Reference is made to the memorandum to you of this date on the Iranian
problem,1 in which were outlined certain possible courses of action
which we may wish to develop further after receiving the reply of the United
Kingdom to our recent proposals. Further action on our part will be
contingent on your agreement that if it develops that a program to save Iran
would require that you use the authority given you under the Defense
Production Act of 1950, as amended,2 and if the more detailed program which may be worked
out meets with your approval, you will be prepared to use that authority:
I recommend that you indicate your willingness to consider taking this action
if necessary to the development of a solution of the Iranian problem.3
[Enclosure]
Subject:
- Decisions necessary if we are to move forward toward a solution of
the Iranian dispute
The Iranian situation continues to deteriorate at an accelerated pace. We
are faced with three choices: First, to take no action in the hope that
the Iranians will become more amenable as their internal situation
worsens. Second, to support the present government by providing very
large scale budgetary aid. Third, to find a
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solution to the oil problem and provide funds
incident thereto which will bolster up their economy until they can
derive substantial income from the flow of oil. For a long time we have
felt that the first, in light of their precarious internal situation,
was far too dangerous for us to consider. This has been the U.K. policy
and it has been tried unsuccessfully for 20 months. The second, at best,
merely buys time; implies an operation without terminal date; more
importantly, it cannot be recommended since it would take months until
the new Congress could act. Perforce and because the third has always
seemed to us to be the proper course, we have bent all our efforts
toward finding a solution of the oil problem.
To this end, as you know, we have had countless communications and
conferences with our British friends, the most recent of which took
place in London about 10 days ago when a U.S. mission conferred for
several days with U.K. and Anglo-Iranian Oil Co. officials. In those
discussions the British agreed that any settlement of the oil dispute
should contemplate a reasonably large-scale production and marketing of
Iranian oil and oil products. Otherwise, the major purposes of a
settlement, (a) the receipt by Iran of sufficient revenues to meet its
economic problems and (b) the receipt by AIOC of compensation in adequate volume, could not be
realized.
It was also agreed that the chances of a settlement would be greatly
increased if the United States, through the Defense Materials
Procurement Agency, were in a position to advance against future
purchases of oil or oil products the sums needed by Iran to get its oil
properties back into operation and to tide Iran over until such time as
substantial oil revenues become available. It was estimated that an
advance of up to $100 million might be necessary for these purposes.
The British were not clear, however, as to whether they would prefer that
the responsibility, after a settlement, for marketing the bulk of
Iranian oil should be undertaken (a) by AIOC, or (b) by a consortium including AIOC and American or other companies, or
(c) by one or more U.S. companies. They agreed that if they should come
to the conclusion that alternatives (b) or (c) were the most advisable
from their point of view they should make this fact clear to their
people so that there would be no misunderstanding on the part of the
British people. They are now engaged in considering with AIOC the various alternatives and should
shortly be in a position to give us their views.
Certain decisions on our part are necessary if we are to be in a position
to act with adequate promptness toward a settlement once we have
received the British views. These decisions are (1) whether the
President would be prepared to authorize an advance of up to $100
million by DMPA against future
purchases of Iranian oil and
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oil products, and (2) whether the President is prepared to utilize the
authority given him under Section 708(a) and (b) of the Defense
Production Act of 1950, as amended, in approving a program under which
U.S. oil companies, possibly in cooperation with AIOC, would purchase and market Iranian
oil and oil products as part of a program to settle the Iranian oil
dispute.
The question of an advance by DMPA would
arise under any of the alternative solutions being considered. We have
discussed this problem with the Defense Production Administration, Mr.
Fowler, and the DMP Administrator, Mr.
Larson, and their counsel. They are agreed that
legal authority for such an advance exists and that funds up to the
amount of $100 million could be made available. The Armed Services have
indicated that they would be prepared to repurchase from DMPA substantial quantities of aviation
gasoline, jet fuel, motor gasoline and Navy special fuel oil if these
products could be made available from Iran, thus the advance could be
repaid in a few years. A determination would be necessary that the
advance was in the interest of saving Iran and that the resumption of
the availability of oil from Iran contributed to the military defense of
ourselves and our NATO partners.
In the event the British decide that AIOC should resume the responsibility, after a settlement,
for marketing the bulk of the Iranian oil, the second decision with
respect to Section 708(a) and (b) of the Defense Production Act of 1950
would not arise. If, however, they were to decide in favor either of a
consortium including AIOC and American
oil companies or one or more U.S. companies alone assuming the
responsibility for marketing Iranian oil there would arise a serious
question with respect to the present anti-trust action by the Department
of Justice involving AIOC and the U.S.
majors. Section 708(a) and (b) of the Defense Production Act of 1950, as
amended, authorized the President to consult with representatives of
industry, business and others with a view to encouraging the making by
such persons, with the President’s approval, of voluntary agreements and
programs to further the objectives of the Act. These purposes include
the development and maintenance of whatever military and economic
strength is found to be necessary to support collective action through
the United Nations in order to carry out the policy of the United States
to promote peace by ensuring the peaceful settlement of differences
among nations. Under these sections, no act or omission to act, if
requested by the President pursuant to a voluntary agreement or program
which he has approved, and found by the President to be in the public
interest as contributing to the national defense, shall be construed to
be within the prohibitions of the antitrust laws or the Federal Trade
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Commission Act, if it
occurs while the Defense Production Act is in effect.
Only the major U.S. and foreign oil companies who are involved in a
Department of Justice antitrust action have markets and tankers in
sufficient volume to absorb and move the quantities of oil which it
would be necessary to move from Iran if an effective solution to the
Iranian oil crisis is to be worked out. If the British should decide
that, because of the foreign exchange and the commercial risks involved,
they cannot request AIOC to assume
responsibility for marketing and transporting Iranian oil, it will be
necessary to call upon the cooperation of one or more of the U.S. major
oil companies. It is believed that the necessary legislative authority
exists under Section 708(a) and (b) of the Defense Production Act, as
amended.
It is contemplated that any program which would be submitted for the
President’s approval would be limited to a maximum duration of two or
three years. During this period it would be possible to ask the Congress
to review the legislative situation and, if it deems it to be
appropriate, to pass legislation which would make possible longer term
arrangements. Alternatively, during such a period it should be possible
for independent American oil companies to construct or charter
sufficient tankers to relieve the major U.S. oil companies of their
responsibility at the expiration of such a time period.
Following a reply by the U.K. Government, which we expect daily, to our
recent proposals, further prompt action on our part will be contingent
upon the President’s agreement to:
- A.
- Authorize the use of $100,000,000 available under the Defense
Production Act of 1950, As Amended, for the purpose of making an
advance against the purchase of Iranian oil and products.
- B.
- Use his authority under Section 708(a) and (b) of the Defense
Production Act of 1950, As Amended, to approve a program under
which one or more U.S. major oil companies, either alone or in
cooperation with Anglo-Iranian Oil Company, would purchase and
market Iranian oil products.
It is recommended that the President indicate his willingness to take
this action if necessary to the development of a solution of the Iranian
problem.
