891.6363 Standard Oil/293

The Consul at Teheran ( Gotlieb ) to the Secretary of State

I have the honor to enclose herewith a complete text of the bill which passed the Persian Medjliss on June 14th [13th]6 whereby the Government is empowered to offer the North Persian oil concession to an American company conditional upon the latter’s arranging for a $10,000,000 loan to the Persian Government. The project was approved with 50 affirmative votes out of a total of 68 in spite of the most vigorous efforts on the part of British interests locally to delay its passage. Undoubtedly, as it stands, it will prove inacceptable to American companies of whom only two (the Standard Oil Company and the Sinclair Exploration Company) are serious competitors. This was the contention of Dr. A. C. Millspaugh, the Financial Adviser, who urged, without success, the rejection of the measure by the Persian Medjliss. Under normal circumstances, one might be in accord with his desire to have the completed bill in as reasonable and acceptable a form as possible before allowing its submission to American bidders, but in view of the fact that the term of the Medjliss was to expire within a few days and that there was obviously no time to arrange even for the least radical of amendments much less for the complete redrafting of the measure in question, his opposition is not easily explained. It should be borne in mind that the preliminary negotiations required to secure the submission of the bill extended over a period of one and half years. Its rejection meant the entire abandonment of the project until the convening of the next Medjliss. There was a gap of four years between the present parliament and its predecessor, and with conditions as they are at present, there is no absolute certainty that a similar period may not elapse before a new Medjliss is convened.

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[Page 714]

Article XIV: This is the most significant clause in the project and one which well illustrates the spirit which pervaded the Medjliss and Persian public opinion in general: according to this, the concessionaire can under no circumstances assign or transfer his rights to any foreign Government or to one or more foreign citizens. This, of course, is meant to definitely and finally exclude British participation and if, as is understood in some quarters, the Standard Oil Company is committed to an understanding with the Anglo-Persian Oil interests, it will be difficult for it to consistently accept a project containing this reservation. Note however that the Sinclair project contains a similar restriction upon the transfer of any interests to foreign companies. The importance which is attached to Article XIV may be gauged by the wording of Article XXXI which authorizes the Government to “change the wording and phrasing of this contract in so far as clearness and legal effectiveness may require—with the exception of the provisions of Article XIV”. The Government is evidently determined to take no chances in this connection. This article also specifies that the Persian Government or Persian subjects shall have the right to purchase 30% of the entire capital necessary for the operation of the concession.

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While Article XIV preventing British participation in the project served as a tangible expression of the prevailing anti-British spirit in Persia, nevertheless, it is also, in my opinion, the official recognition of a generally accepted political fact: namely that the final decision as to what interests may exploit the Caspian oil fields lies with the Russians, who are firmly opposed to British capital entering the Russian sphere of influence either directly or indirectly. The successful concessionaire will have to come to terms with the Bolsheviks before he can sink a well or export a barrel of oil. Even could he start actual exploitation of the provinces, nevertheless in the face of Russian opposition he would be absolutely helpless when it [he] came to market his product abroad. The sole practicable outlet for the production of the Caspian fields is by way of the Caucasus (the Persian consumption is but a drop in the bucket) and if the Russians placed their veto on the construction of a pipe line to the Black Sea operations would have to be suspended since, aside from the tremendous natural difficulties which would be incurred in piping the oil southwards, it would be impracticable because in direct contravention of the D’Arcy concession and the present project (Article 21). It is already definitely known that the Sinclair Company has come to an agreement in this regard, with the Bolsheviks; the local Sinclair representative anticipates no trouble in this connection should his Company secure the concession.

[Page 715]

The Standard, however, appears to be differently situated. So far as is known, it has made no attempt to come to terms with the Bolsheviks and if, as commonly reported, it is associated with the Anglo-Persian, it probably could not obtain the assent of the Bolsheviks to its starting active operations, even did it succeed in obtaining the concession.

It would be most gratifying if the two American companies could combine on this project, but if the Standard is already committed as reported there is not a very favorable prospect of this happening.

In conclusion I may mention the terms of Article I as of special interest, particularly in the restriction of the oil concession territory to four out of the five Caspian provinces mentioned. This was in anticipation of a subsequent bit of legislation by the Medjliss, granting the Government the right to offer the excepted province, for exploitation, to a reputable Persian company …

Respectfully submitted

Bernard Gotlieb
  1. Not printed.