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

888.2553/3–2254: Telegram

No. 442
The Ambassador in the United Kingdom (Aldrich) to the Department of State¹

secret
niact

London, March 22, 1954—noon.

4062. Limit distribution. From Hoover.

1. At several meetings March 21 between US principals, Shell and AIOC it evident no further progress made. Fraser has accepted offer one billion dollars of which 150 million cash down and balance at rate ten cents per barrel over approximately 24 year period (stated on 100 percent basis). He insisted this contingent upon receiving compensation from Iran totaling 280 million dollars at rate approximately five cents per barrel over 20 year period.

2. Fraser refuses accept memo agreement with other companies unless this stipulation included, and under circumstances they hesitant comply. By signing US companies would be committed to proceed with deal regardless of whether or not US Government convinced it would be fair, durable and permanent in Iran. US companies believe better have this matter thrashed out now at risk of having entire negotiations jeopardized, rather than finding selves in impossible situation later. They believe should at least contain escape clause permitting withdrawal in event US Government becomes convinced final proposal would not be a durable solution. Ambassador and I agree and are so advising them.

3. No meeting March 21 between Caccia and Foreign Office group with ourselves. Further meetings not scheduled in view no comment yet from Department re Embtel 4057² and Tehran’s 1977.³

4. Situation appears to us as follows:

(a) We had hoped that large amount cash and future income to AIOC, together with residual participation of 40 percent in proposed consortium, would permit HMG and AIOC to regard matter of compensation for past loss and damage from Iran as essentially an offsetting item against Iranian counter claims. Furthermore, we had hoped that effective modification of nationalization, which could only be brought about by a solution such as contemplated would when coupled with other benefits outlined, satisfy the basic principles of compensation.

(b) If HMG insists upon going ahead, only alternative we see is for them to negotiate matter of additional compensation for AIOC direct with Iran Government. This we extremely concerned about, as would subject proposed negotiations in Iran to many potential dangers including (1) doubtful ability negotiate satisfactory terms of agreement and (2) questionable permanence of final solution.

(c) HMG has previously indicated compensation matters could be placed last on agenda of negotiation discussions with Iran Government. While this gives some hope of ultimate compromise, it could also lead to split between HMG and ourselves in relations with Iran Government, and we therefore have serious reservations re going to Iran without reaching full understanding.

(d) For many reasons we do not see how we can actively support HMG demand for specific additional compensation to AIOC from Iran as outlined above. We would therefore have to reserve our position on this phase of negotiations, because their request almost tantamount to asking us become arbitrator and decide on specified amount in advance without reviewing actual evidence.

5. Ambassador and I plan discuss this matter with Eden soonest possible, with intent request HMG reconsider its position in light of paragraph 4(a) above, and agree to forgo additional compensation for AIOC.

Aldrich

1. Repeated to Tehran and Paris.
2. See footnote 2, infra.
3. Supra.