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

888.2553/5–1854: Telegram

No. 462
The Ambassador in Iran (Henderson) to the Department of State¹

secret
priority

Tehran, May 18, 1954—7 p.m.

2356. Noforn. Limited distribution. From Hoover. Re Deptel 2271 Tehran, 6143 to London May 17.²

While company principals will naturally feel most disappointed and reluctant on matter of accepting agency type agreement, believe Department may wish stress following points in discussion:

1. Ambassador Henderson, Embassy staff and myself are wholly sympathetic with viewpoint of companies re this matter, and have done utmost to aid consortium representatives in presenting case before Iranian Government. Nevertheless, it our considered opinion that operation for own account impossible obtain in Iran for at least several years to come, if ever, and that even if by most violent pressure an agreement containing such provision could be pushed through it would not last more than limited time. While we have stated this opinion to consortium representatives when our views requested, we have not attempted influence their attitude at any time. Their present views therefore result their own evaluation, which we believe now coincides with ours. It is my personal view that, if consortium provides enlightened management and undertakes public relations campaign, it may be possible effectuate sole modification of legal status at future date. Any such approach, however, impossible to achieve under existing conditions of public opinion brought about by events of last five years.

2. I believe Department should stress that fundamental problem of effective management by private industry, which is of infinitely greater importance than strictly legal and tax questions re agency type agreement, has apparently been resolved in favor of consortium. At meeting late yesterday Iranians seemed to agree to formula worked out as result our discussions outlined Embtel 2347 repeated London 722, May 17. We hope they do not change their minds again at ensuing meetings. It perhaps is natural that consortium legal talent here would place emphasis on legal status of relationship with Iranian Government, but my opinion fact that Iranians apparently now willing give same degree of management control under agency agreement as would be inherent in concession approach, is of overriding importance. Parenthetically, Ambassador Henderson and I now firmly convinced that, regardless other considerations (of which there many), Iranians simply cannot manage own industry for political reason, and it must be placed in competent hands of private management if country is to survive.

3. Re tax matter, I believe it would be most helpful if Secretary Humphrey would explore possibility that US companies could receive same tax and/or depletion advantages under agency type agreement as would be case if they had normal direct economic interest in production. This situation apparently of great concern to some of US companies, particularly Gulf, Texas and California Standard, all of whose operations in Middle East (Saudi Arabia and Kuwait) now have such tax and depletion treatment. As matters now stand they would be compelled to pay more taxes for concluding agency type agreement in Iran, in order to come to settlement which would be advantageous to US security, than they now paying in other countries in which they are acting as principals.

4. Term of contract not yet settled. Consortium has been asking for 50 years. While Iranians first proposed 20 years they now agree longer period desirable. Believe doubtful if final decision reached prior to departure.

5. It most doubtful that consortium representatives able return to London for meetings with principals with firm commitments from Iranians on many important aspects of negotiations. Believe Department should forewarn company principals accordingly. Reasons are (a) well known inability of Iranians reach distasteful decisions, particularly in absence positive and constructive leadership, (b) frequent warnings in press and by some vocal members of Majlis, tacitly supported by Shah, advising Iranian negotiators uphold nationalization laws (which open to wide variations of individual interpretation), (c) fact that Iranians not yet able assess entire package deal, including nationality of operating companies, nationality of top management, compensation currency payments, etc.

6. Believe it helpful, if Department agrees, to acquaint company principals re situation on UK incorporation of operating companies (Embtel 2288 to Department, repeated London 710, May 8). Ambassador Henderson and I believe, as result several informal discussions with Foreign Minister and Finance Minister, it virtually impossible finally conclude agreement in which either UK incorporation or UK top management would be included. It our considered judgment that any attempt do so would meet with peremptory rejection by Majlis, to prejudice of entire proposal. Consortium appears firm in rejecting idea of Iranian incorporation, with or without UK holding company (London’s 5166 to Department 236 to Tehran May 18).³

7. While it may appear consortium representatives returning London without accomplishing broad areas of agreement, actually we feel present plans working out to advantage. Iranians have been forced take definite position on number points while working against deadline of departure of consortium representatives. We also think time-out desirable as both sides, particularly consortium representatives, are feeling somewhat frustrated after five weeks of sessions, and each is beginning suspect other’s motives.

8. It my opinion that following critical points must be decided in London:

(a) Whether or not US companies will accept agency type agreement, conditional upon receiving effective management control of operations;

(b) Whether or not HMG will cease to insist upon UK nationality of operating companies (and by inference, of top management);

(c) Whether or not consortium will agree to larger off take schedules than at present contemplated.

If decisions on each of above points are affirmative, and assuming compensation and current negotiations concluded satisfactorily, I believe all of remaining factors can be resolved by negotiations in Tehran.

9. It entirely probable that considerable pressure will have to be exerted by US on Iran Government to adopt final agreement in any event.

Henderson

1. Repeated to London.
2. In telegram 2271 the Department informed Hoover that American oil company principals were assembling in Washington for discussions with Anderson, Humphrey, and Department of State representatives regarding the attitudes the companies should adopt for the meeting scheduled for May 24 in London. The Department expected that the major subject the principals would wish to discuss in Washington would be the management question, and the government officials planned to say that the agency-type agreement appeared to be the best and perhaps only hope of obtaining a settlement. Since the American oil companies were clearly reluctant to accept an agency-type agreement, the Department hoped Hoover had some suggestions to send the Department to make an agency-type agreement more palatable to the American companies. (888.2553/5–1754)
3. In telegram 5166 the Embassy in London reported that the previous day Byroade was told by the British Foreign Office that the Iranian Ambassador recently informed the Foreign Office of his government’s opposition to the idea that the operating companies should be of British nationality. Byroade stressed that Henderson felt very strongly, and Washington agreed, that the Iranians would not accept British registration. Byroade was then told that the Foreign Office instructed Ambassador Stevens in Tehran to sound out the consortium members along the lines of setting up operating companies that would be Iranian, but with a holding company in the United Kingdom. It was also the opinion of the Foreign Office that it was unsatisfactory to have the companies domiciled in a third country such as Switzerland. (888.2553/5–1854)