A few days later in Tehran, I discussed the meeting with Ambassador Richard Helms. Dick, who had only recently taken up his post after serving as the director of the CIA, felt the Iranians were really “feeling their oats.” Oil wealth and their predominant military position in the Gulf, largely the result of assistance from the United States, had transformed Iran’s strategic and economic position. But Helms also noted that “their biggest problem is that they have the money, the materials, but not the trained manpower necessary to handle them. What is perhaps even more serious, the ministers are not sophisticated or experienced enough to cope with the added governmental complications which their sudden enormous wealth is bringing them.”
“SOMETHING REALLY BIG”
I had not stopped in Saint-Moritz to tap the Shah’s geopolitical expertise but rather to discuss Chase’s effort to purchase an interest in an Iranian commercial bank. Six months earlier I had raised this issue at a brief meeting at Blair House during one of his visits to Washington. The Shah, who was in the process of negotiating an economic and arms agreement with the United States, gave me authorization to explore the possibility of purchasing an Iranian bank. However, the two banks we had been allowed to approach were, to put it mildly, lemons—badly managed and with negative cash values.
When I told the Shah in Saint-Moritz this was not the opportunity Chase had been looking for, he agreed and said, “It might be best to permit the establishment of an entirely new bank. I have recently permitted three or four new merchant banks, so why not one more?” He said he would wire Tehran that night giving the necessary instructions. He urged me not to become involved with small commercial loans but to “do something really big.”
The Shah was as good as his word, and over the next year and a half we put together a joint venture with the state-owned Industrial Credit Bank to form the International Bank of Iran (IBI) to finance economic development projects as well as help with the formation of an Iranian capital market. Chase invested $12.6 million and owned 35 percent of the new bank. The Shah’s help had been essential, but it was the only time he ever intervened on Chase’s behalf.
After Chase established a physical presence in Tehran, it was the bank’s deposit gathering and trade finance activities from which we benefited most substantially. As Iran earned more from the sale of oil after 1973, Iranian deposits maintained with Chase increased dramatically. In addition, our trade finance business boomed because we continued to finance a significant portion of Iran’s oil exports. By the mid-1970s as much as $50 to $60 million a day passed through Chase, and Iranian deposits at one point in late 1978 exceeded $1 billion. When Iran entered the international capital markets in the mid-1970s to finance its large public sector projects, Chase took the lead in floating eight syndicated loans. By 1979 we had served as agent for syndications totaling $1.7 billion, of which our portion was about $330 million. These were significant but by no means extraordinary amounts, given that Chase’s total foreign lending at the end of 1979 was more than $22 billion and our total deposits exceeded $48 billion.
Moreover, none of these financial links depended on my having a “special relationship” with the Shah; they were the result of Chase’s leading role in world financial markets. Ironically, we were never successful in attracting the Shah himself as a customer; he preferred to keep most of his money in Switzerland.
A PESSIMISTIC PICTURE
The promise of the Shah’s regime depended largely on how the Iranian monarch used his newfound oil wealth to reform his country’s political and economic structure. There was certainly enough money to do this, but money by itself was not the answer. This was one of the messages that I delivered to him in Saint-Moritz.
In 1975, when diplomatic and political relations between the United States and Iran grew closer as a result of the Nixon-Kissinger initiatives, I was asked to join the board of the newly formed Iran-U.S. Business Council, the private sector counterpart of the U.S.-Iran Joint Committee. The latter had been formed by Henry Kissinger and Hushang Ansary, the minister of finance and economy, to explore ways in which the two nations might improve their economic ties. In late 1975 the Joint Committee asked the Business Council to organize a conference in Tehran to advise the Iranian government on the steps they needed to take in order to play a larger role in global financial markets.
Hushang Ansary told me that the Shah understood the need for reform and urged that the meeting be convened as soon as possible. I asked our Chase economists to put together background papers for the conference, which I would chair. We scheduled the meeting for March 1976 in Tehran and assembled a distinguished group of Americans that included Paul Volcker, then president of the New York Federal Reserve Bank; Donald Regan, chairman of Merrill Lynch & Co.; Peter G. Peterson, chairman of Lehman Brothers; and the heads of several major U.S. commercial banks. The Iranians fielded a delegation of senior cabinet ministers, bankers, and businessmen.
The Chase economists painted a pessimistic picture of Iran that was difficult to reconcile with the Shah’s own vision of financial and economic hegemony. Iran had large quantities of oil money and every expectation that this source of income would continue to grow. But almost nothing else was in place to ensure this windfall would be turned to productive use. Iran lacked both an organized money market and a stock exchange; its currency was weak, and its foreign exchange was in disarray. Even more important, the Iranian legal and governmental system lacked transparency, accountability, and credibility, all necessary for attracting foreign investment. The government owned everything of any economic consequence and managed everything from the top down and from the center out, which produced tremendous waste, inefficiency, and corruption. To get anything done required paying bribes, knowing someone in power, or both. The Shah’s family and members of his inner circle benefited from this system and did not wish to see it changed. Until these basic conditions were changed, there was little likelihood that the Shah would realize his vision of Tehran as an international financial center or of Iran as an important global economic force.
The Iranians were not pleased with our findings. At the dinner that concluded the conference Prime Minister Amir Abbas Hoveyda subjected us to an impassioned harangue for exporting “a lack of morality” to Iran. He denounced American companies for bribing Iranian officials and then accepting kickbacks for multimillion-dollar military procurement deals. Hoveyda’s remarks were a self-serving, gratuitous attempt to blame the West for problems that seemed to be deeply embedded in the Iranian system.
When we called on the Shah to report the conference’s conclusions, he promised to study them, but I think he already sensed that Iran’s sudden increase in wealth had intensified but had not solved his country’s problems. The Shah had inaugurated a process of social and political change, but it remained to be seen whether he would control it or if it would control him.
But for the moment the Shah’s domestic position remained strong and his relations with the United States firm. In late 1977, President and Mrs. Carter paid an official visit to the Shah in Tehran. At a state banquet on New Year’s Eve, President Carter in televised remarks spoke of the importance of U.S.-Iranian relations. He said in part: “Iran, because of the great leadership of the Shah, is an island of stability in one of the more troubled areas of the world. . . . We have no other nation with whom we have closer consultation on regional problems that concern us both. And there is no leader with whom I have a deeper sense of personal gratitude and personal friendship.”
THE END OF THE DYNASTY
On my final visit to Iran in March 1978, everything appeared calm, but I sensed an increasing discontent with the Shah’s rule among those with whom we talked. When I called on the Shah at the Niavaran Palace, he was polite and interested in what I had to say, but we learned from others that he had become more and more isolated, impatient of criticism, and indecisive. The dramatic growth of the Iranian economy had leveled off after 1975 and had been replaced by recession, a severe retrenchment
in government expenditures, and growing unemployment. We saw evidence in the streets of Tehran of the religiously driven civil unrest that within a few months would become a full-scale revolution against the Shah’s regime.
Nine months later the Shah took the controls of a Boeing 707 and flew out of Tehran for the last time. His odyssey had begun.
THE SHAH IN EXILE
When the Shah departed Tehran in mid-January 1979, I assumed he would come directly to the United States where President Carter had offered him political asylum. Instead, he and his entourage flew to Egypt at Anwar Sadat’s invitation. I did not give much thought to his movements because I was more concerned about the Iranian revolution’s impact on Chase. As it turned out, the new Iranian government, headed by Mehdi Bazargan, a moderate nationalist who wanted to both democratize and modernize his country, soon permitted foreign businesses to resume operations, and Chase’s financial relations with Iran returned to normal. Thus, while I personally regretted the circumstances of the Shah’s departure, I had no reason to think I would have anything further to do with him.
A few days after the Shah left Tehran, I embarked on a trip to the Middle East. My first stop was Egypt, where I was to meet with Anwar Sadat in Aswan on January 22, 1979. Sadat was late and apologized, explaining he had been at the airport bidding farewell to the Shah, who was bound for Morocco at the invitation of King Hassan. Sadat said he had urged the Shah to remain in Egypt so that he could return quickly to Iran if conditions changed. The Shah had shrugged off his advice, claiming the Americans “had forced him out” and would never allow him to return.*
The Ayatollah Ruhollah Khomeini’s triumphant return to Iran in early February eliminated any possibility that the Shah might be restored to his throne. Adoring crowds chanting “Death to the Shah” greeted the elderly cleric, and the interim government installed by the Shah as well as the Iranian army and air force quickly capitulated. Even though Khomeini initially backed Bazargan’s government, they disagreed profoundly on many issues, and the question of who would rule Iran remained in doubt for a number of months. While Bazargan worked assiduously to rebuild external relations, the Ayatollah’s hatred of the United States became a potent force in Iranian politics. In mid-February, Iranian radicals seized the American embassy and briefly held Ambassador William Sullivan and his staff hostage until Bazargan intervened to have them released.
Despite this incident, the United States officially recognized the Bazargan government in late February. The Carter administration had decided to work with the moderates in the hopes of strengthening their position against the two extremes that had emerged in the Iranian political landscape: the Marxist left and the fundamentalist right. As a result, the Carter administration quietly changed its position on granting the Shah political asylum.
Before the Shah left Iran, Ambassador Sullivan had given assurances that he and his family would be welcomed in the United States. The President himself publicly reinforced this invitation when he noted at a press conference on January 17, “The Shah’s now in Egypt and he will later come to our own country.” Soon after the Shah’s arrival in Morocco, Ambassador Richard Parker assured him that President Carter’s offer of asylum in the United States remained open, but suggested that he might want to expedite his departure in case circumstances changed. The Shah ignored the Ambassador’s advice and remained in Marrakesh for several more weeks.
King Hassan of Morocco was a gracious host, but he had his own problems with Islamic fundamentalism. In addition, in early April, Hassan would host a meeting of the Islamic Conference, which included Arab leaders who had been hostile to the Shah. Consequently, the King asked the Shah to leave and to do so not later than March 30. The Shah then informed Ambassador Parker that he was ready to accept President Carter’s offer of asylum. But, as I would soon learn, it was already too late.
By early March the Carter administration had determined that supporting the Bazargan government had to take precedence over granting the Shah asylum. The National Security Council, with National Security Advisor Zbig Brzezinski vigorously dissenting, concluded that the Shah should not be allowed to enter the United States. President Carter concurred and asked Secretary of State Cyrus Vance to, in Carter’s words, “scout around to help find him a place to stay.”
TURNING DOWN THE PRESIDENT
I first became aware of the change in policy on March 14, 1979, when David Newsom, Under Secretary of State for Political Affairs, telephoned me in New York. Newsom said he was calling on President Carter’s behalf. The President had reviewed the situation in Iran, including the threat that Americans might be seized as hostages if the Shah came to the United States, and had decided it was no longer prudent to allow him to enter the country, at least at that time. Newsom asked if I would fly to Morocco and inform the Shah of the decision.
Newsom’s request surprised me, not least because my relationship with the Shah had never been that close. Taken aback, I immediately refused. One does not lightly turn down a request from the President of the United States, but I told Newsom I found it incomprehensible that the President would ignore American tradition by denying political asylum to a man who had been a great friend of our country. I refused to become complicit in the decision.
Henry Kissinger said later that Newsom had called him first, and he had rejected the request just as firmly as I. Henry called the decision “a national dishonor.” In the end, Ambassador Parker delivered the message and also told the Shah that the State Department, after extensive inquiries, had found only two countries, South Africa and Paraguay, willing to receive him. The Shah was unwilling to go to either country.
A SISTER’S PLEA
A little more than a week after my conversation with David Newsom, I received word from Princess Ashraf, the Shah’s twin sister, that she wanted to speak with me. I had met Ashraf casually on a few occasions when she was Iran’s representative on the U.N.’s Women’s Rights Commission. Joseph Reed and I called on her at her Beekman Place town house in New York late on Friday afternoon, March 23.
Ashraf, a tiny woman, was fiercely devoted to her family and very tough-minded. In obvious distress she described her brother’s dire situation and begged me to intervene with President Carter to reverse his decision or at least help to find the Shah a haven somewhere else. Ashraf informed us that King Hassan had set a deadline of seven days hence for her brother’s departure from Morocco. “My brother has nowhere to go,” she said, “and no one else to turn to.”
I was in an awkward position. There was nothing in my previous relationship with the Shah that made me feel a strong obligation to him. He had never been a friend to whom I owed a personal debt, and neither was his relationship with the bank one that would justify my taking personal risks on his behalf. Indeed, there might be severe repercussions for Chase if the Iranian authorities determined that I was being too helpful to the Shah and his family. Therefore, I listened to the Princess with interest and concern without making a commitment to take any action.
That same evening I had dinner with Henry Kissinger and Happy Rockefeller, Nelson’s widow, at her home in Pocantico. Henry and I discussed our telephone calls from David Newsom and the Shah’s plight. Happy told me of Nelson’s close friendship with the Shah and about the weekend they had spent with him and Farah Diba, the Shah’s wife, in Tehran in 1977. Happy reminded me that when the Shah realized he would have to leave Iran, Nelson offered to find a suitable property for him in the United States.
We also talked about the precedent that President Carter had established by refusing to admit the Shah into the United States. Both of us believed our allies, particularly those in the Middle East such as Sadat and King Hussein, who had taken great risks on our behalf, were likely to entertain second thoughts about the dependability of the United States in light of this action. In view of these concerns and Nelson’s offer, Henry and I agreed to do what we could to help the Shah while the Carter administration continued to mull over whether and under what
circumstances he might be admitted to the United States. Jack McCloy, one of the “wise men” of American foreign policy who had counseled the President on a number of matters during his first years in office, soon joined our effort.
FINDING A SAFE HAVEN
We had learned that no European or Middle Eastern country other than Egypt was willing to risk the wrath of the new satraps of Persia by granting the Shah asylum, so we concentrated our efforts on the Western Hemisphere. The response was not good, but in the nick of time Henry persuaded the foreign minister of the Bahamas to grant the Shah a temporary visa to enter his country. The Shah and his party arrived there on March 30.
The Shah was met in Nassau by Robert Armao; this young public relations man had served on Nelson’s gubernatorial and vice presidential staffs, and had continued to work for him after he retired from public life. Princess Ashraf had retained Armao to improve her brother’s public image in the United States in late 1978, and it was Armao who negotiated the initial arrangements for the Shah’s stay in the Bahamas. Armao faced a difficult task because of the unwillingness of American officials to provide assistance, so I asked Joseph Reed to help him in any way he could. For the next few months Joseph and Armao found themselves, quite unexpectedly, in the position of having to manage most aspects of the Shah’s life in exile—from hiring security guards to finding schools for the Shah’s children. In addition, Joseph served as liaison with the U.S. government, reporting regularly to David Newsom at the State Department on the Shah’s situation and occasionally passing information back to him.
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