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

888.2553/5–2154: Telegram

No. 463
The Ambassador in Iran (Henderson) to the Department of State¹

secret

Tehran, May 21, 1954—1 p.m.

2382. Noforn.

1. Although Serpell, UK Treasury representative, scheduled leave evening May 20 for London, his departure put off until May 22 in view inability Minister Finance Amini to keep appointment early afternoon for crucial discussion UK–Iran payments agreement. However, in late afternoon Amini and Governor Bank Melli Nasser met with Serpell and other UK representatives for purpose giving Iranian reactions heads of agreement suggested by British. Later in evening Ambassador Stevens, Serpell and UK Economic Counsellor Titchener called on Ambassador with Rountree present.

2. At outcome [outset] latter meeting, Stevens said he at long last in position give us information re substance talks with Iranians on sterling payments any conversion question. He had been unable do this before some measure agreement reached in view “delicate nature these discussions” and desirability from British viewpoint maintain as much secrecy as possible in view effect certain aspects of proposed arrangements might have in other countries. He then asked Serpell to explain situation to us.

3. In extensive review past UK–Iran payments and conversion agreements, Serpell said arrangements in effect at time oil nationalization contained three provisions which were of particular concern to both sides in considering new agreement; i.e., (a) gold guarantee clause, (b) transferability of sterling for expenditures in non-dollar countries outside sterling area, and (c) dollar conversions. With regard to (a), although Iranians had sought similar gold clause, UK representatives had maintained firmly this not possible and Iranians had finally accepted this position. However, British representatives had agreed that gold guarantee clause in previous agreement would be considered operative as of date termination that agreement with respect sterling balances then held by Iran. Re (b) British had been able give Iranians “everything they wanted” question transferability sterling into currencies of virtually all free world with exception dollar account countries. Serpell commented that this is, of course, in line with new British policy.

4. Serpell said that (c) above understandably presented greatest problem. When Iranians earlier requests for unlimited convertibility were denied, they proposed UK assurance that minimum level conversions would be on basis percentage participation in consortium by American companies; i.e., 40 percent of oil revenues. Although British had explained that percentage US participation in consortium had no bearing on amount of oil which would be sold for dollars and that Iran oil would for most part be disposed of in non-dollar countries, British representatives recognized necessity for developing some criterion for rate of dollar conversions and eventually agreed that this might be as good as any. They had taken position, however, that 40 percent criterion would be ceiling rather than minimum. British agreed that if Iranians in any year reached maximum of conversions provided under agreement, UK would consult with Iran on question of whether ceiling might be exceeded.

5. When queried by us re this point, British representatives stated they had not suggested pre-audit of dollar transactions, but that determination this connection would be left to Iran Government which would undertake stay within conversion ceiling. They said agreement would provide for “annual review” of past transactions (which they indicated would be little more than formality) to ascertain that Iran Government in general was living up to undertaking in agreement to make dollar conversions only for essential purposes and for goods and services which could not be obtained at comparable prices, quality and delivery dates from sterling area. (We were particularly interested in above point since only an hour before when Ambassador Henderson was at airport seeing Hoover off, Rouhani, member Iran Government oil negotiation team, called him aside and said that Minister Finance Amini had that morning asked for his views re certain issues related to UK–Iran negotiations on sterling payments and conversion. According Rouhani, Amini said that Serpell had proposed British make dollar conversions on basis pre-audit of each expenditure. Rouhani had replied to Amini that he was not financial expert and would be reluctant express opinion; however, he remarked to Ambassador he subsequently had been thinking about this and felt that such provisions should not be accepted. He asked Ambassador’s opinion. Ambassador replied to effect he had not discussed matter with either British or Iranians and was not aware any such suggestion had been considered. However, he felt Iran Government would understandably want, perhaps within some limitation as to quantity, freedom in making its own decisions re dollar expenditures. This conversation not mentioned to British.

6. Serpell stated that in meeting with Iranians that afternoon, latter had raised four points re his suggested heads of agreement. British representatives had been able to meet three (unspecified) of these four points but one remained which he would have to discuss in London. Unresolved is request of Iranians that 40 percent criterion be applied not only to Iran’s share of oil profits, but also to sterling received by Iran from consortium representing purchases of rials for local operating expenses. Serpell said this question had not been raised previously by either side.

7. British Ambassador and Serpell emphasized that one aspect of what they had told us was highly secret and urged that it be held between our two governments; that is, in relation to the 40 percent criterion. They said two agreements would be negotiated. One would be between the UK and Iran Governments and would merely specify, in connection this matter, that Iran would convert sterling into dollars only for essential purposes and when goods or services at comparable quality and prices could not be obtained for sterling. The other agreement, which would be secret, would be between Bank Melli and Bank of England and would interpret this clause by setting forth the 40 percent criterion. We assured British representatives their confidence in this matter would be respected.

8. In general discussion May 20 it was not possible to take up with British representatives several details which could have important bearing upon US interests, nor were we shown copy proposed heads of agreement. Serpell offered meet May 21 with Rountree and Bray to discuss matter at greater length; however, today he is confined to bed. We hope be in position later to expand upon such matters as (a) pertinent details of arrangement between Bank Melli and Bank of England, including question of whether method of implementation of agreement would be prejudicial to American commercial interests, (b) duration and provisions for modification, (c) effect of agreement on sterling earned by Iran other than oil profits, and (d) attitude of British re conversion of sterling for servicing dollar loans. We also would like ask Serpell elaborate statement he made in passing to effect British had told Iranians that, with regard procurement by Iran Government for its own account (which presumably would include Plan Organization and most economic development activities), UK would expect favorable treatment sterling area.

Henderson

1. Transmitted in three sections; repeated to London.