Foreign Relations of the United States, 1964–1968, Volume XXXIV, Energy Diplomacy and Global Issues

194. Telegram From the Department of State to the Embassy in Iran¹

Washington, November 4, 1966, 6:06 p.m.

79406.

Iran Oil

1. Senior officers five major American member companies Iranian Oil Consortium and Chairman of IRICON Board called November 4 on Assistant Secretaries Hare and Solomon to discuss Iranian oil situation. Following summarizes highlights of two-hour conversation. Memcon being pouched addressees.²

2. Companies agreed situation very critical, with GOI and Consortium on collision course. Problem compounded by Shah and Prime Minister referring to possible unilateral Iranian action.

3. Companies cannot agree to provide oil to Iran at cost because such action would establish “disastrous” precedent with respect other oil-producing countries. Companies can also not agree relinquish proven oil fields as matter of principle and are prepared demonstrate to Iranians that Consortium has no excess reserves. They also reject idea of loaning oil to NIOC which they believe would have same effect as selling it at cost. In short, all Iranian demands unacceptable. Companies’ memorandum summarizing their views on Iranian demands being pouched.

4. Companies reported that all member companies meeting almost daily in London in effort come up with counterproposals to put to Iranians. No agreement yet reached among them but seems clear that any counterproposals will be far short of meeting Iranian demands. Current thought is to send high-level Consortium delegation to Tehran before November 22 deadline.

5. Among possible proposals being considered are closer achievement of top of 10–11 percent growth range for 1966, maximum possible growth target for 1967, keen price for royalty oil for sale to NIOC and relinquishment some non-producing and unexplored parts of concession area such as Fars and Lurestan. US companies reported they have no substantial disagreements with BP although BP may be running a little more scared and may still be considering proposal to loan oil to NIOC.

6. Companies were briefed on USG talks with British (State 78491).³ Dept officers stressed points of agreement with British on Iranian motives, Iranian economic situation, US and UK interests in Iran and likely consequences of drastic unilateral Iranian action. While mentioning HMG has asked British companies be forthcoming, Dept did not mention divergence of US–UK view on risk of unilateral Iranian action. Dept stressed we hope keep govt-to-govt talks confidential in companies’ own interest.

7. Dept also made it clear that there no room for additional USG assistance to Iran in context current oil problem.⁴ Ambassador Hare informed companies of Ambassador Meyer’s and Governor Harriman’s discussions with Shah counseling restraint and reminding him of 1951. He also noted recent embargo of news on oil dispute in Tehran press.

8. Companies displayed concern that collision would occur following presentation their counterproposals which would fall so far short of Iran’s demands. They agree that they would prefer a collision to making concessions which would create unacceptable problems for them in other oil-producing countries. If GOI should take unilateral action, simplest type of which would be expropriation part of concession area, Consortium would go to arbitration.

9. Companies expressed view it essential for them obtain more time beyond November 22 to permit Iranians to back away from their extreme position. At same time, in requesting more time, companies would not want give GOI false hopes that Consortium would come close to meeting Iranian demands. In fact some concern expressed that GOI may have been given such false hopes when month’s grace obtained in London. Companies asked if USG could help them obtain more time.

10. Companies stated they would not welcome “intimate involvement” of USG but hope that USG will make clear to Shah what consequences any rash Iranian action likely have and help convince Shah present Iranian demands are unacceptable because their acceptance would prejudice companies’ position elsewhere.

11. In response Solomon stated that in our contacts with the Iranians we would give them our view that we feel what they demanding is not feasible and that to pursue such demands would be self-defeating. If asked by Iranians for suggestions we would tell them they should negotiate specifics with the Consortium, allowing sufficient time to determine what a feasible solution would be. We would make certain this message reaches Shah.

12. Instructions based on preceding para will be sent septel within few days.

13. Dept is informing British Embassy (a) US companies have told us they still working on counterproposals to be presented to Iranians in Tehran and hope keep door open to further discussions with Iranians, and (b) we considering what further we might do assist companies keep door open.

Rusk

1. Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1964–66, PET 6 IRAN. Confidential; Limdis. Drafted by Eliot (NEA/IRN); cleared by Rockwell (NEA), Fried (E), Oliver (E/FSE), Solomon (E); and Hare (NEA). Also sent to London.
2. Company representatives in attendance included George Piercy (Standard Oil of New Jersey and Director of Aramco), James Royds (Chairman of the Board, IRICON Agency Ltd.), William Tavoulareas (Mobil Oil), George V. Parkhurst (Standard Oil of California), Harvey Cash (Texaco and Director of Aramco), G.J. Davis (Gulf Oil), and Nestor Ortiz (Gulf Oil). A complete record is ibid.
3. Telegram 78491 to London and Tehran, November 3. (Ibid.)
4. According to a November 3 memorandum from Fried to Solomon, the United States was disinclined to consider additional resources for Iran in light of the U.S. 5-year $470 million cash and credit military equipment commitment, agreement to provide F–4 Phantom fighters, and more than $200 million in Export-Import Bank aid. (Department of State, E Files: Lot 70 D 54, PET—Petroleum Iran (2) 1966)