214. Summary of Conclusions of a Special Coordination Committee Meeting1

SUBJECT

  • Iran/Afghanistan

PARTICIPANTS

  • State

    • David Newsom
    • Deane Hinton
    • Harold Saunders***
  • OSD

    • Secretary Harold Brown*
    • W. Graham Claytor, Jr.
  • JCS

    • General David Jones*
    • Lt. Gen. John Pustay
  • CIA

    • Admiral Stansfield Turner
  • Justice

    • Attorney General Benjamin Civiletti*
  • Treasury

    • C. Fred Bergsten*
  • Commerce

    • Homer Moyer*
  • Agriculture

    • Dale Hathaway*
  • White House

    • David Aaron
    • Hedley Donovan*
    • Lloyd Cutler*
    • Joseph Onek*
    • Henry Owen
  • NSC

    • Gary Sick
    • Marshall Brement
    • Edward Fried**
    • Alfred Friendly, Jr.*

*Present only for discussion of items 1 and 2

**Present only for discussion of items 2 and 3

***Present only for first ten minutes

SUMMARY OF CONCLUSIONS

[Omitted here is material on the Soviet Union and the Olympics.]

3. Possible Blockade of Iran:2 The SCC was then reduced to the small political-military group. Mr. Aaron asked whether it was the judgment of the group that to be effective, Iranian exports of oil would have to be blocked, or would it be enough to block imports into Iran? Secondly, if oil exports should be terminated either by blockade or Iranian retaliation, what would be the effect? Admiral Turner replied to the first question that, if all imports, including food, were blocked, it would have a significant impact on Iran’s economy within two weeks. Blocking oil exports, however, would take nearly a year to have a major impact since Iran has sufficient monetary reserves to do without the revenue. It would be reasonable to expect Iran to cut off oil exports as retaliation for any U.S. blockade. About 80% of Iran’s exports come in by sea, and the land and rail routes through Turkey and the USSR could not make up the difference. It would not be necessary to block ground and air traffic to have the desired impact. There were no real alternatives to seaborne trade. Mr. Aaron noted that there could be a political problem if Turkey and Pakistan actively helped Iran evade a boycott at the same time we are trying to get large sums of assistance for them. Mr. Sick suggested that we should make it clear from the outset that this was a unilateral U.S. action limited to maritime commerce, that it was not intended to interfere with other commerce, and that we believed that the naval interruption was sufficient to make the political point and to significantly affect Iran’s economy. Henry Owen commented that Iran would probably cut off oil, which would raise the level of hostility in the U.S. and elsewhere; that in turn would draw [Page 564]criticism on those nations which were helping Iran avoid the full effects of a blockade. (TS)

Mr. Fried said that, in many respects, this is the best possible time for a possible cutoff of Iranian oil. Iranian exports are down to only 1.5 mbd, world stocks are high, there is slack in the market, and demand is historically low at this time of year. Because of these factors, Kuwait and some other nations are planning to cut back production. Nevertheless, we are not likely to get out of it without a market reaction, and specifically a price increase. The market is very nervous, and the reaction to an Iranian cutoff would be to compete for remaining supplies in order to protect stocks as a hedge against future contingencies. He anticipated a possible price increase of $5–10 per barrel, i.e., a 15–30% increase, which would represent an increase in the inflation rate of .75–1.5%. Admittedly, these were only rough estimates. It could be half that much. Since there is a good chance of a price increase late in the year, it might simply make that happen sooner than anticipated. The Saudis would certainly not increase their production. If they should decide to reduce production as a gesture against blockade of an Islamic state, that could be quite serious. More dangerous would be the reaction of Kuwait, Libya and perhaps others who might go ahead with planned cuts or even cut deliberately as a form of counter-embargo. Most of the effects would fall on Japan which relies on Iran for 10% or more of its total consumption. They would be entitled to trigger the IEA sharing mechanism. The actual amount of oil involved would be very small, but the IEA reaction would probably be internal acrimony. The Japanese would scramble to secure alternate supplies, again tending to drive up the price. (S)

Mr. Claytor said it would create hell in the Islamic world. Mr. Newsom said that, if the action was taken suddenly and without advance indication, it would have an adverse effect on the moderates in Iran. It would create a strong public reaction and inspire a new round of anti-Americanism which the hardliners would use to their advantage. However, if this could be relayed in secret in advance to the moderates, it might give them leverage to use in the in-fighting. If handled very carefully, a case could be made that this would improve the chances of getting the hostages out. We would have to be prepared to follow through, however. (S)

Mr. Aaron wondered what the effects would be if the threat had to be carried out. Mr. Newsom said that there would be a very strong reaction in Iran which, in the worst case, could lead the militants to start killing hostages. There would be massive demonstrations and a hellish month or so for us to get through. In the end, however, it could go either way. It could succeed, although it was a high risk. Admiral Turner said it was his judgment that the militants would be very [Page 565]angry but would not kill the hostages. Khomeini would use it as an opportunity to rouse the masses behind him. It could also strengthen the position of Bani-Sadr and the moderates. However, it is not clear that the moderates would succeed in the resulting power play. We might be pressuring the weakest political element. (S)

Admiral Turner wondered if it would be possible for the U.S. to absorb the oil drawdown and make up the Japanese loss. Mr. Fried said that we would have to draw down stocks, and the price increases which would have to be imposed to reduce our own consumption by that amount would have to be very high, with substantial effects on inflation and growth. (S)

At that point, the meeting had to adjourn, with the understanding that this subject would probably be discussed further by principals over the weekend.3 (C)

  1. Source: Carter Library, National Security Affairs, Staff Material, Middle East File, Box 100, Meetings File, 3/20/80 SCC re Iran/Afghanistan. Top Secret. The meeting took place in the White House Situation Room. Carter wrote “Zbig, J” in the upper right corner.
  2. This discussion was based on the papers requested at the March 11 SCC meeting (see Document 204). The CIA paper, “Economic Consequences of a Naval Blockade of Iran on Oil Importing Countries,” March 19, and its attachment, “Iran: Effects of a Naval Blockade, are in Carter Library, National Security Affairs, Staff Material, Middle East File, Box 100, Meetings File, 3/20/80 SCC re Iran/Afghanistan. The undated paper prepared in the Department of State, “Iran: Effects of a Total or Import Blockade,” is in Department of State, Records of the Secretary of State, 1977–1980, Lot 84D241, Presidential Breakfasts Jan/Feb/Mar 1980.
  3. In a March 20 memorandum detailing potential items for Vance to discuss at the March 21 foreign policy breakfast meeting with the President, Newsom provided Tarnoff with the main points of this discussion and concluded: “My impression is that there will be little support for the concept of a blockade at the breakfast meeting but that it will be kept alive as a contingency.” (Ibid.) In a supplementary March 20 memorandum, Hinton wrote that Fried’s analysis was “extremely bearish.” He thought there was a “strong political case” for increasing pressure on Iran in order to send “an immediate message of resolve.” (Ibid.)