The 'October Surprise': Inside Carter's Grueling 1980 Iran Hostage Crisis

Today's New York Times story is credible but less significant than recent evidence from Madrid that Ronald Reagan's campaign manager tried to delay releasing the hostages until after the election.

The New York Times posted a blockbuster story by Peter Baker this weekend in which Ben Barnes, a former Democratic lieutenant governor of Texas, describes how he accompanied former Texas Governor John Connally on a trip to the Mideast in the summer of 1980 on behalf of Ronald Reagan’s presidential campaign. According to Barnes, he and Connally urged Middle Eastern heads of state to tell the new revolutionary government in Iran to ignore President Carter and wait until Reagan was elected president before negotiating the release of the 52 American hostages held in Tehran. The Times story says it’s not clear this message was conveyed to the Iranians or that they acted on it. As I explain in my biography of Carter, the Iranians chose to negotiate with Carter, not Reagan, though there is strong circumstantial evidence that they received arms from the Reagan Administration in exchange for delaying the release of the hostages until after the 1980 election.

I found the Times story a credible and important addition to what we already knew about the plot in the US that came to be known as “the October Surprise.” However, Barnes’ revelations are not as significant as the 2013 disclosure that William Casey, who was Reagan’s campaign manager and later his CIA director, traveled in the summer of 1980 to Madrid, where sources say he met with Iranian officials. When in 2020 I informed Lee Hamilton, co-chair of a 1992 congressional committee charged with investigating the October Surprise, that George H.W. Bush’s White House had withheld critical evidence confirming Casey’s presence in Madrid from his committee, he was unhappy to hear it. (I also interviewed Carter and various aides at length about the hostage crisis, as well as the Swiss diplomat who claimed he caused the delay that led to the hostages being released moments after Reagan took the oath).

The Times story does not nail down that a deal was actually struck to delay the release of the hostages until Reagan took office, and indeed, the Iranians ended up negotiating the release with Carter in late 1980 and early 1981 despite Casey’s message that they would get a better deal with Reagan. 

Barnes says that Egyptian President Anwar Sadat was among the heads of state he and Connally visited. But Sadat was extremely close to Carter and loyal to him and it is thus highly unlikely that he conveyed any message betraying him to the Ayatollah, with whom he had no relationship, or to his representatives. (In fact, Sadat had just welcomed the former Shah of Iran to Cairo, where he died that summer). 

I don’t have the Connally-Barnes trip in my Carter book, but I do include information related to the October Surprise that is considerably more incriminating. Excerpts:

(excerpted from His Very Best: Jimmy Carter, A Life, pp 588-589)

The shah’s death did nothing to hasten the release of the hostages. In August of 1980 a frustrated Carter asked his new secretary of state, Ed Muskie, to propose a series of new diplomatic initiatives. Carter scribbled “Expedite,” “Move on it,” “Pursue aggressively,” and “Why wait?” across sections of Muskie’s long memo, the only part of which would bear fruit was a plan to use the Algerian government as an intermediary.

The main reason the Ayatollah Khomeini finally agreed to indirect negotiations was the outbreak of the Iran-Iraq War, which by the time it ended in 1988 was the bloodiest global conflict since World War II. When Saddam Hussein’s Iraq invaded Iran on September 22, 1980, Tehran suddenly needed the assets that Carter had frozen in American banks to pay for weapons and spare parts. The ayatollah — noticing that the United States was staying conspicuously neutral — signed off on conditions for hostage negotiations that were still full of “Great Satan” rhetoric but nonetheless suggested he was looking for an exit strategy.

By fall, the Reagan campaign began coordinating with the Rockefeller team to spread unfounded rumors that the Carter administration was paying off Iranians to free the hostages in time for the election. With the shah dead, Joseph Verner Reed changed the original objective of Project Eagle [the makeshift Rockefeller effort] from getting the shah into the United States to preventing the release of the hostages. After the election, Reed wrote to his family that “I had given my all” to thwarting Carter’s efforts “to pull off the long-suspected ‘October surprise.’” Here was a banker and pillar of the establishment — a future ambassador and chief of protocol in Republican administrations — who got up every day in the fall of 1980 trying to prolong the captivity of other Americans.

Reed worked closely with Reagan’s campaign manager, William Casey, who had run the European intelligence branch of the Office of Strategic Services (OSS) — the precursor to the CIA — during World War II. Casey, slated to become Reagan’s CIA director the following January, enlisted 120 “foreign policy consultants” — many still working for the US government — to monitor diplomatic channels and US military bases for early word on release of the hostages. The sooner Reagan campaign operatives learned the hostages had been freed, the sooner they could spin it.

That would be the job of Robert Gray, a Republican PR guru who would go on to manage the Reagan inaugural. In an internal memo, Gray explained how the campaign’s network would obtain advance word of which military bases or other venues the Carter administration would use to celebrate the freeing of the hostages: “If we leak to news sources our knowledge of the Carter planned events, we can get the press [to] say Carter is politicizing the issue.” This was a clever jiujitsu: to make a politically inept president look excessively political if he succeeded in executing an “October Surprise” that freed the hostages just in time for the election.

Did Reed’s Project Eagle and Casey’s and Gray’s network of consultants go beyond defending against a Carter October Surprise to planning one of their own? There would soon be reason to suspect they did.

(Continued to excerpt from His Very Best: Jimmy Carter, A Life, pp 603-609)

After the election, the hostages slipped from view in both countries. In the United States, all eyes were on Reagan. In Iran, they were on Iraq. Reeling from Saddam Hussein’s blows to key oil refineries, the Tehran regime cracked down on all dissent, uniting the people behind the war effort. Firmly in control, the mullahs had no need to show their toughness by holding American hostages. More urgent was the need for money for the war effort. Their estimates of the shah’s hidden overseas wealth — $20 billion to $60 billion — were off by a thousandfold (the real figure was $20 million to $60 million), but at a minimum, they had to get their hands on the several billion in frozen state assets held by US banks.

In the end, the release of the hostages was likely the result of a good cop (Carter) doing the hard, painstaking negotiations for which he was perfectly suited, while the bad cop (Reagan) hovered offstage. Reagan’s role was to be the trigger-happy menace in Iran’s future. The regime no doubt heard Reagan say after Christmas, “I don’t think you pay ransom for people who have been kidnapped by barbarians.” Some Iranians might have even heard the joke “What’s flat, red, and glows in the dark? Answer: Tehran, after Reagan becomes president.” There’s no documentary proof, but the Iranians likely figured that — desperate for cash — they would do better with Carter than starting all over again with a new administration whose president was making threatening noises.

In bashing diplomacy, Republican hawks of later years argued that it was just the threat of Reagan coming to office that led the Iranians to capitulate. In their telling, Carter’s negotiations for the release of the hostages was “weak.” This is a myth. Without both the carrot and the stick, the crisis might not have been resolved peacefully.

The final deal was negotiated through Algeria, whose diplomats had good contacts with both the Iranians and the Americans, represented by Deputy Secretary of State Warren Christopher and White House Counsel Lloyd Cutler. The negotiations were slow and conducted mostly in French, with the involvement of banks in several countries adding to the already cumbersome process.

Carter quickly rejected Iranian proposals for an American apology and reparations before agreeing that in return for Iran freeing the hostages, the United States would stop interfering in Iranian domestic affairs; unfreeze Iranian assets (determined, after endless haggling, to be $7.9 billion); end crippling trade sanctions; and make sure the dead shah’s smaller-than-expected fortune was returned.

A month before the inaugural, the Iranians made a final demand: indemnify the Iranian government against lawsuits launched by the hostages seeking compensation for their days of suffering. This was a bitter pill for the Americans, but they finally agreed to the creation of the Iran–United States Claims Tribunal, which removed cases against Iran from US courts.

Before signing off on the last, painful concession, Carter consulted with the hostage families. They told him to go ahead because they wanted their loved ones back. This would prove a source of contention for decades. “I would rather have stayed longer,” Barry Rosen, one of the better-known hostages, said later. “Don’t do me a favor by getting me out and telling me that I don’t have a right to sue.” Zbigniew Brzezinski [Carter’s national security adviser] conceded that it was “not a very good bargain,” and he didn’t blame the hostages for being angry.

The banking transactions involved in finalizing the Algiers Accords were mind-numbingly complex and — because of language barriers — prone to misunderstanding. Two of the twelve overseas branches of the American banks holding Iranian assets brought in lawyers to argue they should keep the interest accrued since the embassy takeover. Carter and [Lloyd] Cutler [White House Counsel] overruled them. Even after pressure from the Algerian foreign minister, Iran’s Bank Markazi did not agree to the basic terms the bank had already signed. The Iranians were clearly stalling, determined to avoid letting Carter get credit for ending the crisis. The president knew this but stayed focused. He worried that if the Algerian channel collapsed, the hostages might never come home.

Carter didn’t go to bed in the forty-eight hours before Reagan’s inauguration, which was shaping up to be one of the most emotionally fraught passages of power in American history. The outgoing president monitored the situation around the world from the Oval Office, where stewards brought blankets so that he could nap on the couch. The deal called for the Federal Reserve Bank to transfer a portion of the frozen assets to a London bank, from which it would go through the Bank of England and into an Algerian escrow account.

In the wee hours of January 20, one of the Federal Reserve attorneys who had traveled to Algiers refused to sign papers, claiming the Fed’s independence from the Treasury. Carter barked into the phone, “Let’s move!”

When a Fed lawyer seemed to have fainted from fatigue, Carter told a New York Fed official to rouse him and order him to sign, then held a conference call at four thirty in the morning assuring Algerian officials that all the details were straight. By seven o’clock, the transfers were complete.

“We’re not cutting it close enough,” Jordan said sarcastically. “We still have five hours before the inauguration.”

Rosalynn came by with a barber, and Jimmy went back to his small study for a haircut and a shave. Carter had tried phoning Reagan earlier with news of the impending release, only to be told by one of his top lieutenants, Edwin Meese, that the president-elect was not to be disturbed. This time he reached him, then got off one of those dry lines the public never saw. “I briefed him on what was happening with the hostages,” Carter said with a straight face. “When I finished, he said, ‘What hostages?’” The Oval Office, stripped bare but now full of officials, exploded in laughter.

Around nine o’clock, with three hours to go in his presidency, Carter received word on his red secure phone that two Algerian planes were taxiing on the runway in Tehran. Cutler reported to the group, “Chris [Warren Christopher] has been told that they will take off, quote, ‘Within your administration.’ ” It was not to be. The best bet is that the Iranians decided to deliver one final insult to Carter, but even decades later, no one has identified an Iranian official who gave an order to delay takeoff from Tehran Airport until noon Washington time, when Reagan was sworn in. While several of the former captors said they did not want to give Carter the satisfaction of having the hostages freed on his watch, none identified points of contact with the pilots or air traffic control.

The transfer of the hostages out of Iran was handled by the Swiss. Flavio Meroni, the meticulous deputy Swiss ambassador to Iran, attributed the last-minute delay to “the procedure I insisted on completing to take delivery of the hostages.” Meroni went up and down the aisle exchanging a few words with each hostage and obtaining fifty-two signatures ascertaining that each was in “acceptable” health. He recounted that Iranian officials at the airport showed no concern that the transfer of power in Washington was less than an hour away — and no indication they had been told to delay takeoff — only fear that an Iraqi fighter jet might intercept the plane on its way to Turkey.

On the ride down Pennsylvania Avenue, while Carter’s mind was on the hostages, Reagan —“an affable and decent man” — told “a series of anecdotes that were remarkably pointless,” Carter remembered. One long story involved Jack Warner, the late studio boss. When they emerged from the limo, a preoccupied Carter asked an aide: “Who is Jack Warner?”

Reagan took the oath at noon, and just after an inaugural address that Carter described as “hackneyed,” a Secret Service agent whispered that the plane bearing the hostages was headed toward the Turkish border. The now-former president described this as “one of the happiest moments of my life,” though he was disappointed not to be able to announce it to the American people.

At the congressional luncheon inside the Capitol Rotunda, the new president — hoisting a glass of champagne — told the world “the plane bearing our prisoners has left Iranian airspace.” That night, Reagan lent Carter Air Force One to fly to Wiesbaden, West Germany, to meet the hostages, who were undergoing a battery of physical and psychological examinations. The flight over and back was like a bittersweet party for senior staff — relief and regret mixing freely. Carter told Hamilton Jordan, “Nineteen eighty was pure hell: the Kennedy challenge, Afghanistan, having to put the SALT treaty on the shelf, Ronald Reagan, the hostages — always the hostages! It was one crisis after another.” Many years later, George Packer wrote, “Carter finished his term like a man staring under the hood of his car in the middle of a mudslide.”

In Wiesbaden, the fifty-two hostages were safe and in fair condition, considering their 444-day ordeal. All but a half dozen agreed to see Carter and Mondale, who both grew emotional as they hugged the freed Americans and shared their tears. During a closed-door meeting, one former hostage asked the president why the shah had been admitted. Carter said he had been given assurances by the Iranian government that the embassy would be protected. Another stood up and said, “Mr. President, with all due respect, I and others wrote [Washington] that those assurances were not worth the paper they were written on.”

Others were more complimentary. Colonel Thomas Schaefer, who as the defense attaché received especially harsh treatment in captivity, told the press that Jimmy Carter “displayed the patience, the maturity, and, most of all, the dignity of the office of the president.”

The world will likely never know for sure whether the Reagan campaign went beyond improperly monitoring Carter’s negotiations to actually conspiring with Iran to delay the release of the hostages until after the election — the new definition of the October Surprise.

By the mid-1980s, a cottage industry of October Surprise theories arose, bolstered by the details of the Iran-Contra scandal, in which the Reagan administration secretly provided arms (through Israel) to Iran in exchange for the release of seven hostages in Lebanon and secret funding for the anti-Communist contras in Nicaragua.

The core of Iran-Contra — using Israeli middlemen to trade arms for hostages — closely paralleled what was alleged in the October Surprise. In fact, they may have been part of the same scandal. The first secret arms shipments to Iran began in 1981, just weeks after Reagan took office and three years before American hostages were seized in Lebanon. Ambassador Nicholas Veliotes, a career diplomat, testified that in 1981, when he was assistant secretary of state for the Middle East, “Indeed, we had agreed that the Israelis could transship to Iran some American-made military equipment.” Veliotes later reiterated that he was certain such approval was granted by Reagan’s first secretary of state, Alexander Haig, and that he also learned of the crash of an Argentine airliner loaded with weapons being shipped to Iran by Israeli arms dealers in violation of US law. This raised questions that have never been answered definitively: Were those weapons a payoff for delaying release of the hostages the previous fall? Why would the Reagan administration be secretly sending arms to an enemy nation so soon after it had held American hostages?

The most sensational allegation was that vice presidential candidate George Bush met secretly with Iranians in Paris in October 1980. The story was almost certainly false: Bush had an airtight alibi, and the idea of him secretly leaving the United States seventeen days before the election was implausible. When this and other conspiracy theories were debunked, it undermined legitimate October Surprise reporting.

Gary Sick, Carter’s well-regarded NSC expert on Iran, came closest to cracking the case. In 1991 Sick, by then a professor at Columbia University, made a circumstantial argument: in July 1980 William Casey, while serving as Reagan’s campaign manager, slipped out of a World War II history conference in London, flew to Madrid, and met in a hotel with intelligence operatives and one of Khomeini’s closest associates. According to Sick and sources interviewed by PBS’s investigative news program Frontline and other news outlets, a follow-up meeting several weeks later finalized a deal whereby the Iranians would coordinate with the Reagan campaign on the timing of the release of the hostages in exchange for a promise that, after he was elected, the new president would unfreeze their assets and — through the Israelis — provide spare parts for Iranian weapons.

After many allegations and denials — tantalizing clues and disputed theories — the validity of the October Surprise story came down to whether Casey went to Madrid. In January 1993 a special bipartisan House panel, co-chaired by Democrat Lee Hamilton of Indiana, issued a 960-page report that found plenty of smoke but no smoking gun — “no credible evidence” that Casey was in Madrid or that the Reagan campaign colluded with Iranians.

Much later, Hamilton was dismayed to learn that his probe had been denied a key piece of evidence. In preparing to cooperate with that investigation in 1992, the State Department’s legal counselor found a cable from the Madrid embassy from July 1980 “indicating that Bill Casey was in town, for purposes unknown.” Paul Beach, a deputy White House counsel under President George H. W. Bush, memorialized this incriminating cable but his superiors failed to turn it over to the Hamilton Committee, apparently fearing that revelations of an October Surprise would hurt Bush’s reelection chances in 1992. By the time investigative reporter Robert Parry, now deceased, found the critical document at the Bush Presidential Library in 2013, Washington had long since lost any interest in reopening the investigation.

Gary Sick remained convinced that hotel and other records that might have further confirmed the Madrid meeting were destroyed by “professionals” before Hamilton’s committee investigators could find them, but he acknowledged he had no definitive proof.

For the Carters, who strongly suspected that Casey had cut a deal to delay the release of the hostages, vindication would remain just out of reach.