How Reagan Convinced Himself He Didn’t Sell Arms for Hostages

Shocking news about secret arms-for-hostage deals rocked Washing­ton in late 1986. The first hint came with a White House announcement on November 2, that David Jacobsen, an American held hostage in Lebanon by Iranian-directed Islamic forces, had been released. As Secretary of State George Shultz read a draft White House statement about the development, he noted that it referred to freed “hostages,” with the “s” crossed out. That told him that the White House had expected Jacobsen would not be alone. Shultz suspected that the news meant that clandestine White House efforts to free captive Americans in the Middle East by send­ing arms via Israel to Iran might be responsible. He had first heard about the possibility in mid-1985.

Within a few weeks, the dimensions of the story expanded exponen­tially with word that some Iranian payments for American arms had been secretly diverted to the rebel Contra forces in Nicaragua that Washington hoped would topple the leftist Sandinista regime. The funding was in clear violation of a congressional cutoff of aid to the Contras. Overnight, the affair, quickly dubbed the Iran-Contra scandal, engulfed the White House.

Shultz realized that President Ronald Reagan faced an explosive crisis similar to Watergate that might upend his presidency. The fiasco staggered Shultz. It exposed his own failure to stop the arms-for-hostage dealing at several critical moments when he heard about pieces of it, objected to it but stopped short of forcefully intervening. He had delib­erately kept his distance, telling the White House officials who managed the arms shipments to Iran that he did not want to know the details.

The scandal also forced Shultz to face up to Reagan’s weaknesses as president, for the affair, at its core, was a colossal blunder. As Shultz confronted the issue, he struggled mightily to remain loyal to Reagan while simultaneously protecting his own reputation and legacy. In doing so, he barely escaped indictment for obstruction of justice.

The sudden crisis had been a long time in the making, born of two international flashpoints that the Reagan administration struggled to manage: the Middle East and Central America. The U.S.-Iran skirmish opened on November 4, 1979, when a mob of young Iranians overran the American embassy in Teheran and seized fifty-two Americans as hostages. On January 20, 1981, after 444 days in captivity, the hostages were freed moments before Reagan was sworn in as president. In the years that followed, the Khomeini regime supported Shiite proxy groups in Lebanon and elsewhere in the Middle East that killed or kidnapped Americans.

Although Reagan administration policy clearly barred making con­cessions to hostage takers, Reagan yearned to free them. He also bought the untenable proposition that by selling arms to Iran he could establish a less adversarial relationship with the ayatollahs and turn Iran into a mod­erating Shiite influence in the region. Israel, for its part, offered to sell American arms in its arsenal to Iran to secure the release of hostages.

While the Middle Eastern plot was taking shape, the American officials who favored it—including CIA Director William Casey, National Security Adviser Bud McFarlane, and marine lieutenant colonel Oliver North, a National Secu­rity Council staff member—grew increasingly concerned about Soviet and Cuban inroads in Central America. When congressional Democrats cut off American support to paramilitary forces trying to overthrow the Nicaraguan government, these men first looked to Israel and South Africa as potential sources of money for the Contras. Over time, the Middle East and Central America vectors converged. The result was an elaborate plot in which Israel sold American weapons to Iran in exchange for hostages, and profits from the arms sales were funneled to the Contras. Reagan enthusiastically endorsed the arms sales but was not informed about the diversion of money to the Contras.

“The president’s refusal to acknowledge the reality of exchanging arms for hostages was dumbfounding.”

Shultz’s first inkling about irregular activity came in mid-April 1984 during administration debates about Central America policy and possible third-country aid to the Contras. Shultz wanted to maintain American assistance to the guerrilla forces, but not by funneling foreign money to them. He preferred to persuade Congress to extend American aid, if pos­sible. When Casey suggested enlisting South Africa’s help in April 1984, Shultz was appalled, fearing covert foreign funding might lead to the impeachment of Reagan.

The arms-for-hostages operation came up formally in a July 13, 1985, McFarlane memo to Shultz. The national security adviser described an Israeli proposal to ship American arms to Iran to encourage a political dialogue and dislodge hostages from captivity. To get the dialogue started, Iran wanted one hundred American antitank missiles. Shultz told McFarlane to “make a tentative show of interest without commitment.” Shultz neither opposed nor supported the missile transfer—he did not address the question. He advised McFar­lane to manage the initiative personally. Reflecting later on his response to McFarlane, Shultz said, “I was uneasy about my response, but I well knew the pressures from the president to follow up on any possibility of gaining the release of our hostages. I felt that Bud would in fact go ahead no matter what I said and that I was better off to stay in close touch with him and thereby retain some influence over what happened.”

Eight days later, McFarlane outlined the Israeli proposal at a White House meeting. Shultz, apparently reluctant to reiterate his earlier equivo­cation, objected to the arms transfer, arguing that it brazenly violated the administration’s firm stance against trading guns for hostages or making any concessions to terrorists. Defense Secretary Casper Weinberger agreed. The meeting ended incon­clusively, but two days later Reagan told McFarlane to move ahead with the plan. On August 20, Israel shipped 96 antitank missiles to Iran, followed by another 408 two weeks later. One American hostage, Benjamin Weir, was soon freed. Upping the ante, Iran requested a shipment of more powerful weap­ons, medium-range surface-to-air HAWK missiles. When Israel could not deliver the larger weapons directly to Iran and efforts to ship them via a third country failed, Oliver North enlisted the help of the CIA.

Reagan enthusiastically supported the effort, acting on a humanitarian conviction that the United States should do everything possible to gain the release of the hostages. In doing so, he persuaded himself that the United States was not trading arms for hostages but instead was engaged in a noble attempt to save the lives of his countrymen..

Once news of the deal broke into the open in November 1986, Shultz’s attempts to dent the Reagan illusion grew frantic—and perilous for him. His challenge was threefold: convince Reagan that McFarlane, Vice Admiral John Poindexter (who had succeeded McFarlane as national security adviser), Casey, and North had misled him; end the arms-for-hostage strategy; and help Reagan survive the firestorm. Reagan did not want to hear that he had approved an arms-for-hostage strategy. On November 6, three days after the Lebanese newspaper report about the McFarlane mission to Teheran, Reagan declared that news coverage of the trip had “no foundation” and denied that the U.S. was exchanging arms with Iran for the release of hostages.

“Shultz’s selective memory also evoked Richard Nixon’s years-earlier warning to Reagan that Shultz had “a wonderful ability to, when things look iffy or are going wrong, he’ll contend he never heard about the issue and was never briefed and was not a part.””

Shultz tried repeatedly to convince Reagan that his administration was trading arms for hostages and brazenly violating its own policies for dealing with terrorists. Reagan repeatedly rejected his appeals and grew increas­ingly impatient with Shultz. As the tension escalated, Shultz ruminated about his own failure to act more decisively in 1985 and 1986 as evidence of the operation caught his attention. “I felt I should have asked more, de­manded more, done more, but I did not see how,” he recalled. “Did I have myself to blame for the aggrandizement of the NSC staff? I agonized. Ever since my first days as secretary of state, I had sought to make the national security adviser my channel to the White House and, on day-to-day mat­ters, to the president.”

On one level, he was right. Secretaries of state cannot operate indepen­dent of the White House and the national security adviser. But on another level, Shultz was wrong. His willingness to rely on the White House national security staff after repeated setbacks caused by the incompetence and ideological rigidity of the staff does not make for a persuasive defense of his failure to act more decisively to stop the Iran-Contra affair before it reached critical mass.

Shultz’s assertion at the time that he was unaware of many incremental developments in the arms-for-hostage operation, a defense repeated in his memoirs, does not conform with detailed notes kept by Charles Hill, Shultz’s executive assistant. The memory lapse can be explained by the dizzying demands that descend daily on a secretary of state and Hill’s failure to capture all the relevant infor­mation about Shultz’s awareness of the Iran-Contra activities when he re­viewed his notes for Shultz to help prepare Shultz’s congressional testimony. But Shultz’s selective memory also evoked Richard Nixon’s years-earlier warning to Reagan that Shultz had “a wonderful ability to, when things look iffy or are going wrong, he’ll contend he never heard about the issue and was never briefed and was not a part.”

Shultz’s defective memory, compounded by Hill’s handling of his notes, nearly proved disastrous when Independent Counsel Lawrence Walsh discovered that Shultz had withheld relevant information about the Iran-Contra affair in his 1987 congressional testimony, delivered under oath. Walsh weighed charging Shultz with obstruction of justice but ultimately found that “Shul­tz’s testimony was incorrect, but it could not be proven that it was willfully false.”

Shultz’s faith in Reagan was shaken by the scandal. The president’s refusal to acknowledge the reality of exchanging arms for hostages was dumbfounding. In a nationally televised address on November 13, 1986, Reagan said he had authorized a small shipment of arms to Iran but was not bartering arms for hostages. “We did not—repeat—did not trade weapons or anything else for hostages, nor will we.” After the speech, Shultz tried to make sense of Reagan’s blind spot. “The president’s speech convinced me that Ronald Reagan still truly did not believe that what had happened had, in fact, happened. To him the reality was different. I had seen him like this before on other issues. He would go over the ‘script’ of an event, past or present, in his mind, and once the script was mastered, that was the truth—no fact, no argument, no plea for recon­sideration, could change his mind.”

On November 16, Shultz made a fateful appear­ance on the CBS News Sunday-morning interview pro­gram Face the Nation. When host Lesley Stahl repeatedly pressed Shultz to state whether any further arms shipments would be made to Iran, he re­plied, “Under the circumstances of Iran’s war with Iraq, its pursuit of terror­ism, its association with those holding our hostages, I would certainly say, as far as I’m concerned, no.” Stahl then asked if Shultz was speaking for the entire administration. “No,” he answered. It was a stunning moment—the secretary of state acknowledging that he could not speak for the U.S. gov­ernment.

He barely survived his candid answer. The White House announced that Shultz did speak for the administration and that Reagan had “no desire” and “no plans” to send further arms to Iran. Yet Reagan continued to defend the operation privately. Meanwhile, Poindexter and North kept working on plans for new arms shipments. Sensing that Shultz’s persistence was annoying Reagan, Casey urged the president to select a new secretary of state.

The same day Casey urged the president in writing to do so, he joined Bush, Shultz, Weinberger, Poindexter and others at the White House for a National Security Planning Group meeting with Reagan to hear from Attorney General Edwin Meese. Reagan had commissioned Meese to investigate the arms-for-hostage operation. Reagan brushed aside Shultz’s ob­jections.

That evening, as Shultz lamented the latest developments, Poindexter, who had strongly defended the operation earlier in the day, called from the White House. His tone was entirely different—mild, even meek. The change in tone pleased but puzzled Shultz. Two days later he learned the reason behind the turnabout: Meese aides had discovered the secret payments to the Contras. When top officials gathered again at the White House, Meese told the group that between $10-30 million dollars had been sent to the Contras. Reagan had not ap­proved the diversion or even known about it. As a result, Poindexter was out and North reassigned. On November 26, three weeks after the first news reports about the deals broke, Shultz and Reagan stilled the rancor that had agitated their relationship and agreed Shultz should stay on as secretary of state through the end of the Reagan presidency.

Excerpted from In the Nation’s Service: The Life and Times of George P. Shultz by Philip Taubman, published by Stanford University Press, ©2022 by Philip Taubman. All Rights Reserved.

Philip Taubman is a lecturer at Stanford University’s Center for International Security and Cooperation. Before joining CISAC, Taubman worked at the New York Times as a reporter and editor for nearly 30 years. He is the author of The Partnership: Five Cold Warriors and Their Quest to Ban the Bomb (2012); Secret Empire: Eisenhower, the CIA, and the Hidden Story of America’s Space Espionage (2003); and In The Nation’s Service: The Life and Times of George P. Shultz (2023).

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