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

888.2553/6–3054: Telegram

No. 480
The Ambassador in Iran (Henderson) to the Department of State¹

secret

Tehran, June 30, 1954—1 p.m.

2611. Noforn. Limit distribution. From Hoover.

1. Negotiating delegations have held five formal meetings between June 22 and 29.² Discussions primarily confined to (a) management, (b) organization, nationality and functions of operating companies, (c) term of agreement and (d) volume of off-take. Both consortium representatives and Iran dels feel much progress accomplished on basic issues and appear optimistic about reaching satisfactory solution. Discussions apparently being conducted in cordial atmosphere and spirit goodwill evident on both sides notwithstanding difficult bargaining involved.

2. We not reporting meetings in detail as discussion on basic issues not yet in final or definitive stages. Lengthy memos submitted by both sides being pouched rather than cabled since in most instances they represent interim bargaining positions and not necessarily points of agreement or disagreement at this time. Department may wish refer to Embtel 2602 June 28³ from US company representatives to principals in New York for consortium delegation’s evaluation of proceedings to date.

3. At this time it appears that most difficult and potentially critical problem on horizon is compensation negotiation between Iran and UK Governments. To Iranians this has become political problem of first magnitude. After many years during which Iranian people, rightly or wrongly, were led to believe they had been shortchanged by AIOC, followed by three years of nationalization in which demagogues continually asserted vast sums were due from former operators, public would regard any appreciable payment to AIOC on basis latter’s claim as an exaction of tribute under force of their present circumstances rather than equitable compensation for net damages sustained by AIOC since 1951. In our opinion peremptory demand for payment of any sum approximating 100 million pounds would have most serious effect on ability to consummate final consortium agreement. Even if solution achieved we believe it would cast shadow of most critical nature on durability of any contract, no matter how favorable to Iran agreement might be. Such development would be open invitation to every demagogue and subversive element in Iran to challenge equity of solution.

4. We particularly disturbed, therefore, to learn from confidential sources that Finance Minister Amini stated that on evening June 28 at informal meeting between himself and British Ambassador, latter delivered what Iranians considered to be ultimatum re compensation settlement. Iranians apparently were told that substantial compensation must be paid, regardless of merit of any counter claims, and that this position supported by all other interested governments, including by implication US Government.

5. Reaction of Iranians, as conveyed to us, was that if their government negotiators forced to accede to such demand, they would simply present consortium and compensation proposals to Majlis with no other comment than that this was best deal that could be negotiated at present time. Reaction of Majlis certain to be explosive. On other hand until this development Iranian Government representatives had given every indication of aggressively supporting results of consortium negotiation before Majlis and public, even though it contained number distasteful features.

6. It our preliminary view that any sum in excess of value Naft-IShah oil field, Kermanshah Refinery and internal distribution facilities would present difficulty, and that agreement under which Iran would pay in excess 15 million pounds including such facilities would provoke serious consequences.

7. It may be that report we have received on attitude British Ambassador was exaggerated; moreover there possibility British in any event may come to realize seriousness of matter and essentiality assuming more realism in their compensation negotiations. We do not suggest at this time that further representations be made by Department to UK Government but we will prepare make specific recommendations on basis developments.

Ambassador Henderson concurs.

Henderson

1. Also sent to London.
2. The record copies of the minutes of these meetings, are in a folder entitled “1st, 3rd, 4th, 5th Mtg, Second Phase”, in file 888.2553/6–2254.
3. Not printed. (010.1/6–2854)