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

888.2553/7–854: Telegram

No. 484
The Secretary of State to the Embassy in Iran¹

secret

Washington, July 8, 1954—6:04 p.m.

44. From State and Treasury. Humphrey received personal letter from Makins dated July 3 setting forth UK views re US request for modification proposed currency conversion agreement between UK and Iran. Major points Makins’ letter follow:

1. UK had made clear at outset of negotiations that it intended limit Iranian conversions to cases where goods essential and not obtainable on equivalent terms outside dollar area.

2. UK believes that US Government and US companies were motivated by their own interests in providing financial and other assistance in reaching settlement.

3. Loss Iranian oil cost UK approximately $500 million over three-year period. British consider $60 million down payment from American members of consortium “slight offset” to this dollar drain and not justification for increasing dollar burden to be assumed under new arrangements.

4. Estimated net additional cost to sterling area reserves after taking account dollar savings expected as result resumption operations in Iran estimated $40 million in first full year rising to $55 million in third year. American members able to participate in consortium only by reason special arrangements enabling them sell oil for sterling. All consortium payments to Iran being made in sterling, it is reasonable to impose limit on conversion rights. UK could not justify to Parliament and other oil-producing countries in sterling area agreement giving Iran more favorable treatment than sterling area oil producers, particularly in light of past Iranian actions. UK has requested 40 percent conversion ceiling figure be kept secret for fear repercussions in other countries.

5. Agreement does not involve “trade preference” for UK or other sterling area countries as against non-sterling, non-dollar countries. If plans for sterling convertibility are successful, Iran will be given same privileges as other non-sterling countries. Meantime, however, UK cannot treat Iran better than other countries.

6. UK estimates Iran will be able to draw $34 million from sterling area reserves in first year of agreement and $84 million in third year. Except for these conversions, Iranian purchases American goods would be limited to amounts US aid plus Iranian dollar sales of commodities other than oil.

7. Iranians have informed UK that proposed conversion arrangements are “fair and just”, although undoubtedly would seek even better terms if they believed US would support such request. Given fact that some limitation on conversion was required, Iranians themselves preferred wording of present proposal because it was same as wording of previous agreement. Iranians also asked that paragraph 5 dealing with continuation of agreement take present form.

8. Question of conversion sterling for servicing dollar loans not formally discussed with Iranian Government and no decision yet reached by UK. UK fully prepared reach friendly understanding with Iran on lines UK hopes will be agreeable to US “provided that the rest of the agreement remains undisturbed”. US reaction to letter will be cabled subsequently.

Supplemental note dated July 6 states British believe Iranians anxious discuss final draft. British proposed proceed these discussions although no final commitments expected. Servicing dollar loans to be explored.²

Dulles

1. Also sent to London. Drafted and signed by Corbett.
2. On July 14 the Department informed Ambassador Henderson that the Department of the Treasury had reported that Secretary Humphrey had had another conversation on July 13 with Ambassador Makins to clarify Humphrey’s understanding of the British-Iranian currency arrangements. Humphrey repeated his opinion that there should be no restrictions on the 40 percent conversion arrangements in view of the extensive assistance the United States had provided to the Iranian economy and in view of the active cooperation of the U.S. Government and the American oil companies in trying to work out an oil settlement. Humphrey indicated that anything less than unrestricted rights of conversion would probably mean that American suppliers would be obliged to undersell competitors from all other areas in order to share in the Iranian market. Ambassador Makins, it was reported, agreed to give further consideration to Humphrey’s views. (Telegram 93; 888.2553/7–1454) No documentation has been found in Department of State files to indicate that the British Government modified its position with respect to its proposed restrictions on sterling conversion arrangements in order to accommodate the wishes of the United States.