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

888.2553/1–1253: Telegram

No. 277
The Ambassador in the United Kingdom (Gifford) to the Department of State¹

top secret
niact

London, January 12, 1953—6 p.m.

3800. From Byroade. Re paragraph 2 Tehran’s 2654 January 12 to Department.²

I am transmitting below text of “main headings of DMPA agreement” so that you may begin its translation into Persian. While there may be minor changes which we shall have to communicate to you as result further discussions here, believe it may save some time transmit it as now is.

Begin Text.

After agreement is reached between the UK and Iran upon methods and terms for arbitration between AIOC and Iran on the question of compensation, US Defense Material Procurement Agency will contract to take from the National Iran Oil Company over a period of time oil products or crude oil to a value of approximately $133 million. Twenty-five percent of the value of oil products or crude oil delivered to DMPA under the contract will be placed in escrow to be disbursed in accordance with the terms of the arbitration award. DMPA will advance $100 million to NIOC against future deliveries of oil products or crude oil upon the following basis:

1. Of the $100 million, $50 million will be advanced immediately to NIOC; the balance will be advanced in installments of $10 million a month as soon as DMPA and NIOC agree on a provisional schedule of shipment and DMPA has satisfied itself concerning the availability and quality of the oil products or crude oil to be shipped under the schedule and has assured itself of the suitability of port, loading, and other essential facilities.

2. It is understood that following the entry into force of this contract, the NIOC will enter into negotiations with a company of an international character (hereinafter called The International Company) which would include participation by AIOC and would be registered outside the United States, United Kingdom or Iran, with a view to concluding a commercial agreement under which the NIOC will sell to The International Company definite amounts of crude oil and oil products annually over a fixed period of years; such negotiations to be undertaken as soon as The International Company is formed and ready to begin them.

3. DMPA will appoint The International Company as its agent for receiving delivery f.o.b. Iran ports of oil and oil products for the account of DMPA.

4. Until such time as a commercial agreement is made between The International Company and the NIOC, the price for the quantities of refined products to be delivered against the DMPA advance shall be the US Gulf posted price (which is the present Persian Gulf going price) less a discount of 35 percent. In the event sufficient refined products desired by DMPA are not available, DMPA shall have the option of receiving crude oil at a similar discount from the going Persian Gulf posted price. If NIOC should sell refined products or crude oil to other customers than The International Company at prices lower than the posted prices or going prices referred to above, the price to DMPA will be calculated on the basis of such lower prices less such appropriated discounts as may be negotiated between NIOC and DMPA.

5. For each delivery made under the purchase and advance contract, NIOC will be credited with 75 percent of its value as determined under paragraph 4 above and DMPA will pay 25 percent of its value to the Federal Reserve Bank of New York to be held by it in escrow until disbursed in accordance with the terms of the arbitration award.

6. Deliveries under the purchase and advance contract will continue until the advance by DMPA of $100 million (carrying an interest charge of 4½ percent per annum on unpaid balances) is liquidated.

7. At such time as a commercial agreement is made between the NIOC and The International Company, the price provisions contained in paragraph 4 shall be appropriately modified to conform with the price provisions of the commercial contract.

End Text

I have following comments and queries of Department:

1. Preamble has been changed to make it clear arbitration agreement will be between United Kingdom and Iran, although AIOC and Iran will be parties to arbitration.

2. Department may wish consider whether DMPA contract will be signed by DMPA with NIOC or by United States Government on DMPA’s behalf with Iran Government on NIOC’s behalf.

3. I was impressed by Ambassador Henderson’s third alternative suggestion contai ed paragraph 1 Tehran’s 2651 January 11 to Department, since it seems to me to have the following advantages:

(a) It results in one less document in package and does not highlight point as much as treatment separately.

(b) In any event same point must be covered to some extent in DMPA agreement and separate letter merely duplicates delicate point.

(c) It gives additional protection for United States Government by providing legal basis on which we could withhold if we so desired subsequent advances in event Mosadeq should fail live up his commitment to start negotiations with International Company.

(d) It helps meet British concern on question of installments.

Accordingly I have incorporated Henderson’s suggestions in paragraphs 2 and 3 above and so informed British.

4. Both the British and ourselves have felt that The International Company required some further definition and this has been incorporated in paragraph 2.

5. Word “export” has been deleted from company’s nomenclature in deference British suggestion that it conceivably might be agreed that it would perform other functions as well. I concurred in this change since contract otherwise makes clear that agreement will be confined to sales.

Gifford

1. Sent niact to Tehran as telegram 142 and repeated to the Department.
2. In telegram 2654 Ambassador Henderson stated his hope that if the package of documents for presentation to Mosadeq could be completed quickly, London ought to begin sending them as quickly as possible to Tehran in order that the Embassy could begin translating them into Persian. (888.2553/1–1253)