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

888.2553/3–1854: Telegram

No. 440
The Ambassador in the United Kingdom (Aldrich) to the Department of State¹

secret
priority

London, March 18, 1954—9 p.m.

4024. Limited distribution. From Hoover.

1. At Foreign Office meeting this afternoon Butterworth and I met Caccia and HMG group for several hours. They proposed, in effect, that we and they try work out tentative formula for phase of negotiations relating to compensation from Iran, thereby helping break deadlock with Fraser.²

2. Tentative formula, as set forth by HMG, as follows:

(a) In addition to considerations and payments to AIOC from other members of consortium, there should be reasonable sum payable by Persian Government to AIOC in respect loss and damage arising directly or indirectly out of events of 1951 upon coming into force of consortium agreement;

(b) That this sum should form an integral part of any final settlement with Persian Government;

(c) Assuming that Persian Government will agree to acceptable commercial arrangement with consortium (on 50–50 basis) a net sum in range of 280 million dollars nominal value, payable out of oil income over period of 20 years, at rate of 5 cents per barrel, is regarded as not unreasonable. By “net” is meant after consideration of claims and counterclaims. This sum is to include payment for internal distribution facilities, the Kermanshah refinery and Naft-I–Shah oilfield.

(d) Foregoing proposals do not refer to compensation for assets nationalized by Persian Government (apart from those mentioned in (c) above) or to compensation for future profits since it assumed that these will be adequately covered by conclusion of acceptable commercial agreement referred to above.

3. US companies, Shell and HMG are most anxious about effect of nationalization on operations elsewhere in world if price tag of 280 million dollars, on easy terms, is placed on former AIOC enterprise, and also worried at some future date Iran might feel that having paid for the property it was, in effect, entitled re-nationalize again. They therefore most desirous that this payment not be labeled as compensation, but instead should be specifically regarded as for “loss and damage” as set forth in 2(c) above.

4. HMG most insistent that some such payment as above must be included in Iranian solution. Question therefore becomes (1) what is probable maximum amount that Iran could pay, on terms outlined above, and (2) what label can be placed upon it.

5. Rountree’s feeling is that we should go as far as practicable in meeting obviously difficult problem for HMG; nevertheless, he has expressed to me concern that you may consider proposal in its present form would be unacceptable to Iranian Government. His reasons upon which we would also appreciate your comments, are the following:

(a) While Iranian Government apparently prepared and in fact wishes pay reasonable compensation (net of counterclaims) pursuant existing authority in nine-point law, suggestion that payment be made not as compensation for properties nationalized (except internal distribution facilities) but for AIOC’s financial losses would raise, in addition other questions, legal point of whether Government has authority to do so without legislative action.

(b) Even though it might be possible convince Iranian legislature and public that sum mentioned, i.e., 280 million dollars, would not be unreasonable compensation for properties nationalized, it appears doubtful they would accept such a large payment for financial losses to AIOC which is regarded to have thrived during period of economic crisis in Iran.

(c) There is doubt that even as true compensation the sum of 280 million dollars net of Iranian counterclaims could be made acceptable; however, this may be within the realm of possibility.

6. HMG forwarding above proposal to Ambassador Stevens Tehran for his comments. Suggest you may wish confer with him because great advantage having agreed view if possible. Would appreciate your comments soonest convenient, also Department’s views.³

Aldrich

1. Sent to Tehran as telegram 176 and repeated to Paris and the Department.
2. Hoover had reported from London earlier that day regarding a meeting between Harden and Fraser of AIOC resulting in no progress. Hoover also reported, however, that he was impressed that the British Government was working earnestly at the highest levels to end the deadlock, and that he was describing his meeting with the Caccia group later that day in a subsequent telegram. (Telegram 4022; 888.2553/31–854)
3. In telegram 4846 to London, Mar. 19, the Department gave general approval, stating that the outline of the formula seemed “not too unreasonable.” (888.2553/31854)