888.2553/7–154: Telegram
No. 481
The Ambassador in Iran (Henderson) to the Department of State1
priority
10. 1. British Ambassador morning July 1 said he would like to discuss with me matter causing him “grave concern.” Difficulties had arisen in Washington re payments which might eventually result in blocking or delaying solution oil problem. He described in some detail contents telegram recently sent by Makins to British Foreign Office in which Makins outlined conversation which had taken place Secretary Humphrey and himself.
2. According to Makins, Humphrey had expressed himself in strong although friendly fashion re proposed payments arrangements. Among points which Humphrey apparently had made were following:
- a.
- As result nationalization and subsequent developments, AIOC had completely lost its investments in Iran. American companies although having no need for Iranian oil had come to rescue of AIOC. They had even agreed to pay AIOC $1 billion to participate in consortium. In order make consortium workable they would be compelled to curtail oil production in various other countries in Middle East. In spite of these arrangements, which were most advantageous to UK and to AIOC, it now seemed UK was demanding that it be put in position of virtual control Iranian foreign trade as result of mechanism being set up by UK-Iranian payments agreement. US Congress would certainly protest when all facts would eventually become known;
- b.
- Hoover who was American representative in charge all US matters pertaining to oil settlement and to payments arrangements had discussed with Humphrey payments problem during his recent visit US. At that time it had appeared that 40 percent of Iran’s income from oil would be freely convertible into dollars for foreign trade purposes. Subsequently however memorandum received from British Government describing payments arrangement had made it clear that UK was demanding that Iran not spend even dollars within 40 percent limits until after Iran had ascertained it could not obtain merchandise and services in sterling areas on equally advantageous terms. Thus, UK planned to try to restrain Iran from converting even 40 percent of sterling revenues received from oil into dollars for foreign trade purposes;
- c.
- Humphrey was convinced that Iran had agreed to enter into arrangement of this kind not of its own free will but only under pressure.
3. British Ambassador pointed out to me that:
- (a)
- US companies were required to pay only $400 million in sterling instead of one billion in dollars to AIOC and that most of these $400 million would be in form of installments to be paid over period twenty years and would come largely from Iranian oil business profits;
- (b)
- British Government was not trying to obtain control of Iran’s foreign trade even though it was formally taking attitude that Iran should promise that such dollars as it might receive from sterling should [garble] to buy goods and services only in case such goods and services could not be purchased just as advantageously in sterling area. There was no way by which UK could force Iran to live up to this promise and UK had no intention of trying to do so with 40 percent limits. It was true that probably at intervals there would be post facto examination by UK of expenditures Iran of dollars received from sterling in order ascertain extent to which Iran living up to its promise. Nevertheless in fact Iran would be quite free to use its own judgment re expenditure first 40 percent;
- (c)
- Iran had voluntarily and without demur agreed to enter into this arrangement. He would appreciate knowing whether US Embassy had received any information due fact that Iran had agreed to this arrangement only under pressure.
4. I told Ambassador that: (a) Hoover, as an American official was interested in American trade potentials in Iran. I was confident, however, he was not submitting any reports or making any suggestions re payments problem which differed from those made by Embassy; (b) it seemed to me that what primarily disturbed Humphrey was fact that Iran was not being given completely free hand to convert first 40 percent into dollars and to spend these dollars in any way it wished. Humphrey undoubtedly considered that Iran’s pledge not to use these dollars to purchase goods and services if such goods and services could be purchased just as advantageously in sterling areas plus fact that all transactions might be subjected to post facto review restrained Iran from spending dollars within 40 percent limits as it wished. I personally thought that Humphrey would feel much better about this payments agreement if he could be convinced that Iran would be allowed to convert 40 percent of sterling revenues into dollars and to spend these dollars with no conditions attached; (c) Embassy had received no information from any Iranian source that Iran had agreed to enter into this payments arrangement only under pressure and had not indicated to Washington that Iran had been subjected to pressure. Fact was Embassy had not discussed payments problem with Iranian officials; (d) Embassy had received no information from Washington [Page 1037] re conversations which had taken place between Makins and Humphrey and I was therefore not prepared to comment re them. It would seem to me, however, that contents of memorandum which British Government apparently had furnished US Government outlining proposed payments arrangements had left impression with Humphrey that Iran was to be placed under certain restraints voluntary or otherwise in spending any dollars whatsoever which it might receive from converting sterling acquired by Iran from sale of oil. It seemed to me that it would be helpful if UK Government could convince Humphrey that such restraint in fact did not exist.2
6. After I had concluded my conversation with Ambassador he told me that he had asked Beckett, Ambassador’s petroleum advisor, to discuss this matter directly with Hoover and that Beckett was carrying on simultaneous conversation at US Embassy with Hoover. On my return to Embassy I learned that Beckett had gone over practically same ground with Hoover in presence Rountree and that Hoover and Rountree in their discussion with him had taken positions almost identical with those which I had assumed in my talk with Ambassador.
7. Members Embassy and Hoover, realizing that discussions were probably taking place in Washington, have carefully refrained since Hoover’s return from broaching payments problem during various talks with British. Such conversations as we have had have taken place only on initiative British and have been reported to Department. During our parallel discussions of today we have tried exercise care not to make statements which might in any way complicate talks in Washington. Hoover and I would appreciate it if this telegram could be shown Humphrey.