PROBABLE DEVELOPMENTS IN IRAN THROUGH 1955

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01012A004300010001-4
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 19
• Document Creation Date: December 23, 2016
• Document Release Date: April 26, 2013
• Sequence Number: 1
• Publication Date: December 7, 1954
• Content Type: NIE

wi le Pt g 4
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7 December 1954
414411111P
NATIONAL INTELLIGENCE ESTIMATE
NUMBER 34-54
PROBABLE DEVELOPMENTS IN IRAN
THROUGH 1955
Submitted by the
DIRECTOR OF CENTRAL INTELLIGENCE
The following intelligence organizations participated in the
preparation of this estimate: The Central Intelligence Agency
and the intelligence organizations of the Departments of
State, the Army, the Navy, the Air Force, and The Joint Staff.
Concurred in by the
INTELLIGENCE ADVISORY COMMITTEE
on 7 December 1954. Concurring were the Special Assistant,
Intelligence, Department of State; the Assistant Chief of
Staff, G-2, Department of the Army; the Director of Naval
Intelligence; the Director of Intelligence, USAF; and the
Deputy Director for Intelligence, The Joint Staff. The Atomic
Energy Commission Representative to the IAC, and the Assist-
ant to the Director, Federal Bureau of Investigation, ab-
stained, the subject being outside of their jurisdiction.
CHAS $!--: CLASS.
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CENTRAL INTELLIGENCE AGENCY
DISSEMINATION NOTICE
1. This estimate was disseminated by the Central Intelligence Agency. This copy
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June 1953. 0
WARNING
This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
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PROBABLE DEVELOPMENTS IN IRAN THROUGH 1955
THE PROBLEM
To estimate probable trends in Iran in the light of the oil settlement, with par-
ticular respect to: (a) the prospects for continued control by Zahedi or other moderate
leaders; (b) the outlook for economic and political stability; (c) the probable extent of
Iran's will and ability to contribute to US-backed regional security programs; and
(d) the extent to which continuing US assistance and influence will be important
factors in the situation.
CONCLUSIONS
1. Since Mossadeq's downfall, political
power in Iran has largely reverted to the
Shah and the conservative traditional
ruling group. The principal new features
of the situation are: (a) the extent to
which authoritarian means have been
used to curtail opposition; (b) the emer-
gence of the US as an acknowledged ma-
jor influence in the situation; and (c) the
re-emergence of British political and
economic influence. (Paras. 13-14)
2. Zahedi's chances of survival through
1955 are considerably less than even.
We believe that the most likely time
for his replacement will be shortly
after the Shah's return to Iran in Feb-
ruary-March 1955. Iran will probably
remain, at least through 1955, in the
hands of predominantly conservative
governments acceptable to the Shah and
Western-oriented. Now that the oil dis-
pute has been resolved, however, there is
likely to be a marked increase in political
ferment which may weaken the effective-
ness of the government and facilitate a
revival of extremist influence. Moreover,
even if the conservatives succeed in re-
taining control beyond 1955, they will re-
main vulnerable to a Tudeh or national-
ist-inspired flareup of popular feeling un-
less they make some progress in satisfying
popular grievances and in reducing pop-
ular distrust of the government. (Paras.
21, 22, 24, 27, 41)
3. The Communist Tudeh Party, having
suffered a series of setbacks, will be in no
position to challenge the government
seriously in the next 12 to 14 months. In-
deed it may be hard pressed to maintain
an effective organization. Nevertheless,
it is the only political opposition group in
Iran which has some organization and
discipline, and it is likely to re-emerge as
an active threat unless the government
both continues effective suppression and
succeeds in allaying popular grievances.
(Paras. 15, 21, 35-37)
4. The resumption of oil production, to-
gether with interim US aid, will provide
Iran with substantial funds for an eco-
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nomic development program which could
do much to meet popular aspirations.
However, the ultimate effectiveness of
any such program will depend not only
on the money available but also on the
way in which the government tackles the
managerial and political problems in-
volved, and on the Shah's willingness to
provide firm support. This, in turn, is
likely to depend on the ability of the US
and UK to work together effectively and
influence the Shah and other Iranian
leaders against allowing the programs to
be unduly weakened by corruption, mis-
management, and political maneuvering.
(Paras. 29, 38, 42-44)
5. In any event, Iran is likely to remain
for a number of years a basically unstable
country, plagued with continuing eco-
nomic and financial difficulties. Its un-
derlying social and economic problems
are of a sort which can be solved only
over a relatively long period of time and
which, in the process, will generate new
tensions and strains. The disruptive po-
tential of popular discontent acompany-
ing such tensions and strains will prob-
ably be increased unless the ruling group
adjusts to a sharing of power with grow-
ing middle class elements. (Paras. 27,
30)
6. In time Iran will almost certainly seek
increased participation in the manage-
ment and profits of the oil industry.
However, the oil question is unlikely to
re-emerge as a burning issue so long as
oil company policies pay due heed to
Iranian sensitivity and aspirations and
Iran remains reasonably stable and pro-
Western in outlook. (Paras. 32-34)
7. The Shah and many Iranian leaders
are convinced_ that Iran must maintain
close ties with the West if it is to avoid
isolation and eventual Soviet domination.
They are probably genuinely interested
in eventually participating in a Western-
backed regional defense arrangement.
However, they are unlikely to make such
a commitment until: (a) the Iranian
forces have been substantially strength-
ened, and (b) they are confident that
such a move would not encounter serious
opposition within Iran. Neither condi-
tion is likely to be met within the next
year or two. (Paras. 56-57)
8. So long as the Iranian Government
continues to expect US economic, finan-
cial, and military assistance, it will re-
main responsive to US influence. As oil
revenues are restored and US aid is re-
duced, however, Iranians may become in-
creasingly determined to manage their
own affairs and more resistant to US
guidance. (Para. 56)
9. At present the Iranian armed forces
have extremely limited capabilities even
for a short-term delaying action. Capa-
bilities in this respect could be improved,
but this would require outside aid in the
form of equipment, training, and finan-
cial support for military purposes. To
increase Iran's defense capabilities so
that Iran could contribute substantially
to Middle East defense would be difficult
and time consuming. Such a program
would require extensive outside aid, a
drastic improvement in the professional
standards of the officer corps, the develop-
ment of a will to fight on the part of Iran's
conscript forces, and a government reso-
lute to resist aggression. (Para. 52)
10. In the short run, the chief effects of
an expanded US military aid program
would be political. Such a program
would strengthen the self-confidence and
pro-US orientation of the Shah, army
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4
leaders, and other key elements in Iran.
If accompanied by improved pay and liv-
ing conditions, such a program would also
tend to lessen the vulnerability of the
armed forces to Tudeh appeals and there-
by to improve their long-term reliability.
(Para. 53)
11. The USSR would almost certainly re-
gard it as provocative if Iran joined a
Western-backed regional defense organi-
zation, and would probably respond with
strong diplomatic protests and increased
subversive and propaganda efforts. The
USSR might also threaten to invoke the
1921 Irano-Soviet Treaty, which it inter-
prets as permitting it to introduce troops
into Iran in case of threatened invasion
I. POLITICAL
3
from Iranian territory. If establishment
of Western bases on Iranian soil appeared'
to be in prospect, the Soviet reaction
would be stronger and would probably in-
clude shows of force along the border.
In this case, the USSR might claim com-
parable base rights in Iran which would
result in the movement of Soviet forces
into Iran. (Para. 61)
12. Iran, under any foreseeable leader-
ship, will continue to resist Soviet
attempts to interfere in Iranian affairs.
At the same time it will be careful to
maintain superficially correct relations
with the USSR, to avoid giving Moscow
solid grounds for intervention. (Para.
62)
DISCUSSION
Present Situation
13. Since the overthrow of Mossadeq in Au-
gust 1953, political power in Iran has largely
reverted to those who controlled the country
prior to the oil nationalization crisis of 1951.
The Shah has been confirmed in his central
role in the governmental power structure; as
the most important focus of prestige and polit-
ical influence in the country; and, through
his continuing personal control of the armed
forces, as a powerful force in political affairs.
The mixture of zealots, demagogues, and re-
formers who rose to prominence in the Mossa-
deq era have been forced into the background
along with the mobs they led, leaving the
traditional landowning, commercial, and mili-
tary groups once again in control of the offices
and perquisites of government. The tribal
situation is quiescent, except for the currently
strained relations between the Shah and the
four principal Qashqai leaders who are pow-
erful in southern Iran.
14. The principal new features of the present
power situation are: (a) the extensive use of
authoritarian means ? martial law, censor-
ship, and prosecution or repression of op-
ponents ? to curtail opposition to the regime
and to the government; (b) the emergence of
the US, which many Iranians hold responsible
for effecting Mossadeq's downfall and which
has since been the chief financial backer of
the government, as an acknowledged major
influence in the situation; and (c) the re-
emergence of British political and economic
influence.
15. Under General Zahedi, reasonably orderly
and stable government has been established
in Iran. The Majlis and Senate have been
reconstituted, and as yet there has been no
resumption of the irresponsible bickering and
obstructionism which has marked the legisla-
tive process in the past. Zahedi has sought
and successfully retained the support of the
Shah and has thus been able to stave off vari-
ous emergent political conspiracies to replace
him. The government has recognized its
probable inability to appease the extremists
and has generally dealt firmly with them. It
has made a conscientious effort to crush the
esses*-
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Communist
-
Communist Tudeh Party, and through a lucky
break leading to the uncovering of a Tudeh
ring in the armed forces has probably given
the Communists a serious setback. It has
pushed through legislation for reforming the
currency, has set up a Planning Council to
control the allocation and expenditure of de-
velopment funds, has presented new anti-
Communist legislation, and has promised
measures for land reform and reduction of
corruption in government.
16. Most important of all, the government
pressed ahead with an oil settlement, which
was agreed to in principle in August 1954 and
finally ratified, with only slight opposition, in
late October. While the one-sided vote for
ratification was mainly the result of strong
pressure by Zahedi and the Shah, the govern-
ment has apparently succeeded in convincing
a considerable part of the public, at least for
the present, that some form of oil settlement
was necessary and that the present one was
the best obtainable under existing circum-
stances.
17. Despite these achievements, a real basis
for lasting stability is still lacking. The
events of the last year have not eliminated
the strains and discontents which accounted
for much of the success of Mossadeq's nation-
alist appeal (and for much of the appeal of
the Tudeh Party) . Extreme nationalism it-
self has been repressed rather than destroyed
as a major political force. The government
has failed to achieve widespread support and
at best appears to be accepted as one which
has restored law and order, which may with
US support and oil revenues be able to provide
some benefits for the country, and which in
any event presently has the will and ability
to put down opposition. It has not succeeded
in checking inflation or in making much
tangible progress toward economic and social
betterment ? two points of particular impor-
tance because of their impact on the poten-
tially politically influential urban middle and
lower class elements.
18. Because of the traditional practice of
using public office for private and family gain,
many officials, including Zahedi himself, have
been accused of the same graft and corruption
which have long encouraged popular cynicism
about the government. The use of authori-
tarian methods has tended to create some ad-
verse reaction of its own: it has probably gen-
erated opposition and may drive some mod-
erate reformists into the arms of Tudeh or
other extremist groups.
19. Moreover, despite Zahedi's success to date
in retaining the support of the Shah and in
obtaining the cooperation of the Majlis and
Senate, he has few reliable supporters in either
body. His success is largely due to general
recognition that an oil settlement was neces-
sary and that the removal of Zahedi would
have jeopardized the settlement and incurred
the disapproval of the US and the UK. Many
legislators probably also reasoned that Zahedi
could be made the scapegoat in case the politi-
cal atmosphere changed and opposition to the
oil settlement became active and widespread.
20. Now that the oil settlement has been
achieved, it is uncertain as to how long Zahedi
himself is likely to remain in office. There is
also the more basic question whether, under
Zahedi or any likely successor, Iran will
develop a basis for political and social sta-
bility.
Probable Developments through 1955
21. At least through 1955, we believe the gov-
ernment will remain in the hands of predomi-
nantly conservative forces acceptable to the
Shah and willing to continue with a Western-
oriented policy. Despite the Tudeh Party's
continuing long-range potential, it will be in
no position to challenge the government seri-
ously during the next 12 to 14 months and
may indeed be hard pressed to maintain an
effective organization. So long as Zahedi is
Prime Minister, the government will almost
certainly continue a fairly firm policy of re-
pression. This will inhibit the effectiveness of
such violent critics of pro-Western policies as
Mullah Kashani, Mozzafer Baghai of the
Toilers Party, and the leaders associated with
the pro-Mossadeq National Resistance Move-
ment. Some of these, however, may be able
to develop contacts and influence among dis-
satisfied elements.
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22. There is likely to be a marked increase in
political ferment. The settlement of the oil
dispute has removed an important deterrent
to resumption of the political maneuvering
and intrigue characteristic of the pre-Mossa-
deq era and has probably increased the desire
of deputies and senators, many of whom paid
heavily to insure their election, to benefit per-
sonally from the oil settlement. The efforts
of the government to move ahead with an in-
ternal reform and development program are
likely to encounter strong opposition from
some deputies and senators and indifference
from many others. At the same time the
government is likely to be confronted with
demands, sincere and otherwise, for speedier
action to control inflation and improve living
standards, for improvements in education,
public health, working conditions, and for
restoration of freedom of the press and assem-
bly. Personal antagonisms and rivalries are
also likely to come to the surface and provin-
cial and tribal resentments against the gov-
ernment may be intensified.
23. Zahedi could probably survive these diffi-
culties if he had the strong support of the
Shah, since the various aspirants for his job
are likely to remain too weak and divided
among themselves to bring effective pressure
for his removal without active encouragement
from the Palace. The Shah's continued will-
ingness to provide such backing, however, is
uncertain. His underlying distrust of any
strong personality, his predilection for politi-
cal intrigue, and his tendency to vacillate all
militate against his supporting Zahedi on a
sustained basis, particularly now that the oil
settlement has been achieved. Moreover, the
probable increase in political activity in the
months to come is likely to make it easier for
Zahedi's rivals to persuade the Shah, who is
keenly sensitive to political currents within
Iran, that Zahedi no longer is acceptable to
the political community and should be re-
placed. The Shah may be dissuaded from
making an early switch by the difficulty of
finding a satisfactory replacement, by fear of
losing US or UK support, or by concern over
the future of the reform and development
program. However, his personal inclinations
appear to be in the direction of eventually re-
placing Zahedi.
24. Zahedi's chances of survival through 1955
are considerably less than even. We believe
that the most likely time for his replacement
will be shortly after the Shah returns to Iran
in February-March 1955. Parliamentary ma-
neuvers to unseat him may develop during
the Shah's projected three months trip to
Europe and the US beginning in December
1954 but would be unlikely to succeed in view
of the Shah's probable desire to have no
change of government during his absence.
Zahedi's position will be open to further
attack if he goes through with his plans to
go to Europe for. necessary medical attention
following the Shah's return. Moreover, the
possibility of assassination is always present.
Finally, the terms of the entire Majlis and
one-third of the Senate will expire in the
spring of 1956, and toward the end of 1955
the Shah may take the occasion to remove
Zahedi and install a "service" government for
the electoral period as has been done frequent-
ly in the past. On the other hand, should
the Shah still be prepared to back Zahedi as
the year ends, the latter's position would be
strengthened, since he would presumably have
some part in deciding which candidates would
obtain the all-important support of the gov-
ernment and the Shah.
25. Zahedi's removal would not necessarily
lead to any significant change in the over-all
stability and orientation of the government,
since the Shah would remain the most in-
fluential single figure in the governmental
structure and since the present government's
major policies are as much his as Zahedi's.
However, a successor might not be as willing
as Zahedi to use force to maintain order.
Furthermore, successful efforts to remove
Zahedi would encourage similar attacks on his
successor and might accelerate the return of
extremist groups to positions of political in-
fluence. Such a development would tend to
revive the pre-Mossadeq pattern of political
instability. In this situation, each prime
minister in turn would secure a temporary
majority in parliament by promising a redis-
tribution of spoils. Sooner or later, however,
410enew
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he would no longer be able to meet the con-
tinuing demands of his supporters and would
be forced out in favor of someone else who was
willing to promise more. If, in the meantime,
the Shah had not taken action in the face of
a succession of weak governments, a possibili-
ty of a coup by a strong military leader would
have been created.
26. None of the leading candidates for Zahe-
di's position has any solid political support
and, moreover, none shows any great promise
as a national leader. The most prominent
current candidate is Senator Manuchehr
Eqbal, an experienced government official, be-
lieved to be particularly well-disposed toward
the British and to have the confidence of the
Shah. The Shah might also appoint his Min-
ister of Court, Hosein Ala, as an interim prime
minister.' In any case, the effectiveness of
any successor to Zahedi would depend on the
willingness and ability of the Shah and the
Prime Minister to cooperate.
Long-Range Problems and Prospects
27. The conservative elements now in power
will probably be able to retain their control
beyond 1955 if they remain prepared to con-
tinue the authoritarian methods now in effect.
However, unless they make some progress in
satisfying popular grievances and reducing
popular distrust of the government, they will
remain vulnerable to the sort of flareup, under
Tudeh or nationalist auspices, which was
touched off by Razmara's assassination and
the oil issue in 1951. In the long run, more-
over, unless the traditional landowning group
adjusts to a sharing of political power with
growing urban middle class elements, there
will probably be an increase in the disruptive
potential of popular discontent. While the
armed forces will constitute a fairly reliable
instrumentality for coping with popular dis-
turbance, they are not immune from griev-
ances common among civilians. A marked
decline in popular acceptance of the present
Other aspirants for the prime ministership in-
clude: Senator Javad Bushehri; retired general
Hassan Arfa; Senator Dr. Mohammed Sajjadi;
Ali Soheyli, a former prime minister and now
ambassador to the UK; and Abol Qasem Najm, a
former minister of finance.
6
ruling group may therefore have an adverse
effect on the reliability of the security forces.
28. The Shah appears to recognize the need
to attack these problems before popular dis-
appointment with the government reaches
dangerous proportions. However, many diffi-
culties will be encountered before even a
modest start can be made. The government's
current attempts to curtail corruption and
build up public confidence in the bureaucracy
will make little progress without the active
support of the Shah. Even if government and
military salaries are raised sufficiently to pro-
vide a decent living, corruption will remain
a major characteristic of Iranian political life
until such time as a tradition of public service
has become established. Efforts to spur social
reform will almost certainly encounter strong
resistance from vested interests. Moreover,
as the government may fail to recognize, the
development of greater political stability will
probably require, in addition to material ad-
vances, greater effort to enlist the support of
the opinion-forming intellectual and reformist
elements. So long as these elements remain
excluded from effective participation in politi-
cal affairs and prevented by censorship from
expressing their views freely, they are likely
to maintain an attitude of strong opposition.
29. We believe that progress will be made on
the strength of the oil revenues and the im-
petus provided by US aid. In view of the re-
sistance likely to be encountered, however,
the extent of that progress will probably de-
pend on the willingness of the Shah to pro-
vide active, continuous, and consistent sup-
port. Given the Shah's personal characteris-
tics, this willingness in turn is likely to depend
on the ability of the US and UK to convince
the Shah of the necessity of such support and
to keep his attention focused on the problem.
30. In any event, however, Iran is likely to re-
main a basically unsteady country for a num-
ber of years. Iran's underlying social and
economic problems are of a sort which can be
solved only over a relatively long period of
time and which, in the process, generate new
tensions and stresses. With oil revenues in
process of being restored and a beneficial re-
lationship with the West established, Iran is
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in a better position to attack these problems
than it was before. However, they will be
successfully solved only through a continuous
and sustained effort.
The Succession to the Throne
31. In view of the key role of the Shah in the
Iranian political system, the death of the
present monarch could be a serious blow to
Iranian stability, particularly since he has no
male heirs of his own and has refrained from
openly designating a successor.2 His death
would at least create an opportunity for ex-
tensive political bickering over the succession,
in which Tudeh and the ultranationalists
might revive their demands for a republic.
Should the Shah's death take place in the
present political environment, the conserva-
tive elements now in the ascendancy, with the
military high command taking a prominent
part, would probably succeed in stabilizing
the situation. If the Shah were assassinated,
the present leadership's ability to maintain
control would probably be enhanced by popu-
lar revulsion against the assassins. Even if
the succession were quickly established, how-
ever, the new Shah would have to establish
his authority, and initially, at least, his ability
to exercise the positive leadership which Iran
needs would be less than that of the present
monarch.
The Future of the Oil Issue
32. The recent oil settlement, though not a
complete victory in Iranian eyes, involved suf-
ficiently substantial concessions to Iran's
aspirations to generate a significant momen-
tum of good will and sense of achievement.
Moreover, the oil settlement removes a politi-
2 With the recent death of the Shah's only full-
brother Ali Reza, the next in line is the Shah's
oldest half-brother, Gholam Reza, 31 years old.
After Gholam Reza, the next in line is 30-year
old Abdor Reza, former head of the Seven Year
Plan Organization. Both brothers are western-
educated. Although both of these brothers
technically can be debarred under the present
constitution because their respective mothers are
members of the deposed Qajar dynasty, it is
probable that the Maj Us would interpret the con-
stitution in favor of one of them if he were
chosen by the Shah to succeed to the throne.
cal irritant, which for three years has stulti-
fied or diverted efforts to solve other urgent
social and economic problems, and enables
Iranians to hope for improvements both per-
sonally and nationally. The settlement will
probably also improve relations between Iran
and the West. The morale of most Iranian
leaders will be improved not only by the rev-
enues in prospect, but also by somewhat
greater Iranian participation in the control
and operation of the industry and by the
apparent elimination of the Anglo-Iranian
Oil Company's ability to interfere in internal
Iranian matters.
33. With the passing of time and the
strengthening effect of oil revenues, however,
difficulties may arise over the oil question.
Iran will almost certainly share the desire of
other Middle East producers for increasing oil
revenues and for exercising a growing voice
in oil policy and operations at the expense of
the oil companies. It will be extremely sensi-
tive pout real or apparent slights to its pres-
tige and independence by foreign oil interests,
particularly British, and Iranian politicians
may attempt to play off the consortium mem-
bers and interested governments against each
other. Finally, the oil settlement may arouse
excessive hopes of benefits which cannot be
achieved.
34. These dangers do not appear imminent,
however, and in any event the risks to the
consortium and to the Western Powers in
future oil operations are probably not now
significantly greater than those involved in
Western oil operations in other Middle East
countries. If the consortium members and
the interested Western nations pursue policies
which take into account Iranian sensitivity
and aspirations, and if the country maintains
a reasonable degree of political stability,
prospects for satisfactory oil operations with
accompanying benefits to all concerned are
good.
The Outlook for the Tudeh Party
35. The Communist Tudeh Party is currently
at one of the low points in its history, though
it remains the only political opposition group
in Iran that has some organization and dis-
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cipline.3 Strong popular opposition to Tudeh
flared up at the time of Mossadeq's downfall,
and since then the party has been subjected
to severe governmental restrictions and unin-
terrupted press and radio attacks. These de-
velopments have almost certainly taken a
heavy toll among its sympathizers and have
probably cut into its membership as well.
The uncovering in August 1954 of a Tudeh
network in the armed forces and the subse-
quent arrest of hundreds of persons who were
implicated has been a severe blow. The dis-
covery and confiscation of the clandestine
printing plants of Tudeh and of its youth or-
ganization has been a further setback, as has
been the recent intensification of government
efforts to root Tudeh members and sympa-
thizers out of the bureaucracy. For the pres-
ent, in the face of government plans to intro-
duce stringent laws penalizing Communist
membership or activities, the party is almost
certainly primarily concerned with attempt-
ing to maintain an effective organization.
36. The recent spy ring discoveries have not
yet established the extent of Tudeh penetra-
tion of the Iranian armed forces, and Tudeh
strength in the bureaucracy remains un-
known. Even at a minimum, however, indi-
cations are that Tudeh penetration of the
armed forces was sufficient to carry on an
effective intelligence collection effort, to de-
velop a capability for strategic sabotage and
political assassination, to acquire weapons
and equipment, to protect Tudeh members
from the police, and to facilitate clandestine
transit across Iran's borders of Soviet and
Iranian Communists. The extent of this
Tudeh penetration of the armed forces rein-
forces previous indications that various min-
istries, notably Justice and Education, also
have been infiltrated. It also points up both
the weakness of Iranian security against
espionage and the success of the Communists
in recruiting Iranian personnel for their cov-
ert Operations. The fact that the Tudeh ring
in the armed forces apparently confined its
efforts to espionage and the development of
During the last year of Dr. Mossadeq's regime
(1953) Tudeh membership probably reached a
peak of about 35,000. Present active membership
probably numbers about 7 to 8 thousand.
a sabotage potential suggests that in present
circumstances the USSR recognizes that its
program must be confined to developing
assets rather than fostering an early attempt
to seize control of the armed forces.
37. At least for the short run, recent stringent
measures against the Tudeh Party have re-
duced its ability to promote overt opposition
to the oil agreement and the Western position
in Iran and have stimulated public and official
awareness of the Tudeh threat. If these
measures are continued against Tudeh ad-
herents and not used to harass political op-
ponents, the dependability of the armed forces
and the bureaucracy will increase. On the
other hand, the severity of official action
against Tudeh members may adversely affect
popular attitudes toward the government,
which is already condemned in many quarters
for oppressive measures, apd as a result may
enable the Tudeh Party to share in popular
sympathy for other opposition elements which
also have been targets of the government
crackdown. The government's long-range
chances of success in its anti-Tudeh measures
will depend both on its readiness to remain
consistently firm and alert, and on its ability
to make some progress in allaying social,
political, and economic grievances which make
Iranians vulnerable to Tudeh exploitation.
The government's effectiveness, in both of
these respects, will in turn depend on firm
backing from the Shah.
II. ECONOMIC
Present Situation
38. The chief economic accomplishment of
the Zahedi government has been the agree-
ment between Iran and a consortium of eight
Western firms for restoration of Iran's oil in-
dustry.4 This agreement, which calls for de-
velopment of Iranian oil production by the
end of the third full year of operation to a
level yielding the Iranian Government rev-
enues of approximately $175 million a year,
will provide Iran with substantial funds for
a program of economic rehabilitation and de-
Major provisions of the settlement are sum-
marized in an appendix.
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velopment.5 Although the oil companies have
made no further specific commitments, they
have formally indicated that they expect
Iran's revenues to average out at least that
level for the remainder of the 40-year contract
period. In addition, Operating Company
purchases of rials for local operating expenses
will add approximately $34 million annually
to Iran's foreign exchange income. The re-
sumption of oil production has relieved the
government of the cost of meeting the NIOC
payroll and will also have various indirect
economic benefits in the southern oil areas.
39. In other respects, the Iranian economy
has done little more than mark time in the
period since Zahedi's advent to power. The
provision of $70 million in US emergency
assistance has enabled Zahedi to pay the gov-
ernment's running expenses, and the oil set-
tlement has bolstered general business confi-
dence and Iran's foreign credit standing. On
the other hand, there has been little develop-
ment activity other than that undertaken in
connection with the $23.9 million US tech-
nical assistance program. Moreover, during
the past year the urban cost of living has
continued to rise sharply, thus increasing the
already heavy economic pressure on govern-
ment employees, factory workers, and others
in the fixed income groups. In addition, the
government's financial position has been
weakened by a wave of uncoordinated credit
purchases this summer from foreign suppliers
eager to cash in on the expected resumption
of oil revenues. These credit deals, involving
rails, buses, and other items, are estimated to
total up to $100 million.
40. The government has obtained US pledges
of an additional $127.3 million in grant aid
and loans during fiscal 1955 including $52.8
million for direct budgetary support. In
addition it has taken some steps, in part at
US urging, to improve its future financial
management. Currency reform legislation
was pushed through in July 1954, providing
the government with increased flexibility in
Consortium payments to Iran will be in sterling.
Under a secret UK-Iranian convertibility agree-
ment, 40 percent of these sterling payments will
be convertible into dollars.
monetary matters. Following the wave of
profligate government buying this summer,
an Economic Council, made up of the director
of the Plan Organization, the governor of the
Bank Melli, the Ministers of Finance and Na-
tional Economy, and the Prime Minister, was
established to plan, coordinate, and control
government finances and developmental ex-
penditures. The government's program also
calls for prompt reorganization of the govern-
ment tobacco monopoly and of the customs
and income tax administration.
Probable Developments
41. With the achievement of an oil settlement
the government is now faced with the task of
setting up and carrying out an economic re-
habilitation and development program which
will be effective in raising general living stand-
ards. Promises of economic development,
have been bandied about ever since World
War II, but no substantial progress has been
made. Moreover, continuing inflation has
worsened the economic position of the politi-
cally most volatile and articulate elements of
the population, while at the same time hopes
have been raised, first by oil nationalization
and more recently by the solution of the oil
dispute. While economic grievances are not
the only factors affecting popular attitudes
toward the government, there will almost cer-
tainly be a serious rise in unwillingness to
accept the regime unless some tangible
progress in economic development is made.
42. Over the long run, Iran will have sub-
stantial oil revenues which could be devoted
to financing a development program. In the
first full year of operation, however, Iran will
obtain only about $60 million in oil revenues,
and much if not all of this may be used up in
meeting current operating expenses. Al-
though projected US aid for 1955 includes
$52.8 million for direct budgetary sup- -
port ? enough to cover the current rate of
deficit ? pressures for an increase in salaries
of government workers, who have been par-
ticularly hard hit by inflation, will almost
certainly become stronger. After the first
year of operation, however, oil revenues will
rise, levelling off at about $175 million in the
third year, and by then the government's
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efforts to curtail waste and corruption and to
increase other revenues may be bringing in
some return. Plan Director Ebtahaj hopes,
probably somewhat optimistically, that these
latter measures will enable the government to
support itself out of ordinary revenues by
March 1956, thereby freeing the entire oil in-
come for developmental use.
43. In any event, the ultimate effectiveness
of any development program will depend not
only on the amount of money available but
also on the manner in which the government
tackles the managerial and political problems
connected with it. Since most economic de-
velopment projects are slow in getting under
way and even slower in producing their full
economic effects, there is a danger that with-
out programs which have an immediate social
or economic impact public confidence in the
over-all program may be dissipated. These
difficulties will be compounded if lethargy,
corruption, and mismanagement are allowed
to delay the program or to divert its funds
to private pockets or unproductive ventures.
Moreover, the desired political effect will not
be obtained unless special care is taken to
assure sufficiently broad participation in the
benefits of these projects.
44. The Shah and Zahedi appear convinced of
the need for an effective development program
and have some capable men associated with
them in this effort. However, the problems
ahead cannot be solved without effective US
and UK guidance and support. Given such
guidance and support, the Economic Planning
Council may be able to commit the govern-
ment to worthwhile projects which, though
unpopular with certain vested interests, would
be difficult for subsequent governments to
repudiate. Iran will also have continuing need
for technical assistance in carrying out pro-
jects in the field.
45. Finally, while the economic development
programs currently envisaged should eventu-
ally result in a significant increase in over-all
output and a rise in the general standard of
living, Iran will continue to be plagued by
recurrent economic and financial problems
which will require firm government action.
Unless carefully managed, the development
programs may themselves contribute seriously
to inflationary pressures.
46. In general, however, Iran will probably
make some gradual and uneven progress in
improving its economic position. Both pub-
lic and private foreign trade is likely to in-
crease, particularly in view of the strong and
growing desire of Japan, Germany, and Italy
to participate in the Iranian market. Barter,
trade with the USSR may increase in absolute
terms, though its relative importance is likely
to decline in view of Iran's expanding rela-
tions with the Western world.
III. MILITARY
47. Iran's present armed forces, numbering
over 150,000, are organized primarily for con-
trol of the tribes and other internal security
duties.? Their traditional loyalty is to the
Palace rather than to the government as a
whole, and all but the gendarmerie report di-
rectly to the Shah as Commander-in-Chief
rather than through any civilian minister.
The recent uncovering of a widespread Tudeh
ring within the armed forces indicates that
they have been vulnerable to subversive influ-
ences. However, most of the currently dis-
loyal elements appear to have been eliminated
or identified and we believe that the armed
forces can be presently considered fairly reli-
able.
48. Since 1950 the US has assisted in efforts
to modernize and improve the armed forces
through maintenance of military missions to
the army and the gendarmerie, and through
provision of military equipment. Of the $110
million in such equipment aid allocated thus
far, about $76 million had been shipped by
mid-1954. The mission to the army is to be
augmented by five US training teams at bri-
gade or division level in early 1955.
'The Iranian armed forces consist of a conscript
army of 120,000; a gendarmerie or rural police
force of 20,000; and a small air force, navy, and
frontier guard, the latter for border patrol and
customs duties. The Air Force, Navy, and Fron-
tier Guard are subordinate units of the Army.
The Gendarmerie is under the control of the
Ministry of the Interior, except in time of war,
when it comes under army command.
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49. While some improvements have been ef-
fected through these programs, the Iranian
military establishment is still of generally
poor quality. Although it is generally capa-
ble of fulfilling its primary mission of main-
taining internal security, it would be unable
to offer significant resistance to a Soviet at-
tack. Only a start has been made at develop-
ing adequate standards of leadership and
tactical proficiency. Because of a general
lack of technical skills and experience and a
poor logistic system, Iran has had difficulty
in absorbing even the limited amounts of US
equipment thus far made available. Low pay
and the general atmosphere of slackness,
graft, and favoritism have weakened morale,
particularly among the junior officers; these
factors were probably in large measure re-
sponsible for Tudeh's success in winning sup-
porters among the armed forces. Finally,
Iran's potential for defense against a Soviet
attack is weakened by its lack of a modern
martial tradition and of any strong popular
sense of national loyalty.
50. The development of the "northern tier"
concept of a regional defense system based on
the Turk-Pakistani agreement has emphasized
the potential importance of the Zagros Moun-
tain chain in Iran as a major barrier to any
Soviet military advance into the Middle East.
If an Iranian military force could be devel-
oped which was capable,. of effecting substan-
tial delay in the Zagros passes, it would con-
stitute an important asset in defense of the
area.
51. An effort to create such an Iranian mili-
tary capability would require a long-term pro-
gram involving US expenditures very substan-
tially in excess of present levels. The first
and basic requirement would be to provide
Iranian combat units with sufficient modern
equipment and technical and tactical train-
ing to bring them up to adequate standards
of combat effectiveness. Moreover, for such
a force to function effectively additional out-
lays would be required for redeployment of
troops and military installations from their
present exposed positions to more defensible
points in the Zagros Mountains area; the relo-
cation or new construction of military stores,
11
arsenals, and factories; and the construction
of a number of military roads linking strate-
gic defensive points. Increased pay for the
armed forces would almost certainly be re-
quired if morale were not to remain a major
problem. A program on this scale would also
require collateral economic aid since, even
with the oil revenues anticipated in the next
three years, Iran will be unable to afford the
construction and development involved, for
example, in moving military facilities and in-
dustries or in building military roads.
52. At present the Iranian armed forces have
extremely limited capabilities even for a short
term delaying action. Capabilities in this re-
spect could be improved, but this would re-
quire outside aid in the form of equipment,
training, and financial support for military
purposes. To increase Iran's defense capabili-
ties so that Iran could contribute substantially
to Middle East defense would be difficult and
time consuming. Such a program would re-
quire extensive outside aid, a drastic improve-
ment in the professional standards of the
officers corps, the development of a will to
fight on the part of Iran's conscript forces
(which would in turn depend largely on the
over-all state of national morale) , and a gov-
ernment resolute to resist aggression.
53. At least in the short run, therefore, the
chief effects of an expanded US military aid
program would be political. Such a program
would strengthen the self-confidence and pro-
US orientation of the Shah, army leaders, and
other key elements in Iran and would demon-
strate to them that the US has not written
Iran off militarily. If accompanied by im-
proved pay and living conditions, such a pro-
gram would also tend to lessen the vulnerabili-
ty of the armed forces to Tudeh appeals and
thereby to improve their long-term reliability.
IV. FOREIGN AFFAIRS
Relations with the US
54. Under the Zahedi government, and with
the strong support of the Shah, Iran has
moved toward alignment with the West, par-
ticularly the US. The timely extension of US
support and guidance has made the US the
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dominant western influence in the Iranian
Government. The present leaders of Iran
appear to welcome this relationship.
55. The Shah and other important leaders
have shown themselves generally responsive
to US advice over settlement of the oil issue,
resumption of relations with the UK, methods
of improving the armed forces, and certain
internal matters such as economic planning
and administration. Iran has generally sup-
ported the US in issues before the UN and
tends to follow US advice in its relations with
other Asian states. Moreover, since the sign-
ing of the Turk-Pakistani agreement and the
start of US military aid to Pakistan and Iraq,
Iranian leaders, particularly the Shah as
Commander-in-Chief, have expressed growing
interest in eventual participation in US-
backed regional defense preparations. Iran
has maintained a firm position in the face of
Soviet protests over the prospects for its de-
fense cooperation with the West, and the gov-
ernment has risked Soviet displeasure by firm
measures against the Tudeh Party and Com-
munist subversion.
56. So long as the Iranian Government con-
tinues to expect US economic, financial, and
military assistance, it will remain responsive
to US influence. As oil revenues are restored
and US aid is reduced Iranians may become
increasingly determined to manage their own
affairs and more resistant to US guidance.
We do not believe, however, that developing
Iranian self-reliance is likely to alter signifi-
cantly the conviction of the government, and
of the Shah in particular, that Iran requires
Western support and friendly relations if
it is to avoid isolation and eventual Soviet
domination. The Shah is especially desirous
of building up the army and regards the US
as the only feasible source of the mili-
tary assistance required to do so. He may
also believe that obvious US concern about
Iran gives him a favorable bargaining posi-
tion. Even if he is unsuccessful in obtaining
assistance on the scale he believes necessary
to give Iran effective forces, his urgent desire
for such assistance as he can get will continue
to give the US bargaining power with him.
The willingness of Iranian Government lead-
"
12
ers, including the Shah, to make firm commit-
ments to the West is likely to be limited, not
by indifference to the Soviet danger but rather
by the proximity of Soviet power, by public
distrust and dislike of undue foreign influence,
and by uncertainty as to the effectiveness of
Western military support in the event of war.
Iran and Regional Defense
57. The Shah and many Iranian leaders would
like to participate in a regional defense
arrangement backed by the West, and they
will probably continue to advance the idea
both for motives of prestige and as a means
of securing maximum US military aid and de-
fense support. Under present circumstances,
however, they would probably be reluctant to
join any regional grouping until: (a) the
Iranian military establishment had been sub-
stantially strengthened, and (b) they were
confident that such a move would not encoun-
ter serious opposition within Iran. Neither
condition is likely to be met within the next
year or two at least. However, Iran might
engage in informal staff talks with Iraq and
possibly Turkey or Pakistan within this period.
Relations with the UK
58. Iranian-UK diplomatic relations have been
resumed and, with the oil settlement, tension
between the two governments has subsided.
However, widespread suspicions of the British
persist. Because of the fact that most Iranian
leaders now tend to look more to the US than
to the UK for support and guidance, the ex-
pansion of UK diplomatic influence is likely
to be slow, and the UK will not, in the foresee-
able future, regain its former position as the
dominant western power in Iranian affairs.
Nevertheless, many prominent Iranians have
long-standing British ties, and their respon-
siveness to British influence is likely to in-
crease with the revival of British commercial
activity. At least some restoration of former
British commercial and banking connections
with Iran, which were close and mutually
profitable, will almost certainly take place,
particularly since more than half of Iran's oil
revenues will not be transferrable into dollars.
The British are also likely to make a comeback
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in construction and engineering, although
they will probably encounter increasing com-
petition from the West Germans in this and
other business fields.
59. The UK currently agrees with the US on
the desirability of Zahedi's remaining in office.
However, various differences are likely to arise
between the US and UK. The most likely
source of major US-UK differences concerns
Iran's role in Middle East defense. The UK
not only has a low opinion of Iran's military
potential and reliability, and looks with con-
siderable reserve on the Shah's military aspira-
tions, but also appears to believe that Iranian
participation in a defense arrangement would
unnecessarily provoke the USSR without ade-
quate compensating benefits to the West.
Moreover, the UK is apparently less convinced
than is the US of the urgency of the need to
allay widespread social and economic griev-
ances in Iran. Other US-UK differences will
probably arise over commercial and financial
conflicts of interest.
Relations with the USSR
60. The Zahedi government's actions and poli-
cies with respect to the oil dispute, resump-
tion of relations with the UK, desire for in-
creased US military aid, the uncovering of
Tudeh sabotage and espionage rings, and firm
action against the Tudeh Party have almost
certainly appeared to Soviet leaders as a set-
back to their interests in Iran. Nevertheless,
the USSR is unlikely to respond with force,
estimating that such action would almost cer-
tainly provoke a violent Western reaction.
13
The USSR will probably continue its propa-
ganda efforts to discredit the oil consortium
and US influence in Iran, and will be alert to
exploit any opportunities for subversion and
internal disunity in Iran. At the same time,
it will probably continue its trade with Iran
so long as commercial and political advantages
seem to warrant it, and may make further
conciliatory gestures toward Iran. It has,
for example, now initiated an agreement with
Iran on boundary disputes and on the res-
toration of gold and foreign exchange which
the USSR has owed Iran.
61. The USSR would almost certainly regard
it as provocative if Iran joined a Western-
backed regional defense organization, and
would probably respond with strong diplo-
matic protests and increased subversive and
propaganda efforts. The USSR might also
threaten to invoke the 1921 Irano-Soviet
Treaty, which it interprets as permitting it to
introduce troops into Iran in case of threat-
ened invasion from Iranian territory. If es-
tablishment of Western bases on Iranian soil
appeared to be in prospect, the Soviet reaction
would be stronger and would probably include
shows of force along the border. In this case,
the USSR might claim comparable base rights
which would result in the movement of Soviet
forces into Iran.
62. Iran, under any foreseeable leadership,
will continue to resist Soviet attempts to in-
terfere in Iranian affairs. At the same time
it will be careful to maintain superficially cor-
rect relations with the USSR, to avoid giving
Moscow solid grounds for intervention.
ofateamr?
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ET
APPENDIX
Summary of the Terms of the Oil Agreement between the
International Oil Consortium and the Government of Iran,
Signed 30 October 1954
OPERATION OF THE OIL INDUSTRY
The operation of the Iranian oil industry,
including production and exploration as well
as operation of the refinery at Abadan, will be
conducted by two Dutch-registered companies
formed by the International Oil Consortium.7
Each of the operating companies, one of
which will be responsible for production and
exploration, and the other for refining, will
have seven directors, two of them nominated
by Iran. The companies will enjoy "bene-
ficial use" of the former Anglo-Iranian instal-
lations and properties in Iran, with the excep-
tion of the Kermanshah refinery, the Naf t-i-
shah field, and internal distribution facilities
which will be operated exclusively by the Na-
tional Iranian Oil Company. Legal title to
all former Anglo-Iranian Oil properties is
transferred immediately to the government of
Iran.
SCOPE OF CONCESSION RIGHTS
The exclusive exploitation rights of the
Consortium over an area of 100,000 square
miles will run for twenty-five years, with pro-
visions for three five-year extensions. After
the initial twenty-five year period, the Con-
sortium must surrender 20 percent of its total
Members of the Consortium (and their respec-
tive shares of participation) are: Anglo-Iranian
Oil Company (40%) ; Gulf-International Com-
pany (8%) ; Socony- Vacuum Overseas Supply
Company (8%) ; Standard Oil Company (New
Jersey) (8%) ; Standard Oil Company of Cali-
fornia (8%); Texas Company (8%) ; Royal Dutch
Shell (14% ) ; and Compagnie Francaise des
Petroles (6%) .
14
area with each five-year extension of the con-
cession term.
SATISFACTION OF CLAIMS'
To compensate the Anglo-Iranian Oil Com-
pany for the Kermanshah, Naft-i-shah, and
internal distribution facilities, and for the
losses and damages arising from nationaliza-
tion, Iran will pay the Company the equiva-
lent of $70 million in 10 equal annual install-
ments, without interest, beginning 1 January
1957. (By a collateral agreement, the Anglo-
Iranian Oil Company will receive the equiva-
lent of $600 million from the other Consortium
members as payment for their participating
interests.)
GUARANTEED AND TARGET LEVELS OF
PRODUCTION AND REFINING
The Exploration and Producing Company
guarantees to produce during the first three
years of the agreement the following:
1955 ? 17,500,000 cubic meters of crude oil
1956 ? 27,500,000 cubic meters of crude oil
1957 ? 35,000,000 cubic meters of crude oil
The Refining Company will strive, but does
not guarantee to refine the following:
1955 ? 7,500,000 cubic meters
1956 ? 12,000,000 cubic meters
1957 ? 15,000,000 cubic meters
ANTICIPATED REVENUES
Iran will receive 50 percent of the net profits
of the Consortium and will receive its pay-
ments in sterling, 40 percent of which, under
a separate and secret UK-Iranian converti-
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bility agreement, will be convertible to dollars.
It is estimated that after the initial starting
period of three months, oil revenue for Iran
during the first three years will total the
equivalent of $385 million at present prices
and costs: $60 million in the first full operat-
ing year, $150 million in the second, and $175
million in the third. In a supplementary
note the Consortium stated that it expected
oil revenues thereafter to remain at or above
? the third year level, though it could make no
firm commitment to that effect.
FINANCIAL BENEFIT TO IRAN OF PRESENT
AGREEMENT AS COMPARED WITH '
PAST AGREEMENT
The highest level of oil production, and of
direct oil revenue to Iran, was reached in
1950; AIOC then produced about 35 million
cubic meters of oil and paid to Iran in taxes
and royalties about $44.7 million. Iran's re-
ceipts for the same level of production, which
is guaranteed for 1957, will amount to an esti-
mated $175 million.
saktOterl
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? Yerevan
Baku
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CASP1A
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--- International boundary
? National capital
Railroad
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Secondary road or trail,
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50
100
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(in feet)
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150
11.
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marshy lake
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Salt waste
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The international boundaries shown on this mop do not
necessarily correspond in all cases to the boundaries recog-
56 nized by the 'United States Government.
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Declassified and Approved For Release 2013/04/26: CIA-RDP79R01012A004300010001-4
Declassified and Approved For Release 2013/04/26: CIA-RDP79R01012A004300010001-4
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SECRET
Declassified and Approved For Release 2013/04/26: CIA-RDP79R01012A004300010001-4