National Intelligence Estimate - Iran


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NIE 34-64

Washington, May 20, 1964.

/1/Source: Central Intelligence Agency Files: Job 79-R01012A, ODDI Registry of NIE and SNIE Files. Secret; Controlled Dissem. According to a note on the cover sheet, the estimate was submitted by the Director of Central Intelligence and concurred in by the USIB on May 20.

IRAN

Conclusions

A. It remains uncertain whether modernization in Iran will proceed relatively peacefully or whether violence and revolution are in store. The Shah's reform effort has already helped to stimulate and shape the forces which must eventually, in one way or another, bring basic changes to Iranian society. Already the strength of the landlord class has been somewhat impaired, the gratitude of the peasants has been enlisted and their expectations aroused, and a new and growing managerial class seems to be acquiring increased responsibilities. However, the Shah, supported by the armed forces, still dominates Iranian political life and seems likely to do so for some time to come. With the self-confidence he has acquired from the relative success of his reform measures thus far, he will probably continue to move forward, though with occasional pauses, like the present one in his land reform program. (Paras. 5, 9, 26-27)

B. Iran is emerging only slowly from a recession which began in 1961 as the result of ineptly applied anti-inflationary measures and the consequent loss of business confidence. The latter was further set back by the uncertainties engendered by the reform measures. But the resources of the country are adequate to sustain a vigorous economic development, and the outlook for ample and growing oil revenues is promising. Within the next few years, Iran will probably be able to overcome the current slowdown and return to a fairly rapid rate of growth. (Paras. 15-16, 18)

C. The reduction in tensions which followed normalization of relations with the Soviet Union in September 1962 has continued, but relations are not likely to become significantly more intimate over the next few years. Though the Shah sees a need to appear more independent of the US, the outlook is for satisfactory US-Iranian relations for at least a considerable time to come. Iran is less dependent than in the past on US economic aid, but in the military and security field continues to rely on US assistance. (Paras. 31-35)

Discussion

I. Iran's Problems

1. In many respects Iran resembles other backward states ruled by traditional elites and confronted by the many pressures for radical change generated through wider contact with the modern world. There has been a continuing possibility that sooner or later the entire structure of the government and the society would either have to revolutionize itself or be overturned by self-appointed revolutionaries. At one point Mossadeq seemed on the verge of accomplishing such a revolution. Yet his regime collapsed, and the post-Mossadeq era has not seen a resurgence of revolutionary forces. Change has come, but it has been neither radical nor cataclysmic. The social and governmental institutions have been stretched but not rent asunder.

2. The explanation seems to rest in large part with the character of the Shah and the kind of role he has come to play, not only as a symbol but as an active national leader. He has long been aware of the pressures for change and has at various times taken a number of steps toward reform, though none was vigorously pressed. He eventually came to the view that such a slow pace of reform--as exemplified by distribution of crown land to peasants--would not be sufficient to maintain the regime over the long run. By the late 1950's agitation for reform seemed to be evoking a growing popular response; the country was beset with major economic difficulties; and the Shah was vulnerable to charges of reaction which not only offered his external enemies wide scope for attack but also distressed his foreign friends and supporters. In this setting, the government's rigging of the 1961 elections again returned a parliament (Majlis) composed of the traditional elite and created a dangerous situation. In May 1961 the Shah felt it necessary to bring in Prime Minister Amini with a broad mandate for change. Amini's reform measures provided some temporary relief, but they began to alienate the conservative elite without attracting any support from the National Front opposition.

3. Recognizing that Amini's measures were not alleviating opposition to the regime, the Shah allowed his government to fall in July 1962. At this juncture, the Shah evidently came to the conclusion that he must himself take responsibility for a more basic attack on Iran's problems. If this meant radical changes, he was prepared to make them. He also hoped by such measures to take the wind out of the opposition's sails and to broaden his own base of political support. To this end he proposed a six-point program, which was approved in a referendum in January 1963. Land reform, toward which some steps had been taken by the Amini government, was the main plank in this program and rapidly became the focus of popular attention.

4. Under the management of the dynamic and ambitious Minister of Agriculture, Arsanjani, the land reform program initially moved very rapidly. But, when Arsanjani seemed to be pressing the land reform too rapidly and to be using it to establish an independent political position, the Shah forced him to resign. Thereafter the pace of land reform was slowed considerably. The government found it difficult to provide agricultural credits and the trained managers for rural cooperatives both of which were necessary for the success of the program. In September 1963, the government publicly claimed that the first phase of the program--expropriation of the largest landholdings--had been completed./3/ Some preparatory work is now going on for the second phase of the reform program, which is to involve roughly 25,000 of the villages held by one or more landlords, but it is not clear whether or when a decision to proceed with it will be made.

5. The reform program has not yet brought about a basic change in Iranian society or reduced the Shah's domination of political life. However, the Shah may have set in train a process of change which could have far-reaching consequences. Already the strength of the landlord class has been somewhat impaired, the gratitude of the peasants has been enlisted and their expectations aroused, and a new and growing managerial class seems to be acquiring increased responsibilities. Nevertheless, the Shah's regime continues to depend essentially on the army and security forces which have received important favors in return for their loyalty. Much of the urban middle class remains disaffected. The "Thousand Families," though deprived of much of their land, are still wealthy, and many remain entrenched in the Shah's entourage. Finally, the peasantry is not organized and has demonstrated little political consciousness.

6. One aspect of social change in Iran which holds considerable significance for the future has been the rise of the technically trained managerial and administrative class who now have reached the upper levels of the bureaucracy in substantial numbers. This new breed of foreign-educated intellectual first became prominent in the late 1950's in the Plan Organization which, being independent of the traditional bureaucracy, provided quick advancement. They are now gradually being distributed throughout the bureaucracy. While many are not enthusiastic about the Shah's style of government, they are sympathetic with much of his reform program and are helping to implement it.

II. Political Situation

7. Despite the Shah's authoritarian rule, he has generally felt the need for a facade of representative government. In September 1963, after two years of ruling without parliament, he again held elections. Like their predecessors, these elections were rigged; the contending political parties were again cliques attached to certain personalities and not representative of broader population groups. But this time the elections were used by the Shah significantly to increase the number of government officials--including many associated with the land reform program--in the Majlis and to greatly reduce the representatives of the landlord class. 8. In constituting his most recent cabinet, that of Hasan Ali Mansur in March 1964, the Shah once again turned to the managerial and administrative class. Although Mansur's experience in government affairs is limited, he has a reputation for being a capable administrator. In 1959 he became head of the Progressive Center, a group of pro-government technicians, businessmen, and intellectuals which formed the nucleus of the New Iran Party, founded at the Shah's behest in 1963. Though this party now has about 140 of the 189 deputies in the Majlis, it is an artificial creation without a popular base.

The Role of the Military

9. Although the reform program in theory threatens the senior officers who have a vested interest in the status quo, thus far they do not seem to have suffered or to be particularly concerned. Some of the middle-grade and junior officers probably share the outlook of the nationalist opposition, but the government is constantly screening the officer corps, and dissent within the military does not appear to be growing. We believe that the overwhelming majority of the officer corps are loyal to the Shah.

10. The Shah continues to rely on the National Intelligence and Security Organization (SAVAK) not only to design strategy for neutralizing the opposition but to organize political support for the government as well. SAVAK has not, however, been able to forestall periodic outbursts of open defiance of the government. On occasion the police and gendarmery have not been able to handle civil disturbances, and have had to call in the military. In these actions, the armed forces have generally performed creditably, and we believe that they can successfully cope with any likely disorders.

The Opposition

11. The opposition has been seriously disorganized and weakened by the Shah's tactics. The leaders of the loosely organized National Front (the remnants of ex-Prime Minister Mossadeq's organization) have been unwilling to support the reform program, since their real objective is not so much benefits for the population at large as it is power for themselves. Yet when they have combined with the conservatives to criticize the Shah's program, they have forfeited popular support. The government has been alert to exploit this dilemma. Moreover, by keeping many of the National Front leaders in detention until just before the elections, the government effectively stifled their chances. As a result of these vicissitudes, the party's political chief has resigned and it is in serious disarray. The danger that extreme and irresponsible elements will gain control is growing.

12. The conservative forces, which until recently supported the Shah, are now largely disaffected. The religious hierarchy in particular sees the reform program as striking at its power and interests. The mullahs have taken the lead and played a major role in agitation against the government which led to widespread popular demonstrations in June 1963. The government's vigorous suppression of these demonstrations and its continuing strong pressure against religious dissidents has severely weakened this segment of the opposition. Furthermore, the mullahs have for some time been hampered by their inability to agree on an overall leader, and their disunity and confusion have been compounded by the government's tactics of alternately arresting and releasing the leading religious figures. While some of the larger landlords have accommodated to the reform program, many of them remain apprehensive and a source of opposition to further development of the program.

13. The Tudeh (Communist) Party has been effectively suppressed. Its main leadership is either inexile or in jail. The party has not made appreciable headway in Iran in recent years and is heavilypenetrated by the security forces. Although the discord within the National Front may provide theTudeh with increased opportunities for infiltration, it appears now to have little chance of coming todominate the movement.

14. Tribal dissidence remains a potential rather than a present threat to the regime. The Iranian Kurds have yet to overcome their traditional tribal rivalries and lack any widely accepted local leader. Moreover, they have no very serious grievance, and the government is taking some steps to extend to the Kurdish areas the benefits of economic development and to integrate them in greater degree into national life. The Iranian Kurds are unlikely to create serious problems for the government unless Iraqi Kurds win a large measure of autonomy or unless the USSR makes a determined attempt to incite a separatist movement. Neither of these developments now seems likely. While tribal disorders may occur in other parts of Iran, such conflicts are easy to contain and isolate, and it would be extremely difficult for the diverse tribal groupings to coordinate action against the regime. Though there is almost certainly some Egyptian or Iraqi intrigue among the Khuzistan Arabs, they are unarmed, sunk in poverty and apathy, and therefore constitute no threat at present.

III. Economic Trends

15. Iran's natural resources are capable of supporting extensive economic development. Arable land is more than adequate to support the growing population, and irrigation projects are increasing agricultural productivity and bringing new land under cultivation. Favored by good weather, total agricultural production in 1963 increased some nine percent over that of the previous year. Iran's most important asset, however, is its booming oil industry, which is largely insulated from the vagaries of Iran's domestic economy. The government's rapidly rising revenues from this source are sufficient to provide a solid base for a broad development program, even allowing for continued mismanagement and corruption.

16. Since 1961 Iran has been plagued by a recession which has resulted in considerable unemployment, unused productive capacity, and an unfavorable climate for investment. For a number of years prior to 1961, rising oil revenues, large foreign loans, and good harvests stimulated a high rate of economic activity. Gross National Product (GNP) was rising by nearly six percent annually, and by 1961 annual investment had risen to about 18 percent of GNP. The number of banks and factories doubled, and a start was made toward modernizing the government's economic institutions and practices. By 1960, however, the attempt to carry out such an ambitious--and largely uncoordinated--effort led to serious inflationary pressures, a speculative construction boom, and a sharp decline in foreign exchange reserves. This obliged the government to replace its expansionary policies with a series of anti-inflationary measures, which frightened the business community and proved to be more difficult to rescind than to impose.

17. More recently, the government has been seeking to revive the domestic economy through attempts to increase expenditures under the Third Plan (1962-1968), stimulate private industry, and expand exports. Credit has been made cheaper and more readily available and a trade agreement has been concluded with the Common Market. However, the expansionary effect of such policies has been small, due at least in part to the political uncertainties engendered by the Shah's simultaneous effort to launch his reform program.

18. The advent of the Mansur government and the slowing of the reform program have apparently begun to restore business confidence. Although administrative difficulties continue to prevent the government from rapidly increasing public investment under the Plan, a modest rise has been achieved in recent months. Nevertheless, many problems remain, and we do not foresee a strong business recovery in the immediate future. Iran's underlying economic strength, however, will probably enable it to overcome these difficulties and within the next few years return to a more rapid rate of growth.

Oil

19. One of the basic reasons for Iran's favorable prospects is its booming oil industry, which provided the government with about $380 million in revenues in 1963, an amount likely to increase by at least 8 to 10 percent annually for the next several years. Since the disastrous experience with nationalizing the oil industry during the Mossadeq era, the Iranian Government has dealt with the oil consortium through negotiations rather than threats. Though the government periodically voices complaints against the consortium's exploration and development programs, the rapid rise of oil production and revenues in Iran and the development of several new deposits have largely allayed these criticisms. Iran will doubtless desire greater oil revenues than in fact it receives, but it will probably continue to take a more realistic attitude than the more extreme members of the Organization of Petroleum Exporting Countries (OPEC),/4/ who are interested in gaining greater control of levels of oil production and prices. It is possible that Iran might leave OPEC over this issue; if so, it would probably expect the companies to increase their proportionate offtake of Iranian oil.

Long-Range Planning

20. The concept of comprehensive economic development planning has not yet gained a firm foothold in Iran. The Third Plan, as originally drawn up by the Plan Organization, showed early promise of breaking through the traditional hostility toward planned investment. After the fall of the Amini government, however, the impetus toward meaningful planning was largely lost. Anti-planning elements wielded strong influence in the Alam government and succeeded in weakening the Plan Organization and decentralizing responsibility for project formulation and implementation. Consequently, the Third Plan reflects the constant bureaucratic bickering as to how plan resources should be allocated.

21. Under the Mansur government the outlook for the Third Plan has improved somewhat. Relatively few projects without some intrinsic economic merit are contemplated. Even the "make-work" projects in the program have utility for combatting recession and urban employment. The plan also promises support for land reform and rural development. Thanks to the rising oil income and good prospects for foreign loans and credits, the financing of the Third Plan should not be a serious problem. Even so, the Plan Organization is passing through a period of transformation and is unlikely for some time to have sufficient authority and competence to give effective direction to Iran's development. Thus, the Third Plan, which is supposed to increase development expenditures more than two and a half times, will probably fall considerably short of its goals.

Agriculture and Land Reform

22. Thus far the land reform program has had no discernible effect on agricultural production. Any disruptive effect has been more than offset by good weather conditions over the past two years, and total agricultural production may register a further increase this year. A relatively small proportion of the land has been distributed to date, and most of the government cooperatives which are to play an essential role in agricultural management have been formed only on paper. The future of the
agricultural sector of the economy will depend in large measure on how successfully these cooperatives fulfill their functions, particularly the management of Iran's complicated irrigation system which has been the traditional task of the landlords. If these management responsibilities are in fact well performed, and if government plans to provide financial and technical assistance are carried out, agricultural production is likely to increase.

IV. The Domestic Outlook

23. The Shah apparently feels the need for a breathing spell in his reform efforts in order to consolidate recent gains. The pace of land reform has outstripped the government's administrative capacities, and little new land is likely to be transferred in the near future. Yet it is unlikely that awareness of this fact will arouse significant disappointment among the peasantry, who have yet to display any political initiative of their own. In any event, there is no ready vehicle for them to express their feelings, as the Shah has effectively prevented the emergence of any mass leaders. While it does not seem likely that the peasants will become an active force in political life in the near future, it is possible that the Shah has fostered the beginnings of a social transformation in the countryside.

24. The National Front opposition appears to have no great prospects at present. Its various leaders will certainly interpret any slowdown of the reform program as confirming their suspicions that the Shah intends no basic reform of Iranian society. Yet they show no signs of being able to overcome the factionalism that has prevented their movement from exerting effective opposition or of developing a positive program of its own. Moreover, even with the slowing of reform, the nationalists are unlikely to be very successful in inducing the technicians, who recognize that the regime must modernize to survive in the long run, to risk their government positions by joining the opposition. Pressures for change, stimulated in part by the reform program itself, will probably grow and bring periodic turbulence. We do not believe, however, that any of the opposition groups singly or in combination, will be able to pose a serious challenge to the regime for the next few years, mainly because of the reliability and efficiency of the security apparatus. In short, the Shah's prospects for retaining control for the foreseeable future are good.

25. In the past the Shah has been unwilling to permit any political personality to consolidate independent power, and Mansur is unlikely to be an exception. His government, however, may be able to provide the administrative and technical talent that the Shah feels is vital to carry out the reform program. In the end he may, like other Prime Ministers, be a convenient scapegoat, should political and economic frustrations build up again to the point of demonstrations or open unrest. Tactics such as these have drawn fire away from the monarchy in the past, and we believe they are likely to succeed again.

Longer Term Outlook

26. Though it seems quite likely that change will continue to be evolutionary for a number of years, it remains uncertain whether Iran will make the ultimate transition to modern life without experiencing a violent revolution. The odds are not as hopeless as they have sometimes appeared when the regime has been faced with crisis. For some years to come it is likely that Iran will pass through a period of consolidation in an effort to assimilate recent changes. During this time the bureaucracy will probably come increasingly to be dominated by the new class of technicians, who offer the best hope for bridging the gap between the paternal administration of the Shah and disaffected middle class elements.

27. As in the past, the Shah will continue to dictate the pace of these developments. It is not certain that he will continue to push the reform program energetically, although he seems now to see it as a design for social and economic advance to which he has a personal commitment. His tendency in the past, however, has been to use reform as a palliative when pressed, and he may draw back once more. Nevertheless, the Shah does appear convinced that his "White Revolution"has thus far been a notable success, and his self-confidence has clearly been enhanced. Hence the chances now seem good that he will continue to move forward, though with some pauses and even retreats along the way.

28. Even if he persists, the success of the Shah's initiative for evolutionary reform will depend in thelong run on whether it evokes a response in the country sufficient to be translated into broadened political support for the regime. It is too soon yet to say that this will happen, though if reform is pressed and enlarged in scope, it is not unreasonable to believe that new and more constructive political formations will eventually appear. The test would then be whether the Shah would be willing to share power with the political forces he would have called into being. On this will depend also his ability to attract and hold the first-class talent so badly needed for the tasks of development. In any case, it seems clear that the Shah's reform effort has already helped to stimulate and shape the forces which must eventually, in one way or another, bring basic changes to Iranian society.

29. It is a basic weakness of Iran that the present equilibrium depends almost exclusively on the Shah. The modernization that has taken place to date has been largely administrative and economic, and little has been done to create political institutions that would survive the death of the Shah. Hence, should assassination or any other event remove him, the monarchy as an institution would be endangered. The 44-year-old Shah has not allowed any other figures to develop power in their own right, and the bureaucracy and the parliament, though somewhat more respected than in the past, have as yet no independent stature. Hence the military would almost immediately be drawn into the political arena. A successor government, if controlled by the senior officers, would probably, without attempting to reverse the Shah's programs, pursue a generally more conservative course. However, if younger officers gain a dominant voice, the government might reflect the more radical outlook of the nationalist opposition. In any event, conditions would be so disturbed that any successor regime would probably find it difficult to consolidate power, and a prolonged period of instability would probably ensue.

V. Foreign Policy

30. Iran's strongly pro-Western orientation represents primarily the will of the Shah. He is supported in this by the bureaucracy, and in particular the military establishment. On the other hand, many of the intellectuals would prefer a neutral course between East and West; indeed, this would be the foreign policy which any National Front government would strive to adopt.

Relations with the U.S.S.R.

31. The most important development in Iran's foreign relations in recent years has been the normalization of relations with the Soviet Union since September 1962. At that time, Moscow accepted the Shah's pledge not to permit the establishment of missile bases on his soil and shelved its policy of open diplomatic and propaganda pressures to overthrow his regime. Thus, without detracting from his Western ties, the Shah was able to end the strong Soviet pressure which had kept tension high for many years. Soviet acceptance of this gesture may indicate recognition, at least for the near term, of the ineffectiveness of subversive efforts against the regime.

32. Yet neither the Shah nor the Kremlin has sought to do much more than reduce tensions. After an initial flurry of sympathetic articles in the Tehran press, the Iranian Government intervened to reduce the volume and emphasis of pro-Soviet publicity. For their part, the Soviets have not come forth with the expected proposals for large-scale economic projects, though they have provided a $38.8 million 10-year credit for Iran. Communist propaganda beamed by clandestine radio stations outside Iran still criticizes the regime.

33. The Shah will probably welcome continued improvement in Soviet relations and may even pay increasing lip service to "nonalignment." In any case, it will be difficult for him to reject the friendship of a powerful neighbor that claims to have changed its attitude and whose conduct is correct. A policy of accommodation will also serve to some extent to appease the neutralist and xenophobic sentiments of Iranians who believe their country is overcommitted to the West. It would also counter the Shah's concern that, with signs of a developing East-West detente, the U.S. might lose interest in supporting and defending Iran against increased Soviet influence. Nevertheless, Iranian fears of Soviet designs remain alive and will probably serve to check any significant danger to Iran's Western orientation for the period of this estimate.

Relations with the U.S.

34. Iran's relationship with the U.S. appears to be undergoing a subtle change. Though the American alliance remains the cornerstone of Iran's foreign policy, the Shah, for reasons of domestic politics and international prestige, sees a need to appear more independent. At the same time, the rise of oil revenues, improving agricultural output, and the availability of credits from other free world sources and the Soviet Bloc have reduced Iran's dependence on US economic assistance. Accordingly US influence on economic development is decreasing.

35. The same cannot be said of the security field, where Iran remains heavily dependent on US assistance. The Shah was heartened by a US-Iranian exercise which brought sizable numbers of American troops to Iran. [2-1/2 lines of source text not declassified] The five-year US military aid plan has alleviated to some degree the Shah's dissatisfaction with US military support. Thus we foresee a period of relative calm in US military relations with Iran, probably until near the end of the military aid plan in 1967.

Regional Relations

36. The CENTO alliance is important to Iran as a formal defense link to the West and because it provides an additional claim on the US for aid. This does not mean that Iran is fully satisfied with the alliance. It has been irritated by the refusal of the US and the UK to consider alleged threats from non-Communist regional states as falling within the purview of the alliance and has suspected the US at times of having only a lukewarm interest in this pact. Iran's dissatisfaction with CENTO's economic achievements was greatly alleviated by the recent decision of the US to finance the Turkey-Iran rail link. Under the circumstances, Iran can be expected to continue to be cooperative in CENTO, although not without criticisms of specific aspects of the alliance.

37. The Shah's chief regional concern is his fear that Nasser is actively plotting to overthrow his regime, working through Iraq and the Persian Gulf Sheikhdoms. Though Nasser has recently made some overtures to improve relations, the Shah remains wary. In fact, he is likely to pursue a more active policy to counter UAR activities directed at the Persian Gulf. Relations with Afghanistan have improved markedly since Iran served as mediator in the Afghanistan-Pakistan dispute, and prospects for the future here are good.

FRUS 1964-68, Vol. XXII, Iran (c)

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