Foreign Relations of the United States, 1952–1954, Iran, 1951–1954, Volume X

888.2553/1–653: Telegram

No. 267
The Ambassador in the United Kingdom (Gifford) to the Department of State¹

top secret
niact

London, January 6, 1953—11 p.m.

3694. For the Secretary from Byroade. Consider meeting with Eden and advisors today quite encouraging. Have felt from past discussions that the British were psychologically prepared to go forward with agreement on Iran but were being characteristically reticent prior to necessary high-level discussions and consultations with AIOC. Principal point between us seems to be questions revolving about the manner in which our advance is handled. In view of British concession to allow AIOC and not the state to be member to the dispute and the fact that they have now clearly agreed to handle phase two through an international consortium registered outside of UK, believe we should meet them wherever we can on remaining points of disagreement without of course restricting the use of our “bait” in such a manner as to upset the whole deal.

Points on which I believe we need Department’s guidance are as follows:

1. Manner In Which Consultations With Court Are Undertaken.

In answer Eden’s query as to whether we would be willing to informally approach the Court we replied in the affirmative. Terms of reference placing matter before the Court may be important in this informal contact. British believe they can have a draft of such terms by tomorrow afternoon. Believe therefore we should wait until in possession of that draft as well as to receive word from Mosadeq that he agrees to our contact with the Court.

Then comes question of who should go to The Hague. It would clearly be advisable to have lawyer who is familiar with Court, its charter [Statute], and has background in the Iranian problem. No one in London appears to meet these qualifications. If someone in London is to be assigned this task, it should probably be Palmer and myself or perhaps Palmer alone. An alternative would be for Butch,² if he is available, to fly straight to Hague and be met there by Palmer. Please advise.

2. Problem of Handling Escrow Deposits.

This seemed to greatly concern the British. They have never been clear as to how this matter would be handled. I explained our views today as set forth in Deptel 4400.³Eden told me afterwards he considered this one of his greatest public opinion problems. If it is made to appear in Britain that the United States advanced as much as $50 million initially on oil without any portion thereof being set aside for compensation, he would indeed be in trouble in Parliament and with public. I explained to him that he could truthfully say that under our arrangement 25 percent of the proceeds for sale of oil would be set aside for compensation. The difficulty he foresees arises from the fact that if oil does not flow through a commercial contract there will be nothing set aside and Mosadeq will have $50 million or more completely free from compensation payments. I stated I believe it impossible for the United States to make contract in which portion of our advances to Mosadeq would automatically be set aside in escrow account and saw no way that funds could be placed in escrow prior to the time oil actually began to move. I indicated, however, we would give the matter serious thought. (Later, one of Treasury officials suggested agreement under which we would make contract with Iranian Government involving entire advance (i.e., $133 million), but with contingent arrangement whereby Iran authorizes us deduct 25 percent for deposit in escrow.) In considering this point I have since reviewed alternative plans set forth by Henderson in Tehran telegram 2510 to Department (repeated London 785)⁴ but do not as yet see way to meet Eden’s point. Perhaps if [there] is no other way, public statement by each of us could be devised partially to meet Eden’s point. Please advise.

3. Question of Long-Term Contract.

British concerned Mosadeq’s real interest may be that of obtaining advances from United States without intention to follow through on an adequate sales contract. I attempted to assure Eden that we would be just as concerned of such a development as would be the British. We felt Henderson’s latest conversations with Mosadeq showed a considerable trend in the right direction and that we would lose no opportunity to impress upon Mosadeq the necessity for an early arrangement which could cause substantial quantities of oil to flow. Eden agreed Henderson’s initiative in taking this point back to Mosadeq has been indeed admirable and that some results have been obtained. He quoted last sentence of paragraph 1 of Tehran’s telegram 2506 (repeated London 783)⁵ which gave Mosadeq’s statement that he was willing to sign an agreement for sale of a definite quantity of crude and refined oil over a definite period of years with an international organization of which the former AIOC could be a participant. Eden wondered if we might not ask Mosadeq to make this a formal commitment at the time of the signing of the arbitration agreement and our interim sales contract. I indicated that I thought this would be a reasonable move. I tentatively stated, subject to consideration, that it might be possible to ask Mosadeq to also commit himself as to when Iranian representatives would be able to undertake negotiations with international consortium. Eden thought that that would be extremely helpful and would greatly ease his problem of seeing the United States advance large sums of money not tied directly into the completion of the sales contract. Request Henderson’s and Department’s views as to feasibility of asking Mosadeq at the time of signing to make one or both of these commitments.⁶

In my conversations with Dixon, I had told him we might feel it necessary to raise the first advance some $30 millions to $50 millions. Just prior to Cabinet meeting, we sent substance first paragraph Tehran’s telegram 802 (repeated to Department 2539)⁷ to Eden. Throughout the conversation today Eden stated he hoped that we would not need to raise this initial advance. He seemed to accept, but very reluctantly, the fact that we would probably go ahead with the $50 million figure. He was quite clear, however, that this would increase his public relations problem. They also, I think, honestly believe this amount may make Mosadeq less interested in an early sales contract. This problem would be eased for them if we could handle the question of escrow deposit to their liking and obtain the commitments referred to in point 3 above. In light of these factors please advise as to what figure should be used henceforth with British.

My own recommendations are set forth below. No opportunity at present check these with Gifford or Holmes and Ambassador may wish comment latter. Points refer numbered paragraphs above.

(1) Suggest Fisher proceed here or Hague at once if this at all practicable. He could be useful several points and between us we should be able handle court consultation problem here.

(2) Can give no recommendations. Need some ingenious suggestion from Washington help meet Eden’s point if we can. In this connection do not understand Henderson’s second alternative in Tehran telegram 2510.

(3) We should seek Mosadeq’s commitment on both points unless Henderson feels this unwise. Commitments seem reasonable from our point of view as well as that of the British.

(4) In event we can be helpful on points (2) and (3) above, or at the very minimum (3), recommend we stick to 50 million figure and accept no further tie in of installments with long term sales contract. (Interesting in this connection British today only talked of tying installments to beginning of negotiations; not to completion of long term sales contract.) On question of future tactics I have stressed (1) transmittal by us of proposed British arbitration agreement to Mosadeq at earliest possible date and (2) dispatch of DMPA representative Iran for negotiations. These should be signed simultaneously with negotiations on long-term contract coming along as soon as possible but later. British feel that next step is for Henderson to put package to Mosadeq consisting of (1) suggested British arbitration agreement, (2) terms under which DMPA contract would be made and schedule of advances, and (3) securing his agreement make commitment at time of signing re willingness enter into long term sales contract with international company which would include AIOC.

Believe British suggestion on tactics acceptable providing this could happen quickly which they believe the case. I think real point is that they wish to make certain US and UK in agreement on total package before vital points discussed again and piecemeal with Mosadeq.

We agreed to hold another meeting on same level on Thursday. Meantime working level discussions will continue.

Gifford

1. Transmitted in two sections; repeated to Tehran eyes only for Ambassador Henderson.
2. Presumably reference is to the Department’s Legal Adviser, Adrian S. Fisher. See telegram 4505 to London, Jan. 7, infra.
3. In telegram 4400, Jan. 3, the Department reported that Iran would receive the total advance of $100 million without any deduction with respect to compensation. However, as deliveries of oil were made, 75 percent would be credited for repayment of the advance and 25 percent would be paid for in cash by DMPA, the proceeds being deposited in an escrow account. Thus, DMPA would advance $100 million and purchase an additional $33 million worth of oil which represented a total cash outlay by DMPA of $133 million to be spent on either crude or refined products. Of that, $100 million would accrue to DMPA as reimbursement for the original $100 million advanced and the other $33 million would be deposited in escrow. (888.2553/1–353)
4. In telegram 2510, Jan. 3 (888.2553/1–353), Ambassador Henderson set forth additional suggestions concerning the memorandum transmitted in telegram 1588 to Tehran, Dec. 31, 1952 (888.2553.12–3152).
5. Document 263.
6. For the Department’s response, see telegram 4505, infra. Ambassador Henderson’s reaction was sent in telegram 2606, Jan. 8, not printed. (888.2553/1–853)
7. Ambassador Henderson had urged, in paragraph 1 of telegram 2539, Jan. 5, the necessity of convincing the British to agree to the payment to Iran of $50 million immediately after the conclusion of arbitration compensation and sales contracts. Otherwise, it would be impossible to blunt the growing intransigent attitude of nationalist extremists in Iran. (888.2553/1–553)