NO1 I N S I S T I N G ON A WIOtR 8HAblING OF P O L I T I C A L POkER d s * E L L AS r c o N o n I c UENEFITS. T M I ~ I 8 T n t CRUX OF rnt 8 T a2254 ANNOTE8

+ * k t 3 C O N F I O L N l I A L @ W ! I t i . ' ,

PAGI! 4

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EPARTMENT OF DEFENSE ) (NMl ENIS f S OF ST IFF

UtSFAGl TkNIER

DEPARTMENT OF DEFENSE MINTCHIEFS OFSTAFF

I t S S I O E C T l I E R

V Z C Z C M L T Z ~ L C O N F I D E N T I A L ZYUU MULT 2 3 0 e o

SECT U 2 OF 2 S D 2 6 ACTION

J 3 C 1 4 1 A S D I I S A ( 1 0 1 D I S T R

C J C S I ( 8 2 ) C J C S ( 8 1 ) U J S [ Y 3 ) SJCS(02) J I t U O ) J S I JRC J 3 l N M t C SECOEF(U7) SECOEFI A S O I P A ( 0 1 ) 0 1 4 I O I A [ i O ) NMXC - CMC CC UASHINGTON DC - CSAF UASHXNGTON DC - CNO UASHINGTON DC - C I A WASHINGTON UC F I L C

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PAGE 1 C O N F I O C N T I A L

~ A b t 2 C O N F I D E N T I A L 2JY;JD #U&HCR/UbXNT bALHOA0 OJQU ~ u u a o o / r M r m u ~ s s r DOHA e s a a ttUlJHKW/ArlEHBASSY KUMAIT 5 5 5 1 NUFHOL/AflEHBA1SY UONN 2388 t tULKJCS/ . d t C U t F WA8HUC 2757 HUEKJC8/ J C I n A 5 H o c a 5 8 8 N U E A I I A / C I A UAYHOC 2 8 2 3 U U C A U Y W / NYC WASHDC i ras t tUBHIA /USICA UUSNAAAIUSCIhCtUU VAIH INGEN G E LEN/AHEMElAS8V ALGIERS POUCH BT C O N f l O t N T I A L

L I M I T E D O F F I C I A L USE SECTION 8 2 O f 8 8 I T A T E 9 1 9 1 5 4 / 0 1

CXNCEUR fon POLAU, TEL AVIV FOR PAO, OELIVLR B Y A.m.

PROULEH I N I H A N 1 0 0 1 1 .

--OUR P O L I C Y OVEN THREL DECADE6 HA8 @€EN TO WOKU WITH IRAN, AS WITH OTHEU N A T I O N 8 UNDEKQDING T H E W PROFOUND CHANGES, TO HELP T H t H F I N D CONITRUCTIVE SOLUTION1 TO THC PROILE~I THEY PACE, E n m c e rnon PERIOOI or c n w x w I T n NEW S T A U I L I T I , AN0 P R L I E R V L T H E I R NATIONAL INDLCLNOENCE. OUU OTl4ONGLY-MELO VIEW I1 THAT NO O U T I I O E POWER 4HOULO TRY TO DICTATE I U A N l S COURIL, EMCLOIT I N I T A B I L I T Y f D R I T S OWN ENDS, OW SEEK CONTROL OF ANY K I N 0 I N T H I I AREA. EACH NATION bHOUL0 HAVE TME fREEOOM TO WORN OUT I T 1 P u t u n E rnec F n o n OUTSIU; INTERFCRCNCC.

--THE CNTIUE A n t A OF WEITERN A S I A 11 CHARACTERIZE0 BY

GROMTH AN0 CHANbk. CHANGE PROUUCEI OPPORTUNITY A 1 WELL AS I N I T A U I L I T Y AN0 C K I b I I . THE I I I U C I1 HOW TO CHANNEL CHLNGE ALONG PATHS L E A D I N G TO S T A B I L I T Y AND ITRENQTM. OUN POSITION IN TnE AREA 18 ITUONG. near OF THC ITAT~I THERE #HAKE DUU 0 0 J E C T I V E I FOR T H I I KLGIONm-THg I E C U R I T Y AND NATIONAL INO~PENOENCE OF EACH I T A T E I N THE AKEA AND T n e OPPORTUNITY T O c n o o s E THEIR OWN w r y 8 TO BUILD ncr tsn L I V E 8 FOH THEIR PEOPLE, BECAUIE ME #MARE THOBe 0 0 J h C - T I V C I AND SEkK NU 0 0 H I N A T I U N , k E B E L I E V E U N I T E D I T A T C I HELP I N A P P H U P R I I T C MAY8 WILL UL 4OUGMT I N TML FUTURE

C O N F I D E N T I A L S @ l l # l l l

DEPAKTMENT OF DEFENSE PIIITCHIEFSOF srrrr

UESSACE CENTER

VAGE 3 C O N F I D E N T I A L A8 I N T H t PAST AS NATIONS OF T H t AREA WOUU OUT THEIR rUTUUEO. WE ARE I N CLUSE TOUCH r I T H GOVERNMEhT8 I N THE I L G I O N ANU ELSk*HEUE WHOSE INTERESTS AUE ALSO A r r c c T t o B Y Tnrs SITUATION,

AMERICAN INTERESTS AND ROLE1

rue INTEUESTS or rnr U N I T ~ O S T A T E S IN IRAN HAVE R e a A z w c o CONSTANT o v e n TnE P A S T GENERATION.

UECAUSC UF I A A N ' S IMPORTANCE TO THE SECURITY O f THE OULF REGION, FUTURE or THE MIODLE EAST , AND THE PRODUC- VION OF OIL , WE HAVE A STRONG I N T E R E I T I N A FREE, Y T A B L t s 4N3 INOEPYNDENT IYAN, k E HAVE P E R S I S T t N T L Y AN0 ACTIVELY CUUSUEO T H I S O L ~ J ~ C T I V E S I N C E WORLD MAR 11.

aOuUING M I T H I N THE L I M I T 8 SET #Y THE GOVERNMENT OF I R A N I N AREAS O f COMMON I N T E N E ~ T I W t HAVE HELPEU I R A N 8TREkGTH- I N I T S E L F ECONOMICALLY I N TWO W A V I l (1) ME HAVB P A R T I - c I r r T e D IN I Y A N ' ~ MODERNIZATION, PIRUT THHOUGH DEVELOP- MLhT A b S I S T A h C t AND THEN THROUGH THE COOPERATION OF PRIVATE AMERICAN FIWMS. (11 AMERICAN ANO OTHER MESTERN COMPANIES HAVE hOUUEU CLOSELY I N TME OEVELUPMENT OF IwAN 'S O I L PNUUUCTION AN0 MARUEl lNGs THfUE&Y HELPING 10 PAUVIUE T H t d t V E N U E 8 WHICH HAVE 8EEN THE M A I N ENGINE OF I R A N ' S ZCOhUMIC DCVELOPMENT.

AS I S OFTEN THk CASE WITH GOVEHNMENTl WHtRE AUTHORITY 18 HIGHLY CSIVTNALIZEO AND r H E R t lMCORTANT ECONOMIC AND I T W A I E G I C lNTEHEST8 A n t AT STAKE, OUk A B I L I T Y TO M A I N T A I N CONTACT WITH ALL ELEMENTS O f THE I O C I E T Y AND PRE88 LFFECTIVCLY AN0 CONSISTCNTLI FOR CONYTRUCT/VE CHANGE HAS UCEN L I M I T t O . WHERE WE I A N SOCIAL AND P O L I T I C A L PREISUWtb d U I L O I N G UP w I T n l h THE SOCIETY, HE CALLEU ATTENTION TO r n c n , uur rn t u r c t OF O E V C L O P M ~ N T HAS BEEN SET U Y T H ~ GOVEHNMENT AND CIRCUMSTANCES I N IRAN.

*E n r v t ALSO HESPONOEO T O I R A N ~ Y REQUESTS TO HELP MOUEUN- d T r z a 5 4 ANNOTLI CLH 7 P 5

PAGE S

YNNN 17USJbZ

OEPAKTMENT OF DEFENSE II l l lCHIEfSOFSTAfF

UEXAGE C E N R I

ACTION J 3 ( 1 4 1 A S D # I S A ( i B l

SISTR- C J C b l ( R 2 ) CJCS(Y1) UJSCYS) SJCS(BZ1 J J ( d 2 ) J J l J U C JJJNHEC O I C R L V u C d l ) S E C b L F ( 0 7 1 SECUEFI A S O l P A ( 8 1 ) NMlC CMC CC WASnINGTON DC - CSAF WASHINGTON OC

OE RUEMCAA - 2 2 5 4 0 1 7 Y 3 2 5 Z N V ccccc t z n o 1 7 m e J 7 Z JAN 79 cn SECSTATE w r s n o c 1 0 RUEkbM/AMtf lUAbSV AMMAN I M M t U I A T k 7 0 7 6 ~ U I ~ M # E / A # E # S A Y S Y BEIRUT I M M k D l A T C b J Y 4 * u t n c c / n m E n e r s s r CAIRO I n n E o x A T f 4 2 7 7 dUEHDM/AflbM6ASbY OAHASCUO XMMEDIATE 2 7 6 5 ~ U E ~ J M / A M C U N S U L JERUSALEM x n n r D r r r e a iss auuMnA/AnEMsAssY JIDDA I n n E o l A T t 7 ~ 1 1 #UCHTV/AMEMBASbV TEL A V I V I M I I E U I A T E O88O dUUMMR/AMCMBASSY TEnRAN IMMEOIATE US77 I3UUMAMfAMEMdASSY MANAMA 3 0 8 6 ~ U O K B T / A M C M U L S S Y HABAT aoer AUUMNS/AMLnbASSY SANA 1 3 7 2 dUOMT1IAMEMBASSY T H f P O L I 7 l 7 6 dUUNKR/AMkMBASbV T U N I S U 5 1 U UUdMZN/USMISSION S I N A I 7 8 5 7 PUUMOH/AMCON5UL OHAHRAN 1 2 8 3 4 U F U G V / U I M I S 5 I O h GENLVA t o 6 7 l4UUMKM/AMEMBAYSY KHARTOUM d B 7 5 AUDTC/A#EMBASSI LONDON 6 3 0 3

RUC~ROIAMSMBASSY ROME 4 7 1 0 RUEnoT/UbMISSION USUN NEW VDd* 6 1 3 2

PAGE 1 C O N P I O E N T I A L

IPJ OF 2 3 0 2

EPARTMENT OF DEFENSE lOl l lCWl lFSOF STAFF

l C S A D f C E l T I n

it D lMII /AMEMBASIY ABU DW IHCR/UIINT OAGHOAO 9 1 IMOO/AMLNBAISY OOHA I iMKW/AHLNBAI8V &UWAlT r n o L i r n E n e r r a v BONN O ,KJCI/ s s c o ~ r r r rnoc ,KJCII JCI w l e n o c as* , A l I A / C I A WAIHOC ? I ? ,ADWYI NSC WAIHOC 115

I T C O N f l O E N T I A L

L IMITED O f f I C I A L U I L I E C T I O N I 3 OF 88 8TATE 81OP84/8S

ClNCgUR FOR POLIO, TCL AVIV FOR PAD, OCLIVCR BY 9 A.H.

I Z L I T S ARHEO CORCEI, WHICH HAVE PLAYED AND WILL CONTINUE 1 0 PLAY AN IMPORTANT ROLE I N IRAN18 DECLNSCb COLLOYING rrrrxrn wzrnoRAaAL IN i o ? i PROM A rrccrrL ROLE IN THC P C R I I A I GULF WE HAVE ENCOURAGED COOPERATION 6ETYECN THE 8TATCI O f THAT REGION T o ITRENOTMEN IECURITY THERE. I N C4HT TO COMPSNIATE FOR B R I T I I H WITHDRAWAL, WC LWCANDCD OUR SECURITY A I S I I T A N C E R E L A T l O N 8 H ~ P ~ TME IRANIAN ARNE0 PORCEI I N ADDITION TO HcLPXNo NEIGH8ORlNo ONAN O I F t N O AGAINIT INIURGENCY HAVS HLLCCO PROTECT YE8TCRN ACCCSS 1 0 O I L I U P P L I E R I *

~CONOMIC P R O G R E ~ S AND ITAOILITY. UNTIL RECENTLY IRAN MA1 CONTRIBUTED NOT ONLY I Y PROOUCING O I L FOR THE WORLO'I CNLRGY NEED8 BUT ALIO YY G I V I N G I U B I T A N T I A L . A I D TO OTHER COUNTRIEI, INVESTING IN BOTH rnc o c v a L o r r o rno THE OCVELOPING WOULD, AND PLAYING A IIGNI~ICJNT ROLL m THC

I N INTERNATIONAL DIPLOMACY, IRAN HA8 MADE NUHEROUI C O I I T I V E CONTRlBUTlONI l PEACEKEEPfNG I N VICTNAM AN0 THE IIIDOLE L A I T , IUPPORTING MOOERATL I O L U T I O N I TO CONfLSCTS IN ArRxcA AND E L s e r n e R r , ANO WORKING TO RESOLVE IOWE OF

PAGE O 8 C O N F I D E N T I A L

9EPARTMENT OF DEFENSE JOINTCIUEFS OFSTAF*

MESAGE C l l l E M

PAGC 3 C O N F I D E N T I A L I T S LONG-STANDING O I I P U T E S M I T H N€I@HBORS.

AS A CONSEUUCNCE OF OUR OTHER l N l E R E 8 T S I N IRAN, WE HAVE AN INTEREST A L 8 0 I N I R A N I S INTERNAL OEVELOPMENT AN0 S T A B I L I T Y . I U T I N ANV EFFORT TO PURSUE T H I S INTEREST, *E n u w IN THE F U T U R ~ , A S WE HAVE IN me P r s r , R s s p r c r THE U IGHTS OF I R A N I A N S TO DECIDE HOW THEY SHALL ORDER T H L I U OHN FUTURE.

I F I45 AUE TO IJNO~NSTANO PULLV THC NATURE OF TWE PREBENT SITUATION, HE NEE0 TO EXAMINE HDM I T CAME AIDUT.

MOUERNIZATION. IWAN HAS EXPERIENCED S INCE WURLO WAR 11 NANY OF T n t PRESLURES ANO INTERNAL STRAINS GENERATED B Y MOOLRNIZATION THAT HAVE PROVE0 D E S T A B I L I Z I N G I N OTHER COUNTRIE8. DOME OF THESE PROULEMS ARC F A M I L I A R ONES-- RAPID POPULATION c n b r r n , A MAS~IVE SHIFT or POPULATION FROM RURAL TO UWdAk ARCAS, LARGE NUMBERS OP UNEMPLOYED AND UNOENEMPLOYEO URBAN WORKERS AND ~ T U O S N T S I AN0 A H O 8 l OF owen PNOBLEUS T H A T ARISE WHEN A NATION A S DIVERSE A S IRAN P u s n e s FUU DevLLoPnENT ON A NUHBER OF FRONTS SIRULTANEUUSLY. OF PARTJCULAR S I G N I P I C A N C b I N I R A N H A 8 ULEN THE INCREAYING A L I E N A T I O N BETWEEN THOSE LEAOINO AN0

UENEFITT ING FWOU rnri MODERNIZATION AND OTHER^ w o a e P O S I T I O N I N S O C l t T V AN0 DEEPLY HELO R E L I G I O U S CONVICTIONS ARE T H U ~ A T E N ~ D av IT.

THL " W H I T E RCVOLUTIONMI 1962-65 . BY THE 1 B l e l 8 , l R A N I A N L E A O t R S HA0 UECOUE KEENLY AWARE OF GROWING DISCON- TENT# A SENSE OF D R I F T I N IUAN, AND UEMANDS FOR FAR. PCACHING REFORHS H I T t i I N A MORE BROAOLY-BASLO, RESCONSIVEI NON-AUTMORITAHIAN P O L I T I C A L SVSTEH. I N ORUER TO CHANNEL THESC P U t S S U R E I I N T O CONSTRUCTJVE NATHLR THAN REVOLUTIONARY CHANGE, T H t GOVERNHEN1 LAUNCHEO A PROGRAM OF ~VOLUTIONARV NEPORH AND OEVELOPHENT PRCBSED r R o n r n E TOP AT A FORCED-DUAFT PACE. T H I S *WHITE REVOLUTION" U T # a 2 8 4 ANNUTES c L n ?as P A t E 3 U ( d t l 8 l U l

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N u o n s n t r s e n s r s e r K H A R T ~ U H 0 0 7 4 RUOTC/AMEMBkSSY LONDON US04 n u E M n o l r n E M b r s s r Moscow 5 5 3 2 WUFMNAIUSMISSIUN USNATU I l l 6 RUFNPS/AMEMBASbY PARgS 0 5 3 1 WUrHRO/AMLMBASbV ROME 4 7 5 0 WUfHOTiUSMlSSION USUN NEW YOMI S I S 3

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PAGE 2 C O N F I D E N T I A L HUOMBI/AMEMbASSV AUU O H A b I 2 4 5 4 NUkHCR/USINT BbCHDIO 9 3 9 2 J U O M O D / A M ~ M ~ A ~ Y I DOHA 8 0 3 4 WUUMIW/AMLMB*SSV UUMAIT 5 3 5 5 d u f H o L / r n E n e r s s Y BONN Pa82 H U E K J C I / S tCUEF UAYHDC 2 7 3 0 HUEUJCS/ JCS wASHDC 2 3 8 8 NUEAIIAJ CIA w A s n o c P B P ~ #UCAOW#/ NSC kASHOC l 7 b l WUEHIA/USICA RUSNAAA/USCIhCtUU VAIH INGCN GE ZEN/ARENBASSY ALGI~RS P o u c n UT C O N f l O t N T I A L

CINCEUR FOY POLAOU TEL A V I V FOU PAO, DEL IVER BY 9 A.N.

THB REFOHM PHOGRAMv FUELED DY R I S I N G REVENUES I N THE lOIBl1, QUICKLY UESULTkD I N FAR-REACHING CMANGCSt Sue- STANTIALLY IMPYOVING TnE LIVCS o f MANY CITIZENS BUT DAMAGING THE P O l l T I O N O f OTHERS. LAND R L O I I T R I B U T I O N , FOR EXAMPLE, MCAKENEO THE POUCN OF rne BIG L A N D L O R ~ S AND A L I O IEAWCNLD T i l t CLfRGY, UEHOVING T H E I R INOEPENDENT JOURCE OF IhCOME AN0 MAWING THEM DEP6NDENT ON P R I V A T k OONATIUNS. THE AMUIT IOUS 8CALE O f DEVELOPMENT PROOUCEO A NEY ELZTE OP T n o s E CHARGED n x t n PLANNING AND CARRYING OUT THE NEW PROGYAMS, OUT PLANS UCRC MADE AND IMPLEMBNTEO w1TH L I T T L E P U B L I C CONSULTATION. EXPANIXON I N THE P R I V A T E SECTOR GAVE R I S E TO A NEW CLASS O r ENTREPRENLUUS, # M I L E THE INTEREST O f UAZAAR MERCHANTS AN0 OTHER TRAOI - TXONAL ELEMENTS O f 9 0 C l E T Y WERE NEGLECTED. THERE WEUE INCUEAOE0 O P P O k T U N I T I E S FOR EDUCATION, BUT RESTRICTIONS STILL L I n I T E D T n e PARTICIPATION o f THE N E I L Y E O U C L T ~ U IN THE r o L I T r c r L PROCESS, AND MORE WERE TRAINED THAN COULD BE EMPLOYEO I N P D ~ l T l O N S THEY FOUND REUAROING.

C O N ~ I O E N C E AND GUOMTHl 1963-76 . THE ECONOMIC SUCCESSES OF THE M H l T E U t V U L U T I O N H c A V I L Y OvERSnADorkO THE AflSENCE OF

DEPARTMENT OF UEFENSl: ~ O I * l C ) * l F s O r 11Mf

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PAGE 3 C O N F I D L N T I A L 2:93b A PARALLEL ADVANCE I N THC P O L I T I C A L 8Y8TCM. BY 1976, I T APPEARLO TO NOIT O B S C R V C R ~ DF T n r IRANIAN ~ C E N E rnrr I R A H I 8 APPROACM TO MOOERNI~ATION HA0 PROOUCLO 8UB8TANTlAL PROQRC88. A8 A RE8ULT O? THL REFORM PROGRAM# IRAN MA8 8CINC TRANlFORHED INTO A HOOLRN ECONOMIC COWER. THE FUTURL LOOILO BRIGHT. PRO8PCRITV 8LCMLO Al8URLO TMROUGM MAPIDLY INCREA8ING O f L RLVLNUL8. 8Y $ @ I d THERE WA8 (OLIO ACHILVEHENT, ALTHOUGH LCONOWIC AND POLITCAL OLVLLOPHLNT CONTINULO TO HOVE ON r c p r R r r E v r c u r A T VERY OIFFtRTNT 4PCLDI.

PROBLLM8 AND P R E I B U R E I I L078-71. THE NEW PRDICCRITY 0x0 NOT ENTIRELY MASK PROBLLH$ PROOUCLO sv THC CONCLN- TRATIDN OF P D L I T I C A L POWER AT THE APLU OF GOVLRNHLNT AM0 THC A B ~ E N C L OF POLITICAL I N ~ T I T ~ T I O N ~ T n r T COULD DEAL 1111 THE TRAUMA OF MODERNIZATION. MO8T PROMINLNT AMONG r i t e crurcr or o ~ s s ~ ~ i s r ~ c ~ i o ~ wrie POPULAR ReacNTneNT 0 1 wnrl w r 8 SEEN rr WIOCIPRCAO CORRUPTION, H A R ~ H RCPRLI- I ION, 8OME INEPTITUDE I N HIGH PLAtL8 , 018RLOARO ?OR TME OELP RELIOlOUS FEELING8 OF THE POCULATIDN, IMBALANCC ULTWELN WLVENUEI AND LXCLN8L8, 8MORTCOMING8 I N PLANNING AN0 CARRYING OUT AMBITIOUS PROJLCT8, R I 8 I N G UNLMPLOYHCMT IN THL cxsxrs r s r n E CON~TRUCTION soon ULGAN TO ~U~IIOL, lN8UFFlC lENT JOU UPPORTUNITfE8 TOR CVLR LARGER NUMBCRI Of GRAOUATING STUDENTS, INEOUITABLE OI8TRIOUTXON OF THE BENCr IT8 OF DEVELOPHENT, 8 A C R l F l C E OF C I V I L I A N PRDQRAH8 FOR n I L x T A R v PRODUCRMCNT, AND A nxcn RATE 0 1 INFLATION THAT OUTbTWIPPEO WAGC INCREAaL8 AN0 FRU8TRATEO LXPLCTA- 110N8 FOR A STEADILY R l 8 I N G 8TANDARO OF L I V I N G . T M L l f GRIEVANCE8 AND TtlE AU8cNCf OF P O L l T f c A L OUTLfT8 FOR AFFECTING GDVERNHENT POLICY LEO MOOLRATf 8ECULAR OPPO8I l ION LCAUEUS TO HAUL COHMON CAUSE WITH 8 l Q N I F l C A N T E L i n e N T a OF TnE n u 8 L x a cLenav .

ON UEBPOkIE TO INCREASING P O L I T I C A L FCRHENT AN0 C R I T I C f 8 t l I N 1 9 7 6 ANO 1077, THE GOVCWNMfNl 8PON8OREO CAMPAIGNS AGAINST CORRUP~ION IN Trio PUULIC ANO r u r v r r c BkCTOR8, R ~ O U G A N I Z E D I T S E L F TO CURB WA8Te AN0 PlOMOTE EFFICIENCY, AND G A V E OFTICIAL POLITXCAL P A R T Y A 6 1 M2154 4NNOTES CLH 7 8 5

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CINCEUR FOR POLAD" TEL A V I V FOR PAO, OCLIVCR BY 0 4.8.

GREAIER ROLE NITHOUT I N f R I N G I N G ON ROYAL AUTHORITY. HOVE8 TO IMPROVE THE HUMAN R I O N T I I I T U A T I O N WERE DXRCCTLO AT E L I M I N A T I N G TORTUHE AN0 CXTREMC P U N I I H M L N T I I N THE P R I I O N I AND AMNE8TYINO P O L I T I C A L CR18ONEIB RATHER THAN AT C l T A B L l I M I N G NEn P O L I T I C A L I N I T I T U T I O N I ~ THE GOVERNMENT11 MEA8UREI EVENTUALLY INCLUDCO LNCOURAICHENT OF " C O N l t R U C T I V E C R I T I C I I M n TO PROMOTE C I T I Z C N P A R T l C I P A T I O N I N GOVtRNMCNTr A I WLLL A 1 L F f O R T I TO ILOW OOWN THE R A P I D HATE O f ECONOMIC GROWTH THAT HA0 CAUIES JCVERE OIILOCATIONI IN THE Iocrcrr. rncrc c n ~ ~ o r s , HONEVLW, OX0 NOT I A T I I F Y THE OEMANOS OF LAROC N U M I C R I Of IRANIANS ron A MORE O P ~ N POLITICAL IYITC~.

BY THC CNO OF 1 9 7 7 , I R A N I A N AND FOf4 t lGN OBIERVBRS IAW THLIE aovrs A S me r l n s i REIULTI OF THE o r f x c x A L POLICY OF LIILRALIZING IRANIAN POLITICAL LIFE T M A T nro rtmrco IN 1 0 7 6 1 T H O l E STEPS, HOWEVER, D I D NOT YET INCLUDE MOVEMENT TORARO B A S I C P O L I T I C A L CHANOE.

BY CARLY l 9 7 1 , WIDEIPREAO DISRUPTIONS MA0 BEGUN AN0

SYMPATHY WAS SHOWN BY STUDENT OEMONITRATIONI ABROAD. UY MID-YEAR I T MAS CLEAR THAT A NEn P O L I T I C A L DYNAMIC W A S EMERGING. RELIOIOU~ FIGURLI TOOK tnc LCAO

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PAGE 3 C O N F I O E N T I A L I N E r P R t S S l N G OrFOSXTIUN T O TUE GOVEHNtlENT. T H t 3 t iA t i r'u L O O K ~ N G TOnAnO F k t t ELtCTIONS. UY L A T E AUGUYTr HOWEVER, I T MAS APPAYtNT THAT I h t 6 0 V t R N N t N T HA0 UNOERt8T IMhTCD THE DEPTH OF D I S S I T I S F A C T I O N . A NEW GOVEUNMCNT MAS INSTALL~D A T T U A ~ TIME wnlcn PUOMI~EO r R E E o u n OP A C T I V I T Y FOR LEGITKMATE P O L I T I C A L PARTIES. A PEW OIYS L A T ~ R IT H a s FONCEU T O OLCLARE MARTIAL L A M IN TEIiRAN AND E L E V t h OTHER C I T I t S I N RESPONOE 1 0 MASSIVk OEIIONBT~ATION~. UY T H t t N D UP OCTOBERI YTUIKES AND 018OROERJ HAD BELOHE n IUrSPREAD. O I L PRODUCTION HA0 DROPPED O R A M A T I L A L L Y ~ AND i n € GOVERNMENT APPARATUS W A S CEASING T O FUNCTION. n x T n n r ss I ve RIOTING IN E A R L Y NOVkMO€Ur TUE CHISIS n A o u t con t FULLBLONN AND A MILXTARV GUVtkNMtNT WAY INbTALLEU.

TOOAY. THE S I T U A T I O N I N KHAN AS WE & t E I T AT T H I S dOMCNT CONSISTS UP THE t O L L O * I N G ELENENTSI n IOEbPnEAD S T R I & E 8 AND UEflUNBTRATIONS HAVg BROUGHT THE I R A N I A N LCONOMY TO A NEAN HALTI MLNY PEOPLE, AT L L A S T I N TWE MAIN C f T I t b ~ A n t NOT UCIHnING AN0 ARE SUPPERING SHORTAGES OF KEY connovrrlts. r n t MANRING SYSTEM n A s NOT ~ E E N FUNCTIONING AND P t T n 3 ~ E u n PHOOUCTLUN DOE& NOT n t t T GUMtSTIC NtEUS. A t T l V l b f N E L I G I O U U LEADERS AND MANY MEMBER5 OF THE ~ U L I T I C A L UPPOS!lION HAVE BEEN PRe8SING ron tne s n ~ n . s L $ i n e o r r : t u t r rarune F n o n OR C o n n x 6 ABOICATIUN, THE b H A r HAY L E F T I U A N UN VACATION, A dCPREb€NTAf:Vt NLGENCY LUUNCIL HAS BEEN NAMkO TO PERFOHM ITY CON~TITU:IONAL FUNLTIONS :N THE r e s r N c c or TnE snrn, P W I k t M!NlSTEh 8 n K t i T l ~ u . ~ N t n GOVkRNMeNT r A C i 8 THE TASKS UP R t Y T O n l h L NORMAL L : F ~ I N T H t COUNTRY AN0 RECONCIL ING POLITICAL t c t n t ~ r b T r 4 T n rv t OPPOSED EACH OTnEu.

I h 8HOR1, 1RAH 6 A Y REEN TnUUUGH A DECADE AND A HhLF UP NAPID G R U W T H A M SUC:AL LHANGL YHILC new POLITICAL I N Y T I T U 7 I O N Y U4rE NO: L U U L V t V COMHENSUIATELYU THE P t O P L C f l08T AFCELTLD YY C H A N t t ARL NOll DEMANDING A'GREATEM NOLE IN JETEnIIrNANG I H I N S S FIJTuHE BUT HAVE NOT YET FOUND OkDEMLY * b Y S OF f X P R t b b I N G THEIM V I E W 8 ON I R A N 3 8 d T

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,EPARTMENT OF DEFENSE NIYTCHIEFS OF STAFF

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CINCEUR FOR POLAD, I L L A V I V FOR PA0, D E L I V E R I Y O A.M.

C U T U ~ E COUI~E ANO IHAPING rngxn o r N ~ESTINY.

WHY AN LXPLOLION? WITH MIND8IQHT, THE I T O R V APPEARS O L C L P T I V L L Y CLEAR AN0 B I M P L E r BUT I T I S NOT SO I I M P L C .

I O M L ANALVUTS MOTH I N AN0 OUT O f COVORNMCNT HAVE POINTED OVLU THE V t A R s t o VARIOUI roxnra o r w r r K n r s a IN THE I R A N I A N ECONOHIC, I O C I A L # AN0 P O L I T I C A L I Y I T E M I . 6 1 N I O ~ l O l 6 ~ JUST AS THE LEAOIRSHIP, I N I R A N BEGAN TO NEACT TO OROWINS DISCONTENT# ANALYITB I N WAIHINGTON WERE POINT- I N @ OUT THAT I R A N ' S R A P I D tCONOMIC GROWTH HA0 NOT PRODUCED P O L I T I C A L P A U T I C I P A T I O N TO MATCH AN0 THAT THE GOVEUNMENT UOULO P I N O I T N E C E I I A R Y TO OHARC P U L L T I C A L POWER MORE BROADLY.

S I N C E 1 9 7 8 A NUMDER OF DEVELOPMENTS HAVE RIiXNPORCEo EACH OTHER TO DEEPEN L X I S T I N G O I B S A T I S P A C T I O N S AN0 TO ACCLLEUATE THE CUIIIS IN UNPREOICTAULE WAVI. row o r THOIE ISIUOS HEHE 8 T I a u L A T L o U Y THE V E R Y SUCCLII o r tne ECONOMIC MODERNIZATION I T I C L F . AN ECONOMIC OOWNTURN k l T H SHARPLY INCRkABEO UNEMPLOVMCNT AN0 I N F L A T I O N AOOEO TO OIICONTCNT A8 H E L L A8 TO A POOL UP UNEMPLOYEO WHO NO LONGER H A D A s T A 6 r I n EXIITING e c o N o n r c ACTIVZTY. WHILE tnr IRANIAN G o v e n N n E n t WAI TAKING CERTAIN ~ T E C ~ TO ALLOU

PAGE 2 C O N F X O C N T I A L E l 1 l l l 9 l

f n t t N E X P ~ C ~ S ~ O N OF c H i T i c x s n ANU T O I n P n o v t 176 VCUFOttnANCF I N ~SSVRIN~ HUMAN UlGHTS, B A S I C G R l t V A N C t S U~MAINED, IN T ~ I S C O N T ~ X T , n r s s l v E ANTI-GUV~YNNCNT DEIION~TWAIIONS PNOTLSTING ~ S P ~ C T ~ UF THE s n * n r s PRoGuAn TOOK PLACE I N E4MLY 1078, TMk U t G l N N I N E OF THE CYCLE OF A C ~ I O N ANU CUUNTkHACTIQN TnAT n A s CHARACT~IIZCO T n t I R A N I A N L C E N t b I N C E THtN.

T ~ E 118 tJ td A M ~ A D THE NAIN ISSUE F o r T n e IWANIAN EDVEIN* NENT I d TO € 4 0 T A E BLDOOSHCD AND REBTORE OUOLR 8 0 A NEm NATIONAL CUNC~NSUS CAN n t f a n G E D ON no* IRAN 8HOULU BE GOVEUNEQ AND ~ n r r ITS ~ n I U n I T l t 8 A T HONE AND AUROAD rHOUL0 YE. f H t IMHEOIATE C H a L c E N t L I S FOR THE REGENCY COUNCIL ANO T n t N ~ W CIVILIAN GOVERNMENT T O WIN ENOUGH POPULAR bUPPDkT a 0 THAT T H t V I O L k N C t CAN L k tNOLO AND NORMAL ECONOHLC A C T I V I T Y CAN a t WtSrURtD. I N A O O I T I O h TO ENDING r n t s u t r r n r N b H n l L n P ~ O P L E n r v E ~ X P E R I L ~ ~ C L U I N HECENT MONlMby I ? I S k S S t N T I A L TO CUEATE AN ENVIYONbItNT FUN N A T I O N A L OkL IYERATIONS ON A LONG-TCNH P O L I T I C A L YOLUTION ?OH I R I N ~ b PWOBLLMS.

I N A COUNTNY A5 C U h P L t X AS :kAN QUiC& SOLUTION8 ARE NOT ro BE ~ X P E C T ~ L I . IN A COUNIUY d n a c n n r b BUFFERED su MUCM v I O L ~ N C E , T ~ t f i E * I L L BE NO P A I N L ~ S S ANSWERS. D O n E d l l C P:ACt AND PHOB4dLY C O N b I D k R A b L t TIfiE W I L L U L NEEDLO FOR :US I R A N I A N PEOPLE TO WONK OUT A NEW CONSCNOUd ON T n E l u POLITICAL FUTUR'. X T i s XRPU~TINT TnAT THIS P R O C E ~ ~ BE UeOEkLY. ME OANhUT P H t U I C T nHAT D I R E C T I O N I I A N W I L L Ch0OSE.+ 8UT I R h N I A N S ALONL nU5T M A h t THC UECIS ION,

rnc d U E s ? l u ~ rltisr FHLIIu~NTL.V POSED A ~ O U T ~ n t I N P L I C A T I O N ~ f n E c u u u t ~ ~ c n l s l s IN IRAN :SI 0 0 ME SEE r n E

:NbTAUIL ITY LN IRAN ALUhC u i f F U t C t N T O E V E L O Y H C ~ T S I N A F ~ H A N I S T A N . NOMlt4 AND SOUTH YtMEN, THC nOnN OF AFNICA Ab PAECCS I N A PATTERN OF I N b T A B I L l T Y N h I C H W I L L CkANGE THE P O L I T ~ C I L ORIENTATIOI '~ UF W E 8 T U A T t G I C H IOOLE i A S ? ?

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DEPARTMENT OF DEFENSF JWl CmER Of SlUI

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PAGE 2 C O N F I D E N T I A L H u u n u I / n n c n B A s s y AYU DHAYI 2437 I4U&HCR/USINT BAGHDAD 9883. HUUMOO/AMEMBAIYY DOHA eeat u u u n n * / r n e n e r s s v K U ~ A I T sass UUFHOL/AMEHBASSV YONN 1388 a u t n J c s / SECOEF w ~ a n o c 2742 Y U E I J C I / JCS NASHOC 2 5 0 1 r I U E A I I A / C I A HAlHOC 2028 9UEAOWw/ N5C WASHOC 1755 d U t H I A / U S I C A HUSNAAA/U8CINCEUN V A I H I N G E N CL ZEN/AMEMBAIS I ALGIERS POUCH 8 T C O N F I O t N T I A L

L I H I T E D O f F I C I A L U8E SECTION I 7 OF 00 I T A T C Y12264/ I7

CINCEUR FOR POLAD, T E L A V I V FOR PAOI O C L I V g R @Y 9 A,#.

fOUU P O I N T 8 NhEO TO BE 8 T A T E O l

f I H S T , WE 8 OF COURSE, RECOONIZL THAT FUNOAMSNTAL CMAN6EI ARE T A ~ I N G PLACE ACROII rnrc AREA or wcatcrn rrar AND NONTHEASTEUN AFRICA--ECONOMIC MOOKRNIZATZON~ I O C I A L CHANGE, A R E V I V A L OF REL IGION, RCIUROCNT N A ? I O N A L I I H , DEMAND8 FOR OROAUER POPULAR P A I T X C I C A T I O N I N THf P O L I T I C A L PROELIS. T H S I E CHANEEa ARC SENCRATED #Y FORCE8 d I l H I N EACH COUNTRY. WE M U I T O I I C E R C N T I b T O YETWEEN THER ANO nesasr THE IMPULSE t o OVSR~IR~LIFY. ccononlc, IOCIAL, AND POLITICAL OEVLLOPMLNT ARE C o n C L c x PROCLIIC~ wnlcn wr S T I L L OO NOT FULLY UNDERITAND. OUR P O L I C Y I N THE FUTURE A S IN THE P A S T am rerns WILL BE T O WORK ~a WE CAN Y I T n THE COUNTRIES UNDERGOING THEdE CHANGEI TO HELP THEM F I N O CONSTRUCTIVE SOLUTIONS AN0 TO EMERGE FROM P E R I O D 1 O r CHANGE N l T H NEW STABILITY. AS LONG A 8 T H C I C NATION8 ARE 6LNUINELY INDLPENOENT AN0 FREE TO P U R I U E THEIR ONN POLICILS WlTtiOUT INTIMIDATION, tnra WILL CONTRIIUTE T O T n k ~ I N D OF NORLO N n I c n Ir THE GOAL or rnc U N I T E D $TATE8.

J k C 0 h 0 1 I N S T A B I L I T Y I N ANY COUNTRY I N A 8 T R A T L G I C AREA BECOMES A FACTOR I N GLOBAL POLIT ICO. YL ARE I N CLO8E TOUCH N l T n OUR FMIENDI ANO ALLIEI IN t n r n z o o L E EAST

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DEPARTMENT OF DEFENSE MINTCWl tFS OFSTAFF

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VAbE 2) C O N F I D E N T I A L ANJ t ~ S t u H t R t ANU snrnt rn t rn CONCERN THAT m e SULUTION J F THE P R O U L t h b I N I Y I N NOT I N C R E A I L THE DANGER TO THCIN OWN I N D t P E N O t N C t . WE M I L L CONTINUE TO WORK WITH ALL OF THEM TO M I N I M I Z E T n A l DANGER. WE W I L L CONTINUE TO M 4 K t C L t A n OUR V I t Y THAT WE 8HAR6 WITH THEM THE OUJEC- TIVES OF A ~ S U Y I ~ G THL s T A e I L I t v , THE stcuaxrr, ANO THE NATIONAL INOLPENIENCE OF E A C H NATION IN T n r AREA. YE BELIEV~ uun c o n n o r ~ u ~ r o s r MILL PROVIDE THE BASIS FOR fUUTHER CLOSt COOPERATION.

TYIUO, OUU P U S I T I O N I N T H I b STRATEGICALLY IMPORTANT AREA d I L L R t M A I N 5TRUNG OVER T H t LONG RUN A8 LONG A l HOST OF T H t C O U N T H l t b T H t M t ARE ALLOWED TO PURSUE T H t l R OWN P A T H S T O U ~ V ~ L O P M ~ N T ANU PHOGUESI FREE rnon o u r s g o € I N T ~ U F ~ Y C N C E . uun n t s p c c r FOR oxvt rs I rv ANO PLUHALISH,

OUR CNCOUUAGtMtNT OF HUMAN f'HEkOOM8 AN0 L I b E R T I E S , THE A Y P t A L U f wEbTtUN ECONOMIC AN0 T tCHNOLOGlCAL STRENGTH, ANU oun OELJICATIUN TO DtMOCRATIC P R I N C I P L E 8 ALL CVOKE 4 3TMONG R C S O N A ~ C E AMONG THE PEOPL68 AN0 N A T I O N 8 THROUGW- OUT THE ARtA, THEY ALbO &NOW THAT WE ARE PREPARED TO s u w u n l T n E I n UWN ~ F F O R T S T O STRENGTHEN Tntzan u r r E n a I v L C A P A b I L I T I 6 S WITHOUT SEEKING A S P E C I A L P O I l T X O N F O n O U k S L L V t b TUAT THkY UO NOT HANT.

FOUItTH, THE LnANGES ME AUK w I T N E I 8 I N G ACUOIa T H I S AREA OF N tSTERN AbdA AND N O ~ T H L A S T E R N AFRICA CONTAIN THE SEERS OF PUClbWESb AS W t L L AS T H t CAUILCI Of C R I S I I . SOME PARTS OF T n x h r R t b AN^ AHONG ~ n t rrstcrr cuorxnc ANO R~IOURCE- n I t a NATIONS OF ~ n t r o n L u . s o n E A ~ E AMONG THC nos1 T R A D I T I u N A L AN0 TMt POLJWEYT. THE CHALLENGE HC AND OUR F U I t N U L FACL I S MOW TO S E I Z E THC OPPORTUNITY TO CHANNEL CHANbt IOWANU CONSTRUCTIVC R t S U L T S -- NOT S I H P L Y TO REACT TO I T AS 4N UNUtkCOhk SOURCE OF I N S T A U I L I T Y ANO CONFLICT, :N SAYING THIS , Wk UO NUT H I N I M I Z C THE UANGEUb POU AMtn ICAr r I ~ l t w t s ~ s , nu1 UE WANT ALSO TO KEEP OUR b I b M T S ON u i iAT * I L L dE THE I N T t R E S T I O f THE PEOPLE I N T H I S AUtA.

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PAOC 2 C O N F I D E N T I A L w u m u I / A n i m e A s s v ABU DHAMI 2 4 3 8 dUEHCR/USINT BAGHDAD 9396 n u u n o o / A n E n B A s s v o o n h s e a e dUOMKW/AWtMBASSY KUWAIT 5 3 5 7 RUFHOL/AMEMBASSY BONN 2 3 0 1 RUEWJCS/ s t c u E r MASHDC 2 7 4 3 YUEUJCS/ JCS * A s n o c 2 3 0 2 WUB!IIA/ C I A mASHOC 2 0 2 0 N U E A D W W ~ NSC WASnoc 1786 ~ U L n I A I U I I C A AUSNAAA/USCINCEUK VAIH INGEN b E ZEN/AMEMBASSY ALGIERS POUCH 8 T C O N F I D t N T I A L

L I ~ I T E O O F F I C I A L USE SECTION BB OF 0 Y STATE l l 2 2 b l l 0 8

CINCEUR FON POLAD, TEL A V I V FOR PA00 DEL IVER BY S A.M.

d.8 . P O L I C Y I

U . 5 . P U L I C Y 1 O r A n O I R A N HAY BEEN BASLO ON THREE CONSIS- TENT PRINCIPLES A S EVENTS THERE n A v E EVOLVED O V S R TnE PAST SEVERAL MONTHS1

is WE H A V E n e P E A t E o L Y MADE IT CLEAR DECISIONS AFFECTING THC FUTURE OF I R A N AN0 THE RELATIONSHIP BETWEEN THE I R A N I A N PLOPLE AND THEIR GOVERNMENT ARE DECIS IONS ~ n z c n nus1 e E n r o E IN IRAN B Y IRANIANI, YE ~ E E K NO ROLE I N D E C I D I N G THOSE QUESTIONSt AND WE CONI IOSN ANY EXTERNAL INFLUENCE IMPROPERm

2, t n t U.S. GOVLRNMENT AS wonn~o r r r n x N TnE INSTITU- T IONAL FRAMEUOKK OF I R A N UND6R I T 8 CONSTITUTION WITH rnr DULY e s r A e L r s n r o r u T n o n x T I E s OF IRAN AS SPECITILO I N THE I R A N I A N CONSTITUTION. THERE ARE CON1TITUTIONAL PROVIS IONS FOR CHANGE, AN0 WE SUPPORT THE D E C I S I O N S OF TH6 I R A N I A N GOVEKNNENT WHEREVER AND HOWEVER WE CAN APPROPRIATELY Mk HELPFUL.

J, WE MAVE SUPPLIRTEO I R A N ' S INDEPENDENCE. WE HAVE TAKEN T n e P O S I T I O N NO OUTSIDE POneR ~ H O U L D EXPLUIT I N S T A B I L I T Y I N IRAN--OR ANY OTHER COUNTRY--FOR I T 8 OWN

PAGE 2 C O N F I D C N T I A L

DEPARTMENT OF DEFENSE ~ I l l T C H l t R O F S T U F

r r x r s r ernrm

FAGE s C O N P I O C N T I A L ADVANTAGE. THE OVERRIOING AMERICAN OBJECTIVE FOR I R A N I S

SIMPLY tnrr IT SHOULD nrve ma r R s s o o n T O WORK OUT IT^ OWN FUTURE f U E E PROM SUCH XNTCRfcRENCC.

THESE P R I N C I P L E S HAVE BEEN APPLIED CON818TENTLY THROUbHOUT THE LAST VCAU O f TURMOIL I N IRAN, AN0 THEY WlLL CONTINUE TO BE OUR G U I D E L I N E 8 I N THE FUTURE.

d I T H I N THE GENERAL CONTEXT OF THOIE P R I N C I P L E S WE HAVE P u a r u E o T n m r K E Y OIJECTIVES~

F I R S T , WE HOPE TO SEE THE EN0 OC ~ L O O 0 8 M C 0 , 8 0 THE PEOPLE OF IRAN CAN UETUNN TO NORMAL LICE. ONLV I N rucn cmcun- 8TANCEB CAN T H E U t BE RATZONAL D18CUS8ION OF A POLITXCAL ~ O L U T I O N TO I R A h ' S CURRENT PROBLEM^ WHICH WILL RE8TOUE S T A B I L I T Y THERE. WC W I L L ENCOURAGg A L L PARTIE8 TO 8ECK POLITICAL ENOO BY PSACSPUL MEANS.

ICCONO, n E WANT T O MAINTAIN A c L o 8 e ANO PRIENOLY RELATION- S H I P ~ X T H AN INDCPCNOENT, STABLE, AN0 8ECURC IRAN. WE dELXEVE THE INTERE8TS OF I R A N AN0 Q r THE UNITED 8 T A T t 8 ARE CLOSELY INTENTWINLO, AN0 YE 8COU AN ENVIRONMENT O f MUlUAL R U P E C T AN0 P O S I T I V C COOPeRATION. WS BEL IEVE r n g s WILL ~ E ~ I V E T n f I N T C R E ~ T S OF IRAN, OF T n k UNITED STATES AND OF T n e mer WORLD.

THIUO, ME * ~ t u c STAYLE AND P R U ~ P E R O U ~ IRAN nnxcn CAN PLAV I T S R IGHTFUL ROLE I N THE n L G I O N AND THE INTERNATIONAL COMMUNITY. ME ARE PREPAWCO T O HELP IRAN--ON THC TgCnNICAL LEVEL, ON T H t GOVERNMENTAL LEVEL AND ON THE J I P L O h A T I C L t V E L - - T O RESTORE I T 8 PRODUCTIVXTY AND TO 4 E C A I N THE INTENNATIONAL CONFIDENCE I T HAS €ARNE0 OVER T H t PAST DECADE. THE RESUMPTION OF MAJON O I L 6XPORTI NILL BE IMPOUTANT eotn T O THE E c o N o n v OF IRAN AND TO THC ECONOHY OP THk WUULO.

dE B E L I E V E T H A I THESE OBJCCTIVLS SERVE NOT ONLY THE I N I E U E S T S O f OUU OWN CCIUNTRV BUT A L 8 0 THE INTERE8T8 O r d T a 2 2 5 4 ANYOTES CLn 7 2 8

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,PARTMENT OF DEFENSE mNT CHIEFS OP OTAfF

MESSAGE C l N l E 1

PAGE 2 C O N F I D E N T I A L ~UUMLI /AMEMBASSY AUU onrrx a rao t tUEHCUlUSINT UAGHDAO 9 5 0 7 #UUMOO/AF~EHBASSV DOHA 8 0 3 0 n u r n t t r / r n c n e r s s r KUMAIT s 3 5 a t tUfMOL/AnEH0ASSV BONN l 3 Y 7 R U I i K J C 8 l I E C U E F WABHOC a 7 4 4 a U C L J C I / JCS WASHOC 2 3 9 3 W U L A I I A l C I A UASMOC l D S B I ~ u E A O ~ N / N I C WAlHOC 1 7 9 7 a u E t i I A t u s x c r WUJNAAAlUICINCEUU V A I H I N G f N GL LEN/AMENBA#IY A L G I E R I POUCH a T C U N C I O E N T I A L

LIMITLO OFFICIAL use F I N A L s e c r x o N OF IO ITATL e t g a ~ 4 t e e

CINCSUR FOR POLAD, T f L 4 V I V FOR CAO, O L L I V E R 8 Y 0 A.M.

rnk IRANIAN PEOPLE, w f 1lELIEV.k THLY O f f E R A CRACTlCAL B A Y I S FOM COOPLRATION.

I R A N I S I N THE M108T OF A HAJOR I O C I A L C R I I I B . WE HAVE NO I L L U B I O N S THAT T H I S P R O C E I I WILL BE RL8OLVCO SA# ILY , ANU IT w o u L o s E n v E NO PURCOIL FOR US TO 8CCCULATC ON FUTURE T W I I T 8 AN0 TURN8 Of EVENT#.

- - f I R 8 1 r n t BOTH HAVE 8TRONG R L L I G I O U B HERITAGKB. THE PEOPLE O f 6OTH CUUNTRISB B C L I L V L I N TMK IMPORTANCC O f A Lire THAT IS culoro UY HORAL r R r N c r r L r 8 . we e r L x r v r THOIE PWINCIPLES MUBT GUIUE A GOVLRNMKNT THAT I B TRULV JUST*

.-SLCONO, WE s n A n c A e v L I r r IN T n r RIQHT OF T n c PEOPLE ro E x P R E ~ S T n E n I E L V L 8 P O L I T I C A L L Y THROUOH I N # T l t U T I O N # CON~TITUTEO uv Trim. WE IOTH UCLILVC T n l T IT 18 FOR THE IRANIAN PEOPLE T O orcroc now rnrr wru ~ O V C R N

1)EPAKTMENT OF D E F E N S E JOINT CHIEFSOF S l h R

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PAGE J C O N ~ I D E N T I A L 2.3848 THEMSELVES~ JUST AS IT 18 FOR T n e AMERICAN PEOPLE TO CHOOSE T H E I R OWN GOVERNMENT.

9-THIRD, BOTH OF US BEL ICVC JN THE USE OF OUR NATIONAL HEALTH FOR THE BETTERMENT O f OUR PEOPLE. THE U N I T L O SThTEL RLNhXNS k I L L I N G TO HELP I R A N DEVELOP THE POTENTIAL O? TkC COUNTRY,

- r C l h A L L Y , BOTH AMERICANS AND I R A N I A N S WANT TO SEE AN I R A N THAT I S TRULY INDkPENDCNT. WC HAVE NO A 8 P I U A T I O N TO DICTATE THE P O L I C I E S OF THE I R A N I A N GOVERNMkNT.

ON THE B A S I S O f THESE SHARED V ICHS AND OUR CUNMON INTEREBTS, WE M I L L MAR€ EVERY €?PORT TO AIYURE A CONTXNUCD CLOSE RELATIONSHIP BETWEEN THE UNXTCD S T A T f S AN0 I R I N .

I N L O O L I h E T O THk FUTURE, THE U N I T T D 3TATYS W I L L CONTINUE TO WORI WITH THE LEAOERS OF I R A N I N T H E I R EfCORT TO CONlOL lOATE THE C I V I L I A N GOVERNMENT WITH COPULIH SUPPORT ?ON NESTOHlNb ONDER AN0 NOUNAL L X f C AN0 U U I L D I N G A SOUND P O L Z T I C A L FOUNOAI ION FOR IRhNPS CONTINUED PROORES8 AND INOEPENDENCk. VANCE U T I 2 2 0 4 ANNOTtS CLH 7 2 5

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COFENBAJEN

1. ( C ) ENTIRL T E S T .

2 . CllVYARY: MEA C F i I C L ' Oh! J f U r J A i i Y 26 i R O B I i J L i l [IS r i I T d A A E I I E b OF FRENCd FO3I:ICN EtIl jISTXA FaAhC3IS-I.ONCk;T'S Phi!" JANCARY 23 V I S I T TO C7Yr.NHAGLN. T C P I C S P I S C U S S E 3 IhCLl 'nED T!.P i,:UROl'ZAN NONiTI i iY PYSTiM (I::) AlvU -

FYC/YO':ETAR? COKPLASATION AMOUNTS (MCA) L I T i A G E , T116 K C C~UNCIL/PAP.LII?!ENT BUDGi"1 P I S P u T E , DISARPA- N r Y T , 19AN AND I T S 1MPLI ;ATIOVS FOR A 14IDCLE LAST S E T I L E - "h?, ANU ItiDO-CBINA. L N D SUXFAHY.

:. F?ENCB FOHEION MINICTEH FSAY7OIS-PLICET AARIV6D 4 T'! i F h 3 I N I ; J A h L A R I 73 A!vP L E j T AT 12:C*.) FU ' I , ! ! : SXPlF ?;I:?*. V I S I T $ A S ONZ C F A S?IiI: 'S .!L I S :'A!~riTA..IMC '.'@:.L.:kIb!C H I S APF 'OIETML~~?. I r1T. r . 1 N COPi i ;nhGaM, :i.- " P C 4 + A T , ? "CU3 Y I P T I N G * I ? V LP:II!.r: k'C'?;.I(;h M l , 4 I S T & a :IEuNING L . ' I $ ' T . I F F ~ , s ~ ~ ~ 4hl A VhHY I'Lb 01: . K O F k I C I h L C , F b I L C I I I I BY P. YOR; Iti; 3I l lh l 'P H O S l P D bY r . r 9 1 S W f F i : i l S i l i .

- . . .. I ~ h : I tic , r r s , L I V . 4'::: C Y V G N t l b i Y CPIPL:USX?. IOH I::,)lih.!'S 'Tr) IkkLI;C5ATIO'! 31 - ' i E Y f , AN2 T ~ L L DI'?CII: I,? ? ' r . i r i 1 H i : LC COJNCIL A N 9 T 5 i ' r I R ( 8 P i A Y T A ~ L I A Y L ' ~ ~ . ) \ r z TLL BUDGET. VFA 3?II!:1'3 LAID T!'RT T':? DAiiaC S 4 l "?IS-TG-EIL WIT? T ~ E I . ? V I S I T 0 3 0;. T B E S E I S S U S S .

5 , TI'S WOi('IN3 D I N N F 3 k A 5 " M S H ? D J E j N C R P d A I Y ~ D I I ~ ; . " T " b6W 7 i i E B C k ?ORLIEN Ml ;J ISTER S P 3 i E 33 ? I S 23VEi ik- t! v I ' S !~,iOl'OZFD C O N F 2 1 ' Y C F Obi i ! I F A R I l b M ~ h P I I iil ' OP:; ( C I L I ; T F ? D T S I I A T I O Y I N ~ , ( i . ) i : IZL LATTER'S I I ? P L I C A T I O ~ * S

C O N F I D E N T I A L

PAGE T Y O C 0 N F I D E N T I A L 19;

'J(!8 I P?IC EAST SETTLEMENT: ANC T h t SI'CCATION IN SPUTi;TAST ASIA.

A . ON TPS CDL. FRANCOIS-PONCET PUT PRIMARY EYPHASIS Oh PPTNCIPLPS !TNDERLYItJG TBP PRCPOSAL-4.6 . . TBE RIGHT ny LVFaY CDUNTRY T 3 ASSURE I T S OWN SECURITT. KF CON- FIHIISD THAT CONYLNTIO:.lhL FOrCPS d E 9 E TO bi: ADDilESSE3 F I E S T AKD FVPBASIZED THE IMP'IRTANCE OF S4TISFACTORT PfiOVISION FOR VERIFICATION. 91 IHDICATETI THAT TdE FRENCh ' b l B R E PdEPARED TO 81 PATIENT ABOUT PROGRESS TOWARD CONV'qSING SUCH A CONFELENCE (BE DREk' A PAhALLLL 1'3 ThE 19-15 YPARS ThAT THE USSR DEVOTID TO FU?.S!:IWL: T:'r'IR PROPOSAL 1 0 9 A CPCF) .

R. FSANCOIS-PONCET dAS P E S S I M I S T I C CONCESNING IRAN'S gUrORE AXD SPOIK OF L I K 6 L T " INSTABILITT AND A9AQ"BT . HE WAS CONCERNED T:IAT, AS A RbSULT, EUROPS WOUL9 L A T T i l IN THE TSAR SXPERI2VCE D I F F I C U L T I E S IN C I L SlrPPLT.

C . TEE FREKCE FOREI;# MI61STFi t BELIEVEn TFAT EVPNTS I k I?AN SERVEC TO INCHEA$E TEE FEELINZS 3 1 INSECURITT IN I S S b E L AND EGYPT. ISRAPL, CONCERNED INTER ALIA K I T H FUTCISE U I L S L ' P P L I : . ~ . ~ 0 1 1 ~ 7 B E L a s s P L E Z I B L E I N CONC!,VDICG TEE B I L A T E R A L ~ A C R E E M E N T V I T Y E G Y P T - A Y D LYSS t I L L I N G T O , T I E L D TZRhITOHT I T PRZSENTLY OCCUPIES. RiIG!'TEE;ED INSECURITT WOULD l L S O RENDZR MORE DIFFICULT CONCLSUION OF 'PHL BROADEK Y I P !APT SITTLIYENT Pt4YI:AbED AT CAMP CAVIC. FRANCOIS-POdCET SAID TnAT TLv,5F CIRCUYSl'ANCES COMPLICAPZ D?:FINITIOS OF AE BC ??:.T:IR? I F ?RE ISRAELI-4iYPTIAY AGREEYLNT I S CONCLUDED. !'t3 .41;DP? T!!AT ~ o i l d UOKTLS ASO T P E EC COULD s r n P L r E A V G AFPLAUDED CONCLUSION OF TRLAT ACRLEMFNT BUT NOW THP ATPIICPRIATF EC RESPONSF #AS UhCLEAR. (LPFASST 3FFICER PqhSSBD FOP 1LABORATION OF T L I S REMAR,. 9UT MFA OFFICLB ZXPLIIIh'D T4AT NONE WAS C I V l N AT THL DINYFR.)

?. Oh IhDO-CPINA, THE FREICH FOREIGV MINISTER TOOK A P O S I T I O N W B I C A M I A O F F I C L . ~ C ~ A R A C T E R I Z E D AS T H E s A n a L I N E j S TFL U.S. AND DANF? ARE TAlIYC: 1.P.. TPP V I r T h A M F S I PRESENCE IN EAIPUCPFA WA5 UNACCTPTABL4; ?O*F AID SANCTIONS ARE I Y I I I C A T F ~ , BUT T:L DOOR SBOULD 'i L i l T OPLh TO9 THF VIETNAMLSZ I F THt'T REPILT-- TYE V I i T ~ A K * . b F St3ULD IlNDEfiSTAN3 THAT THE WEST RPMAINED A "POTLNTIAL PARTNGR . WANSLEL FT u 3544

0. LABCR - 4 0 D E b I N I T E r 'LANS HAVE PEEN ITORI tILAlL'D 1 0 OFA!. :'LA:( iklE QUESTIGII O F HOW T O HANDLE T H E LABOR Q U E S T I O N DEYOllD I .t 1 STUDES CONCERNING I N C R E A S E D B E N E F I T S AND S O C I A L S E R V I C F S PcJR Th E UOR '(i !:Q FORCE.

C. INDUSTRY - l (HOMLINI AND H I S ADVISGHS Alt! Sb111 ' I CiOOTFMPLATINQi THE N A T I O N A L I Z A T I O N O F ALL MAJOR P R O D l I C T l V E ci f S I I I T i E I R A N I A N ECONOMY. B U S I N E S S E S BELONQINO T O B P H A I ' S P A R Y 1 t ~ L A h 1 . y THE M A J O R ~ A P P L I A N C E I4ANUFACTURER "ARJ", IS PROMINENTLY C I T b O 114 T H I S F :SPECTI W I L L BE T H E S U B J E C T O F S P E C I A L ATTENTION. NO REFI. ?LPI IS i ud 1 7 i l THE I J A T I O N ~ L I Z A C I O N WILL BE C A R R I E D OUT OR HOW I,I.?:O:~I,~!: .' I)

tOl !TROLS 'OF THE P R 0 3 U C T I O t I SECTOR O F THE ECONGIIY W l l L LIF ~ : l r ' L , . ' :.I D !IRE YET AVAILABLE.

D. BANKING - I N ACCORDANCE WITH I S L A M I C P R I N C I P L E S , D:' * S l I L L NJ I JNGEIJ OPERATE I N ACCORDANCE W I T H ACCEPTED Y E S I F - N F R A C I I C E S 1t8'U

i I t l T O 0 WILL BE N A T I O ~ I A L I Z E D I BANKS WILL S T I L L LCAN MOllkY, JlJf 11!1 I. i r CHARGE. I N T E R E S T , SHARING. I N S T E A D IN THE P R O F I T S O F T I 0 .lL,:-

i t I S E THAT THE LOAN F I N A N C E S AND ABSORBING PllY L O S S k S . PGl I C I t S 1&'? !7D S t V I N G S AND OTHER BANK TRAEISACTIONS REMAIN T O PI. t b z f ~ t I i

3. (SOURCE CiIMfiENT: T H E ECOl tOHIC T H l l t K I N G O F Hli)r t l 1 4 I '+bD H I S 3 ' ITSGRS REMAIIIS VEilY I t r P R E C I S E AND WHEN P R E S S E D P L d C E f A I L 5 , ' i>C~i

I : 0'1 THE ISSUE OF HOW A ! I A T I O ~ I A L I Z A T I O ~ I P R G G P ~ , I ~ ~ D ~ I D E r a m l r n , T H E ADVISOSS I : - s p o t D T H A T T H F DETAILS W I I 1. 0 ( * - 3 our. nuon i l l E T H I N , ( I N G AI . 'LARS T O B E NAIVE A I D IIAY ( 1 I 1 C t ~t 1, ,. ,

r L 5L MEN HAVE TO LISKE HARD D E C I S I O N S t 7 G U T TI IE t C L 1l1,Y ' l iD I T , I ~ L u U C T I V I T Y . )

4 . ACC!.: I R h N , TEHRAN ( 4 FEBRUARY 1 9 7 9 ) . F l t l 0 R ~ Z c 3 i ;!O.: l . I T - 1 0 , 4 3 8 .

5 . F I E L D DISSLM: EMBASSY AND ECOIlOMIC CO(IIt~:Ei c A f l b ~ r n 13. !r711T TO P A R I S , W!VAIT, J I D D A , ABlJ D H A B I , CEIPIAN, C P I 0, T F L A ' J I V , E A.iAlIA, MUSCAT, hLW DELI41 , M B U L , ISLAMABAD, YARACH ( ? R I ttCI?:l. ( S F I C E R S ONLY).

? fP3PT C L A S S S E C R E T WARNING N O T I C E - I N T E L L I G E N C E SOURCES &NO X f i { i O S I N Y O L M O - WOT R E L Y A S A B L E TO FOREIGN N A T I O N A L S - HOT R F L E P S A S L 4 T O CDNTRACfORS Ca COrIT3ACTOR/O)NSULTANTS - D I S S E P I I N P l lc l l AW3 F Y T J ~ A C ~ I O N OF I t r i O R N A T I O H CONTROLLED BY O R I Q I N A T O R . RVW ( ~ > ~ E 0 9 3 - DRV D9C. 1 BY RECOFDED REPOHTI NG O F F I C E R . ALL . PATIC S cAfi 1 Y C L A S S I F I C A T I O I J S AND CONTRSLS OF-0VERAI.L DOCUkElri' .

CONFIDENTIAL

What Went Wrong in Iran?

Stanley T. Erudcro

T h r o u g h o u t t h e pos t -war p e r i o d a n d p a r t i c u l a r l y s i n c e 1953, t h e United S t a t e s main ta ined a n e x t r a - o r d i n a r i l y i n t i m a t e r e l a t i o n s h i p w i t h t h e S h a h o f I r a n and h i s r e g i m e . W e w e r e i n s t r u m e n t a l i n t h e o v e r t h r o w o f l e f t i s t h a t i o n - a l i s t P r e m i e r M o s s a d e g h a n d t h e r e t u r n o f t h e Shah f rom h i s b r i e f E u r o p e a n e x i l e . We s p e n t s e v e r a l b i l l i o n d o l l a r s i n v a r i o u s b i l a t e r a l a i d p r o j e c t s , many o f which were w e l l conceived and much a p p r e c i a t e d . Based on o u r s i m i l a r r e g i o n a l s e c u r i t y i n t e r e s t s and I r a n ' s c a p a c i t y t o buy, we he lped I r a n b u i l d i t s e l f i n t o t h e predom- i n a n t P e r s i a n Gulf power. We had t h o u s a n d s o f m i l i t a r y and c i v i l - i a n a d v i s e r s a n d t e c h n i c i a n s i n t h e c o u n t r y . We were b a c k i n g a s t r o n g a u t o c r a t who w a s f a r - s i g h t e d e n o u g h t o p e r c e i v e t h e need f o r n a t i o n a l development and, a p p a r e n t l y , c o u r a g e o u s enough t o t a k e t h e l e a d i n t h e k i n d s , o f n a t i o n a l e c o n o m i c a n d s o c i a l re forms which would l e d I r a n i n t o t h e 20th Century . The list could g o o n b u t , i n s h o r t , we had i t made.

Yet when I r e t u r n e d t o T e h r a n i n November 1978, a f t e r a n absence of 3-1/2 y e a r s , t h e Shah was on h i s l a s t l e g . American o f f i c i a l s were t r a v e l l i n g i n armored v e h i c l e s w i t h armed g u a r d s t o p r o t e c t them, n o t a g a i n s t i s o l a t e d g r o u p s of t e r r o r -

S t a n Escudero s e r v e d two t o u r s i n I r a n ; t h e most r e c e n t a TDY a s s i g n - ment l a s t November-January. He is c u r e e n t l y i n IO/UNP.

ists, b u t a g a i n s t mobs o f o r d i n a r y I r a n i a n s . The Embassy and o t h e r U.S. a n d GO1 i n s t a l l a t i o n s w e r e p r o t e c t e d a g a i n s t s i m i l a r t h r e a t s by t r u c k l o a d s o f I r a n i a n s o l d i e r s w i t h a u t o m a t i c weapons. Even s o b o t h t h e Embassy and o u r Consul - a t e i n T a b r i z were a t t a c k e d and t h e g r o u n d s o f t h e l a t t e r w e r e o v e r r u n . L a t e r t h e E m b a s s y i t s e l f w a s b r i e f l y c a p t u r e d . V i r u l e n t a n t i - A m e r i c a n . f e e l i n g s w e r e s w e e p i n g v i r t u a l l y e v e r y s e g m e n t o f I r a n i a n s o c i e t y , and many o f t h e s t r e n g t h s o n which we had b a s e d o u r p o l i c y had become l i a b i l i t i e s . The s i t u a t i o n grew f a r worse a f t e r t h e S h a h ' s d e p a r t - u r e i n mid-January and t h e t h r e a t of renewed and he ightened anarchy is v e r y r e a l .

C l e a r l y o u r l r a n i a n p o l i c y , w h i c h h a d s e r v e d u s w e l l f o r o v e r 30 y e a r s , had become i r r e l e - v a n t and i n many ways h a r m f u l t o o u r i n t e r e s t s some t i m e b e f o r e t h e f a l l o f t h e S h a h . I t i s l e g i t i m a t e t o a s k what went wrong and why, w i t h a l l o u r a s s e t s i n I r a n , we d i d n ' t s e e t h i s coming.

A c o m p l e t e d e s c r i p t i o n o f t h e . v e n t s a n d f o r c e s w h i c h l e d t o t h e c o l l a p s e o f t h e S h a h ' s dictatorship w i l l b e t h e s u b j e c t o f s c h o l a r l y d e b a t e f o r some t ime t o come a n d , i n a n y c a s e , i t i s w e l l b e y o n d t h e s c o p e o f t h i s Imper . However, i t c l e a r l y was t h e r e s u l t o f a g t h u i n e i n t e r n a l r e v o l u t i o n r a t h e r t h a n e x t e r n a l l y r ~ r c h e s t r a t e d u n r e s t . ' R a t h e r s i m p l i s t i c a l l y s t a t e d , t h e Shah ' s system o f r u l e depended upon a f i r m hand a t t h e t o p sup- 1 , o r t e d by a r u t h l e s s s e c u r i t y mechanism and t h e f i n a n c i a l c a - v a c i t y t o r e d u c e d i s s a t i s f a c t i o n t h r o u g h d e v e l o p m e n t p r o g r a m s , o u t r i g h t s u b s i d y , a n d t h e c o - g ~ p t a t i o n o f t h o s e who might o t h e r - r l s e h a v e o p p o s e d t h e r e g i m e . r e a r s o f r e p r e s s i o n , c o r r u p t i o n , mismanagement, sycophancy, hollow ~ r r o m i s e s , and j u s t g e n e r a l i n e f f i - t i e n c y w e a k e n e d b o t h o f t h e s e ~ ~ I l l a r s o f t h e regime and b l i n d e d many I r a n i a n s , who a r e c y n i c a l and d l a t r u s t f u l o f t h e i r government i n any e v e n t , t o t h e many s i g n i f i c a n t and wor thwhi le accompl ishments of I m p e r i a l r u l e . R a p i d m o d e r n i z a - t i o n and b u r g e o n i n g e d u c a t i o n a l o p p o r t u n i t i e s a l s o he lped s e t t h e m t a g e f o r t h e P a h l a v i c o l l a p s e .

Two developments, i n my o p i n i o n , d e l i v e r e d t e c o u p d e g r a c e . T h e f i r s t , a$d m o s t i m p o r t a n t , w a s t h e 1 9 7 4 d e c i s i o n t a k e n h y t h e s h a h p e r s o n a l l y t o u s e I r a n ' s v a s t l y expanded o i l i n c m e t o f o r c e n a t i o n a l d e v e l o p m e n t , a c c e p t i n g t h e r i s k t h a t p r o d u c t i o n might n o t i n c r e a s e f a s t enough t o meet i n c r e a s e d demand and t h e r e b y o f f s e t i n f l a t i o n . When t h i s d e c i s i o n was made I r a n was a l r e a d y e x p e r i e n c i n g d o u b l e - d i g i t i n f l a - t l o n , a n d t h e c o u n t r y l a c k e d t h e p h y s i c a l i n f r a s t r u c t u r e , t h e t r a i n e d manpower, a n d t h e mana- q e r i a l e x p e r t i s e t o a b s o r b a n y t h i n g h a l f s o ambi t ious . T h e s e d e f i c i - e n c i e s were magnified by t h e Shah ' s d e v o t i o n t o h i s o u t s i z e d a n d u n n e c e s s a r y m i l i t a r y b u i l d u p . C o n s e q u e n t l y , i n a l m o s t e v e r y l n a t a n c e t h e development programs f a l l e d b u t i n f l a t i o n succeeded. I t l a now running a t something o v e r 50

CONFIDENTIAL 3 1

p e r c e n t . As e c o n o m i c c o n d i t i o n s worsened t h e d i s p a r i t y i n income d i s t r i b u t i o n became more obvious , t h e d i s a f f e c t i o n o f t h e p e o p l e g r e w , a n d t h e c a p a c i t y o f t h e r e g i m e t o u s e i ts f i n a n c i a l r e - s o u r c e s a s a t o o l t o m a i n t a i n i t s e l f was d i m i n i s h e d .

The s e c o n d d e v e l o p m e n t was t h e a d v e n t o f t h e C a r t e r a d m i n i s t r a - t i o n ' s human r i g h t s p o l i c y . Many I r a n i a n s h o l d o b s t i n a t e l y t o t h e b e l i e f t h a t t h e p o l i c y o f t h e i r c o u n t r y h a s , s i n c e t h e l a t e 1 9 t h C e n t u r y , b e e n d i r e c t e d b y a f o r e i g n h a n d , f i r s t R u s s i a n or B r i t i s h a n d , s i n c e 1 9 5 3 , Ameri- c a n . Some o p p o s i t i o n i s t s i f l t e r - p r e t e d t h e human r i g h t s p o l i c y a s a U.S. s t e p a w a y f r o m t h e S h a h and a consequent weakening o f t h e Throne. They were encouraged and became more a c t i v e . At t h e same t ime t h e Shah, d e s i r i n g a p o l i t i c a l . c l i m a t e w h i c h w o u l d p e r m i t t h e smooth t r a n s f e r o f power t o h i s son , and p e r h a p s a l s o a s a r e a c t i o n t o human r i g h t s p r e s s u r e s , b e g a n t a k i n g s t e p s t o l i b e r a l i z e I r a n i a n p o l i t i c a l l i f e .

G e n e r a l l y s p e a k i n g , I r a n i a n s have a p e c u l i a r view o f a u t h o r i t y - t h e y r e g a r d i t a s a b a r r i e r i n t h e way o f i n d i v i d u a l accomplish- men t . and c i r c u m v e n t i t w h e r e v e r p o s s i b l e . O n c e c i rcumvented , a u t h o r i t y is contemp- t i b l e ; a u t h o r i t y w h i c h c a n n o t b e circumvented is accorded grudging

T h e S h a h ' s a b s o l u t e r u l e h a d e s t a b l i s h e d c l e a r l y d e f i n e d P a r a m e t e r s o f d i s s e n t . H i s l i b e r a l i z i n g moves and t h e impact o f o u r human r i g h t s s t a t e m e n t s a l t e r e d t h e s e p a r a m e t e r s w i t h o u t es tab1ish i r .q new ones . Unwill ing t o b e l i e v e t h a t t h e r e g i m e would l e s s e n its c o n t r o l s e x c e p t through weakness, t h e I r a n i a n p e o p l e began pushing i n a l l d i r e c t ns, a t tempt- ing t o d e t e r m i n e t h new l i m i t s o f i" i n d i v i d u a l p o l i t i c a behavior . To d a t e they h a v e n ' t found any a s t h e S h a h was u n a b l e or u n w i l l i n g t o t a k e t h e h a r s h measures which might have r e - e s t a b l i s h e d h i s p o s i t i o n , and t h e new government h a s y e t t o d e v e l o p t h e i n s t r u m e n t s of power,

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t h e manager ia l e x p e r t i b e , and t h e n a t i o n a l c o h e s i o n wh'ich i t m u s t have i f i t is t o succeed .

At t h e a p p r o p r i a t e moment t h e e x i l e d I s l a m i c l e a d e r , A y a t o l l a h R u h o l l a h KHOMEINI, r e v i t a l i z e d h i s o p p o s i t i o n a n d b e c a m e a symbol and a f o c u s o f t h e r a g e o f t h e D e o v l e . J u s t a s i t h a d i n e v e r y s;ccessful n a t i o n a l revolu- t i o n a r y movement i n modern I r a n i a n h i s t o r y , t h e I s l a m i c e s t a b l i s h m e n t o f f e r e d a r e s p e c t a b l e I r a n i a n u m b r e l l a f o r t h e c o a l i t i o n o f d i s p a r a t e o p p o s i t i o n e l e m e n t s and l e n t t o t h e movement its i n v a l u a b l e c a p a c i t y t o m o b i l i z e e n o r m o u s numbers o f people .

T h i s same r e v o l u t i o n a r y c o a l i - t i o n h a s b r o u g h t a b o u t , d i r e c t l y o r i n d i r e c t l y , t h e d e a t h o f o n e s h a h , t h e o u f t e r o f a n o t h e r , and t h e t e m p o r a r y e x i l e o f a t h i r d w i t h i n t h e l a s t 83 y e a r s . Now i t h a s b r o u g h t down w h a t may h a v e b e e n t h e l a s t s h a h . Of a l l t h e s h a h s who h a v e r u l e d I r a n s i n c e t h e e s t a b l i s h m e n t o f t h e Q a j a r d y n a s t y i n 1 7 9 6 , o n l y o n e h a s come t o t h e t h r o n e t h r o u g h a n u n t r o u b l e d t r a n s f e r o f p o w e r . B'ased o n h i s t o r i c a l p r e c e d e n t

' a l o n e , t h e t h r e a t posed t o Mohammad Reza P a h l a v i by t h e I r a n i a n r e v o l - u t i o n s h o u l d h a v e c o m e a s n o s u r p r i s e . But it d i d .

S i m p l y p u t , I t h i n k we w e r e u n p r e p a r e d f o r t h e c o l l a p s e o f t h e P a h l a v i Regime b e c a u s e we d i d n o t w a n t to know t h e t r u t h .

I t i s a n e x a g g e r a t i o n . b u t n o t such a g r e a t one , t o s a y t h a t t h e S h a h w a s a U.S. p u p p e t i n t h e y e a r s i m m e d i a t e l y f o l l o w i n g 1 9 5 3 . B u t w i t h t h e p a s s a g e o f y e a r s h e b e g a n t o become m o r e s u r e o f h i m s e l f , m o r e i n d e p e n - d e n t , end we b e g a n t o d e a l w i t h him on a more n e a r l y e q u a l b a s i s . With t h e growth o f t h i s h e a l t h i e r r e l a t i o n s h i p , h o w e v e r , - c a m e t h e g r o w t h o f a f u n d a m e n t a l e r r o r o f U.S. p o l i c y - t h e m i s p e r c e p t i o n t h a t ' U . S . i n t e r e s t s i n l r a n w e r e c d t e r m i n o u s w i t h t h o s e o f t h e P a h l a v i Regime. By sometime around 1968, a s n e a r l y a s I could d e t e r - mine from o l d Z i l e s , i t had become t h e unspoken p o l i c y o f t h e Depart-

ment and t h e Embassy (and p o s s i b l y a l s o t h e A d m i n i s t r a t i o n , a l t h o u g h a j u n i o r o f f i c e r would n e v e r b e i n a p o s i t i o n t o b e c e r t a i n o f t h i s ) t o c u r t a i l r e p o r t i n g c r i t i c a l o f t h e S h a h . D u r i n g my own 1971-75 a s s i g n m e n t t o T e h r a n , t h e s a m e r e s t r i c t i v e p o l i c y p r e v a i l e d . When I r a i s e d t h e q u e s t i o n i n g e n e r a l t e r m s , I w a s i n f o r m e d t h a t c r i t i c a l i n f o r m a t i o n c o u l d b e l e a k e d a n d m i s u s e d b y t h e S h a h ' s enemies i n Washington. On a s p e c i f i c m a t t e r , w h e n I wa8 i n s t r u c t e d t o r e n o r e n o t h i n a c o n c e r n i n g a t e m p o r a r y m a r r i a g e w h i c h t h e S h a h h a d c o n t r a c t e d w i t h a young I r a n i a n woman, I was a s s u r e d t h a t t h e m a t t e r was covered f u l l y i n o f f i c i a l - i n f o r m a l l e t t e r s . H a r d l y a n a d e q u a t e m e a n s o f i n f o r m i n g t h e i n t e l l i g e n c e com- munity o f a p o t e n t i a l l y s i g n i f i c a n t develbpment .-

T h r o u g h i m p o s i t i o n o f t h i n e s s e n t i a l l y d i s h o n e s t v o l i c v o v e r t h e decade , t h e 'w r t - m e n t d e n i e d i t s e l f i n f o r m a t i o n w h i c h m i s h t h a v e e n a b l e d t h e United s t a t e s t o b e b e t t e r prepared f o r r e c e n t I r a n i a n d e v e l o p m e n t s .

T h i s e r r o r w a s c o ~ u o u n d e d b v t h e r e s t " r i c t i o n o f ' ~ m b , a ; s ~ contac t ; t o t h o s e whose i n t e r a u u r s e w i t h u8 w o u l d n o t d i s p l e a s e t h e S h a h . C o n t a c t s w i t h o l d opposition l e a d e r s a n d w i t h t h e in la mi^ e s t a b l i s h m e n t wer.e f o r b i d d e n . I n s t e a d t h e E m b a s s y r e s t r i c t e d i t s e l f p r i m a r i l y to t h e same c i r c l e o f c o n t a c t s which it had h d f o r 2 1 y e a r s . By an3 l a r y e t h e s e p e o p l e were s u p p o r t e r s o f t h e Shah. T h e i r w e a l t h , p o w e r , i n f l u e n c e , and to some e x t e n t t h e i r p h y s i c a l w e l l - be ing r e s t e d upon t h e i r r e t d i 6 k of i m p e r i a l f a v o r . But i n s e e i n g I r a n t h r o u g h t h e e y e s o f t h i 8 l i m i t e d g r o u p we w e r e s e e i n g i t through a n i m p e r i a l pr i sm. I t i n n o t s u r p r i s i n g t h a t t h e b u l k Of t h o r e p o r t i n g which flowed from t h e s e s o u r c e s w a s f a v o r a b l y i n c l i n e d toward t h e Shah arid h i s programs.

E v e n had we b e e n i n c l i n e d t d r e p o r t t h e v i e w s o f a l l e l e m e n t 8 o f 1 r a n i a n , s o c i e t y , we would have been h indered by a l a c k o f o f f i c e r 8 who a r e t r u l y competent i n F a r s t .

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C o n t a c t s w i t h I s l a m i c and b a z a a r i l e a d e r s a r e v i r t u a l l y i m p o s s i b l e w i t h o u t f l u e n c y i n t h a t l a n g u a g e a n d t h e s a m e i s t r u e f o r many u n i v e r s i t y p r o f e s s o r s and s t u d e n t s . A t r a v e l e r i n t h e p r o v i n c e s i s c loaked i n i g n o r a n c e i f he cannot #peak t h e language of t h e people .

The S o y i e t s g i v e t h e i r s p e c i a l - i s t s f i v e y e a r s o f o r i e n t a l s t u d i e s b e f o r e s e n d i n g them t o I r a n , and when t h e y a r r i v e they c a n s p e a k , r e a d , and w r i t e P a r s i v e r y w e l l i n d e e d . I t w o u l d n o t b e p r a c t i c a l t o c o n s i d e r anyth ing l i k e t h e S o v i e t program, b u t our o f f i - c e r s a r e f o r t u n a t e t o g e t 1 0 months o f P a r s i t r a i n i n g . B e f o r e t h e y a r e thrown i n t o t h e Tehran envi ron- m e n t , w h e r e E n g l i s h i s w i d e l y s p o k e n , t h e y s h o u l d s o l i d i f y t h e b a s i c s w h i c h t h e y l e a r n e d i n t h e United S t a t e s through s i x months t o one y e a r of a d d i t i o n a l s t u d i e s a t an I r a n i a n u n i v e r s i t y o u t s i d e t h e c a p i t a l s u c h a s Ferdowsi U n i v e r s i t y i n Mashad, which h a s a n e x c e l l e n t F a r s i p r o g r a m . T h i s l o n g e r c o m m i t m e n t t o m o r e r i g o r o u s l a n g u a g e t r a i n i n g m i g h t n o t b e p o s s i b l e f o r a l l l a n g u a g e o f - f i c e r s b u t i t s h o u l d b e demanded o f p o l i t i c a l o f f i c e r s .

I n r e t r o s p e c t it i s c l e a r t h a t we r e i n f o r q e d o u r t e n d e n c y t o remain i g n o r a n t o f many a s p e c t s o f c o n d i t i o n s i n I r a n t h r o u g h a n a t u r a l i n c l i n a t i o n t o t a k e t h e e a s y way o u t . We had n o c h o i c e b u t t o d e a l w i t h t h e a b s o l u t e r u l e r o f I r a n who, i n a n y c a s e , w a s g i v i n g u s whatever we wanted. S o why l o o k f u r t h e r ? Anyway, i n t o d a y ' s w o r l d , a n y p o l i c y t h a t w o r k s f o r 2 5 y e a r s i s a g o o d p o l i c y .

The shame of i t is, we need n o t have come down a t t h e c runch w i t h no a l t e r n a t i v e b u t t h a t of backing a l o s e r . We could have lna in ta ined w i d e r c o n t a c t s w i t h minimum damage t o o u r r e l a t i o n s w i t h t h e S h a h . When we f i n a l l y informed him o f o u r d e c i s i o n s t o i n i t i a t e c o n t a c t s with ' t h e o p p o s i t i o n , h e merely grumbled s u s p i c i o u s l y .

A l e s s h e s i t a n t r e p o r t i n g p o l i c y w o u l d n o t h a v e e n a b l e d u s t o s a v e t h e Shah. What happened t o him would have happened s o o n e r o r l a t e r , i f n o t t o t h i s Shah t h e n t o h i s s o n , a n d by t h e t i m e we became a w a r e t h a t t h e r e v o l u t i o n was coming, i t would have been t o o l a t e t o s t o p it. But provided, o u r government were w i l l i n g t o a c t o n t h e b a s i s o f i n f o r m a t i o n w h i c h c o n t r a d i c t e d e s t a b l i s h e d p o l i c y , w i d e r c o n t a c t s and a c c u r a t e r e p o r t - i n g , e v e n a t some c o s t i n t h e i n t i m a c y o f t h e USG-GO1 r e l a t i o n - s h i p , m i g h t h a v e g i v e n u s t h e c a p a c i t y to a n t i c i p a t e much o f what w a s c o m i n g a n d t o m i n i m i z e t h e damage t o o u r p o s i t i o n i n I r a n . T o d a y , i n s o f a r a s t h e p r e s e n t government and t h e I r a n i a n people a r e concerned , t h a t p o s i t i o n is i n shambles and w i l l o n l y be p a r t i a l l y r e v i v e d w i t h g r e a t d i f f i c u l t y .

We m a d e s i m i l a r m i s t a k e s i n post-war China , i n Vietnam and we w i l l c o n t i n u e t o d o s o whenever we c o n f u s e t h e i n t e r e s t s of a c l i e n t government w i t h o u r own. Someday we s i m p l y m u s t l e a r n t h a t t h e purpose o f p o l i t i c a l r e p o r t i n g is t o p r o v i d e i n f o r m a t i o n and informed a n a l y s i s to a s s i s t i n t h e making o f p o l i c y d e c i s i o n s , n o t t o s u p p o r t e x i s t i n g p o l i c y . m e r a l l , t h e p o l i c y might b e wrong.

Classified by Calen Fox Subject to General Declasaificstion Schedule

of Executive Order 12065. Autometically &ckas i f ied on June 1. 1985.

From: RADM F. C. COLLINS, Jr . . USN. 430-32-0914/1110 Chief Navy Section. ARbIISH-MMG. I r a n

To: Chief of Information. Navy Department. Washington. D.C. 20350

Subj: Speech Mater ia l Clearance; request f o r

Encl: (1) Framework f o r speech on Revolution i n I r a n

1. From May 1978 t o February 1979 I served a s Chief Advisor t'o t he Commander-in-Chief, Imper ia l I r an i an Navy wh i l e ass igned a s Chief of Navy Sect ion, AMISH-MAAG. I ran. Needless t o say i t was an exc i t i ng adventure, one which offered f a n t a s t i c oppor tun i t i e s a s I r a n made i t s l eap from a WUII Navy t o t h e l a t t e r 20th Century technology of t he 993 KOROUSH Class Cruiser , and an unbel ievable box seat t o a v i o l e n t revolu- t i o n where a 50-year dynasty of a u t o c r a t i c r u l e was crumbled.

2. Antic ipat ing t h a t t he re w i l l be those who a r e i n t e re s t ed i n hear ing a f i r s t person account of t he act ion. I have composed an o u t l i n e of f a c t s I have t i t l e d "Anatomy of Revolt" which I intend t o be t h e b a s i s f o r any remarks I make. The o u t l i n e is f a c t u a l and t h e only devia t ion from f a c t s t o opinion is found i n t h e l a s t two pages i n which I show my opinion of why i t happened. They w i l l b e c l e a r l y labeled a s such. Xy support ing v i s u a l a i d s c o n s i s t of Vu-graphs and 35 mm s l i d e s of va r ious f r o n t page sho t s ; Kayhan and Tehran Journal -- Tehran's two English language newspapera dur ing t h e period.

3. I would a p p r e c i a t e your c l ea rance t o u se t h i s i n f u t u r e speaking commitments on t h e sub jec t of t h e r e v o l t i n I ran. I w i l l be depar t ing the Washington a rea f o r a sho r t s t i n t of TAD and l eave on t h e West Coast, so between 28 Apr i l and 7 May I can b e reached through Commander Surface ,?orces P a c i f i c i n San Diego. After t h a t I w i l l be r epo r t ing t o OP-40 f o r duty.

4. Thanks.

Copy to: Chief, ARflISH-MMC. I r an CINC. EURCOM

AMMm OF REVOLT

PROLOGUE

* END OF 2507 YEAR OLD PERSIAN W I R E 11 FEBRUARY CAUGHT EVERYONE i INCLUDING AYATOLLAH RUHOLLAH KHOMEINI AND PRIME MINISTER BAKHTIII Bi

SURPRISE. WHAT HAPPrnED? HOW DID IT HAPPEN? THIS IS MY VIEW.

THE BEGINNING

1 JANU.\RY 1963 - "WHITE REVOLUTION" OR "SHAH AND PEOPLE'S REVOLUTION" 1 WHEN SHAH TOOK ROYAL AND CHURCH LANDHOLDINGS AND REDISTRIBUTED TO

/ PEASANTS. SPECULATION AT TIME THAT CLERGY OWNED 601 OF LAND IN IRAN. I

TO GAIN INSIGHT INTO INFLUENCE OF CLERGY. CONSIDER THAT CURRENTLY THERE

ARE SOME 80,000 MOSQUES; 180.000 MULLAHS; AND OVER 1200 AYATOLLAHS IN

A COUNTRY OF ABOUT 35 MILLION PEOPLE. OWE DISSIDENT WHO TOOK VOCAL AND

VIOLENT ISSUE WITH THE SHAH ON LAND REDISTRIBUTION WAS RUHOLLAH KHOMEINI

WHO TAUGHT IN HOLY c I m OF qon ABOUT 90 MILES soum OF TEHRAN. FOR HIS

OPPOSITION HE WAS EXILED AND LIVED IN IRAQI HOLY CITY OF NAJAF UNTIL

6 OCTOBER 1978 WHEN HE MOVED TO PARIS. THE HOVE WAS PROMPTED BY IRAQI

OFFICIALS WHO WERE INTERESTED IN PRESERVING THE RECENTLY MENDED RELATIONS

WITH NEIGHBORING IRAN.

THE REVOLUTION'S EXTERNAL WIFESTATION IN IRAN COULD BE DATED

8 JANL'ARY 1978 WITH STUDENT RIOTS IN QOH AND ESFAHAN. MARTIAL LAh' WAS

DECLARED IN ESFAHAN AND OTHER OUTLYING CITIES PROM TIME TO TIME.

RELATIVE CALM IN TEHRAN THROUGH JULY 1978. THO THERE WERE DEMONSTRA-

TIONS AND DESTRUCTION OF PROPERTY (MAINLY BANKS. LIQUOR STORES AND CARS.)

SHAH AND FAMILY SPENT MOST OP SUPMER ON CASPIAN. RUMOR THAT SHAH HAD

BEEN SHOT BY AN ARMY J.O. (LT. IMATANI. SON OF DECEASED GEN KHATAMI? WAS

Enclosure (1)

DENIED, AND SHAH AND SIUHBANOU'S PIclUBXS AND PBONOVRC-S DAILY

APPEARED IN PAPERS.

EARLY AUGUST 1978 BOHBING OF WANSOLAR RESTAURANT IN TEHRAN,FOLLOWED

BY RIMS IN ESFAHAN ON 11 AUGUST AND THE TRAGIC REX THEATRE FIRE IN

ABADAN 17 AUGUST WHICH CLAIMED 377 LIVES BEGAN THE ACTIVE - CONTINUOUS PERIOD OF REVOLT.

AYATOLLAH SHARIAT W A R I , THE SENIOR HOLY MAN IN COUNTRY. BEGAN

SPEAKING OUT ACTIVELY ON NEED FOR REFORM, AND HE WAS JOINED BY AYATOLLAH

TALECHANI WHO WIS IN THE VANGUARD OF POLITICAL PRISONERS RELEASED BY THE

SHAH. GOVERNMENT ALSO TRIED TO NEGOTIATE WITH KHOMEINI IN IRAQ AT THIS

TIME. BUT NO SUCCESS.

* 27 AUGUST 1978. D W T I C INDICATION OF TROUBLE WAS PRIME MINISTER

JAMISHID AMOUZEGOR'S RESIGNATION AFTER JUST OVER YEAR IN OFFICE.

* 28 AUGUST 1978. JAPAR SHARIF DWU, VllO HIU) BEEN PM 1960-61 WAS

APPOINTED AS PM. FELT m BE MODERATE VHO COULD C ~ I C A T E WITH CLERGY,

NATIONAL FRONT ETC.; UNFORTUNATELY M I NOT DYNAMIC OR DECISIVE ENOUGH

AND DMONSTRATIONS AND DESTRUCTION CONTINUED.

' 8 SEPTMBER AT 0600. MARTIAL LAW DECLARED IN TEHRAN (CURFEW 9PH - SAM) AND 9 OTHER W O R IBANIAN CITIES- SIGNIFICANTLY ENOUGH, NEITHER OF

THE NAVY CONTROLLED CITIES WERE INCLUDED. GENERAL OVEISI. CINC IIGF WAS

MARTIAL LAW ADMINISTRATOR OF TEHRAN. AT MID W I N G 8 SEPT, A LARGE MOB

ASSEneLED IN JALLEH SQUARE TO SEE IF COV-T WAS SERIOUS ABOUT MARTIAL

LAW. PUSHED TO LIMIT, TROOPS FIRED ON MOB KILLING AN ESTIMATED 300 AND

WOUNDING PERHAPS A 1000 MORE- (COVERIWENT FIGURES SAID 70 KILLED. 280

WOUNDED).

i b . 1 7 SEPTEMBER 1 9 7 8 . EARTHQUAKE I N NE lIUNM CITY OF TABAS KILLED I

AN ESTIMATED 25.000 TO ADD TO SHAHANSHAH'S WOES.

-- 6 OCTOBER 1 9 7 8 . KHOMEINI LWVES WAF, IRAQ FOR PARIS; BEGINS FULL

rl ALE PROPAGANDA CAWA~GN AGAINST PAHLAVI "DYNASTY" A N ~ WVERNHENT.

EARLY OCTOBER SAW BEGINNING OF STRIKES -- POSTAL, tlOSPITAL WRYERS.

fT( ON 11 OCTOBER, 4 DAY STRIKE OF NEWSPAPmS WHO PROTESTED CSlQORSHIP.

26 OCTOBER - SHAH'S BIRTHDAY. A SUBDUED AFFAIR; RECEPTION AT

~IWLESTAN PALACE IN WWNTW IRAN WIW BUSINESS, A W ~ I C . CLERGY llll~

t l N l O R MILITARY ,INVITED TO PAY RESPECTS TO HIM. HIM LOOKED CKWID, PEOPLE

UIKL IMPRESSED, SHAH RODE TO AND FROM RECEPTION I N MOTORCADE WITW NO

(IN1 'sUAL SECURITY.

' LATE OCTOBER SAVAK, STATE POLICE/INTELLIGENCE CAME UNDER F I R E ,

LlNERAL NASSIRI , FORMER LEADER, CHARGED WITll l4LlRDER.

' . 1 NOVEMBER O I L STRIKE BECAN.

I ' 4 NOVEMBER KARINS SANJABI, NATIONAL FRONT LEADER WAS INVITED TO 1 / ( c l H t BACK FROM PARIS WHERE HE WAS CONFKBRING WITH KHOMEINI TO FORM GOVERN- I !

MINI; KHOMEINI SQUASHED T H I S OPPORTUNITY FOR PEACEFUL SETTLEKWT.

5 NOVEMBER $ TRANSFER OUT OF COUNTRY RESTRICTED.

' 5 NOVEMBER ATTACK ON BANKS, C I N E U S , LIQUOR S T O W S I W C H P D P W O R T I O N S

0, ANARCHY. 3 0 0 BANKS DESTROYED, 11 STORY BMI B L W RK@Q, ? S%R% BANK

mrl.LI HDQTRS GUTTED. COUNTLESS THEATRES AND LIQUOR S ~ S =NED.

' SHARIF EMAMIGOVTRESIGNS.

6 NOVEMBER SHAH APPOINTED GENERAL C H O W R E W AWVLRI. CHIEF OF SCS,

I % PM. CALLS FOR ORDER AND CALM. I)SHITTED CORRUPTION AND ERROR XN COVT.

8IrttCH WELL RECEIVED EXCEPT BY THOSE WHO TOOK EXCEPTION TO H I S ADMITTING

IKRSONAL ERROR; CONSTITUTION SAYS SHAH CAll W NO W N G - ONLY GOV-ENT.

SERVICE CHIEFS APPOINTED TO MINISTRIES; RABI-HOUSING. OVESI-LABOR,

HABIBOLLAHI-LUULA~IO~/TECHNOLOGY/CULTURE/H~GHER EDUCATION, QARABAHI-IN'I'ELIOK

ETC., RESIGN1 I WEEh LATER DUE CONSTITUTION RESTRICTIONS AGAINST HAVlNL

TWO KEY GOVT PUSITIONS.

' MOHARKA?I (1-10 DECEMBER DEEP MOURNING PERIOD FOR lMEWl HOSSLIN,

3RD IMMAII, SOH OF ALI, MOHAMMED'S SUCCESSOR), MARKED BEGINNING OF WIDESPREAD

..I,OTCSI - CUKF~W VIOLATION THE NORM - ROOF TOP CHANTING OF "ALLAH ALBAR" BECAME NOW AS DID CONTDP? FOR MARTIAL LAW.

DECE.ZBER EVACUATION OF DEPENDENTS BEGAN, TO LESShN DANGER FRO?!

EXPECTED RIOlS ON 9 - 10 DECEMBER. TASHUA (9 DECUIB'R) PARADE PERMITTED BY AZAHARI. 314 MILLION 10

MILLION PARADEI) TO SHAHYAD PEACEFULLY.

O ASHURA (10 DECEMBER) REPEAT OF TASHUA. CROWDS ABOUT SAME, "MOIWl

NEISS"

DECEMBER NIGHlLY BLACKOUTS. BENZENE, NAFT, GAS-OIL SHORlAGE. BENZENE

LINE5 48 HOUR5 LONG - NAFT MINIMUM 8-10 HOURS. GAS OIL SHORTAGE PRODUCED

COLD HOUSES ANI? SHOWERS!

30 I)E( 1 kIHI I< GLN AZAHAKI HAS SLIGHT HEART ATTALI AND ASKED FOl< -- -- RELIEF AS PM.

3 JAX 79 SADI(.HI ASKED TO FORM GOVT - COULD NOT GET CABIhET. GENERAL

OVEISI. CINC IlGF AND MARTIAL LAW ADMINISTRATOR FOR TEHRAN LEFT COUNTRY

FOR USA. BAD OHES. S. BAKHTIAR GIVEN CHANCE TO F O W GOVERNMENT. AGREES

TO TRY UNDER THREE CONDITIONS: SHAH LEAVE COUNTRY; HE BE GIVEN FREE REIN;

HE CONTROL MILITARY. SHAH AGREES.

7 JAN 79 BAKHTIAR PRESENTS CABINET - ALL ANTI SHAH. MUST NOW BE

APPROVtD BY MAJLIS AND SENATE. CURFEW EASED TO 11-5. COUP TALK.

15 JAN 79 APPROVAL OF BAKHTIAR CABINET GAINED.

4

THE DOWN TURN

16 JAN 79 SHAH LEAVES IRAN FOR REST,. LEAVES REGENCY COUNCIL IN

CHARGE. TEHRAN1 PRESIDENT OF COUNCIL. MUCH ELATION. SPENT DAY IN

BANDAR ABBAS.

17 JAN 79 SPENT DAY IN BUSHU1R. SPIRITS WW BUT NOT OUT.

21 JAN 79 CO-IST CONDUCT BIG PARADE IN DOWN TOWN TEHRAN. MET

SOME OPPOSITION.

23 JAN 79 KHOMEINI THREATENS TO COME TO TEHRAN; MEHARABAD CLOSED

FOR 5 DAYS.

25 JAN 79 CONSTITUTIONISTS CONDUCT SUCCESSFUL PARADE FOR BAKHTIAR

TO BARHESTARAN SQUARE IN FRONT OF IWLIS. 3 - 500,000. 27 JAN 79 BAKHTIAR OFFERS TO MEET KHOHEINI IN PARIS; YOMEINI SAYS,

"COME WITH RESIGNATION IN HAND."

1 FEB 79 KHOMEINI IlETURNS TO IRAN AFTER 15 YEARS ABSENCE - 750.000 TO 1 MILLION PEOPLE TURN OUT TO GREET "AGHA UHAD" (THE MASTER HAS COME)

6 FEB 79 KHOMEINI NAMES 70 YR OLD MEHUI BAZARGAN AS PM OF REVOLUTIONARY

WVERNHENT. BALMTZAR RESPONDS THAT REVOLUTIONARY GOVT IS "JOKE".

8 FEB 79 7 OF BAKHTIAR'S MINISTERS SWING TO BA'LARGAN. QARABAGlll TO

CADETS AT OFFICERS SCHOOL SAYS "ARMY'S JOB NOT POLITICS. BUT DEFENDING COUNTRY.'

9 FEB 79 SERMON 'LITLE "WHEN NOTHING HAKES SENSE" AT TEHRAN COHMUNITY

CHURCH. HOMOFAR DISTURBANCE AT DOSHAN TAPPEH. IMPERIAL GUARD u L L m OUT

TO QUELL.

10 FEB 79 WORD OUT THAT ARMY FIGHTING AIR FORCE. SHWTING AND

BURNING TO SOUTH OF IIN HDQTRS. CURFEW LOWERED TO 1630. AF SECTION RESCUED

PllOH WSHEN TAFPM BY HEM: NAVY SECTION DRIVES HOME; AMISH U M G STAFF

ELECTS TO STAY AT SCS HDQTRS. POLICE STATIONS METHODICALLY KNOCKED OVER.

5

END O F A DYNASTY

11 FEB 7 9 ALL HANDS TOLD TO STAY HOME. SPORADIC SHOOTINC. 1100

QARABAGHI NEUTRALIZES ARn' "POLITICS FOR POLITICIANS." IKPERIAL GUARD

RETURNS TO GARRISON. CRCUDS CO WILD. RUMOR THAT WATER SYSTEM POISONED.

GENS BADARIE, JAFARIAN AND B E W G I ALL KILLED TODAY.

1 2 PEB 79 IMPERIAL GUARD ARMORYS KNOCKED OVER. THOUSANDS O F WEAPONS

AND MILLIONS O F ROUNDS O F SMALL ARMS M O NOW I N HANDS O F REVOLUTIONARIES.

RADIO ANNOUNCES AMERICANS ARE J O I N I N G IMPERIAL GUARDS I N COUNTER REVOLT.

IMPERIAL GUARD J O I N S ReVOLhIONARY FORCES OR DESERTS. MUCH SHOOTINC.

0 4 3 0 GAST AND COMPANY RESCUED BY IBRAHIM YAZDI AND TAKEN TO EMBASSY.

13 F E B 79 AMlIRAL HABIBOLLAHI ON BAD10 ASKS NAVY TO RETURN TO WORK.

1 4 F E B 79 1 1 2 0 RECEIVE CALL FROM GAST, m A S S Y UNDER ATTACK. I CALL

& HABIBOLLAHI AND ASK FOR HELP - ALSO KHOMEINI POLICE STATION. 1 1 4 5

CAST CALLS BACK, "MBASSY OVERRUN, WE'VE SURRENDERED." YAZDI AND KHOMEINI

FORCES ARRIVE AND TALK GUERILLAS INTO SURRENDERING PRISONERS WHO ARE

TAKEN TO KHOMEINI HEADQUARTERS FOR QUESTIONING. GUERILLAS CLAIM TO BE

W I S T ; FEtEYEh'. CLAIM TO BE LOOKING FOR SAVAK MEMBERS AND RECORDS AT U.S .

fMIASSY. ALL P lBASSYfMILPERS RETURNED T O EMBASSY I N . A T E AFTERNOON. BOB

PRYOR C W S BY AND 1 I N V I T E HIM T O STAY. DESCRIBES Dl SECHATION OF CHURCtl 11 1

15 FEB 1 9 7 9 AWED HEN COME TO m GATE. GARDNER IELLS THEM NO ONE OF

IMPORTANCE L I V E S HERE.

1 6 . F E B 1 9 7 9 ACCOMPANY BOB PRYOR TO SERVICES HE I S HOLDING AT SAADI

ROOM O F HILTON. KHOMEINI M I L I T I A GUARD ENTRANCE. 1210 WHILE F I X I N G LUNCH,

ABWL ANNOUNCES l o ~ ~ ~ ~ ~ ~ ~ ~ * * HAS COME TO CALL AND WOULI) LIKE m PRESENCE.

8 OF 2 5 COME INTO COMPOUND. QUERY 1IE A S TO WHY I AM S T I L L HERE, ADVISE ME

TO GO. NOT SAFE. THEY CANNOT C U R A N T E E PROTECTION, !:TC.. COURTEOUSLY TREATEl

1 7 FEB 7 9 IRANIAN NAW BACK TO WORK. C W I T T E E SCREENS FLAG

O F F I C E R S ; CAFT SULTAN I S S E N I O R NAVY R E P - MULLAH I S I N CHARGE. POURZAND

BROTHERS DU NOT FARE WELL. KAYHAN HAS F I R S T P I C T U R t S O F "ISLAMIC J U S T I C E " .

REVOLUTIONAR" COURTS CONDEMNED A h ' HAD SHOT GENS N A S S I R l (SAVAK). N A J I

(ESFAHAN MARTIAL LAW ADMIN),RAHIMI (TEHRAN MARTIAL LAW ADMIN) AND

KHROWSHODAD ( O I C ARMY AVIATION) . GORY P I C T U R E . ALSO P I C T U R E S O F FOUR

OTHER GENERAL O F F I C E R S WITH HANDS T l E D BEHIND BACKS. ALSO WILL LIKELY

SUFFER SAXE FATE. PLO LEADER AIUFAT I N TOWS.

18 FEB 7 9 G I V E CLOTHES TO SERVANTS, PACK BAG. MOVE TO HILTON. BOMB

SCARE WHEN WE ARRIVE.

1 9 FEB 7 9 SEARCHED THOROUGHLY AT MEHRABAD AND PASSPORT CHECKED 7

T I M E S . 1 5 0 2 WHEELS UP FOR FREEDOM.

"KEYS TO DOWNFALL OF PHALAVI DYNASTY"

"KHOMEINI I S HATRED O F SHAHANSHAH"

f i ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ IN GOVERNMENT"

t l ~ ~ ~ ~ ~ ~ ~ OF SHAH TO 'MIND THE STORE"'

"AUTHORITARIAN RULE O F SHAHANSHAH"

"LACK O F VALID/TIMELY INTELLIGENCE BY USG/W)I AGENCIES"

"SHAH'S WITHDRAWAL FROM P U B L I C L I F E I N SEPTEMBER"

"FRENCH SUPPORT O F KHOMEINI"

"FARSI LANGUAGE NEWS FROM BBC"

"FAILURE TO ENFORCE MARTIAL LAW"

"FAILURE TO DEAL WITH I U O M E I N I OR OPPOSITION"

"FAILURE TO DEAL EFFECTIVELY WITH STRIKES"

"LACK OF 'GUSTY* MILITARY"

"OVER ESTIMATION OF ABSORPTIVE WABILITIES OF IRAN'S PERSONNEL RESOURCES"

"HL?LAN RIGHTS POLICY"

"LACK OF UNDERSTANDING OF MIDEASTERN CULTURE BY WESTERNERS"

KEY UNANSWERED QUESTIONS

"WHY DID SHAH WITHDRAW FROM ACTIVE LEADERSHIP?"

"WI{S DID GENERAL QARABAGHI NEUTRALIZE AREN?"

"kns DIDN'T GOVERNMENT E I ~ E R TRY TO SELL ITSELF TO PEOPLE, OR DISCREDIT AYATOLLAH KHO?lEINI?"

"hns DIDA'T EI~LITARY HOVE TO TAKE OVER STRIKE-BOUND INDUSTRIES OR SERVICES SUCK AS REFINERIES AND CUSTOMS?"

. ' . .t?T C h A Q I F Y 1 : R BhSI:. 'I I .AU <'lFb'PICZI CP VISA l e S U l N $ F , AT TRE nOMillT OIlFS'IT3N O i T H i Pt.31.. .V: F h f l r r . ? P?YIU:: ILI 7 3 E U! Dl'. hOT A l i l S L A5 T H E Y h p p . ::" n ?' 'FADYD F37 3 T ' i i . b'S'PIINhTIO". !'bET3FP

1'1 4 " ' i1 '4 . ' TI;iN I ' J 3 j t i 1 TV T H E ?A3LSYI$, C'GMi: PION745 A t 3 1:. r::i ' f . h .

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#V" lL ,. +.* C O N P I D P N T I A L

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CRU R F I C A PAAO t.0. 12065 GDS 5/3/85 ( T A T L O R . C L Y D E D.) OR-E ZAGS: EAGR, ECON, E T R D , PPOR. I H S U B J I CBARGE'S C A L L ON A G R I C U L T U R E M ~ N I S T E R DR. MOHAMMAD IZADIL

P E P : S T A T E 110124

1. ( C - E N T I R E T E X T )

2. S U W I A R T : T H E CHARGE, I N H I S MAT 2 CALL ON A G R I C U L T U R E M I N I S T E R I Z A D I , CONVEYED T H E SAME P O L I T I C A L MESSAGE D E L I V E R E D I N 91s P R E V I O U S C A L L S AND I Z A D I R E S P O N D E D W I T H A POLITE IF SOMEYAAT.COOL EXPRESSION OP DESIRE TO ovm- COME T H E D E X I C I E N C I E S O F U S F O R E I G N P O L I C T AND B U I L D B I L A T E R A L AGRICULTURAL R E L A T I O N S H I P S ON OUR E I S T O R I C EDUCATIONAL, T Z C H N I C A L AND COMMODITT T I E S . L I T T L E NEW OR S P E C I F I C WAS LEARNED CONCERNING A G R I C U L T U R A L P O L I C I E S RUT T H E M I N I S T E R D I D I N V I T E US AGRICULTURAL E Q U I P M E N T MANU- FACTURERS T O S U B M I T P R O P O S A L S FOR LONG-TERM PRODUCTION ARRANGEPIENTS I N I R A N . END SUMMART

3. T H E CHARGE, ACCOMPANIED B T T H E A C T I N G ECONOVIC COUNSELOR.CALLED MAT 2 ON DR. MOHAMMAD I Z A E I . M I N I S T F R FOR A G R I C U L T U R E AND RURAL DEVELOPMENT ( H A R D ) . MR. HAGRSOOB-POUR O F T E E I N T E R N A T I O N A L R E L A T I O N S O Y F I C E S A T I N . T E E CHARGE D E S C R I B E D T E E USG'S B A S I C P O L I C T O B J E C T I V E S V I S - A-VIS IRAN--IRAN'S T E R R I T O R I A L I N T E G R I T T AND ECONOMIC S T R E N C T H AND U S NOH-INTERFERENCE-AND P X P R E S S L D R O P E THAT' ON T H E B A S I S O P MUTUAL R E S P E C T . H I S T O R I C T I E S AND MUTUALLT B L N E F I C I A L TRADE WE COULD COOPERARATE I N T H I S NEW ENVIRONMENT. T E E CHARGE RECOUNTED V A R I O U S B I L A T E R A L Z E C E N I C A L PROGPAMS, P A R T I C U L A R L T T H O S E I N V O L V I N C OUR DEPARTMENT O P A G R I C U L T U R E AND. Y E I L E ACTNOVLEDGING T H E PRE- M A T U R I T T O F SUCH C O N S I D E R A T I O N S , I N V I T E D T a E M I N I S T X R T O K E E P I N MIND T H E P U B L I C AND P R I V A T E A S S E T S W I T H I N T H E US WHEN H E D E V E L O P S H I S A S R I C U L T U R A L PROGRAMS.

4. DR. I Z A D I , I N R E S P O N S E , R E F E R R E D T O T H E I N C O R R E C T fCONOMIC S T R A T F G T q P T H E P R E V I O U S R E G I M E WHICH E M P H A S I Z E D

S H O W - O P T P R O J E C T S AND P U R S U E D U N R L A L I S T I C I N D U S T R I A L GOALS. I R A N , 9 E S A I D , S F O U L D RETURN T O I T S T R A D I T I O N A L AGRICULTURIL . ,EMPHASIS THOUGH W I T 8 U S E O P 4 L L A P P R O P R I A T E TECHNIQUES. W E W A N T HELP PROM A N T FRIEND. AS CONCERNS F O R E I G N R E L A T I O N S I N A G R I C U L T U R E , H E S A I D T H A T T E E US I S IRAN'S NUMBER O N E LOGICAL SOURCE FOR KNOWLEDGE A N D TECSNICAL A S S I S T A N C E OWINO T O T E 9 US C L I M A T E AND T E E P R I M A C T O F US E D U C A T I O N A L I N S T I T U T I O N S I N T R A I N I N G I R A N I A N S . WHETHER OR NOT T H I S R E L A T I O N S H I P C O N T I N U E S D I P E N D S , H E S A I D , ON US POLICT-kHETHER T H E U S ENCOURAGES T I E S .

U R I N G T O T H E P O L I T I C A L DR. I Z A D I EXPOUNDED ON T H E HENCE BETWEEN AMERICAN^ ( I I N D , E E L P F U L , E T C . ) AND U S

C O N F I D E N T I A L TG. R A Y 4 5'>1

CONFIJENTIAL

POLICY. THE LATTER, ar SAID, 1s BASED O N US AGENTS REPORTS AhD THE US MEDIA, WHICH WITH THE EXCEPTION OF PBS I S CONTROLLED BY THE SAME MONOPLY WHICH CONTROLS US MOVIES, ETC. I P THE US FEELS UNLOVED, I T I S BECAUSE FOREIGNERS ARE REACTING TO THE DISTORTED VIEW OF THEM CREATED P I OUR MEDIA. HE EMPHASIZED E I S BELIEF THAT I P WE WISH, AS T9E CHARGE EXPRESSED, TO IMPROVE RELATIONS THEN T I E USG MUST IMPROVE THE US MEDIA. THE PGOI, HE SAID, is OPEN" A N D WANTS TO DEAk HONESTLY. SINCE WE ARE ALL CHILDRRN OF ADAM AND EVE WE SHOULD BE ABLE TO COOPERATE ON THF BASIS OF KNOWING FACE OTHZR AND MUTUAL RESPECT- THE 30 MINUTES CALL ENDED WITH DR. IZADI RETURNING TO H I S CRITICISM OF THE US PRESS* ADDING THAT HE CONCLUDED DUBING HIS MANY YEARS AS A S&DENT I N THE US THAT THE US HEDIA YAS MANIPULATED B t " l ~ MONOPOLY. THE USG, HE SAID, NEEDS A LAW TO SOLVE THIS PROBLEMi HE ADDED, ALMOST AS AN AFT'ER- THOUOHT, THAT FE, OF COURSE, FAVORS FREEDOM OF THE PRESS.

6. THE CHARGE, GIVEN T9E MINISTER'S ARTICULATE AND SINCERI ESPOUSAL OP HIS ANTI-MEDIA CONVICTIONS, CONFINED HIS RESPONSE TO A BRIEP RECOUNTING OF THE SHAH'S SIMILAR FOCUS ON TEE EVILS OP TFE US PRESS AND THE OBSBRVATION THAT A MEDIA HATED BY SUCH DISPARATE PEOPLES CAN'T BE ALL TH4T BAD.

7 . THE CHARGE. IN AN ATTEMPT TO GET THE DISCUSSION BACY O N THE PABM, SOLICIATED THE HINISTER'S VIEWS C O N C E R N I Y G THE D I ECTION OF AGRICULTURAL POLICY AND PROGRAMS. AGAIN ALLOWIL FOR THE NEWNESS or THE GOVERNMENT, HE A s n D P o f ANY INDICATION OF BOW THE GOVERNMENT PLANNED TO MOVE OY RURAL DEVELOPMRNT (ROADS, ELECTRIFICATION), STRUCTURAL POLICIES FOR AGRICULTURE (COOPERATIVES, CORPORATIONS, AGROINDUSTRY) AND COMMODITY PRICE POLICY. DR. IZADI SAIC LITTLE HAD BEEN DECIDED. PARTICULABLY CONCEPNING TEE SITUATION O r THE ASRICULTIIRAL STRUCTURE.ADMITTING TO SOHF' EISPUTE ON TRIS. HZ SAID HP PERSONALLY PAVORS PRIVATE ENTERPRISE, WITH GOVERNMENT INVOLVEMENT ONLY TO THE EXTENT NEEDED TO STIMlTL4TR TIGHT DIRPCTIONS AND PROVIDE WHAT

CON?IDINTI AL TEHRIN 4ai5/@1

C O N P I D E N T I A L TSPRAN - T ' iE P R l f n T F , S Z C T O R C I 4 Y O T . r.:. r A Y S POL( I I . R I % C m I O Y . FEEDER ROADS W I L L a , P R I O 2 I T Y . T K S O P F I C I k L P S I C T P O 9 WXEAT AS BEEN I N C R ~ A S E D 4 , ~ p a I r ? s FOQ B ~ Q L ~ Y , SYGA* EEET ANY R I C E A Z E UNDEB RWVIEW. *H'N F Y B O P d D E S C R I B E D T H E SUCCESSES O F T P I .jS I A T I O N A L RURAL E L E C T Q I C C O O P E S A T I V F I N OTHER COiJNTRI?S AND I T S P F S I R E T O A S S I T I R A N , CR. I Z A D I S A I D AURAL E L E C T B I S I C A T I O N PR0b"AMS Y E S E IMPORTANT, BUT WOULD POLLOW T H E F R O V I S I O N O P ADEQUATF D I S T R I B U T I O N AND VAREHOUSING O? ALREADY E X I S T I N G AGRICULTRUAL PRODUCTION. ( D E T A I L ~ D I N F O S M A T I O N SOUGET P E R R E F T E L , R E C E I V E D A F T E R OUR CALL, I S N O N E P H E L Z S S MOPE A P P R O P R I A T E T O T H E 3 F P O R T S O P THE P A S ATTACHE AN O F F I C E ABANDONED O F ?AS' S T A P F OR CONTACT S I N C E K I D - ~ P E R U A R Y .

e. ~ I N I S T E ~ I Z A D I I N V I T E D US MANUFACTURERS O F AGRICULTURAL R P U I P M ~ N T TO S U B M I T INPORMATION AND P R O P O S A L S T O T R E MARD I P I N T E ~ E S T E D I N A LON3-TEPM PRODUCTION P O S I T I O N I N I R A N . I.& S A I D TRAT I N K E E P I N G Y I T H I R A N ' S NEW AGBICULTURAL E M P d A S I S I T WOULC S E L S C T T H R F E (3) C O M P A N I E S T O PRODUCR ANS S E L L HERE. THEIR A B I L I T Y TO PROVIDE SBRVICE AND SPARE P A R T S WOULD BP T A g E N I Y T O ACCOUNT. I N T E R E S T E D COMPANIES SHOULD P R O V I D E C A T A L 0 3 S 01 T H 3 I R PRODUCTS W I T H P R I C E S . EMBOPP A S i E 3 M A T T H I S P O L I C Y I S D I C A T E D F O R T H E FUTURE 01 P O R E I O t i T I Q r S ALREEDY HERE (SUCH A S ROMANIAN TRACTORS W I T H n l s s r y r ~ ~ s u s o ~ AT T A B R I Z A N D JOHN DEERT A N D INTERNATIONAL BARVFSTER A T A R A < ) kND T K E M I Y I S T E R S A I D THAT T H O S E F A C I L I T I E S COULD EF C P i N G E D . (NOTE: OUR COMMERCIAL S T A P P AND P A S P S N S W I L L COORDINATZ E I P O B T S T O F L E S H OUT T H I S I K V I T A T I O N AND R E P O R T ACCORDINGLY .)

Q. DURIN: T H E 25 M I N O r E S WE WERE K P P T W A I T I N G FOR T H E A P P O I N T M ~ N T d E E X P L A I N E D TO NARD O F F I C I A L MAGHSOOB-POUR T X Z OUTSTANCINS $21 700 DEBT T O OUR DEPARTMENT O F AGRICULTURE POX A D V ~ N C B S 1.0 I R A N I A N M R E S T R T T R A I N E E S . E E O F F E R E 3 E I S A S S I S T I N C T I N R E S O L V I N G T H E I S S U S AND OUR P A S F S N S W I L L CONTACT RIM. MA3ESOOB-POUX, A 25 YEAR VETERAN W I T H T H E YABD, S A I D THAT T E E M I N I S T R Y WAS B E G I N N I N G T O RESUME YORL. I T S Z I E R A R C H Y I S REDUCED FROM N I N X T O r O U R O N D E R S E C R E T A R I E S , ONE O F WHICH I S A CARRYOVER.

CONFIDZNTIAL TEHRAN 4 6 2 5 / # 2

ING THE FABRICATIONS AND DISTORTIONS BEI?C PED THE IRANILN PUBLIC BY KEOUEINI AND H I S "TRUTH SQUAD. IZADI SEOULD BE AS WELL QOALIPIED POR HIS PORTPOLIO AS ANY MINISTER IN TEE BAZAGEN CABINET AND H I S PRIVATE ENTERPRISE LEANINGS BODE WELL POR A PRA3HATIC APPROACB TO A SECTOR CURBILNTLY DEVOID OF INVESTORS CONPIDENCE. THIS, OUR PIRST START AT DIALOGUE WITH HIM, SHOULD IDEALLY BE FOLLOWED BY SECOND LEVEL CONTACT I? STAFF RESOOOCES PERUIT. IZADI'S CLEAR RECOGNITION OP IRAN'S NITUBAL I N C L I N ~ T I O N TO TAE US IN AGRICULTURAL MATTERS NEEDS CAREFUL TILLING, ESPECIALLY BY OUR PRIVATE SECTOR,TO OVBRCOHE H I S SUSPICION, I F NOT HOSTILITY, TO USC POSTURES. NAAS BT Y4625

NNNN TEHRAN 4 6 2 5 / 8 2

I n t h e Name of the Al.might;v

OFFICE OF 1':i.L MIIISTE3 OF FOREIGlI AFF.11, 2

I , ; , rahle Yr. Secretary of State:

I v j ir Excellency'? l e t t e r dated May 13, 1979, was received with :> lc ic r r i .

1 :~!ipreciat,c the c o n 6 ~ a t u l a t i o n s and good wishes t h a t you have e x p r . - s s ~ ? . , ( the occasion of appointment a s Minister of F o r e i ~ Affa i r s of thi: I.v,visioriel Government of the Islamic Republic of I r a n , and wish t.o assi:r:? Y.,,I~. kce l l~ : i ic j / m~itual ly t h a t the Islamic Republic of Irm i s a l s o ready

co-operxtc i n t h e j o i n t i s sues and matters of common i n t e r a t t o the t d , ~'3;lr:tries.

I ? ! ~ n l . :rou f o r informind me of the appointment of Mr. Cutler as t h e Ambds- u (lor of tti. United S ta tes of America t o I ran , and I hope t h a t a s sooll ?E !I o t atrnosphtsre of dialomatic r e l a t i o n s between tho two count r ies beclm ,s 1 . r ~ r a b l r hr car1 proceed t u I r a n and commence h i s d r t i e s .

/ : w.1come your views on the necess i ty of f d 1 and frank e x c h a ~ . uf i . i r % , - t c t h e r d i ~ e s t l y ?r through represen ta t ives of the two count r ie r , 3nd in b~ruuit of t h a t idea may I s e t f o r t h the following m i n t and i n v i t e :m~r , # c ia1 a t t e n t i o n t o it:

I +' . '5ecr.etbry of S t a t e ,

r.11, st.: t .2 i r i your l e t t e r t h a t your government has no in ten t ion 't,o intc!rv+:c I . , .in:. w-iy i i l I r a n ' s i n t e r n a l a f f a i r s . I appreciate t h i s e?l>lir?l+.ness.

u~,v,i:, 1 :;.,vs t o s t n t e t h a t i n t h e v i e of t h e provisiorial i,ovc: m~wrrt * t h i I L ~ . i t . !ic.:.~blic of I r a n t h e r e l u t i o n dated May 17, 1979 or' :.o~.-

r l t r j~ ' . . 3 . i ~ t e a c n c e r n i ~ the pena l i a t i o n of the former ra=cimt:'- , -111iirla1s d;,:. not a t a l l comply with he above pr inc ip le , but i,; :$ c l . : j r i" I t , . tancc of intervention i n our country 's i n t e r n a l a f f a i r s a;n:i, tl.orcby

~ t , l ~ e l l e d , t h e I ran ian Government s t rongly pro tes t s againat t h ~ t 1ir:r. a ' q , t . ion yli: .~.~. ;olut ion of the United S t a t e s Senate.

! I 1s a source of nurprise f o r the I r a n i a n people who wonder how i t weri 1 1 , t when ti.,? past redime was r u t h l e s s l y f e l l i n g down our yoiml:- pcople

ITnjted 3t.3tes Senate remained s i l e n t and did no t seem t o feel t i n t . I .s 5.1 ri:+t:; were being v io la ted i n I ran , whereas now t h z t t h e revs ln t i.,.

trilirnphrd an; the criminals - re,:ardless of t h e i r r~li:;iou:l a f f i l i : r - ,):. - a r c In..ted the p e ~ i a l t y of t h e i r deeds, i t has ra i sed t!i? C P ~ o t -1 r:'::! t s violat , ion in Irnn a i d supports those who have comnni t t e J th,' t sii:~.,af.il crilnos f o r more than ha l f a century.

8 -nnfi :!er , t tlrnf; Your Jbcellency is q u i t e fami l ia r w i tli tl~c **rt tb.?t 9.' t ! )r.jnr.il,al and conttnuouv obj(,ctivc.s 'of +,lid I~r-:~iini. p * ~ o ! ~ l . ':- ? - : + l n ~ , ; - t,o hr ine , t o er,.l any s o r t o' intervorlt.inn l?:. for..i; r-z ' ; .

the i n l r v ,nl a l ' r - i r s of t he i r country. Under ti 0 . s ~ co.~ui+iorc 1 I.. ' :-tat<. wit5 conac?, th:t n ~ t qnly does the acLior. td: LI b - r ;.r7.r ro1m:ry' Send'? not h t lp t o create mutual u n d e r = t u ~ d i ~ snd a b s ~ ; f ~ s ' f r td t f i ,? o-opcratjon aa c i ted i? your l e t t e r , b ~ t i t com:~ell, t r l - Iranisl. :pvcnunent, u'l2er strong pressure from the nation's ru'rl?c opinjon, to ma:.^ revisi0r.n i n its t i e s with the United States C I V ~ I Y I -

rnent In I . . a ir-ction of l imiting tlhem.

I :LLSUL.C Your 5ccellency tha t my government is a l so deairo~is op estahlls:.ing closc t i e s of fr iendship and co-operation with th- Cnited Sta tes 0:' America on the baois of preserving the country's independerice and national i n t e r e s t s and based on mutual respect. Rut theoe re ln t jons a s a l so pointed out by Your fioellency, must be based on a new foumdatio In tho view of n\y flvenunent t h i s foundation is consideration and rasp-c f o r the fee l ings and aspirations of tho Iranian people and acceptance of the roz l i t i e s derived from t h e i r heroic revolution.

I aesure you t!lat i n the event tho new re la t ions between our t110 countri a r e founded on the above bases, they w i l l cons t i tu te a favsrablt :~ound f o r tbr kinds of co-operation mentioned i n Your Excellency', 1attc.r.

I m u t ~ ~ ~ l l y wish fo r an opportunity t o meet you in the future.

With regards,

/s/ Ebrnhim Yazdi

9. Lkc. Cjrils Viubce Thr Sucrotary of S ta te of the United Sta tes of b e r i c a

- Z ? Y ('CCCC t 2 H e " , * m d ~ 6 ~ N A Y 79 z F F 4 r BrqTATE. V A S m C T ~ J n " t P o A 6 0 Y TEHRAN NIACf I ~ H E D I A T E 2568

2 4 ;.J K;

I 2 . ~ ' 5 CIPYPlt VJ EVBPQSr FOR £ 1 9 PREPkRhTJ9013 TO. IY,PQVI. ' ? .SCY t 7Clb ) ITY Am I T S PLANS TO DISPERSE CKBASSf '=ii C t j d N n TO hXT E l l l P Q 9 S I U E OM DAY OF SCHEDULED DEPIOIBTRA- T' ' ce WE ARE NOT SATISFIED* HOWEVER* WITH PGOI.8 ). .Sc~711'= TC DATE TO YOUl REQUEST FOR ADDItlONAL SECURITYI T q r P f F 0 R C V O I D YOU R E A S E SEE PM HAZhRQIIW OR FONNIW 'AlD! O N LllGEWT BAS18 TO MAKE FOLLOWIllG POINTS:

f i . AS IRANIAN GOVSRNMENT WILL HAVE NOTICED* T H I S ADRINIS- T R k ' i l O C Hh:: REEM MAKING A nAXIMUN ECFCltT TO IMPROVE "<I ATIOdS* RESTORE OUR T I E S TO A NORMAL COIRSE* b&D L I f l I T 'n ( Y T ~ N T PO+SIBLE E ~ O T I O N K a I I S I I T O R M ~ RESPONSES. 1;'' PAUF NO ABILITY TO COWROL STATEIERTS FROM THE ANERICAN F;,-S; OR IJ. S. COUGRESS.

" W : r $ V T DONE OUR B W T , HOWEVER, TO PRESENT L FACTUAL ~ . i r t l ! F ~ OF FVPhTS IM IRAN A m TO DESCRIBE TO ALL INT@REStED

7 . c Irk'. Y&?TIES THE PlUTUfi INTERESTS AM0 C O N C n R S WE 5IJ:.RE I :TH IRhN.

r. Wh M F D15;TUREm BY THE PHENOMENON Olr I U C R E A S ~ N Q ANTf- r 3 r r , x c + t s J s a 11) I R A N , MU n o t vnlcn sems TO BE 9AsED O N A I rDil hv r q s u w E R s r f i w I ) I S OF THE ATTITWE OF T H I S ADMINI*- l u r T ltlt!. WC REALIZE THAT tWL PBOI F*CES RAnY r o r w R n I r m A ~ O WE APRE- r lATF Tt'. EFFORTS TO DLTE TO ORFUSE TnfE'MSGHLX4HARGfb AT* t*SPHEHG.

9 , I!f ARE S E 3 1OUSLY CONCERNED A f F'RQSYECfS THAT QEblON- 5TRtTIOHS N A Y T H i E A T D N THE SAFETY OF A ~ ~ L C A N EWB4SSY FERSOMdFI. I N TEHRRN. YE VOLLB L I n P THE I U A W I A N QIJVDRWNC@:I'I

f!'F EMDTIONALLY-CHARGED CfRCUflFTANCFs. A C ~ W ~ I M G L Y ' , WC 4FQUFST G7CENTI.Y THAT AbEPUfitE NUMBERS OF lSFKLflIUE A @ OISCTPLINFD SECURITY P!ZRSOW)Ia EF PROU:3DFX) TQ,@RBT.~C? tw 6r''FR I CAN QYBASSY COMPOUYD #.Y) IT8 PLRSOIYNEL.

F. W t fiI.TO REQUEST THST STEPS BE TAKEN T Q PRSVENT Sch,D tJLFD DEXONSTRAT SONS WHICH i4AY'BROdWE VIdLkNT *?'ROA 1rltEATEh'lNC T H E PR'EMISSS Of TI% ANERlCW ~ @ ~ P S S Y .

IRANIAN ECONOMIC TRENDS

A REPORT PREPARED BY THE AMERICAN EMBASSY IN TEHRAN

JUNE 1979

by mid-1979 Iran's economy was ?till in the main paralyzed as a result of the revolutionary turnmil which umhered in the Islamic Republic last February. Despite dOc*iving elenmnts of n0rIMl~yt such as basic infrastructural services, the level of productive economic activity is still less than half that of a year ago. Agriculture has been least affected and within the industrial roc- tor, food and pharmaceutical industries are near normal operation. 1t is estimated, in the absence of any official economic data or estimates, that the real GNP declined s m 20 percent in 1357, the year ending March 20. Econolaic recovery is maon as a medium term prospect and one determined more by political than economic factor.. Iran's revolutionary leader8 inherited an almost moribund oconary, but also the fortunate factors of high foreign romerves, low pub- llc debt, the revenue oil base and long-term potentialities which justify moderately ambitious social and economic aspirations. Tho impact of the revolution on foreign camnwrcial interests in Iran has been adverse and substantial. The status of most pre-rovolu- tionary contracts is still uncertain and busines.mcm are advised to obtain the latest information before visiting Iran or navigating ~ t s still revolutionary waters.

CURRENT ECONOMIC SITUATION AND TRENDS

MARCO ECONOMIC SITUATION: Iran'. post revolution economy romains In serious disrepair as of late June. Thi8 reflects in great part the continuing nature of the revolution, which saw the Monar- chial Government overthrown February 11. Iran is governed by a Provisional Government and awaits the seemingly illusive procesm of adopting a new constitution and electing a poraunent government. The impermanence of government and wide-spread negative expecta- tions foster the continuing economic malaime. The Revolutionuy Government and authoritiem inherited in February an economy, already suffering from disequilibria, shattered by pro-revolution strike# and concessions to workers. Industry, apart from the generally strike-exempt food and pharmaceutical sectors, was virtually mori- bund. The construction mector was shut down. Commerce was suffo- ring from consumption slacknoas, cumtoms ombargoes, and an almost bankrupt bank system. The oil soator was barely meeting do~oemtic requirements. Agriculture, alone, appeared little affectd by the traumatic events. But, unlik. rost revolutionary benchmarks, Iran'# new leaders inherited a good foreign exchange reserve, low public debt and the hard currency revenue earning power of the eamily resumed oil sector.

Non economrc t d ~ ~ o r s have been pre-eminent since the Chdnge or go ment. Typical of most revolutions, priority is given tc the "puri tion process," and economic consequences thereof are subordinated revolutionary goals. This "backward looking'' phase of the rrvolut seems not yet comolete. Contracts, financial movements and person wealth accumuiatl~n are all scrutinized and revolutionary justice out to those consideled gullty. This process has not enhanced the tors requisite to economic recovery -- the fabrlc of authority, eft tive decision making, worker discipline and positive expectations. the contrary, a ma]ority of Iran's senior governmental and buslness leadership has been removed--imprisoned, executed, voluntarily exi or just told t~ vacate-- and with the continuing substantial loss middle level mdndgers, professionals and technicians through emlgra Iran's economy 1s suffering lrom lac^ of adequate leadership and ex time, with the concurrent erosion of authority with all its consequ ces. Offlclals, public and business, are reluctant to make decisio and their subordrnates, llkewise fearing the uncertain consequences from action in this continuing revolutlon, impede the execution of programs . Many aspects of Iran's post-revolution economy are almost disconcer tingly normal. The lnfrastzuctural fabric of water, electricity, telecommunicarlons, post, petroleum supplies (and record traffic) i essentrally sound and supports ones expectations that all else shou lrkewise be normal. Offrces are etaffed and banks and most stores open, but the functional level of the economy is still well below n mal, a factor understandable in a revolutzon, but nonetheless often hard to appreciate in the midst of "normal" trappings. In June, a senior government offlcral said that Iran's industries were worklng at 40 percent ot capacity; 40 percent of "normal" may have been wha he meant. He recognized as~~npedinents to economlc recovery the sho tage of cred~r and uncertarntres.

Few econornlc data are available srnce September 1978, the beglnnlng of revolutronary ~urmoll The Central Bank's Annual Report, whlch presents the year's economrc data, will not be available before Sap tember, at least three months late. Our best, educated-guess esti of economic performance in 1357, the year which ended March 20, 19 is a GNP In c~rrtnt value of some $70 billion, down 8 percent, ve sus a 17 percent increase in 1356. At this level, per capita GNP would be $1,988, off 10 percent. We estimate that in constant 1353 prices the GNP fell about 20 percent to $44 billlon, which compares wlth a 2.8 percent growth in 1356. The fall in GNP was a consequen of the political turmoil which led the country to near economic par lysis. Oil production, erratic during the fall, fell to a bare sub sistence level December 26, wlth exports curtailed until March 5 an valued at but $14.8 billlon ror the year. Value added in the group of industrial sectors declined by at least 20 percent, with constru tion the most depressed sector. Government expenditures contracted to just about the payroll minimum by February.

Most observers do not anticipate full economic recovery for at leas several years, so drabtic have been the shock waves of the revoluti

2

The oil sectur, rl"w more essential to the economy, is producing at an average 4 ~ I I I ~ L L O ~ B/D, almost 40 pezcent below the level a year ago. But it this level is sustained, production in 1358 will be roughly rqudl to last'year's. In 1978, oil production at 1.9 Bil- lion 8bli was d&n 8.3 percent. Revenue, however, will be at least 40 percent gredtt:~, runniny now at an annual rate around $24 billion. Industry, little recavered, and construction considered but 20 per- cent of normal, will depress the GNP. Agriculture will probably post a negative tigure since, apart from even to favorable prospects for wheat (5.4 million MT), soya and dairy, meat, rice and other production prospects are down. Fiscal policy is reportedly to be expansionary, but by the time the yet embryoric 1358 budget is adop- ted, obligated and disbursed, little economic impact will be felt this year. Foreign non-oil trade will be but half previous levels, with imports not exceeding $9 Billion. Major projects are either cancelled or inoperative, awaiting reconfirmation and remobiliza- tion. Unemployment continues as the country's primary economic and political issue, and Government leaders have complained con- cerning the "Workers' Dictatorship." Inflationary factors have built up and are expected to be unleashed by economic recovery, an unfortunate price but hard to avoid. Private investment, down slightly in real terms in 1356, is absent and will unlikely occur in the private sector given prospects of increasing nationalization and other uncertainties. In summary, Iran's economic performance in the near-term will be conditioned principally by its political environment- Continued uncertainty will impede recovery; restora- tion of stability and achievement of a reasonable level of economic activity will require substantial government initiative. Fortunately, if oil production is maintained at or near a 4 MMB/D level, feasible even without fsreign technicians in the short term, Iran will not face financial resource problems..

Economic policy 1s st111 in a state Of flux. All that was past is suspect. Shra lslam apparently ia sufficiently flexible in much of the economlc area thdt, apart from an oft-declared tenent of private property rights and an equal~tarian thrust, policy determrnation would seem more a product of Iran's third world pobrtion and per- ceived socio-economlc needs. The eventual mix of private and public sectors in the econonty may be quite different from the currently ~ncreasing public ~ntervention in the economy, which is justified as necessary due to the chaotic post-revolution conditions. Numerous changes in pol~cy have been noted, witness the nationalization of banks June 7 and insurance June 25. Nationalizatron authority is currently pendrng for the industrial and agricultural sectors. Mini- mum tax liability has been raised and the range of government sala- ries narrowed. Trade pollcy seems to f a w r autatky, the relaxation of price controls, reliance on market forces and greater attention*= the priorities of the rural/agrarian sector. "Show-casen projects and sophisticated military system. are out.

Iran, a8 we have said previously, has better than average long-term prospect.. With oil reserves of around 60 br.llion barrels, the world'. second largest known gas reserves and a not insignificant

minwals sector, its foreign exchange earning potential is capab of dupporting a moderately ambitious long-term development progr Eaqily overlooked in reltolutionary rhetoric is the fact that fro th$ overly ambitious, oil-boom spending spree, Iran emerged with a mdch improved infrastrqcture, higher level of literacy and man- Rower skills and per qapita consumption capable of supporting a larger indigenous industry. Revolutions are seldom efficient, and Iran's has cost it dearly in human and physical terms. Its chal- lenges include a population growth of some three percent, still- high adult illiteracy, a badly skewed income distribution and social factionalism. The country now must find or develop new political and even social fabrics and a self-identity that can be directed constructively to attain its individual, social welfare and economic aspirations.

FISCAL DEVELOPpENT: Iran's fiscal performance has been abnormal since late 1978. Disbursements for major capital projects gene- rally ceased and arrearages from 1357 persist. Current expendi- tures have ontinued to be restrained, hardly exceeding payrolling Foreign len2ing and investment have been negligible for over a year and will continue so. Tax collections ceased last fall and an amnesty on payments was granted until June 21. Debt financing through bonds and foreign credits ceased by October and neither are considered short-term revenue prospects. Expenditure restrain is credited with minimizing the government's 1357 deficit to below $3 billion. Government external debt is virtually current, but early resolaion of payments owed foreign companies is problematic.

A temporary budget for the first quarter of 1358 has expired and a permanent budget is, at this writing, pending approval. The budget is reportedly rials 2240 Billion ($31.8 BN), with Rls. 800 BN ($11.3 BNI allocated for capital expenditures and the balance for current and miscellaneous activities. These levels are sub- stantially below those authorized for 1357, but probably close to actual levels of spending in the last two years. Government com- pensation features have heen trimmed to offset somewhat the sub- stantial basic pay increases granted last fall. The chief announ- ced tilts in the budget favor agriculture, rural development and housing. Decisions are still awaited on the continuation of most major projects, but the overall capital allotment appears adequate, especially in light of the lag between decision and disbursement. The chief issue will be the political capacity to allocate and disburse. The learning curve of the new leadership, lengthened by the weakened second level manpower support which has been deple- ted by. emigration or revolutionaryfewor must be taken into accoun in expbctations. Another issue will be the ability or will to cle up the sizeable arrearages from 1357. A projected $5 bn deficit is to be resolved by higher oil revenues and personal (not institu tional) government bond purchases. Receipts from Iran's $7 billion external, non-monetary protfolio, ahould be around $1 billion.

4

The net of revenues from a major tax amnaaty program and the result. from a large increase in personal tax exempt income is hard to cal- culate, but non-oil revenues seem destined to be a rrmaller share of the resource pie.

MONETARY AND P-RJCE DEVELOPMENT: Iran's banking system was reaso- nably operational at this writing. The health of banks was uneven prior to the June 7 nationalization with about 15 banks highly liquid and about six deposit banks in substantial foreign arrearage.. Banks reopened after the revolution on a regular basis but with erratic service; the foreign axcha a market has been particularly chaotic, with Central Bank regula~ons changed a1mo.t completely May 5 and revised often since. Bank management, as elsewhere in the economy, was shattered, with about two-thirds changed. Revolutio- nary Committees often controlled evon the most routine tran8actions. An amnesty on payment of comnurcial instruments waa granted through June 21, at which time all except penalty fees and interest would be due. With bank nationalization, there came an almost complete chang. of management in the private and mixed capital banks. It in antici- pated that with the government now liable for all claims'on tha ban- king system, the problem of weak banks as well as the reluc+nm of most banks to extend credit will be resolved. Continuing postpone- ment of domestic and private debt repayment to banks in expected; most banks, on the other hand, are current on their domestic and foreign debt. U.S. banks, with direct outstandings in Iran of about $3 billion early 1979, are slowly reducing their exposure. A. in the case of other foreign banks, they are booking little new debt. The issue of compensation of foreign as well as Iranian private bank shareholders has yet to be determined, but the Provimional Govern- ment has espoused the compensation principle.

Official uonetary data are not available since October 1978, but liquidity (M2) is thought to h a w increased by Five percent from September 21 to February 19, with notes in circulation up 103 per- cent and savings and term deposits down 20 pcircent. Thus, the dec- line in velocity of money offset almost entirely the large note Issue activity which was required to sustain bank. during the eriod of heavy withdrawals. Notes in circulation of blarch 20, were {ills 912 billion, compared with Rls. 450 billion September 22. The Cen- tral Bank has not yet reinmtated the reservo requiraonts reduced last October and banks are not required to purchase aovernment bonds. Liquid banks have been enrolled in the Government's program of cre- dits for economic recovery, which were mad. availablain May to mdustry, agriculture, housing and various state-owned companies. Lnterest zates or "fees" are six percent or less. The Central Bank is concentrating on bank recovery and has not yetb adopted a mone- tary budget. It does wek, however, a negative note issue for 1358, which would be aided by Rial repatriation. Iran appears to face no short-term difficulties on it. external =counts, Preliminary eleven month balance of payments data suggest a 1357 basic foreign exchange account balance in balance to slight surplus. Official foreign exchange in mid-June, after some three months with virtually

no oil receipts, were a little over $10 billion. Assuming payments in 1158 at $13 blllion, off over40 percent, and oil exports (crude and product) averaging 3.4 MMB/D, Iran's current surplus could reach $10 billion, with end-year reserves of over $20 billion. Such a pros- pect may tempt Iran to repay high cost foreign debt, enjoy a cushion until the level of economic need is restored, reduce the earnings ' rate or escalate expenditures. There is debate concerning the exchange

The Central Bank has a two tier rate, with officially sanctioned exchange needs sold at Rial8 70.60 to the Dollar with other exchange

1 rate policy, with argments pro and con on devaluation and revaluation. ,

I

purchases sanctioned at Rial8 79.00. Non-oil export earnings benefit from the higher Rials 77.50 selling rate.

TRADE DEVELOPMENTS: Iran's trade fell substantially in 1978 and is expected to be off some 40 percent from that level in 1979. The most recent Iranian trade data are through December 1977. Preliminary data for the first seven months of 1357 (through October 22) reveal non-military imports of $@157 million, or an annual rate of $14 billion. We doubt, due to the customs and other strikes, that 8UCh imports exceeded $11-11 bn in 1357, with total merchandime payments around $14.5-15.0 billion, versus $18 billion in 1356. ~on-oil/4as exports probably did not exceed $350 million in 1357. Receipts from oil exports should reach $21 billion in 1358 if production continues at the 4 million B/D rate. Non-oil/gas exports, dependent largely upon the presently crippled industrial and mining sector, should be off half. The 1358 import regulations reflect not only Islamic pro- hibitions but a more autarkic philosophy. For example, vehicle imports are prohibited.

Conditions at the ports after the revolutien were chaotic due to the prolonged strikes. Despite subsequent preoccupations with poli- tical and management issues, operations slowly resumed and Iran- destined goods off-loaded in the Gulf during the strikes were deli- vered. Then ethnic/political problems In Xhorramhahr resulted In the closing of that port in May. Fortunately, almost all of Iran's food imports, which in turn account for most current import activity, enter through other, calm ports. Imports in customs' holding areas, abandoned or benefitting from a warehouse-cost amnesty, are sizeable and becoming a problem. Lack of liquidy, again, is a major impedi- ment to resolving this problem. Financial terms for trade are new. Most exporters to Iran desire a confirmed Letter of Credit and most Iranian banks have in turn asked for a 100 percent prior deposit. It is too early to see whether this obstacle will lessen due to bank's nationalization. Iranian exporters must agree in advancu to sell foreign exchange proceeds to the banking system.

INFLATION ISSUE: It appears that Iran will have to pay the price of high inflation as a cost of economic recovery. Its rate of inflation was braked in 1978 due principally to a slowing of the economy and policies which affected real estate prices. The wholessle and consu- mer price indexes moved an averago 9.4 and 9.7 percent in 1357, con- siderable declines from the doubla digit previous rates. Unfortunately, the coefficients of these indexes were virtually inapplicable during

the last halt of 1357 due to the changed expenditure patterns caused by the economrc paralysis and uncertainties. Thus, we consider more llkely 1357 inflation rates of 15 and 11 percent CPI and WPI, w ~ t h a GNP implicit deflator of 12. A recent examr- nation of current price movements suggest an annual consumer price ~nflation rate of 15-17 percent. Real estate prlces and rents have declined. Utilities are down slightly while transport and clothing costs are up somewhat. Food costs, apart from the generally sub- aidized staples, push the rndex up. Fruit, meats and vegetables suffer periodic shortages and prices in some items wrll run two to ff3mtimee a year ago. Overall, food costs are up some 30 per- cent in the last six to nine months. Spare vehicle and machinery parts, plastics and industrial chemicals are in short supply. The Government's price policy is not yet determined. Food subsidies apparqntly will generally continue. The wage increases of last fall, shortages, pent-up demand due mainly to political factors, decreased productlvity and the prospect of increased Government spending and consequent lessening of unemployment together sup- port a prospect of high, over 30 porcent, inflation in the near future. Essentrally, a moderate price movement in the near-term would be a conrequence of economic inactivity, low demandi higher rntlation rates wrll be an unavoidable price of near-term economic recovery or stagflation will develop over the longer term.

LABOR CONDITIONS: Unemployment is perhaps Iran's greatest eco- nomic and political problem. It's magnitude is disguised by the present policy ot voluntary or involuntary employment at previous levels regardless of need. Few reportedly are participating in the Government's iinemployment Loan Program, financed atRials 10 blllion a month. Nonetheless, many wonder when the cushions of personal sav-ngs and societal relief will run out tor the several mlllion unemployed and millions more underemployed. These are found particularly in the depressed construction and transport sectors, wtth slacKness in industry and private services also con- tributing tc the problem. The costs of compensation for little ur no work will eventually have to be paid by the economy. A familiar situar~on is a factory with virtually the same complement of employees as .A year ago, but producing 20-30 percent of nor- mal and paying hlgher wages. In commerce, employers maintain staffs out of therr pockets, awaiting an upturn in business. GOVerNasnt bureaucracy, like private, is still pre-occupied with political and organizational concerns. Ironically, Iran's new nascent labor movement, having successfully flexed its muscles during the polit~cally motivated strikes last fall, faces a depress& economy and urgings from the revolutionary leadership to foresake material goods and sacrifice for the revolution. Indeed, even the off-frustrated formal Government recently established a special f o r m to regulate labor and put down worker interference. in operations. The Government's trscal Droaram 18 said to include am~lovment crea- tron in the rural areas Lhich it hopes will induce migraZion. from the urban centerb.

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THE ENVIRONMENT: Iran's political and econoinic environment is still revolutiondry at this June writing. The populace awaits certain specific and other, nebulous developments essential to a perception of security and motivation to work and resume nor- mal economrc rzsks. Amnesty of political prisoners and others considered suspect is seen by many as a requisite to clear the atmosphere of tear and uncertainty. Likewise, adoption of a new constitution and election of a permanent government with general public acceptance is seen as necessary to reducing the political malalse and negative expectations. Establishment of an adequate and just security and judical system is also sought. The diffusron of authority among governmental and revolutionary fabrics persists. Westerners, as well as western trained Ira- nians, often feel the effects of the revolution's judgement against western influence and presence. While physical danger has lessened, the atmosphere can be inhospitable.

IMPLICATIONS FOR THE UNITED STATES

The economic impact of Iran's prolonged paralysis and revolution on its foreign suppliers of goods and services has been signifi- cant and will be felt for some time. Foreign exports to Iran fell dramatically from late 1978 and orders in the pipeline are almost exclusively food, pharmaceuticals, paper products and spares. U.S.. non-military exports, which increased in 1978 by $1 billion to $3 7 billion were but $245 million the first quar- ter of 1979, off 72 percent. U.S. export potential remains good in agricultural commodities and such shipments have resumed at normal levels. Investment prospects are, of course, uncertain and U.S. j o ~ n t ventures in many cases are anxiously awaiting word on their futu~e. Some, as is the case in the minimally affected food and drug ~ndustries, report a brighter situation.

Many Iranian Government contracts with foreign firms have been cancelled, few have been reconfirmed and a good number remain rn suspense. One calculatron of the value of cancelled civilian contracts with forelgn firms is $38 billion. The value of can- celled mrllt-ry-related contracts with the Unlted States is at least $15 blllson, apart from many related services. To the extent that these sales are not redirected, the loss to the U.S. economy must include the multlpller effect and loss of U.S. employment. Among major civ~lian contracts declared or considered "dead" are the aromatics plant at Abadan, Kalingas LNG, the two French 900 MW nuclear power plants, the Tehran/Khorramshahr/Bandar Khmeini (Ex- Shahpour) rallroad electrification and Tehran's Center City Deve- lopment "Shahestan", Projects presently considered unlikely to be continued or, I£ so In a highly modified form or not with foreign contractors, Include Tehran's International Airport, the Qom- Bandar Khomerni Hlghway and Tehran-Tabriz railroad electrification. In the undecided but unlikely column are the IGAT I1 $as pipeline, the two German 1200 MW nuclear power plants (over two-thirds com- pleted), the Italian steel mill at Bandar Abbas, and Tehran% Metro subway. Projects to be continued include the Iran-Japan Petro Chem

cal complex, the Sarcheshmeh coppar complex, gas recovery/rein- jactlon in Khuzestan (though modified) and, also in modified form, the telecommunications projects. Businessmen are urged to contact the Departments of Commerce and State to obtain the most current information concerning specific projects as well as general econo- mic conditions in Iran.

Most foreign firms having outstanding contracts or joint ventures in Iran have resumrd contact with their Iranian colleagues since the revolution. Many believed that had they not returned -- and some did not interrupt their presence -- it would have indi- cated to the Iranian agency nomething between disinterest and culpability for past actions in Iran. The results of renewed con- tract have differed greatly, but on the whole the foreign business- men see their visits justified even if all issues were not settled. In many instances the foreign businessman has found that the govern- ment was not yet able to obtain a decision on a given contact. Public agencies, in cases where renogotiation has occurred, appear in general to seek downward modifications in contracts, a decrease In unit labor costs, lower expatriate presence and a waiver by the foreign firm of demobilization/rclmobilization and other costs relating to the revolution. Thus, even when a contract receives a 'Go-aheadn, the foreign firm, in most cases reluctant to resume work until arrearage6 are cleared up, faces some difficult public policies. Iran's formerly large foreign population is reduced to a few thousand legally documented workers. The former U.S. popu- lation of at least 45,500 is down to several hundred, excluding permanent resident dual nationals. A new and highly restrictive foreign work permit policy seeks to maximize employment of Iranians, but will make difficult the resumption of old or execution of new contracts.

The Embassy continues to provide current guidance on travel to Iran either in response to direct queries or through Washington agencies. While many U.S. businessmen have continued their work or returned permanently or periodically without incident, there have been nume- rous instances in which businessmen have been detained, restrained from leaving Iran or subjected to varying forms of employee harass- ment. The Embassy's Security Adviorylate June continues to recog- nize its inability to afford normal protection to American lives and property. Business travel for specific objectives, other than general commercial promotion, may be warranted, but visitors are urged to obtain a current assessment before initiating travel and to maintain contact with the Embaeey while in Iran.

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SUaJ2CT: ( U ) I ;AS'S EO3EISN ASSISTASCE. INVISTYPNT, [ l i Y i l ? l S AWL C1II 16RYIC?

I DSPT PLSS EXIKbAV3 PARIS ALSO FOR OECD

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2. ACTIb!G ECONCCUh'S OSTAINEC JUNE 12 FROM DR. REZA S A L l K I , ACTING P3PSICENT OF TEE ORGANIZATION POX IKVLSTXEIT ANC ECONFMIC ANC TECKYICAL ASSISTANCE OF IEA ( O I ? F A ) (LOCATBS I N A N D S U B O R D I N A T P TO 5 3 ~ M I N I S T R Y os Z ~ & V O M I ~ AFFAILS ACE YINAYCE), SUXrthRY INPOR3ATIO.Y 20;;- CPRNIYC Ti45 STkTUS AND POLICIES O f TZE PSOI 'S 1 3 a E I S N ASS1STA)ICF A:dL INVESTYENTS, SEVENUXS ANI: EXTPSN'L DEBT SERYICS. !. L I S T I E ; OF IRAI 'S C J d C L l T I V E (bSOSS) PGBEICA GRAFTS. 2RELITS AN? INVES?%ZT BY :HE OIETA, ACTIOUS CIXSYJLLY OUC3CE3 BY TA3 PREVIOUS =OV3RKX!NT, YAS CARRIEE IN 1 3 E TEERAN PRESS MASCk 29, EAVI'IS 3EEN RBLEhSED .BY SOMX YORXERS OF T E 3 OIETA. L SENIOR O I P T h CPSICIAL MlINTAINS TBAf I T CONTAINEC SOME E9a03. 1 E HA BPEN PROHISS3 A 2ORRECTED ;?TAILING AND WILL 3'JBNIT I ? d i i l N IVAIZL'LE . IN TEI M/J.?lTIPK;, Ti?E ?UiLISAEZ LISTS ACEBE36TES ILL SERVE %S b 3EN3RtL INDIC!?IO.Y 3 F TF3 MLSNITUDZS INVOLVEC: ;RLP!TS - 5126,'d50,15Si 1 3 3 D I T S - $ 7 , 9 € 9 , 5 2 3 , 4 4 5 4YD INVESTYEYTS $354 3ILLIOE; .

3. FOZEICN ASSISTAY:3: TEE FCBZION LSSISTLVCE BUD3XT POX TE3 CUHXZKT l'J57- TF?.9, :71IC9 BZ.:dN Unkc3 2 1 , I S NOT YET F O B Y F L ~ T E D , LCCOEDI:~: TO DR. s m n r . TEE owsr DISBURSE32NZ SIX?: :3E tbB . 1 2 IZVOLUTION B i S iZ3Y I 0 TiiE OPEC ??!is. 5E S b I C 9E HOPED CGNNITU.S:;TS ?C,?LD 3 1 M3T. A I S C3MLNTS ON S T P 2 I P I C CSUNTBY PRO:RXP'i, ?90;J3Y

EISSURSENBNTS SINCE ' 1 ~ 4 ~ ' s RZVOLUTION.

COY3CNT: GIVEN CURSENT BIT,ATRRAL F E I C T I G N , * E D3 LDT j - EXPECT MUCH I R A N I N A LARGESS.

/ T - - DESPITE THE EARSY MARCH P 3 0 I AVN3UNCEME'IP OF - SLSPENSION OF FURTHER AID, SALIMI SEFPQHED I 0 PENDING

1 - PROGfiAKS PBROUG3 THZ J O I N T INVESTMENT CO3PAVIES IN A - WAY TO INDICATE TEAT TEET WERE ALIVE.

TLhEGAL - THE PROGRAMS, TFRMEC "uEVER PROVEN V I A B L F " - A R E DBAD . INDIA - DISPURSEYENTS k 3 A I N S T THE TUDRTMU<S IRON PROJXCT, - i1HICH HAVE BEEN VIRTUALLY COYPLETEC, 2EMAIN SUSPSfICEt - DUE TO PEBFOSYALCE DISPUTES.

OPEC FUND - DR. S A L I Y I S I I 3 THAT IRAN ZECENTLT REFUSED - TO RESPONC TO A FINLNCIAL CALL ANE 3 h I S E 3 . 'ITB T 2 9 - FUND I T S CONTZNTIOL TBAT IR4N'S QUOTA 4 0 3 s N3T - PROPEELY REFLECT I T S O I L PROCUCTION HJLATIVE TO OTFES - MZ3BRP.S. T d E PBRTIC'JLAR REFXPENCS YAS TO Sk ' JDI CBA3IA.

I - SALIMI S A I D TEAT IRAN'S COXP!IW&V'I' OF 6 4 2 3 3ILLIG.V - (INCLGDFD $120 MILLIOY FOR I F I D ) COfl?Ai?ES 6'1" $ 4 5 - MILLION BY SAUCI AilA9IA. A NUCH LAAGER O I L PBOCUCBS - AND COWSIDERB3LY 3 6 4 4 E R OFF. BE S L I D TH4T DISBURSE- - MENT BY IRAN TO THE FUND THUS FAR EXCEED $220 MILLION.

( 4 . FORZIZN IliVESTME!IT: DR. SALIMI S L I D THAT THE REVGLUTIONXEY. GOVERNMENT'S POLrCY OF F O R E I M INVEST'IENT I I S S T I L L UYDXR STUDY. BUT IN TAE MSANTHILE THERE ARE N3 'PLANS Tt CISINVFST. 'HE AC1X0h'189DbED COUSIDPTkSSE

C R I T I C I S K C O N C P R ~ I N 2 THE PREVIOUS GOVIRNMZNT'S FOdEI3N INVXSStYENT. THE FCCT FRAT IN SU?SEQJENT CAYS TBF PSESS PLAYED PBOKINENiLY THE TRAVEL 01 MINISTER OP INDUSTRY IbDc;!INTS TO ATT2ND A BOARC YEETIYC TO XRUPI? 9LTH.79 SU3- O E S N AN UNDCRSTANDABLE IRANIAN PRIDE IN SUCS FOREIGN INVESTMENTS . 5. R E V ~ N U E S FaOY TZE OIETA POSTFOLIO: 93. ASERAFI , SALIMI'S P K E 3 2 C 3 S S 0 8 , ESTI?l lTED f E l T INTZREST LKI! FRINCIPAL BECEIPTS BY IRAN FROM THIS PORTFOLIO C F ?GREI:V. ASSETS VOULC RPACH $1.2 BILLION I N THE C09RBNT I B I N I A S XEIW. dEEN SMBOFF NENTIONEL T H I S ESTI?lbTE, WITBOUT ATTRIJUTION, TO SALIMI , a E S A I D I T SOUNDED SIGN. 9Uf fix THEN ACMITTEC TEAT I N 31s NEVNFSS TO THE POSITION EE HEALLI HAD NOT ASSESSED T E 4 ISSUE. TWO P a I N C I P h L B?PAI- n E K r s , $463 M I L L I ~ K SR3' l TilE LONDON YATER N A R C CNC AN BT d6415

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ACCELBRATED RZPAYMENT OF $380 MILL13C ?:.OM TiiE ERE1 OF F2hEiC3, ALONI: L I L L ?BII4G IN $ 7 Z a MILLIOx; INTEREST 4ND OTaER PRINCIPAL SHOULD PUSE T B 3 BLVXiiUIS TO OR 3VER ONE BILL,IGN SCLLARS. CRLINQUEN5IES TO T A T IN ISAY 'S F O R b I l C bSSISTAh2E P2039AH ASP TiiOST ?F.i7BIO'JS!,Y REP031'5D: EGYPT, SUCAN AMC PACISThN. ESYPT'S 9PB7 J 4 S RESC.fEDUL19 LONG A 3 0 h'E %\V3 KO DETAILS COSCERNIHS S3CIN Clr P A ~ I S T I N ' S D& FLIq?UEECY EVBLES ALONG dITiiOUT AYi' F0QY:L RESCHECi'LING. 2EVFIIOE CATA FRO'&' T3E I>VEST;.',Z:(P PORXOLIO CONTINUE TO BE UNAVLILA3LE.

6. CCST SERVICZ BY IRAN: THE 316TA I S ESSPOVSISL7 FOR SERVICIk; OF IRqSq0S P i l S L I 2 D?hT ( C I R T C T AND, I F KPID 33. GUPi?i.YTZED! 95 YZLL FOR hPF23VIS ; '.LL F3RTI;d DC31, G Y ~ G O V E : N M Z ~ I T I:KNCIRS. IF" Ta?. AFTEXM~~:? O? THE REVOLUTION. WiiICfl lSLS PRECEDED SY CXIPPLING B Z ; : P A;JJ

,PUELIC SECTOR STRISES . T 9 E OIXTk V1S UN33P 3 9 P L T PB?FS3PZ -. ~~ . .. ~ ~ ~ T O - ~ ~ P L A I : - L A T ~ F . I Y ~ ~ I ; ; T ~ - - ~ . : : P - T O 6.4 rj:!,a~ ?TI!E nRAP :!AD 3iJA?AP;TC?D. I?1 S9M.I. 0 9 TBJ LATT39 CAS?S, $ T E E OIETA CEPXRHEE ON PAYMENT AS GUAXACTG3 UNTII 4 aREASONABLS FF'FOST COULD 33 Y 4 3 E TO ;>T PL?PIY?RT

~ ~ , X C ~ P T I O H S ii-13: THE I'IDLS'I'RIAL C3s '" IT S k J Z , ' d3SE FqQ ' I S NCT CVAPBNTI'ED 3Y ?HI. ,979?', AVC I%AK I.3;DTOil COkPkkY,

!A SUdSIDIARY OF ICRO. i)UT VOT ~iJ~.Rl?\ lTZSll . DR. SALI-I I !COMPLAINED A30UI 172 L i T Z PfLYYIYi i E N A L ' i I ~ S 5 1 'If13

USG (EXIMaPi; ' Lr AT,) A?II: AS iED 1 2 , IY. C O f J S I C I : B I T I O ~ ~ ? O P TIiS . D I F B I C ~ L T I E S l R > X YAD' aEEl TH'ROU~K. WtiICK JERZ - . *NOT FINANCIAL, T a E USC .COULD -NDT POR3IVs TIIES.L LMOIINIS.

: H E ' S k I D TE4T T I i l OIETA. i3.d.D ?{IF SPVSKAL I7NLLTISS FLkOSR TEE MATTER YIS LOTIZED AND TH!.T ROY TKE MPLP I S DSCLI%Ih'G. CLAIMING FORCE HAJFUEE. Fa!BO?F S-XrC HE UNC,F!?Sl'3CI P'i9 COKCERN, 3GT OESEBVED TK4T TEE PZOI YAS I R Y I K S TO 3875 I T EOTB WAYS. 33VE2NKr1'11 AGFNCIXS ~ l ? i Z BEJZC1IINS I 3 3 C F MAJSUKE CL4IYS 6Y FChXICN CONTP4CIOiiS C O N C E S ~ I N ~ YO:< NOT ACCOFIPLISHED DIi?IA: TIIZ ?ZVOLUTIO,<. E'IBOFF l Z 3 THE MACNITUCZ CF THE PXN4LTIES LNC I F TEEY YERE NOSTiT P30Y TiiX VS:. E E ESTIYRTED THAT Z Z Y A 3 C ? T 3 b Y TO OVZR $1 #ILLION AND TBbT ALMOST ALL YAS PROM T 3 3 US:. EMBOPF EXPLbINEC*TRAT "RE OSG HAS XIPTLE LLTITrJC3 IN THE HATT68 OF DEaT COLLECTION, TO ' l i lICA SALI ' I I SXII! THAT I F TZZ US: ?RESSES, HZ # I L L iIAVE T5 SEZ: T I P NECESSAIIY TUNDS FROfl T i I E ECCNOMIC COUNCIL. NBAS BT 11641 5

N N N N C 0 N F I D E N T I A L TEHRAN P6415/2

IINNNBFOI1VV ESACM9BRA274 00 RUQMHR DE RUEHC 1 3 8 0 1 7 5 1 7 4 8 Z N Y CCCCC ZZ H 0 2 4 1 7 4 6 2 JUN 79 FM SECSTATE WASHDC T O AMEMBASSY TEHRAN - IMMEDIATE 3 BT 1 7 588 C 0 N F I D E N T I A L STATE 163:;i

FOR CHARGE

E.O. 1 2 0 8 GDS U23/85 (PRECHT, HENRY)

TAGS:PEPR, IR, US

SUBJECT : AMIR-ENTEZAM STATEMENT

1. (C) ENTIRE TEXT.

2 . WHEN YOU SEE YAZDI OR AMIR-ENTEZAM, R E A S E CONVEY OUR APPRECIATION FOR THE LATTER'S HELPFUL TV STATEMENT ON U.5.- lRANlAN RELATIONS. WE HOPE THAT WE CAN CONTINUE T O COOL THE RHETORIC AND BEGIN TO MAKE SOME REAL PROGRESS ON THE THORNY PROBLEMS I N OUR RELATIONSHIP.

5 . I F THE ASSIGNMENT OF AN AMBASSADOR I S RAISED PLEASE OISCOURAOE SPECLLAT ION ON TIMING OF ANY ANNOUNCEMENT. AS YOU KNOW, THERE I S STILL STRONG FEELINQ HERE OVER IRANIAN-REJEQION OF AMBASSADOR CUTLER AID I T MAY BE SOME TIME BEFORE-SENATE WOULD BE RECEPTIVE T O ANOTHER NOMINATION. CHRISTOPHER RT

F A H W V E S A 8 2 9 B R A 8 3 9 P R R UQMHR DE R UEHC A 8 0 4 7 1 8 0 2 2 4 0 ZNY S S S S S ZZH P 2 9 2 0 0 9 2 J U N 7 9 FM S E C S T A T E WASHDC T O AMEMBASSY TEHRAN P R I O R I T Y 3 2 3 2 B T S E C R E T S T A T E 1 6 8 0 4 7

E . O . 1 8 0 6 5 GDS 6 /29 /85 ( P R E C H T , HENRY)

TAGS: R I N R , I R

S U B J E C T : REPORTING S U B J E C T S

R E F : TEHRAN 6 6 0 5

1. (SECRET - ENTIRE TEXT)

2. FOLLOWING I S TEXT O F R E F B REQUESTED I N R E F T E L . R E F CABLE POUCHED JUNE 2 8 .

, A S YOU REQUESTED AND A S O P P O R T U N I T I E S DEVELOP I N THE , WEEKS AHEAD, HERE ARE SOME O F THE T O P I C S ON WHICH WE COULD USE ADDITIONAL OR COUNTINUINC, INFORMATION:

1. P O L I T I C A L R E L A T I O N S H I P S W I T H I N THE REVOLUTIONARY L E A D E R S H I P .

, A ) WHO ARE POTENT F I G U R E S W I T H AND WITHOUT O F F I C I A L P O S I T I O N S ? WHOM SHOULD WE WATCH A S COMERS? NEED B I O S .

" B ) WHAT ARE THE P O L I T I C A L A L L I A N C E S AND STRENGTHS O F AM ENTEZAM AND SABAGHIAN? WE KNOW RELATIVELY L I T T L E O F E I T H E R .

C ) WHERE DOES YAZDI STAND I N THE HIERARCHY A F T E R H I S S H I F T TO MFA? D I D HE G A I N OR L O S E POWER? HO; HAVE PZFA PERSONNEL REACTED TO HIM AND ARE THERE ANY PREDICTABLE A F F E C T S ON P O L I C Y ?

'2. WHAT IS THE PO'ULAR IMPRESSION OF BAZARGAN? . HOV IS HE REGARDED BY V A R I O W KEY GROUPS? DOES HE HAVE ANY R I V A L S ?

' 3 . WE DO NOT HAVE A VERY GOOD F I X ON TALEGHANI, H I S ENTOURACE AND L I N K S T O OTHERS I N THE R E L I G I O U S AND SECULAR ESTABLISHMEXTS .

/ 4 . WE NEED SOME F A I R t Y SYSTEMATIC APPIiOACH TO THE D E P I C - 'I'ION OF TRENDS, INCLUDING A DESIGNATION O F S O E C I F I C P O L I - TICAL AND ECONOMIC AREAS T O WATCH AND P E S I O D I D REPORTING. SEVERAL CATEGORIES WERE PIENTIONED I N OUR E A R L I E R CABLE.

' 5 . HOW I S T H E US PERCEIVED? W3AT ACTIONS OR INACTIONS S I N C E MID-FEBRUARY HAVE HELPED OR HURT US? WHAT COULD WE

t I10 BETTER?

. 6 . REPORTS O F M I L I T A R Y CONVERSATIONS ARE PIOST IIELPFUL. I,'ROM TIME TO T I M E I T WOULD BE USEFUL T O SUMMARIZE, D E P I C - ' r I N G TRENDS, FOR EACH O F THE S E R V I C E S . P O L I C E AND (;ENDARMERIE I N F O ALSO VALUABLE.

1 . WE A P P R E C I A T E EXTREMELY VALUABLE ECON REPORTING. E ('OULD USE ( A S PART O F NO, 4 IWOVE) REGULAR COVERAGE O F MARKET BASKET P R I C E S AND SHORTAGES, EMPLOYMENT, G R I P E S . IlOW ARE THE UNEMPLOYED MAKING ENDS MEET?

8 . WHAT ARE THE A C T I V I T I E S , STRENGTHS, PLANS OF L I B E R A L IIEMOCRATS (MATIN-DAFTARY) , NATIONAL FRONT ( S A N J A B I ) L E F T GUERRILLAS (FADEYEEN), VARIOUS MUJAHEDIN GROUPS, PRO- SHAH ELEMENTS?

' 9 . HOW FARE THE PROVINCES, PANTICULARY HARVEST, FOOD A V A I L A B I L I T Y ?

'10.WHAT I S STATUS O F EFORTS TO CLOSE DOWN, S E L L O F F OR !;HIP OUT M I L I T A R Y F A C I L I T A R I E S AND EQUIPMENT?

; 1 1 . WHAT CAN YOU GATHER O F P E R C E P T I O N S O F KEY EMBASSIES? WHAT ARE THE S O V I E T S U P TO?

' 1 2 . WHAT I S THE S I T U A T I O N WITH THE U N I V E R S I T I E S , N I R T , OTHER MEDIA?

13. STATUS O F PLANNING F O R THE C O N S T I T U T I O N AND ELECT- IONS.

' 1 4 . WHAT HAVE PGOI/KHOMEINI DONE ON AMNESTY FOR MILITARY P O L I C E , OTHERS?

' 15 . AND, I N BETWEEN, DON'T FORGET TO PLAN THE FOURTH O F J U L Y PAOTY. CHRISTOPHER BT # 8 0 4 7

1s I O Q ~ I ~ L W ~ ~ / I P I ** ZYY CCCCC i u i 4 2 e z JUL 79 m c m n I s s / n A A a T m r m I l r w 9 0 IUZgJCS/SLCDLT V W I DC INTO IOEBC/SLCSTATX IASBDC PULKJCS/JCS VASI DC RUtADVD/CSA UASI DC IULNAAA/CYO VUI DC PULAllUCSA1 VASE DC IUSNAAA/USCINCLOI 1AIBIY~LW @L RUZIJCS/DIA VASE DC RUulO1/CARMISI/HAA A L u 1A a*

1OI: AS?: ISAIDSAA; NLA: IIN/PW-SAS8 DJCS-J-4/5! DACS-IIW, OP-63; PAI-UTT; tCDC/LCJ-4/T, J-8-J-2

SUBJ: IIAYIAY CONSTITUTIOW ( 8 )

1. ( 0 1 TIL TLIPAN T I n r s , rscwrp xr A srnrrs 01 nrrorrs. PURLISILD ITS,,TIANSLATIOY 01 TIL DIAPT 01 T I L IIANIAY CONSTIWTION. THL I t P O I T S 1OITBLI STATLD TIAT TIE WIYISTP 01 STAXI TADOLLAI SAIABI BAD,,COY1IRMtD T l I S TBANSLATIOY w SL~MTAWTIALLT COIIICT. m~ BIAPT COY- TAIYS 151 AITICLIS LYCOMPASSIIC ALL 1ACtTS BY V I I C I T l l WLU ISLAMIC ILPOBLIC WILL B t C O l L I Y L D , ~ I 1 APPllOlLD. T I I S n l s s l i a t CONTAINS A STYOPIS 0 1 A r t I c L x s , w1cr D t r r c z L r OR IYDIPLCTLY. VOOLD U 1 t C T TBL IIAYIAY AIMID TOICLS AYB

--A. AITICLL 6 - CENSORSBIP VILL ONLY DL IMPOSED IN TIMt OF MAP.

--B. ULICLL 76 - TBL PILSIDLNT IAS TO B t 0 1 IIAYIAN OIICIW AND BAS TO BL AN IRANIAN CITIZlM.

--C. AITICLL 8 2 - "TUB PILSIDMT'S OATB," INTLI ASIA, RPQUIBLS TPL PRISIDLNT TO OSL ALL XIS POUPS TO 00111) THE TI1LIITOIIAL INTLQBITY 0 1 TIE COUNTIT.

--D. ARTICLE 93 - TIE PILSIDLYT I S T I 1 SU?ISML Con- WANDLP 01 TBL C O U Y T R Y ~ S nILITArtT mrcrs. rrr carrr or STA11 0 1 TBL ISLAMIC ILPUBLIC'S AIMIB POICES VILL BB SELECTZD AT TBI SOCCLSTIOY 0 1 THL CABINET MIWISTLIS AND APPI01LD BY TBL P I L S I D L R .

--L. AITICLL 9 4 - LWPOISLMLNT 01 1lAY.S PACTS UITB O T I P COUYTPIU AN1 IWtKBYATIOWAL T I I A T I U , . I S T I E RPSWNSIIILITT 0 1 TBt PIESIDXUT. ?OLLOUIYO PAILIAMLYTAIY

PACTS AND T I L A T I P

-4. ABTICLL 95 - DLCLAIATIOY 0 1 I A I . TIPOL AND T I L HAKIWO 01 PIACL IS A POVLI 0 1 TEE P r n I n s w t ~~OLLOVIWO U P P O ~ U BT rat P A n L r w r N t . IN c ~ s u 01 mnorncr,

THE P R I I D I N T CAN.MAKE SUCH DECLARATIONS f0LLOvING CON- SULTATION WITH TEE UEUBERS 01 TEE CABINET.

--Go ARTICLE 1#3 - CONDUCTING T I 8 A11AIRS O? TEE COUNTRY AND BESPONSIBILITT FOR ALL C I V I L AND M r L r r r r r o a o r N r e r - I IONS LITS WITH TEE C ~ N C I L 01 MINISTERS.

--H. ARTICLE 121 - TEE ARMED 1ORCtS 0 1 TEE ISLAUIC REPUBLIC 01 IRAN ARE RESPONSIBLE ?OR TEE COUNTRY'S INDEPENDINCE AND TEBBITORIAL INTEORITY.

--I. ARTICLE 122 - NO ?OREIGN SOLDIER 0 1 OITICER I S AL- LOWED TO S ~ V P I N THE IIANIIN rrnn mrcrs. T a r STAY OF ~ O R E I C N ARnED POPCIS I N n r couwrrr or rnrIr rwsror THPOUGB TIE COUNTRY r n L ONLY BE ALLOWED varn I N T a r INTLBDT 0 1 THE COUNTIIY, AND V I T I T I E APPlOlAL O? S/4 OF TEE w n o L s PARLIAMENT.

--J. ARTICLE 12s - TEE ANNUAL HILITART B u w r r WILL mrr TO BE UPPOVLD a THE PARLIAMENT. rxrrwsts ?or B u r r r e WEAPONS AND THE REASONS 101 IAVINQ TO PURCPASE THEM WILL HAVE TO BE MADE CLEAR IN THE MILITARY DUDGrT.

--K. ARTTICLE 123 - ESTABLISEUENT 01 ANY KIND 01 lOBEIQN BASE IN IRAN, EVEN ?OR PSACEIOL PURPOSES I S S T I I C T L I FORBIDDEN.

--L. ARTICLS 138 - U I L I T A I T TBIBDNALS A l t TO B t SET UP TO CONSIDQ VIOLATIONS 01 smclrrc nnxrrrr r o T r r s A N D RLSPONSIBILITIPS. T a r c o w s r D r r r r r o N or a t r r r r L OPPINSU lix,LEGEnLy c o u u I T r r r BY nnrrrrr r o L x c r PEE- SONNEL IS TEE DUTY or GENERAL comts o~ Jusrrcr. --u. r R r r x c L r i m - TO n o T r c T A N D ourm rrr c o r s r x T u r r o n , A N D TO INSURE TIE C O N ~ O R M I T Y 01 OTIER urs wxtr IT , .A COUNCIL TO PROTECT TEE CONSTITUTION WILL BE S R UP WITE THE 1OLLOWINO COHPOSITIONI

---- I. FIVE RPLIGIOUS L r r r r n s WHO ARE AWARE or TEE REQUIRPIENTS 0 1 CoNTltntoaAuY TIMES. rrr P r r t r A n r N r WILL BT

NNNN CONIIDEN TIAL

CHOOSE THESE ?IVE PERSQUS MOM A L I S T OF VELL-KNOWN RELIC IOUS LEADERS.

---- 2. S I X EXPERTS IN JUnICIAL MATTmSZ TEREL OF VEOM WILL BE LAW PROFESSORS AT TEE COUNTRY S COLLLGES 0 1 LAW, AND THE OTHER TPRPE JUDGLS or THE C O U N T ~ T 'S s u ? R m L COURT WIO WILL BE ELECTtD BY PARLIAMtNT.

2. (C/N?) COMMENT: 11 TEE ABOVE COISTITUTION I S RATI?IED, THE P R E S I D t l l t WILL HXAD 211 IRANIAN MILITARY FORCES AS THE SUPREME COMMANDER (ARTICLI - 95). I T APPEARS THAT T H t CEIEF O? STA?? WILL BE EQUIVALINT TO OUR CHAIRMAN O? THE JOINT CEIEFS OF STAT?. I F TEE PRESIDENT I S ALSO HEAD 01 TllL ISLARIC RELIGION (TEE OFFICIAL FAITH, JA??ABI SHIAISR) . AS WOULD BX I N TEE CASE OF lEOMEIY1 BECOMING PRESIDENT, EE WOULD BE IN AN ESPECIALLY POVERIUL POSITION VIS-A-VIS TEE MILITARY. TBIS ALMOST TOTALITARIAN SITULTION COULD BMBWL BLCAUSE I T CAN BE ASSUMED TEAT TEE LEADZR (HEAD OR CEIEF AYATOLLAR) O? THE FIVE RXLIOIOUS LEADERS INTRUSTED TO GUARD THE CONSTITUTION (ARTICLE - i r e ) COULD nu BE KROMEINI. SBOULD A LrynAn rr r t r c T r D P n l r s r o r n T . T a x RELIGIOUS LEADERSHIP WILL S T I L L BE A PlOMINENT ?ACTOR IN DECISION UAfING. STRATIOICALLTt T l t I ?ORBIDDING OF ANY FOREIGN BASES ON IRANIAN SOIL EVEN 101 ?EACE?UL PURPOSES (ARTICLE - 124). 11 EWIdREIb (AND WB AS9UME I T WOULD BE AS LONG AS K a o n r r n r nw POWER), roun r s r n u D t r r E s T r a - LISEMEW 0 1 1 . 9 . MILITARY ?BE-REVOLUTIONARY OPLRATIONS, OTREP THAN MUG RELATED ?UNCTIONS. 1l)PLEMtNTATION O? TEOSE ARTICLES NOT sunnmrzm IN T a r s nrssmr, A n r NOT CONSIDWED TO IMPACT ON T E l IRANIAN ARMBD FORCIS. I T I S REITtRATLD TEAT TEE CONSTITUTION I S ONLY I N DRAFT FORU, A POINT RtCENTLY MADS ONCE AOAIN BY SAHABI TO EUB TEERAN O??ICtRS. NVMtROUS OBJECTIONS HAVt ALRIADY SURFACED BY DI??ERENT ?ACTIONS O t THE POPULATION. CAST BT Y6965

NNNN CONIIDENT IAL

CONFIDENTIAL TEHRAN 7 6 4 8 / 1 O F 2

DE RUPMHR # 7 6 4 8 / 0 1 2 0 3 * * ZNY CCCCC ZZH CLASS: CONFIDENTIAL P 2 2 1 2 5 1 2 J U L 7 9 CHRGE: CHG:LBLAINGEI FM AMEMBASSY TEHRAN APPRV: EC0N:MJOHNSON TO SECSTATE WASHDC P R I O R I T Y 2 7 4 8 DRFTD: EC0N:RBASH BT CLEAR: ECON-3 CHG C O N F I D E N T I A L S E C T I O N O l O F T E H R A N 0 7 6 4 8 POL RF CHRON

E . C . 1 2 0 6 5 : GDS 7 / 2 2 / 8 5 (JOHNSON, MARK) OR-E TAGS: E I N V , BEXP, B D I S , I R SUBJECT: U.S,.-IRAN COMMERCIAL RELATIONS

REF: STATE 1 8 0 9 5 7

1. ( C - E N T I R E TEXT)

2 . V I S I T I N G DEPTOFF CALLED ON BANK MELLI P R E S I D E N T J A L I L SHORAKA JULY 2 2 FOR DISCUSSION OF U.S . - IRANIAN COMMERCIAL RELATIONSHIPS, DRAWING ON P O I N T S CONTAINED REFTEL. WE PARTICULARLY WANTED TO SEEK H I S VIEWS CONCERNING P O S S I - B I L I T Y OF REACTIVATING CHAMBER OF COMMERCE OR B U S I N E S S COUNCIL S I N C E SHORAKA HAD BEEN IRANIAN CHAIRMAN O F THE ECONOMY AND FINANCE COMMITTEE UNDER THE U.S.-IRAN J O I N T COMMISSION.

3. DEPTOFF OPENED CONVERSATION BY B R E I F L Y SKETCHING THE MOOD OF U.S. B U S I N E S S , BASED ON CONVERSATIONS WITH SOME 3 0 0 F I R M S S I N C E THE REVOLUTION. B A S I C MESSAGE WAS THAT THERE WAS S T I L L INTEREST I N MAINTAINING COMMERCIAL T I E S WITH IRAN BUT ALSO SOME IGNORANCE OF AND CONSIDERABLE UNCERTAINTY OVER EVENTS I N IRAN. U.S. COMPANIES COULD ADAPT TO "BAD" S I T U A T I O N S , BUT THEY HAD D I F F I C U L T Y COPING WITH THE UNCERTAIqTY, ALTHOUGH SOME F I R M S , L I K E GM AND DUPONT, HAD EXPERIENCED P O S I T I V E V I S I T S . OTHERS, L I K E GTE, WERE ENCOUNTERING S E R I O U S D I F F I C U L T I E S . (COMMENT: SHORAKA SHARES OUR PUZZLEMENT A S TO WHY GTE IS BEING SUBJECTED TO T H I S TREATMENT. END COMMENT.) WE HOPED THAT THROUGH SOME INFORMAL CHANNEL WE COULD IMPROVE COMMUNICATIONS AND HELP M I N I M I Z E FURTHER COMMERCIAL DISPUTES.

4 . SHORAKA S A I D HE WAS "FRANKLY VERY WORRIED" ABOUT THE CURRENT SITUATION. THE REVOLUTION HAD CHANGED THINGS 1 8 0 DEGREES. THERE WAS VIRTUALLX NO ONE L E F T I N THE M I N I S T E R I E S WHO WAS FAMILIAR WITH THE PROBLEMS. NEARLY ONE L E F T , HE S A I D . COMPANIES, TOO, HAD EXPERIENCED T H I S R A P I D TURNOVER I N S E N I O R MANAGEMENT. SHORAKA OFFERED T H I S AS A MAJOR REASON WHY THE ECONOMY WAS S T I L L I N A P E R I L O U S STATE AND WHY MANY FOREIGN F I R M S WERE EXPERIENCING D I F F I C U L T I E S REESTABLISHING RELATIONSHIP.

5 . SHORAKA THEN REVEALED THAT HE HAD RECENTLY MADE A T R I P TO NEW YORK AND LONDON AT THE BEHEST OF PRIME M I N I S T E R BAZARGAN. PURPOSE WAS TO EXPLAIN BANK NATIONALI- ZATION AND ALLAY CONCERNS ON PART O F MAJOR FOREIGN BANKS. TWO WEEKS AGO HE HAD CONVENED MEETING OF BIGGEST AMERICAN BANKS I N NEW YORK AND OFFERED THEM FULL P G O I ASSURANCES CONCERNING RESPECT FOR T H E I R ASSETS

CONFIDENTIAL TEHRAN 7 6 4 8 / 1 01 2

CONFIDENTIAL TEHRAN 7648/1 OF 2

AND OPERATIONS. SHORAXA STRESSED THAT IRANIANS HAD POSITIVE RECORD ON T H I S SCORE, CITING CASES WHEN HE WAS I N MINISTRY OF FINANCE WHERE RIGHTS OF SHAREHOLDERS WERE m L L Y PROTECTED.

6. WITH REGARD TO REJUVENATION OF BUSINESS COUNCIL, SHORAXA AGREED THAT IDEA HAD MERIT. PROBLEM WAS THAT IRANIAN SIDE WOULD HAVE TO BE RECONSTITUTED AND I N LIGHT OF THE LARGE-SCALE EXODUS OF SENIOR BUSINESSMEN, THIS WOULD TAKE TIME. SHORAXA FRANKLY FELT I T WOULD BE BETTER TO WAIT ON THIS PROPOSAL UNTIL AFTER A NEW GOVERNMENT EMERGES. DEPTOFF REPLIED THAT WE WOULD, OF COURSE, BE GUIDED BY IRANIAN VIEWS AS TO TIMING, BUT THAT I T SEEMED DESIRABLE TO HAVE SOME MECHANISM FOR INFORMAL CONSULTA- TION. SHORAXA FELT THAT DURING THIS TIME I T WOULD BE BETTER FOR U.S. COMPANIES TO PURUSE THEIR INTERESTS ON I N D I V I D U a BASIS, WITH REGARD TO JOINT COMMISSION. SHORAXA SAID THERE HAD BEEN NO TALK ON THIS SUBJECT WITHIN PGOI. HE FELT THE COMMISSION COULD BE USEFUL VEHICLE AND SUGGESTED WE RAISE SUBJECT I N CALLS ON MINISTER OF F I N W C E AND OTHERS.

7. POSSIBILITY OF ARRANGING SMALL DELEGATION OF LEADING AMERICAN FIRMS TO V I S I T TEHRAN WAS ALSO DISCUSSED. AGAIN, HE FELT I T WAS PREMRTURE FOR THIS TO OCCUR. I T WOULD BE BETTER TO WAIT UNTIL IMPLEMENTING REGULATION COVERING INDUSTRIAL NATIONALIZATION WAS PROMULGATED. EXPECTED THIS TO HAPPEN SOMETIME NEXT WEEK. SHORAXA SUGGESTED THAT WE SEEK ADVICE OF CTHERS I N PGOI BEFORE PURSUING IDEA. (CO-T: WITH RAMAZAN BEGINNING LATER THIS WEEK, ANY SUCH TRIP WOULD HAVE TO BE CONSIDERED FOR S F T I M E I N FALL, AT EARLIEST. END COMMENT) BANK MELLI (HE WAS APPOINTED I N FEBRUARY 1 9 7 8 BY THE SHAH) WAS UNIQUE. HE ATTRIBUTED T H I S TO H I S STRONG FAMILY T I E S I N Y E BAZAAR. THIS MADE HIM ACCEPTABLE TO THE "OTHER SIDE. FROM SHORAKA'S REMARKS, ONE HAS THE BT 17648

NNNN CONFIDENTIAL. TEHRAN 7648/1 OF 2

C 0 N F I D E N T I A L SECTION 0 2 OF 0 2 TEHRAN 0 7 6 4 8

IMPRESSION THAT HE AND H I S SMALL BRAIN TRUST AT BANK MELLI SERVE AS A "BRIDGE" BETWEEN THE BAZARGAN GOVERNMENT AND THE REVOLUTIONARY PERSONALITIES ON MATTERS OF ECONOMIC POLICY. LAINGEN BT t 7 6 4 8

NNNN C 0 N F I D E N T I A L SECTION 0 2 OF02 TEHRAN 0 7 6 4 8

C O N F I D E N T I A L STATE 7 / 2 3 / 7 9 CHARGE:LBLAINGEN P0L:VLTOMSETH:GO NONE P O L 2 DCM RF

AMEMBASSY TEHRAN SECSTATE WASHDC, I M M E D I A T E I N F O AMEMBASSY ABU D H A B I AMEMBASSY ANKARA U S I N T BAGHDAD AMEMBASSY DOHA AMEMBASSY ISLAMABAD AMEMBASSY J I D D A AMEMBASSY KABUL AMEMBASSY KUWAIT AMEMBASSY LONDON AMEMBASSY MANAMA AMEMBASSY MOSCOW AMEMBASSY MUSCAT AMEMBASSY P A R I S

E.O. 1 2 0 6 5 : GDS 7 / 2 3 / 8 5 (TOMSETHI VICTOR L.) OR-P TAGS: PGOVI PINS, P I N T , I R SUBJECT: P G O I T R I E S (ONCE A G A I N ) TO CONTROL THE REVOLUTIONARY MOVEMENT

REF: F B I S LONDON 2 0 1 5 5 4 2 JULY 7 9

1 . (C - E N T I R E TEXT)

2. SUMMARY: I N A T E L E V I S E D SPEECH TO THE N A T I O N JULY 2 0 PM BAZARGAN REVIEWED THE REASONS FOR I R A N ' S ANOMALOUS PARALLEL SYSTEMS OF GOVERNMENT AND ANNOUNCED THE P G O I ' S L A T E S T ANSWER TO THE PROBLEM. THE EFFECT OF THE L A T T E R * WE ARE I N C L I N E D TO CONCLUDE, W I L L B E MARGINAL. THE PROGNOSIS FOR THE FORESEEABLE FUTURE I S THAT THE REVOLUTIONARY COMMITTEES, THE REVOLUTIONARY COURTS AND VARIOUS ARMED M I L I T I A S W I L L CONTINUE TO ACT INDEPENDENTLY OF BOTH THE P G O I AND THE I S L A N I C MOVEMENT'S LEADERSHIP. END SUMMARY.

C O N F I D E N T I A L

i C O N F I D E N T I A L

3 . B A Z A R G A N TOLD T H E . I R A N I A N N A T I O N J U L Y 20 ( R E F T E L ) T H A T THERE HAD B E E N THREE K I N D S OF R E V O L U T I O N S THROUGHOUT / H ISTORY, 1 . E . r M I L I T A R Y , P A R T Y AND N A T I O N A L . T H E 1920

/ COUP L E D BY REZA K H A N ( L A T E R SHAH) WAS AN EXAMPLE OF THE I F I R S T TYPE, THE 1917 R U S S I A N R E V O L U T I O N AN EXAMPLE OF THE

SECOND, AND, OF COURSE# THE 1979 I R A N I A N R E V O L U T I O N WAS AN EXAMPLE " S C A R C E L Y MATCHED I N T H E H I S T O R Y OF THE WORLD" OF T H E L A T T E R . A CONSEQUENCE OF MASS P A R T I C I P A T I O N I N T H E I R A N I A N R E V O L U T I O N # H E S A I D ) HAD B E E N T H E D E C E N T R A L I Z A - T I O N OF POWER W I T H A L L MANNER OF I N D I V I D U A L S AND O R G A N I Z A T I O N S S E E K I N G TO E X E R C I S E I T .

I 4. T H I S S I T U A T I O N , BAZARGAN S A I D , COULD NOT P E R S I S T S I N C E A L L TOO F R E Q U E N T L Y THOSE A T T E M P T I N G TO E X E R C I S E POWER, I N T E N T I O N A L L Y OR OTHERWISE, WORKED A T CROSS- PURPOSES. T H E PGOI , THE R E V O L U T I O N A R Y C O U N C I L AND K H O M E I N I HAD MET TO D I S C U S S R E S O L U T I O N OF T H I S PROBLEM. THEY SAW THREE A L T E R N A T I V E S : D I S S O L U T I O N OF T H E REVOLU- T I O N A R Y C O M M I T T E E S AND A L L T H E OTHER ELEMENTS OF THE I N F O R M A L STRUCTURE OF GOVERNMENT, P U T T I N G THE GOVERNMENT D I R E C T U L Y UNDER T H E R E V O L U T I O N A R Y C O U N C I L " I N THE SAME WAY T H A T THE I M A M ' S C O M M I T T E E S ARE UNDER THE S U P E R V I S I O N OF" I T , AND M I N G L I N G THE M E M B E R S H I P S OF T H E GOVERNMENT AND T H E R E V O L U T I O N A R Y C O U N C I L . THEY P I C K E D T H E LATTER, AND B A Z A R G A N ANNOUNCED T H A T F I V E MEMBERS OF THE REVOLU- T I O N A R Y C O U N C I L WOULD B E A S S I G N E D TO P O S I T I O N S AS UNDER S E C R E T A R I E S I N THREE D I F F E R E N T M I N I S T R I E S OF THE P G O I . THESE I N C L U D E D N A T I O N A L D E F E N S E # ECONOMIC AND F I N A N C I A L A F F A I R S AND S C I E N C E AND H I G H E R E D U C A T I O N .

5. T H I S C H O I C E P R O B A B L Y HAS T H E L E A S T CHANCE OF THE THREE A L T E R N A T I V E S TO B E E F F E C T I V E I N R E S O L V I N G THE I S S U E OF DUAL A U T H O R I T I E S . I T I S HARD TO I M A G I N E HOW THE THREE MULLAHS AND ONE C I V I L I A N NAMED AS UNDER S E C R E T A R I E S (ECONOMIC T H E O R E T I C I A N ABOL HASSAN B A N I S A D R D E C L I N E D T H E OFFER TO T A K E U P T H E P O S I T I O N A T T H E M I N I S T R Y OF ECONOMIC AND F I N A N C I A L A F F A I R S , A P P A R E N T L Y MUCH TO THE R E L I E F OF M I N I S T E R A L I ARDALAN) W I L L H E L P T H E P G O I W I T H I T S R E A L PROBLEM) W H I C H I S ONE OF A S S E R T I N G A U T H O R I T Y OVER THE R E V O L U T I O N A R Y C O M M I T T E E S AND COURTS AND THE V A R I O U S P A R A M I L I T A R Y FORCES. A L L OF T H E S E HAVE ACTED NOT ONLY I N I N D E P E N D E N C E OF THE PGOI , B U T OF EVERYONE AND E V E R Y T H I N G E L S E AS W E L L r AND THERE I S NO REASON WHY THEY W I L L NOT S T O P A C T I N G I N D E P E N D E N T L Y . L A I N G E N # #

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f . PARTLY, AS RGFTEL P O I N T S OUT, I T I S THE RSVOLUTIONARY r J O L I P I C I h N , THE A K B I T I 3 U S P O L I T I C A N THAT YAZDI I S . THAT I'OF'PULTION h):QUIHES HIM TO TALK AND LOOK L I K E A REVOLU-

I IONARY, E S P E C I A L L T I N T H I S F I R S T RETURN TO THE U . S . AFTER ' I S 16 YEARS I N TEXAS AND OTHER WAYPOINTS -- A PART O F 1 1 s P A S T THAT HE NOW F I N D S SOMEVUAT BURDENSOME POLITICAL1.T. C R S E Q U E N T L Y - I T W A S - IMPORTANT FOR Y A Z D I ~ T H A T THE-BEIDLINES - ACE AOME SHOW HIM I N TRUEREVOLUTIONARY COLORS. PREPARED

'rE!TAL S L A V E R T " TEAT HE DECRIED I N H I S HkVANA S P E E C H k S T H E HOST D I S T R I N C T CONSEQUENCE O P I M P E R I A L I S M IN THE COLTEYPORARY YORLD...A CHEAP AND E P F E C T I V E TOOL O F 0RBPZ:TUATING I M P E R I A L I S T D O M I N A T I O N " . . , I . b U T THERE I S MORE THAN THAT I N H I S TOUGH STANCE WITH 11.5. BOTH I N H I S B I L A T E R A L WITH THE SECRETARY A N D H I S I ~ U ~ L I C - S P E E C H ~ S . TAZDI-IS P O L I T I C A L L Y AMBITIOUS BUT HE I S ALSO A B E L I E V I N G REVOLUTIONARY. I T I S THEREFORE

. i ( O R E THAN THE REVOLUTIONARY R E F U R B I S H I N G B I S CREDENTIALS. 11.1s APFROACH SAYS THINES TBAT ARE FUNDAMENTAL ABOUT THS i . t j T I R E REVOLUTIONARY APPARATUS HZRE -- ONE T H I N 3 THAT I S f lAC1 ' ICAL AND REASONABLY SHORT-RANGE; THE OTHER MORE

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: ( O L i U S I O N J I T H AIERICAN AGENTS AND I N F L U E N C E . WHATEVER TS R E L A T I O N S H I P TO THE REAL S I T U A T I O N ON THE GROUND IN

' I 1 S E TWO TROUBLED FROVINCES, THE S P A T E O F PROPAGANDA SpEf lS I - 5 IChEL l U h T B E R TO STRENSTHEN C L E R I C A L ANC RRVOLUTIONARY

I f ~ 4 ? R O L OVLB T E E S E C U R I T Y FORCES AND THE EVOLVING G O V E S N ~ ' tl!T APPARATUS THAT I S TO B E PUT I N PL.4CE WHEN THE / ~ ~ I ~ I T I T U I I O N I S COYPLEl'E. THE EFFORT AT CONSOLIDATION 01

I 1 OILB I S ALSO SEEN I N THE I N C R E A S I N S E M P H A S I S ON THE NEED . O * F U ~ G E " FROM THE STRUCTURE O F GOVERNMENT BOTH T E E

' I EP'KANTS O F THE ANCIEN REGIME AND T H E I R P O L I T I C A L OPPONENTS. t US y A Z D I I S QUOTED FROM NEW TORT A S SAYING THAT THE

I 'i 1 ,' 351

IUECE OF THE FOHLISN MINISTR~ HAS YET TO B E COYPLETED. CFAKRAN TALKS OF THE PURGE HE INTENDS TO PURSUE IN THE

''.I AfiMlD FORCIS. THE NAZI6 &FFAlR AT NIOC I S ACCOlPANlED By. TALK OF A NECESSARY PURGINO PROCESS TBAT NAZIE BAD IGNORED OR SET ASICE. ANC KEOMEINI TALKS OF THE PURGE CECESSARY FOR THE ENTIRE SOCIAL AND ECONOMIC STRUCTURE I T THE REVOLUTION I S TO BE CONSOLIDATED.

l a . RELATED TO TEIS BUT LONGER-TEW I N I T S NATURE I S AN XXPhESSEC CONCERN OVER ANOTEBB AND GREATER DANGER FOR TEE REVOLUTION, I T S COALS AND PURPOSES. TEAT CONCERN RELATES TO TEE N,EED TOELIMINATE FOREIGN AND PARTICULARLY WESTERN CULTURAL DOMINATION -- AN ALSEGEC LEGACY OF THE PREVIOUS REGIM TBAT THE REVOLUTIONARIES SEE AS CORROSIVE FOR TRE EFFECTIVE- NESS OF ISLAM AS THE DRIVING FORCE AND tlOTIlATION FOR IRAN'S ENTIRE POLITICAL, SOCIAL A N D ECONOMIC MAKE-UP: INDEED TREY SEE TBIS CORROSION AS TBREATENING EVERYYEERE IN TRE ISLAMIC LORLD, AN ICEOLOCICAL C o n p u L s I o ~ TEAT COMBINES WITB LOOSE TALC OF IRBIDENTISM IN S E I A MESSIANIC TERMS TO MUCCT THE WATERS FOR THE ISLAMIC REPUBLIC'S RELATIONS : U I T H MOST OF ITS MUSLIM NEICRBORS.

11. TAZDI CEVOTED A GOOC PART OF B I S REVEALING SPEECB AT : IIAVANA TO TBlS PARTICULAR EONCBRN OF TEE IRANIAN REVOLU- "I'IONARIES. AS HE PUT I T TEE STANDARDIZATION OF VALUES, 9 GOALS A N D ASPIRATIONS A Y ~ N C TEE R U L I N G BLITB OF T A B WORLD ;HAS ADDED A NEW DIMFNSION 0 1 CULTURAL DOHINATION TO THE fr:VOLVI!G CBARACTER OF IMPERIALISM IN TEE CONTEMPORARY : VOPLD. TAZDI CALLED FOR A REC03NITION OF "THE ALIENATING i AhC HABITULL CUTLURAL ALIGNMENT WITH TEE SUPERPOWERS :AND A STSTEYATIC EPPORT TO pRpEnOUaSILIES PROM TEE MENTAL

BOt!I!diE OP CULTUiIAL DOMINATION.

5 12. I T I S NOT AND I T WILL NOT BE EASY FOR US TO YORE Z LITB A LEADIXISHIP TPAT BELIEVES AND ACTS AS THIS ONE DOES; i CHAT 6NOT TdBY NEED US BUT TET FEAR FOB THEIR BEVOLUTION

.F 4dET GET TOO CLOSE TO US. TIME AND TEB COHPELLING CIfCUMSTANCES' OF AN ALREADY BUILT-IN HOHENTUN IN THE >LCULARIZATION LND MODERNIZATION OF IRAN'S ECONOMY AND I T S URBAN SOCIAL STRUCTURE KILL CHANCE SOME 01 T H I S - nUT THAT # I L L BE A SLOW PROCESS BARRING SOME DRAMATIC POLITICAL TURNAROUND TEAT SEEMS'UNLIKELT I N TEE SBORT-TERM. r E CILL NEED TO ACT YITE A nAxIMuM OF PATIENCE AND SENSI- ' I ' IVI lT AS dE PURSUE OUR INTERESTS IN TEE ATMOSPEERE OF SUSPICION MANIFESTEC BT YAZDI IN NEU YORE.

13. WITE TEIS AS BACKGROUND WE COMMENT BELOW ON TEREE SPECIFIC AXEAS OF POLICY: F ~ R S T , MILITARY SUPPLY: SECOND, CLH PUBLIC POSTUhE ON TEE REVOLUTION: AND TAIRC. THE 5pXCIAL STHBOLISM OF c i i i ~ l E O N - ~ ~ E O M E I N I AND N O ~ I N A T I N S

14. TAZDI DID NOT FAIL IN NEW TORK TO MAKE CLEhR THAT OUR PERFORMANCE IN THE MILITARY SUPPLY PIELD WILL CONTINUE TO P AN ACID TEST OP OURATTIrUDES TOWARD TEE REVOLUTION. THE P I E WILL BE ROUGE, NOT SIMPLY 3ECAUSE OF WHAT SEEMS DCST ED TO BE A PRICKLY RELATIONSEIP WITE CHAYRAY AS TRE

TEBRAN 109E

CONFIDENTIAL TL'HRAN 10E91 2/

1 \EL HEAD CF THE DEFENSE ESTABLISHMENT. BUT n O R P FUNCAtlENTALLY bLChUSE OF THE FEAR OF AMERICAN INFLUENCE IN AND VIA THE i PllLlTARY IN IRAN S O C I E T Y . (AS YAZDI NOTE0 I N HAVANA.

/ FORE THAN 1200 IRANIAN I I L I T A R T PERSONNEL WERE TRAINED 1N THE UNITED STATES -- A CONSERVATIVE FIGUREBI OUR ESTIMATE). THERE-IS ALSO T ~ E ~ A B I D ~ N G ~ S O S P I C ~ O W ON-.TRE PART O F YAZDI AND OTHERS THAT IRAN HAS BEEN FINANCIALLY FAD BY MEANS OF THE TRUST FUND.

15. WE W U S FACE THE CHALLENGE 0 1 S A T I S F Y I N G BOTH THE / P O L I T I C I A N S SUCH AS YAZDI AND CRAMRAN 101 ALSO THE YILITARY PROPPSSIONALS, YE0 ARB BEGIYNINO TO R P F L I C T A I CONCERN THAT T H P 1 WILL BE D E N I I D T H I LOGISTICAL AND TECHNICAL SUPPORT THEY PBEL THEY N U D FROM THE U.S. NONETHELESS YE S E E OUR CURRENT POLICY STANCE ON MILITARY SUPPLY AS ESSENTIALLY SOUND -- AN OPEN AND STRAIGHT-

I IORVARD POSTURE CONCERNING B I L L I N G S AND ACCOUNTS, FRANK / AND FORCEFUL REMINIiERS ABOUT OUR OWN LAYS AND REGULATIONS

THAT APPLY, A DEMONSIRATED WILLINGNESS TO GO ALL OUT IN RESPONCING TO P G O l QUESTIONS ABOUT FINANCIAL DETAIL , . BT C2891

: KNNN CONFIDENTIAL TEHRAN 10891 2/

y* ANE BAKING SPARE PARTS AVAILABLE AS RAPIDLY AS THE PC01 CAN GET ITS OWN HOUSE IN ORCER. WE BELIEVE WE SHOULD, HOWEVER, ALSO BE PREPARED TO 1111 SOME RISKS IN THE CASE BY CASE POLICY WE ENVISAGE AS APFECTING CLASSIFIED ANP SENSITIVE MATERIAL. LS A CASE I N - P O I N T WE BELIEVE WE SllOULD MOVE ATTIRMA~IVELY IN RESPONSE TO THE PGOI REQUEST CONCERNIN3 THE RT4E S . TO DELAY OR TO DENY THESE AIRCRAFT UILL AROUSE NEW SUSPICIONS,OP AN INTENT TO PENALIZE THE PC01 ON BOTH FINANCIAL AND POLITICAL COUNTS; APPROVAL OF THIS SMALL NUMBER OF AIRCRAPT ALREADY LARGELY PAID POR A N C A D D I T I O N A L TO A N ALREADY E X I S T I N G i i l ~ INVENTORY IS CERTAINLY DEFENSIBLE ( I N WHAT WE ASSUME WILL BE REQUIHED CONGRESSIO%AL CONSULTATIONS) IN TERMS 01 OUR INTERESTS IN IRAN.

16. SECONDLY, AS THIS EMBLSSY HAS RECOMMENDED ,EARLIER, WE BELIEVE WE CAN AND SROULD FIND WAYS TO SPEAE PUBLICLY ANP POSITIVELY MORE THAN WE RAVE TO DATE ABOUT RAVING ACCEPTED THE CHANGE IN IRAN. THERE ARE TWO REASONS TOR THIS; THE ONE O a v I o u s L r TO HELP REDUCE PGOI SUSPICIONS ABOUT

.OUR PURPOSES ANC THE OTHER TO REMIND OUR OWN PUBLIC (ONLY SUPERPICIALLT INFORMED BY TEE U.S. PRESS) ABOUT OUR LONG-

"FRM INTERESTS IN IRAN. THIS I S NOT TO SAY TBkT WE NEED ; PUBLICLY TO EHBRACE AND ENDORSE YBONPINI, OR TO APPLAUD

SUCH FIGURES AS TAZCI AND CHAMRAN AND ALL TEAT THEY SAY E AND DO, OR TO COMEND PGOI POLICY IN KURDESTAN. WHAT WL t DO NEED TO SAT, IN WAYS THAT WE HAVE NOT YET DONE. I S TRAT :YE RAVE LONG-TERM INTERESTS IN IRAN THAT CONTINUE AND WHICH ! WE BELIEVE CAN BE PRESERVED IN AN ISLAMIC IRAN.

t 17. SPECIFICALLY, WE URGE TEE DEPARTMENT TO FIND WAYS ) PUBLICLY TO SAY TRAT WE WISE IRAN WELL IN PUTTING I T S "REVOLUTIONARY OBJECTIVES INTO FORMS AND INSTITUTIONS THAT

UILL COMMAND THE SUPPORT OF ALL I T S PEOPLE; THAT THE U.S. ' FAS NO INTEREST IN OR INTENTION OP IMPOSING ANY REGIME.

MONARCHY OR OTHERWISE, ON IRAN; THAT WE RATE AN ABIDING INTEREST IN IRAN'S INTEGRITY AND INCEPENDENCE; TRAT AYERICAN INTZRPSTS IN ACCESS TO IRANIAN O I L ARE SYNONYMOUS J I T H IRANIAN INTERESTS IN SUSTAINING ANC FINANCING I T S FUTURE INDUSTRIAL AND AGRICULTURAL DEVELOPMENT. WE SHOULD FIND OPPORTUNITIES AS WELL TO WELCOME REIOLUTIONAPY IRAN'S E'lPEASIS .ON ISLAM AND I T S SPIRITUAL CONTRIBUTION TO SOCIETY AS SOHETRING THAT AHERICANS UNDERSTAND AND RESPECT. GIVEN THE VAT IN WHICH AMERICANS ALSO SEE THINGS OF THE S P I R I T AS IMPORTANT TO HUMN ENDEAVOR.

18. ASSISTANT SECRETARY SAUNDPRS' TSSTIMONY OF SOME MONTHS BACC BEFORE THE H I R C ON THE MIDDLE EAST AS A WHOLE HAS THE ESSENCE OF MUCH OP THIS AND I S THE KIND OF THING WE SHOULD BE HEARD SAYING MOBB PRLQUPNTLT ABOUT IRAN.

19. THIRDLY, AND BRIEFLY, THERE IS 'THE VERY LARGE IMPORTANCE OF TEE SYMBOLIC ACTS OP SEEING XHOMEINI AND

NTRAL TO TEE WAY IN WHICH TAZDI AND INDEED MOST NS SEE OUR ATTITUDES TOWARD THE~REVOLUTION. I P A BASSADOR I S TO BE FURTHER CELATED, WE RECOMMEND TEAT

U C O N F I D E N T I A L TEHRAK le9E

* F SEEK A tEFFIN3 NOV YITB KBOMEINI AT THE CRARCE IEVFL. AS POR DESIGNATING AN A%BASSADOR. THE TIMING WILL N E V ~ R bE TOTALLY RIGHT; THE ACTION SHOULD NO LONGER BE DEIAYEC. LA 1 bGEN a l Y0891

GNNN C O N F I D E N T I A L TEHRAN 10851 3/3

DE BOOMER 1)1223/01 2 9 6 ** t -7.-1 ZNT CCCCC ZZE CLASS : R 231319Z OCT 79 IW MtMBASST TEHRAN TO SICSTATE WASBDC PIIORITY 4491 111

CBRGE: APPRV I DR1TD: ----- -

i - 0 N I I D P N T I A L SECTION I 1 01 TLIRAN 1 1 2 2 3 I:

~ . s . i z t~~s : ons ir/zs/es (SLNS, A.D.) 01-I TAGS: ECON. E f I N . PINT, I1 SUBJECT: ECONOMIC lLCOlL1T - WILIL NOW?

1. (C-ENTIRE TLXt )

Lxon DoLLlrns A noma IN OIL Intnors. r~owi 2.4 N ILL ION 0 1 IRAN'S WORKlORCL ( 0 1 2 1 PEICXNT) A l l UNLHPLOTLD. MAN1 PLANTS ABI IDLLD. A l n A O L S PIODUCTION I S LSTIMATLD AT .- .----. ... -.-..- -- -... --- -. ~ I R Y PERCENT or CAPACITT V I ~ n1 IX~OLOTION e nontas PAST AND TBE PIPST INITIAL s t ~ a s , n r c o i m T n o u csros, A C E I ~ V Z D . MANY IIANIANS AIL IWINIIIR t o ASK n T n r IS- C O ~ E I I Y CURVE IS NOT IISINO rrsnr. 3. TBIS TELEGRAM EXPLORtS A BASIC PIOILDM, TUX PAILUIL TO TRANSLATE EXCESS L l Q O I D I t T IN IAIKS INTO BADLY NLIDLD IN- vtsrnlnz on CRLDIT t o 1 A LIMPI# INDUSTDIAL SWTOI. TIGET CREDIT Tswl i lTs nt DLCLAISB I ~ I I T I O N S or G o i t l N n t N T t AND CONTRIBUTES TO T I 1 INSTAlILITY AND LACK O r CONlIDLNCL WBICB ARE T E ~ S L L V E S TACTOIS IN ns nonm. otata c~usts DISCUSSED BELOW ARE TBL LACK 01 I N l B S T U S AND I I l I S t U E W T , CAPITAL TLIGBT, OOlE1WnfNt INCAPACITY A t ALL LLILLS. PLR- SONAL INSPCUIITT. YAILUI1 01 TB1 I1SD@SICT CILDIT PROGRAM, A N D TEE I N S O L ~ L N C Y 01 INTLNDIWO IOIIOIIIS.UPON TBL corrrw- ntwr's snccsss IN T n r conrra mornr IN IB~OLVING SUCH PnoBLrms A N D IN LAUNCIINO PIO~IAIU wrcr I w s P I n r cowrI- DLNCE, MAT DEPEND T I 1 111TUBS 01 T I I S IS@IML- 1ND INTPOEUCTION AND SUWAlT.

4. LACK or CONIIDLNCE, t n o I N T ~ T M B I I T , LIQ~IDITY PRtYERENCE AND CAPITAL I L I Q I T . SXCISS LIQUIDITY CAN BL MADE PRODUCTIVE TBROUGB INl%TMLNT, I N NSU 01 LXISTING PLANT, OR THROUGB T 1 1 LOAN 01 UOIIIWQ C U I T A L . INIXSTMLWT TODAY I S ALMOST ION-SIISTSNT IN PAIT BlCAUSL TEE OLD ENTIEPRENEURIAL CLASS BAS P L ~ B 211 COllWTlT. SADIGI SAMXI, DEPUTY MANAGING DIILCTOI O t T I 1 I U N - A I A l 1ANK. AND B I M S E L ~ or TEAT K I N D 01 ~ A ~ I L Y rstrtunr tut TODAY t r n r rmxn NOT noat t u n nnm I~UIAIU OI 91s NLC~SSAIT PPISONAL ~ I N A N C I A L st~wls. mr tm~t's o o r D I T I o N s . r rn WILL NOT MAXI A 11011.

5. TBL BAZARI ( C O N S I I l A t I l I M P C U I I T ) CLASS AIL TIADEIS. NOT RISK-TAKING I N l I S T O l S . ACCOIDIW M BIIECTOR AITABI 01 TEE TOREIGN DLPAITMLNT 01 BANI MILL1 . I IAN0S LARGEST COMMERCIAL B A N K . tasst IAZAIIS AIL S X ~ I ~ M E L T nu arnro. IN THE FACL or TPE srnr u n c n t ~ r N z x s s , rowsin. TILT prm- IER TO P I L L UP T B L I I MBALII I N I A U S , 01 1LtTSR STILL, TO

~ O N ~ I D S N T ~ A L TEERAN

1 1 2 2 3 / 1

CONPIDENTIA STAT 1 8 / 2 3 / ECON: ADSENS ECON$MKENNI NONE ECON-3 CBAR CBRON

1 1 1 2 2 3 / 1

NNNNVZCZC 346 PP RUEHC QE RIlnMHR # 1223 / f l 2 296 1345 ZNY CCCCC ZZV P 2 3 1 3 191 OCT 19 m PMEMBASSY TEHRAN TO SECSTATE WASHDC PRIORITY 4 4 2 1 RT C 0 N F I D F N T I A L SECTION 82 W 1 3 ' T F H R A N ' 1 1 2 ~ 3

TRADITIONAL CLERICAL FUNCTION I N TRADITIONAL ISLAM, I T S S IMPL IST IC APPROACH, AND THE D IS@UIET THAT W C I R B I A S M A I N S T PROFIT MUST GENERATE, SHOIILD B E AN ADDITIOWAL DETERENT TO INVESTMENT OR L c n D I t a .

9e CONFIDENCE MRYAE ERODED B Y THE QUALITY OF PARA- GERS APPOINTED TO RUN THE NATIONALIZED IWDUSTRIES. W E N THE WORKERS, APPARENTLYI RAY COMPLAINe RANKERS TELL OF M9NAGKRS WHO HAVE TO B E INTRODlfCED TO THE DIFFER- ENCE RETWEfN THE DERIT S I D E OF THE BALANCE SHEET, AND THE CRFDIT. CONPOIINDIM THE RCLIICTANCI: OF BANKERS TO LEWD TO FIRMS WITH INEXPERIENCEb MANAfiEMENT I S UNCERTAINTY AS TO WHO OWNS AND COITROLS TPFI FIRMS. I n s a M t CASES rnm ALL THE SHARES HAVE: nor BMN TAKEN ovcw, B u t WHERE mr: GOVERYMENT OR A CHARITABLE FOUMDATlON APPOINTS CERTAIn DIRFCTORS TO THE POARD, L l NES O? AUTHORITY AND UtT IMATE F lYANCIAL RESPONSIBILITY R M A I N UIICLEAR.

IR. THE aPPo1 nTMEnT OF I NEXPERIENCED ADMI NISTRATO s RE- m c T s TuF FLIGHT o r THE r x p c u t E ~ c m . YET, 1 N u m b o r TrlE LATTER REMAIN, AND ARE F I l N C T l O N I ~ WITHIN THE SYSTEP* THFIR APIL ITY, POWEVER, BRIb( iC THC EXPCRIEllCE GAP bND EFFLCTIVBNEPS I N M A U I M THE ECONOMY TICK, I S R!!DIlCED B Y PSYCHOLOGICAL DISCOMFORTI I N THEIR ROLES. 'DO YOU REALIZE' bSKED APTPHI, 'THAT MY TtNttRE H n E MAY D L P E m ON WETHER OR NOT I PRAY?" OTHERS HAVE SA ID THE SAME, WHO, L I K E ARTAHI ARF I I N W I L L I M TO PLAY THE HYPOCPITI!. ALL ARE VULNERABLE TO SOME EXTENT, A LESSON DRIVCM HOME RY THE FIRIN[; OF THE NIOC CHIEF NA7IH. THERE ARISES A TENDENCY TO AVOID n E c I s r o n s LIKELY TO GIVE O C ~ N S E OR TO DRAW ATTENTION TO THEMSELVES.' I T EVRN AFFECTS THEIR DESIRE TO WORK OVFRTINE (ESPECIALLY AFTER THE RECENT MAJOR CUTS I N PAY I N NIOC AND THk BANKS.)

11. PNOTHFP, AND RFLATFD PRESSIIRr, I S THE FEAR NOT THAT TH IS REGIME, RUT THAT I T S SUCCESSOR MAY CALL MANMERS TO PCCOllNT FOR HAVING CARRIED OUT THE INStRt lCTIONS OF THE PRESENT ONF. WHbT HAPPENED TO RANY W O CARRIED OUT THE ORDERS OF THE SHAH* THE PATENT I N S T A B I L I T Y OF TH IS REOIME, AND THF: FELT POSSIP IL ITY OF COUNTER-REVOLUTI(In, ALL CON- PINE TO DISCOURAGE r r t ~ ~ r t ~ v c . on THE FOSITIVI! srac, OF OURSE, THE FXAMPLE O? WHAT HAP?CNED TO THOSE WHO PENT THE R t n F s TO TAPE CARE OF THE SHAH*S CROIII~S was STRE~TNENED THE RACCS Of PANKERS TO RESIST t!WUDE INtERFl!RENCES BY CLFRGY AND KOMITEVS ANXIOUS TO HAVE THEIR PET PROJECTS FINAICFD, HOWEVFR UN~CONOMIC. 'm)BODYeS GOINQ TO STAND MF MP AGbINST THE WALL L I K E THEY D I D TO SOMF O? THOSE GUYS," SAYS MANABIM! DIRECTOR M H I L I OF THE BANK OF IRAN AND TUF MIDDLE PhST.

12. ON BALANCE, HOWEVER, THE EFFECT O F THESE PRESSURES, PARTICULARLY ON RANKERS WHO ARE NOW C I V I L SERVANTS HAS REEN TO DISCOIJRABE I N N O V A T I O N , B O L D N ~ S I I A N D F L E X I R ~ LITY. THESE QUALITIES ARE PARTICULARLY NEEDED AS MANY INSOLVENT IRANIAN INDIISTRIFS CALL OUT I N VAIN FOR CREDIT.

13. TO IINDERSTAND THE IMPORTANCE O F CREDIT FOR IRANIAN INDUSTRIFS, ONE SHOULD RECALL THAT MIlCH O F I T CONSISTS OF THE ASSEMRLY O F FOREIBN MMPONENTS, OR, AT LEAST, DEPENDS HEAVILY ON IMPORTED RAW MATERIALS* INDUSTRIALISTS WERE AT PAINS TO MAINTAIN THEIR CREDIT RAT1 WOS.A!! flANAB!N(I DIREC- TOR SARHETTLIAN O F THE FOREIGN TRADE RANK OF IRAN ( F T B I ) CUMMENTED, THEY TOOK CARE O F THEIR SUPPLIERS YELL REFORE THEIR IRANIAN RANKERS. I N RETURN* MANY ENJOYED THE PRIVILEGE O F RUYIN[; ON OPEN ACCOUNT* OTHERS TOOK OUT TEFM LETTERS O F CREDIT O F 1 8 0 DAYS OR BETTER. AT t 8 B DAY TERMS HAVINB ALLOWED A MONTH FOR TRANSPORT OF THE IMPORTED IN- PIJTS, A MONTH FOR PROCESSINQ A N D A mmns BRACE TO THE PIIRCHASER OF THE FINISHFD PRODUCT REFORE HE HAD T o PAY, THE INDUSTRIALIST ENJOYED A 3-MONTH HOLIDAY P E W R E HE HAD TO REPAY WIS SIIPPLIERS. THE FLOAT WAS AN IMPORTANT FACTOR IN H I S PROFIT MARQIN.

14. WITW THE REVOLUTION, FOREION SUPPLIERS RECiAN TO IN- S I S T ON CONFIRMED LETTERS O F CREDIT, WHICH EFFECTIVELY MEANT CASH. FIRMS I N TURN BEGAN TO DEMAND CASH PAYMENT FROM THEIR CUSTOMERS. THE FLOAT WAS LOST, AND, IN MANY CASES, PRODllCTION IS DOWN (AND EARNIllOS),WHILE. FULL PAYROLLS MUST S T I L L B E MAINTAINED WITH A 241 PERCENT PAY BOOST. CUSTOMERS HAVE WITHHELD PAYMENT. EFFECTIVELY IYSOLVEUT, WITH THEIR AVAILABLE COLLATERAL (LAND) RENDERED VALUELESS, MANY INDUSTRIES, ALREADY LENT UP, WERE TRYING TO BORROW EVEN TO MEET THEIR PAYROLLS, AWD USUALLY WITH- OIJT SUCCESS.

15. THE CRY FOR EMERGENCY CREDIT* F I R S T HEARD FIVE MONTHS

, REVOLUTIONARY COMMITTEE I N QUM. I N L t n R u E WITH RIBHT- THINKING RAZARIS, THEIR WELL-PUBLICIZED 8fl RILLION RIAL MERGENCY CREDIT (REF A) BUILT UP OREAT HOPES. AT S I X PERCENT I NTFREST, AND WITH COLLATERAL RECIUIREMENTS EFFECTIVELY WAIVED* THE CBI WAS TO CHANNEL Rm B I L L I O N RIALS IN I 0 TRANCHES THROWH I 0 BANKS (RECENTLY RECOP(E 1 1 ) OF THE STRONGER COMMERCIAL BANKS' F I F T Y PERCENT OF THE BT

PP RUEHC DL RllrJMHR 4 1823/85 e96 1534 ZNY CCCCC Z t H P 2313192 OCT 79 FM AMEMRASSY TEHRAN TO SECSTATF WASHDC PRIORITY 4 4 2 2 er C 0 N F I D K N T 1 A L SECTION 03 OF 03 TEHRAN 11223

APPLICANTS' REQUIREMENTS WERE TO B E DRAWN FROM T H I S FACIL ITY , WHILE THE RALANCF: WOULD COME FROM THE RANKS OWN FIJNDS. HPNCE 16B P I L L I O N R IALS WOULD RE INJECTED INTO THK ECONOMY WITH 1.6 B I L L I O N R IALS EXPECTED FROM EACH DESIG- NATED RANK I N THE FIRST TRANCHE. THE CREDITS COIILD RF IJSEI) EITHER TO MEET PaYRnLLs, OR TO PURCHASE R A W MATERIAL

16. WITH ONE POSSIBLE EXCEPTION, ALL OUR RANKING CONTACTS AGREE THAT THE SCHEME HAS PROVEN TO RE A TOTAL F4ILIIRF: THE RANY SANAYE, THE ONLY ONE OF THE DESIGNATED RANKS TO G I \ l E US FIGIIRES, NOTED TMAT OF I T S 1.6 R ILL ION, ONLY 309 VILL ION, OR 2 n PFRCENT OF TARQET HAS BEEN ADVANCED. THE PRI YCIPAL ROADRLOCK, ALL, ADMIT, WAS THE HOPELESSLY COMPL REDTAPE ENCOUNTERED PY THE APPLICANT. SAGHETELIAN OF FTB TELLS OF ONE APPLICANT WHO APPLIED FOR A CREDIT TO B W R MATERIALS, ONLY TO B E REQUESTED B Y THE LOAN COMMITTEE OF THE MINISTRY OF INDUSTRI tS AND MINES TO SIIPPLY THE NAMFS OF ALL H I S EMPLOYEES. INADVERTENTLY, HE HAD APPLIFD FOR THF: WRONG KIND OF CREDIT. (THE BIIESTION RENAI NS WHETHER I N ORDER TO MAKE AN EMERGENCY PAYROLL LOAN, ONF REALLY NEFDS ALL THOSE NAMES.) THE IRANIAN BIIREAUCRACY I N THE MIYISTRY HbD A F I E L D DAY AS D I D THE CLERICAL REPRESENTA- TT\ l tS, I N SOLICIT ING N I G G L I l AND IRRELEVANT DETAILS. MnNTHS WOlILTl GO BY, WITHOUT ACTION ?N THE PART OF THE MINISTRY OF CFNTPRL PANK.

17. ALONE AMONG THE RANKPlRS, SAGHATELIAN APPEARED [IN- TPOtfQLED P Y THESE DIFFICULTIESe WHEN THE CENTRAL BANW WAS SLOW I N COMING THR0116H, HE WOIILD ADVANCE THE ENTTRE AMOIIN FPOM F T P I * S OWN FUNDS, AND CORRECT THE ACCOllNT LATFR. I N CnNCFDING TwaT THE DRAW-DOWN RATE I N OTHER RANKS WAS LOW, HF: ALI.OWFD THAT H I S BANK HAD TRADITIONALLY ENJOYPD THE CUSTOM OF TPE "CREAM" OF IRANIAN INDUSTRY. I N OTHER WDRrS, HF WAS LENDING TO THE FEW WHO DIDNT REALLY NEED MEPGENCY CREDITS. AS NOTED ABOVE, THE CONSKNSIJS WAS THAT THOSF: WHO D I D NEED THEM WEREN'T G E T T I l THEM.

le. THE OVERRIDING QUESTION, THEREFORE, RFMAI NS THE CRFDITWORTHINESS OF THE IND IV IDUAL INDUSTRIALIST. RANK MELLI, SA ID ABTAHI, HAD DONE ALL I T COULD TO MAKE CREDIT AVAILARLF. Bl IT WHEN A COMPANY 1 9 PATENTLY INSOLVENT, WHEN I T HAS TO RORROV EVEN TO MEET I T S PAYROLL, THEN A L I N E HAS TO P E DRAWN. ABTAHI MADE I T CLEAR THAT HE HAD NO MiRE DESIRE THAN AGHIL I , SOMEDAY TO 01: STOOD UP AGAINST A WALL.

19. CONCLIJSIONS. FACED WITH THE INEPTITUDE OF THE RF'SPONSIRLE MINISTRY, NO COLLATERAL REQUIRMFNTS, AND ASKED TO PUT THEIR OWN MONEY INTO INSOLVENT OPERATIONS, THC COMMERCIAL RAWS ARE UNDERSTANDABLY NOT RESPONnIW Tn TH IS NPTIONAL PRIORITY. THE CONSF(JUENCES ARE FELT I N f i NUMRCR OF WAYS. 1

20. FOR FXAMPLF, THE TRUCKING INDUSTRY FACES A SERIOUS 9ORT4GE OF SPAPE PARTS. ONE OF THE LARGEST SPARE PARTS IMPORTERS CAN MFET ONLY 65 PERCENT OF ORDERS. ADDITIOMAL STOCK I S AVAILABLE* PUT UNPAID FORI I N CUSTOMS WAREHOIISES. THE FIRM I S INSOL\ftMT, AND NO RANK WILL LEND I T FUNDS TO PAY OFF THE L t T T f R S 0 0 CREDIT AND CLEAR CtJSTOMS. MFAN- WHILF, GOVFRNMFNT MINISTEPS ARE JAWRONIW MANIIFACTURERS AND IMPORTERS TO "DO SOMETHINO" ABOUT THE PROBLEM.

21. THIS MAY PF AN EXTREMS CASE. INDUSTRIES OWNFD BY THE GOVERNMENT, AT LEAST ACCORDING TO PRO-GOVERNMENT MAYAGING DIRECTOR AFGHANI OF THE RANK SADERAT IRAN, 6RE ARLE TO FIND ENOUGH CREDIT TO IMPORT AND TO KFEP PRODUC- TION GO1 NG. 9 NUMRER OF PROBLEMS WERE INHFRITED FROM THE DAYS OF THE SHAH. AGRICULTURAL MACHINERY, WE ARE TOLD, I S DOING BETTER.

22. THFPE 19, NFVFRTHELESS, CAUSE FOR CONCERN I N THE PPECEDI NC; ANALYSIS. AS REVOLIITIONARY EVENTS RECEDE INTO TPE PAST, PEOPLE WILL EXPECT MORE OF GOVERNMENT W A N GOVERNMENT I S PRESENTLY DELIVERING. THF NEXT FEW MONTHS snolnn GIVE CIS A BETTER SDEA OF WHETHER TWF STABILITY AND CONFIDENCE CUFVF WILL GO UP, OR DOWN. LAINGEN BT

DE RUQMER #1268/01 297 ** ZNT CCCCC ZZE CLASS: R 2412212 OCT 7 9 CHRGE: Fn AMEMBASST TEERAN APPRV : TO SECSTATE WASBDC 4445 DRlTD : BT CLEAR : C 0 N F I D E N T I A L SECTION Bl OF TEHRAN 11288 R:

E.0.120658 GDS 10/24 /85 (KENNPDT. M.1 OR-E TAGS: BIND, P INS. IR SUBJECT: POST-REVOLUTIONART INDUSTRT IN TABRIZ: MERCEDES BEN2

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2 . SOWART: DURING A RECLNT VISIT TO TABRIZ, TDT COMMO?? VISITLD MIRCLDES-BENZ JOINT-VINTURL DIESEL ENGINL PLANT. connotr raon r r n L r r a TOUR IN TABRIZ ( i s w - 7 4 ) wAs WELL- ACQUAINTED WITB PLANT, ITS PREVIOUS IRANIAN MANAGING DIRECTOR AND I T S NEW IRANIAN MANAOINO DIRECTOR. CHRIST AGEABIGIAN WE0 RAPPLNS TO BE AN ARMENIAN. BT POST- REVOLUTIONART IRANIAN INDUSTRIAL STANDARDS, PRODUCTION AT 5~ PLRCENT OF PAST PRODUCTION C A N couwxrn h s succt.ss STORT OY BOW PLANT I S WEATBERING C R I S I S PROVIDES INTEREST- ING VIUNITTEE ON REVOLUTIONART IRAN AS WLLL AS LIAMPLE 0 1 HOW TALLNTPD ARMENIAN MANAGER CAN JUUGLL OFTEN CONILICT- ING INTERESTS 01 GOVERNMINT, PRIlATE SHARtEOLDERS. BANKS, REVOLUTIONART c o n n x T r r a s , n u t L A a s A N D woartas. END SUMMART.

3. TEE IRANIAN DIESEL LNGINE MANU1ACTURING CWPANT (IDEM) WAS ESTABLISEED IN 1970 AS A MERCIDES-BEN2 JOINT VINTURE TO HANUFACTURE TRUCK AND BUS DIESEL ENGINES. APPROXIMATE- LT EQUAL SHARES ARE HELD IN THIS PRIVATE JOINT-STOCK DEVLLOPtlENT BANK 0 1 IRAN (IMDBI). KilAlAR COMPANT AND IRAN NATIONAL. KRAVAR AND IRAN NATIONAL ARE MERCEDES-BEN2 MANUYACTURLRS IN TEERAN 0 1 M-B TRUCK? AND BUSES BESPECTI- VELT. IDEM RAS BEEN A SUCCESS STORY, BT 1977 PRODUCTION HAD RISEN TO it? B e @ INGINES A TEAR (APPROXIMATLLT EAL? EACE y o n K H A V A R ' A N D IRAN NATIONAL) AND A VIGOROUS EXPAN- SION PROGRAM WAS ENSURING STLADT INCREASE IN IRANIAN VALUE ADDED. PRODUCTION YOR TBL CURRENT IRANIAN TLAR (MARCH TO SEPTWBER) BAS DROPPLD TO 758 LNOINLS A MONTE OR ABOUT 9.00# P t R TEAR.

4. IESH BAS BEEN BOTH FORTUNATE AND UNIORTUNATE IN I T S CAPTIVE MARKET. KEAVAR COMPANT BAS BAD VERY SERIOUS CREDIT AND PRODUCTION PROBLEMS S I N C I TEE REVOLUTION. WHILE I T S ~ R I L I s r o c r a o L D r R ( T a r SOUDLVAR r m I L r ) EAS R P ~ A I N L D I N IRAN, TEE GOVERNMENT BAS INSTALLED NEW MNAGtMENT AND A NEW BOARD O? QIRECTORS. KMlAR WAS OVER-LXTLNDLD EVIN PRIOR TO TEE REVOLUTION; TRUCKS WtBL SOLD ON CREDIT IN IRAN AND KEAVAR ALWATS RID TO STRUGGLE 1 0 1 OPERATINU CAtITAL. WITH TEE RLVOLUTION. TEE SBUT-DOWN Of LARUE CONSTRUCTION PRO- JECTS, TEE REFUSAL OR I N A B I L I R O? I T S CUSTOMERS TO PAT THEIR DEBTS. COUPLED WITB CREDIT SBORTAGES AND TBL INEX- PERIENCE 01 I T S NEW MANAGLMENT, TUX COMPANT I S NIARLT B A N K R U ~ . WORKERS WAGES BAVL BLEN RAISED WEILE PRODUCTION

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I S VIRTUALLY NIL. IRAN NATIONAL,ON TEE OTEIR BANE, WAS A MONEY MACRINE ?OR ITS OWNERS, THE KfiAYYAMIS , IN PRE-REV- OLUTIONARY IRAN. PAYKAN AUTOMOBILES MADE BY TEE FIRM WERE IN SUCB DENAND TEAT CUSTOMERS FAID CASE 6 MONTES IN AD- VANCE AND I T S M-B BUS MARKIT WAS GROWING STEADILY. TKE KhATTAMlS HAVE SLED FROM IRAN, TEEIR PROPERTY HAS BSEN NATIONALfZED BUT EVEN TRE PGOI BAS NOT BEEN ABLE YET TO RUIN IRAN N A ~ I O N A L . THE COMPANY BAD SURPLUS CASH OPERAT- ING CAPITAL OP OVER 1 BILLION TOHAN (ABOUT 135 MILLION DOLLARS) ON TEE EVE 01 TEE REVOLUTION. THIS HAS PROVIDED A COMPORTABLE TEMPORART CUSBION TO ABSORB INCREASED WORKER WAGES A N D TEE C O N T I N U I N G D ~ N C ?OR M-m B u s r s ars PROVIDED A n A n r R FOR IDEM.

5. B Y T A B R I Z A N D EVEN IBAWIAN STANDARDS, IDEM HAS BEEN A PROFITABLE COMPANY M R I T S SlAREROLDERS. TURNOVER WAS OVER 600 MILLION TOMAN PSR YEAU (NEARLY 100 MILLION DOL), IMPORTS OF COHPONSNTS FROM DAIMLXB-BEN2 WERE OVER 100 n. DM PEE YEAR. TEE PLANT URNSD A PUO?IT O? 88 MILLION 40HANS (OVER 10 MILLION DOLLAUS) I N 1977 AND PROVIDED EMPLOYMENT ?OR 1308 TABRIZIS. PLANT I S NOW AT EALT-PRO- DUCTION, IS PAYING ITS srnr w o ~ t i r o ~ c ~ (waxen CANNOT BE RECUCID) KIGBER WACLS AND I S 1051110 ABOUT 5 HILLION TOMANS A no rm (ABOUT ser.sre DOLLUS) . L o s s r s ARB TO A LARGE FXTEN'I BEING FINANCED TE100011 EIPPING INTO DEPRECIATION RESERVES AND SOKE BANK CREDITS. PRIOR TO TRE RElOLUTION, D-H CInnANY SOLD c o n p o n r n r s AT 50 P r a c r n T DOWN A N D se PER- CENT I N 9. 12. A N D IS MONTE TRANCHES. n r t n r n t nrvar .u - TION, D-M EXTENDED TIRES TO A- 28 P ~ R C E N ~ ~ T O ~ B ~ - P E R ~ E N ? RATIO, BUT WEEN BERMES ELIMINATED I T S EXPORT INSUIANCt, ICEM WAS FORCED TO PURCIIASE ON A CON?I1MSD LtTTER O? CREDIT BASIS.

6. TEE REVOLUTION HAS DRAMATICALLY GBANGED HANAGPMENT- LABOR RELATIONS AT IDEM, AT LEAST I N THE SPORT-RUN. ACHABEOIAN BECAME ACTING HANAGING DIRSCTOR IN EARL1 lDT0. AGHhBtGIAN, A NATIVE TABRIZ ARMENIAN, BAD SPENT 13 YEARS IN GERMANY, BUT RETURKED TO TABRIZ I N 1970 AS AN ENGINEER AND BAS WORKED E I S WAY TO TEE TOP 0 1 TEE COMPANY. AGBABLCIAN WAS APPOINTED MANAGING DIRECTOR BY TEE BOARD O? E T * 1268 NNNN

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LIRPCTORS APTER TRE REVOLUTION AND BE-CONTIRMED IN THIS POSITION BT THB REVOLUTIONART PLANT COUUITTSS IN A NOISY MEETING OF ALL 1300 EMPLOTEES. TEE IARLT PLANT COMMITTEE HAD 29 MEMBERS (SOUR LETTISTS). BUT TEE WORKERS RAVt SINCE ELECTED A NEW 5-MAN COMMITTEB COUPRISED OT VERY RELIOIOUS bORKERS. AGBABEGIAN I S SOMNHAT CONCIRNfD TEAT TIIIS COMMITTEE I S INCREASINCLT BEING BT-PASSED BT WORKERS WBO WANT TO BRING TBEIR PROBLWS TO B1H DIRICTLT. W I L E THIS INDICATES TRUST I T PLACES AN IMPOSSIBLE DEMAND ON HIS TIME.

7 . EVEN PRIOR TO TEE REVOLUTION, ADBABLCIAN BAD ASTUTELT REACTED TO WOPKP FWSTPATIONS AND JXALOUSIES. 'I0 TBS CHAGRIN O? STATT. BE ALLOWED WORfSRS TO USE THE IDEU CLUB, SUIUMSHG POOL AND TENNIS COURTS. BE STOPPED CONSTRUCTION ON A 259.8BI DOL ROOSE E f HAD BEIN CONSTRUC- T I N G AND BAS CONTINUED TO L I V E I N A s n A L L t a aousa I N TABBIZ. HE NOTED TEAT RSLICIOUS WORKEBS RID NO WEERE TO PRIT AND BEGAN TEE CONSTPUCTION or A sn ru n o s ~ u t ON TEE PLANT SITE. BE REmSED A CBAFIIUR. SOLD TIIS NEW MXRCLDES COMPANY CAR AND DRIVES A 5 TEAR OLD UXPCEDES. ALL O r THIS BAS PAID OFF IN BETTER YOBKER BPLATIONS. BUT PERBAPS EVEN nom IMPORTANTLY BAS PROMOTED ACBABECIAN'S RELATIONS YITE THE CITT'S NEW REV9bOTIONART ES?ABLISHMtNT. THP SINGING 01 HIS PRAISES BT E I S PIOUS WOHKtP COMUITTEE BAS BBOUCBT VISITS ANE COMMENDATIONS 1110M T B I CITT'S CEILlF AYbTOLLAHS. HIS RELATIVELT SUCCESSlUL PLEAS YOR CREDIT FROM THE CAUTIOUS BANKERS IN TABRIZ HAVE BEEN BACKED BT REQUESTS PROM THE CHIEF REVOLUTIONART COUMITTEE TO TEE GOVERNOR GENERAL TO TEE CITT'S C B I I F ATATOLLABS.

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