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

888.2553/8–1552

No. 201
Memorandum by the Assistant Secretary of State for Near Eastern, South Asian, and African Affairs (Byroade) to the Acting Secretary of State¹

top secret

Washington, August 15, 1952.

Subject:

• Latest Mosadeq Proposal for Iranian Oil Settlement

Mr. Bailey of the British Embassy, this morning, showed me a message from the British Chargé d’Affaires in Tehran reporting his conversation with Prime Minister Mosadeq on August 14. Bailey said he could not leave a copy of the message with us, but he allowed us to take notes. The following is the essence of the message.

Dr. Mosadeq was unusually friendly. He said that he intended to move ahead with reforms in Iran but he desperately needed money. His recent note on the oil question had been intended to open the way to a settlement in order that the Iranian Government could obtain funds. If some portions of the note had seemed to be very strong, that was because the Persian people expected Dr. Mosadeq to defend their interests strongly.

Dr. Mosadeq said he had not gone into the question of how much money the Oil Company in fact owed Iran. He might be wrong regarding the sums mentioned in the note, but if that were the case he nevertheless hoped that the British Government would find means of giving him financial assistance.

The Prime Minister put forward the following proposal:

1. The two Governments would ask the International Court of Justice to settle the question of compensation. (If the British Government agreed to this, he would have to consult the two Chambers of Parliament because, despite the full powers recently granted him, he could not act in a matter of such importance merely on his own responsibility). The Court would not, in any case, be permitted to pass judgment on the validity of the 1933 oil concession² or of the Iranian nationalization law. Those must be considered as res adjudicata (“choses jugés”).

2. Her Majesty’s Government would urgently investigate the possibility of making money available to the Iranian Government.

3. The AIOC should immediately get in touch with the Iranian Oil Sales Commission with regard to purchases of oil. Dr. Mosadeq would be willing to sell the bulk of Iranian oil to the AIOC provided satisfactory commercial agreements could be reached. The compensation awarded by the ICJ would be paid either by deliveries of oil free of charge or by a reduction in the sale price to the AIOC.

The Prime Minister commented that Iranian public confidence in the ICJ was so great as a result of the Court’s decision on the question of competence that he could now safely submit the question of compensation to it.

Middleton commented, in his report to the Foreign Office, that he thought Mosadeq would agree to submission to the ICJ of terms of reference such as the following: “The determination of compensation to be paid, having regard to a) the claims and counter-claims of both parties and b) the juridical position of the parties prior to March 20, 1951”.

He added that if the British Government were favorably disposed toward this proposition of Dr. Mosadeq, he hoped it would be possible for the AIOC to transfer to its reserve the amount of fifty million pounds. It would then be able (I believe under a clause in the concession) to advance twenty percent, or ten million pounds, to the Persian Government. “Alternatively, it may be assumed that the Americans would come to the rescue”.

It was obvious from the whole tone of the message that Middleton was much encouraged and hoped Mosadeq’s proposal would be accepted, although I do not recall that he made a specific recommendation.

1. Drafted by Jernegan.
2. The 1933 oil concession was signed on Apr. 29, 1933 and was to last for 60 years. It revised the D’Arcy Agreement in such fashion as to increase substantially the royalties paid by the Anglo-Iranian Oil Company to the Iranian Government. Regarding the D’Arcy Agreement, see footnote 3, Document 216.