Present Situation

Recent events have produced far-reaching changes in the traditional political forces in Iran. The National Front has seized the political initiative from the Shah and the formerly dominant landowning class. Premier Mossadeq has become the dominant political figure in Iran, but the coalition of urban nationalists and religious zealots which he heads is united primarily by a common desire to rid the country of foreign influence. Western access to Iranian oil and Iran’s ultimate role in the East-West conflict will depend in large measure on Mossadeq’s handling of the following serious problems:

a. The Oil Dispute. The oil dispute remains the focal point of political activity in Iran. Mossadeq rode to power on the issue of nationalization of oil and his present political strength derives largely from his continued defiance of the UK. [Dr. Mohammad Mossadegh] The political forces which Mossadeq has himself encouraged require him to insist upon greater concessions than the British have given any indication of accepting. Nevertheless, Mossadeq must eventually find some means of selling Iranian oil if he is to retain popular support and avoid government bankruptcy.

b. Government’s Fiscal Position. Loss of oil revenues has seriously affected the financial position of the government. However, the current rate of government expenditure can probably be maintained for some months by further internal borrowing and currency expansion. Prolonged absence of oil revenues, however, would eventually necessitate substantial budgetary cuts. Such cuts would weaken Mossadeq’s political strength, reduce the effectiveness of the security forces, undermine the authority of the central government, and create favorable opportunities for the expansion of Communist influence.

c. Economic Deterioration. Although loss of oil revenues has not seriously affected the primarily agricultural Iranian economy, the urban sectors of the economy have suffered from rising prices, curtailment of imports and increased unemployment. Shortage of foreign exchange is forcing the government to resort to barter agreements with the Soviet Bloc countries as well as with Western nations. The Iranian government’s economic development program is at a virtual standstill.

d. Control over the National Front. A major threat to Mossadeq’s continued control over the heterogeneous National Front arises from the activities of Mullah Kashani, ambitious Moslem leader. [Ayatollah Kashani] Kashani’s extreme intransigeance [sic] on the oil issue and his uncompromising demands for the termination of all foreign influence in Iran severely limit Mossadeq’s freedom of action. Agitation by Kashani’s followers among the peasants for quick and sweeping agrarian reform is contributing to unrest throughout the country and playing into the hands of the Communists.

e. Security Forces. The Iranian armed forces number about 156,000 and are almost completely dependent upon foreign sources for equipment. Their continued capability for maintaining internal security will depend upon the extent to which the government gives them effective direction and is able to pay Army salaries. Mossadeq is having some success in changing the allegiance of the security forces from the throne to the national government. The resulting changes in Army leadership and the effect of recent events have created some confusion and insecurity among some high ranking Army leaders, but morale in general is believed to be satisfactory. Communist influence in the security forces appears to be slight.

f. The Tudeh Party. The Tudeh (Communist) Party with an estimated membership of approximately 15,000 is at present almost certainly incapable by itself of overthrowing the government by force or subversion. However, it has become stronger in recent months and has demonstrated effective organization. Its agitation for social and economic reforms is contributing to unrest and its bitter anti-Western stand is adding to Mossadeq’s difficulty in settling the oil dispute. However, the Party still lacks a legal status as well as either the power in the Majlis or control of the key Cabinet positions which would be necessary to take over the government by constitutional means.

Estimate of the Situation *

We believe that, barring Mossadeq’s death from natural causes or by assassination, his National Front regime will probably remain in power for at least six months. Financial or economic factors are not in themselves likely to cause the collapse of the Mossadeq regime, even though oil revenues are not likely to be restored in that period. Mossadeq has the authority and the resources, and probably has the will and determination, to prevent a significant deterioration in the effectiveness of the security forces and to maintain the authority of the central government throughout the country. However, Mossadeq will face growing demands for social and economic reform. In his efforts to satisfy these demands in the face of opposition by conservative elements — particularly the landlords — Mossadeq will probably resort to increasingly authoritarian measures. Even if Mossadeq were removed from the political scene, we do not believe that the Tudeh Party would come to power during the next six months.

E. MIDDLE EAST OIL
(See Map, Figure V-E-1, following this page.)
(SECRET)