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

888.2553/5–854: Telegram

No. 459
The Ambassador in Iran (Henderson) to the Department of State¹

secret
priority

Tehran, May 8, 1954—4 p.m.

2288. From Hoover. Noforn. Limited distribution.

1. Following analysis and recommendations are confined primarily to management problem and related factors which are believed to be major items to resolve in reaching successful oil agreement. More general appraisal of present status negotiations included in Embassy telegram 2287 to Department this date by Ambassador Henderson London 709.

2. Iranian hesitancy to grant adequate management authority to consortium during the present negotiations appears due to variety of reasons some more apparent than others.

3. Most obvious is whether consortium should have right to operate for own account which Iranians feel would be hopelessly in conflict with nationalization laws. Although discussions have now switched to hypothetical consideration of agency type agreement whereby consortium would operate for account of Iranian Government, Iranians still appear hesitant.

4. While inability of Iranians to make distasteful decisions has always been problem it appears there may be at least three additional points upon which they will require adequate assurances before they commit themselves on management question, namely, nationality of operating companies, nationality of management and location of consortium headquarters.

a. Nationality of operating companies.

I. Incorporation of operating companies in UK is not acceptable to Iranians. They would prefer Iran but will settle for a “neutral” country such as Holland or Switzerland.

II. HMG still officially insistent on UK. They urge that matter be left until very end of negotiations with expressed hope of either forcing it through or using it as a bargaining weapon in obtaining one or both of other major points enumerated below.

III. Consortium at present under obligation to UK Treasury to support UK incorporation in return for receiving certain sterling operating privileges. Companies however including AIOC will not accept Iranian incorporation. With exception of AIOC others would probably be glad settle for “neutral” country. AIOC would undoubtedly balk severely at Holland due to rivalry with Shell although UK Treasury could probably exert more control over sterling operations through Dutch domicile than through Swiss. US companies and Shell privately express deep concern re effect which UK incorporation would have on Iranians.

IV. US Government not committed in this matter. We convinced however, that incorporation of operating companies in UK would seriously jeopardize durability of any agreement in Iran even assuming it could be pushed through under pressure which seems unlikely. So far we have reserved our position giving British full opportunity to urge their own point of view. It seems advisable we assume more positive approach in near future and specific recommendations outlined paragraph 8.

b. Nationality of management.

I. Nationality or company affiliation of managing director (and by inference also that of top management staff) was not resolved or discussed at London meetings or consortium. In private talks Fraser expressed keen desire that Pattinson, former manager for many years AIOC in Iran and now one of four co-managing directors of parent company should become managing director of consortium. Fraser named Pattinson as AIOC member of negotiating group and he now in Iran.

II. Iranians have not yet raised matter of nationality or company affiliation of top management in Iran. It seems quite certain from confidential information available to us that Iranians will react even more violently against return of AIOC or British management than they are now reacting against the proposed British incorporation of operating companies.

III. HMG will probably do utmost to maneuver Britisher preferably AIOC man into position of managing director although matter has not yet been raised by them.

IV. Shell and American companies privately express selves as firmly against AIOC management for both technical and political reasons. They favor Shell individual of Dutch nationality as managing director with as many additional Dutchmen in top management as possible.

V. French will probably line up with AIOC if they pressed into taking position.

VI. US Government not committed to nationality of managing director or of his company affiliation. We feel return of British personnel in top management positions and particularly AIOC would jeopardize permanence of any agreement more seriously than any other single factor. Our recommendations on this phase of negotiations when they arise set forth paragraph 8.

c. Location of Consortium Headquarters.

I. There no discussion at company level in London of location of consortium headquarters. Fraser however privately expressed opinion that headquarters should be located in AIOC offices at Britannic House in London and that managing director would make his principal headquarters at that place.

II. It certain that Iranians would object strenuously to having headquarters of consortium located in London, particularly if it identified with AIOC. While this matter has not come up in discussions with consortium it certain it would become major sticking point if serious proposal were put forward to such effect.

III. It assumed that HMG will support position of Fraser although Denis Wright made strong statement in favor establishing headquarters in Tehran during Foreign Office meetings in London last March. It perhaps significant however, that after he had been in London several days he would no longer express opinion on this point.

IV. Shell and American companies feel strongly that headquarters of consortium should be in Iran, and that managing director and entire staff should reside permanently within country. It understood that these companies have taken similar position with respect to headquarters of Iraq Petroleum Company, but they have had no success in having offices removed from Britannic House in London.

V. It probable that French would line up with AIOC if they forced into taking position.

VI. US Government under no commitment with regard to location of headquarters for consortium. It is our opinion as in cases of nationality of companies and of managing director that durability of agreement would be severely affected if headquarters were located in UK. Specific recommendations set forth paragraph 8.

5. Consortium representatives plan to hold series of meetings with principals of their companies in approximately 2 to 3 weeks. They will then determine feasibility of operating under agency type agreement and review other details of proposals. Upon returning to Iran they would supposedly be ready negotiate on final terms. Notwithstanding desire expressed by British Ambassador to leave matter of nationality of companies until very last moment (presumably after the consortium representatives return to Iran), we believe this question as well as two others outlined above should be discussed with Iranians before consortium leaves Iran. If possible decision should be arrived at simultaneously with projected meeting of principals.

6. It my opinion that US companies and Shell will finally accept reasonable type of agency agreement. In order maintain strong bargaining position at present stage of negotiations, they apparently do not feel opportune time has yet arrived for making such concession, nor could they do so without authority from their principals.

7. While there no present indication that negotiations are reaching an impasse or breakdown, it certain that if such situation develops British will do utmost to shift blame on to US companies or US Government wherever possible. We should be constantly on guard against this type maneuver. Harden aware of this situation.

8. We recommend that US position should be to urge strongly:

a. Against (i) incorporation in UK, (ii) British top management, and (iii) headquarters in London.

b. In favor of (i) incorporation in “neutral” country, (ii) top management by non-UK–US personnel, and (iii) headquarters in Iran.

c. That these matters should be resolved at earliest possible moment, and certainly not later than at same time as meeting of principals scheduled within next 2 to 3 weeks.

9. We further recommend that we maintain our position so that:

a. If suitable occasion arises, we can advise HMG we will use our best efforts to convince US companies (and Shell) to accept agency-type agreement, in interest of effecting an overall settlement, on condition that HMG supports “neutral” nationality for incorporation and top management.

b. In event we fail in getting British to modify their demands, including possible stalemate in UK–Iran compensation negotiations, then we should be in position to announce that US companies will accept agency-type agreement, and thus avoid any onus on US Government of US companies for failure negotiations.

10. Situation here still sufficiently fluid that unforeseen developments may require revision above analysis and recommendations in some details, but believe broad outlines will remain regardless. It most unfortunate that attitude British Ambassador, Treasury representatives and British Embassy Staff make certain of above conclusions and recommendations necessary.

11. Ambassador fully concurs.

12. Views and comments of Department and London appreciated soonest.²

End of message.

Henderson

1. Repeated to London.
2. On May 12 the Embassy in London responded that it believed it would be undesirable to approach the British with a view of changing the British Government position on particular points of disagreement until the points of difference between the consortium and Iran had crystallized. In the Embassy’s judgment, the British would remain insistent on obtaining compensation, though they would doubtless be willing to reduce somewhat the figure of 100 million pounds in the course of negotiation. The Embassy also believed that the British would be almost as insistent on the issue of the nationality of the operating companies. If, however, the British were to abandon the point of British nationality, the Embassy thought the British would prefer Iranian nationality rather than neutral nationality in order to be able to make direct representations and, if necessary, be able to appeal to the International Court and the United Nations rather than having to deal with the Swiss or some other neutral government. (Telegram 5060; 888.2553/5–1254)