891.6363 Amiranian/34

The Chargé in Iran (Merriam) to the Secretary of State

No. 1018

Sir: I have the honor to enclose herewith a memorandum of a conversation with M. Kartachov, the Counselor of the Soviet Russian Embassy on March 14, 1937. As a consequence thereof, he and Mr. Charles C. Hart met at the Legation on March 17. The latter furnished information and explanations concerning the concessions which he thought would be of interest to the Russian Embassy and M. Kartachov was afforded an opportunity to ask questions. I acted solely as interpreter.

From his questions, it was evident that the Russians are greatly interested in discovering what if any non-American participation in the companies exist at present or may possibly exist in the future.

Mr. Hart explained that there was no present non-American participation of any kind. Neither he nor any other person connected with his companies had had any contact with the Anglo-Iranian Oil Company, nor with the Germans. In fact, Mr. Hart had avoided calling on any of the foreign Legations at Teheran. Only two Ministers were left at Teheran whom he had previously known: the Polish and the Dutch, and he had not even called on them. At the present time all of the stock of the companies was held by a group of from ten to fifteen persons, all of them Americans who were well-known. Mr. Hart wrote down for M. Kartachov the names of the American groups who are interested.

He continued by saying that the stock would continue to be so held for two or three years, after which it would be offered to the general public and listed on the New York Stock Exchange. It was true that foreigners would be able to purchase shares on the Exchange. That could not be prevented, for it was necessary to place the shares on the open market in order to give them a value. However, only a small minority of shares would be available there for sale. The Afghans had wished a notation to be placed on the reverse of each certificate to the effect that if it was found in the possession of any person not an Afghan or an American it would be confiscated. Mr. Hart, however, had pointed out to the Afghans that it would be impossible to enforce such a provision in any country other than the United States or Afghanistan and that the rules of the Exchange would prevent the shares from being listed if they carried such a provision. As a consequence, the Afghan Government did not insist on the point. He added that, of course, the name of every stockholder was listed in the books of the companies and that the books were [Page 739] always open to the inspection of the Iranian and Afghan Governments, as the case might be. It was provided in the concessions that a majority of the shares must be held by either Americans or Iranians/Afghans, consequently if this provision should not be met the concession could be cancelled.

Mr. Hart described the German attitude towards the concessions and German propaganda in Teheran against them at some length.

He said that an Iranian official, whom he did not name, had told him that at an official function a short time ago one member of the German Legation had approached him and said that the British participated in the Iranian concession to the extent of 50 per cent. A little later on the same occasion another German had said to him that the Russians participated to the extent of 60 per cent. That made 110 per cent, and Mr. Hart felt that the Germans would do well to coordinate their propaganda a little better.

He added that when the Afghan concession was in its final stages in Berlin; a certain counselor to the Afghans, an Afghan subject who had been educated in Germany, had done everything possible to prevent it from being signed. This man was shown marked consideration by the Germans, was wined and dined by the Foreign Minister, given opera tickets, and so on, but made the mistake of being thoroughly ostentatious about his connection with German officials. In the end, after these tactics had delayed signature for two weeks, the Afghan Prime Minister took cognizance of the situation, dismissed the counselor, and the agreement was signed.

Mr. Hart thought that the disappointment of the Germans was due in part to the fact that they believed Dr. Schacht had made arrangements when he visited Teheran in recent months for the Germans to develop Iranian petroleum resources. Dr. Schacht had evidently made it possible for the German Legation to believe that definite commitments in this sense had been given by the Iranian Minister of Finance. Mr. Hart considered, however, that M. Davar had done nothing of the kind, but that he had merely been hospitable and made polite remarks which were misinterpreted by Dr. Schacht.

Mr. Hart went on to say that there was no reason to believe that the Germans were in a position to participate even if they wanted to, for they lacked the capital and their laws prevented them from exporting what they had. The American company would spend $200,000,000 before they began to get any return. Capital of this magnitude could be found only in the United States and in England.

M. Kartachov asked when operations would commence and from where the engineers would come. Mr. Hart replied that they would begin to arrive in from six weeks to two months and that they would all come from New York.

[Page 740]

M. Kartachov asked whether it had not been necessary to reach some kind of an arrangement with the Anglo-Iranian Oil Company whereby the petroleum would be permitted to come out by the Persian Gulf. Mr. Hart replied that no such arrangement had been made and none was necessary. The Iranian Government took the position that it was entirely free to grant the company an outlet, and the Shah would in fact have been incensed had the company shown any doubt about it by discussing any arrangement of the sort with the Anglo-Iranian. Mr. Hart added that in point of fact the petroleum would not be brought out through the Persian Gulf but through the port of Shahbar [Chahbar], on the Indian Ocean.

Respectfully yours,

Gordon P. Merriam

Memorandum by The Chargé in Iran (Merriam)

Having heard reports to the effect that the Soviet Russian Government was seriously concerned over the granting of a petroleum and pipe-line concession to American companies, the Chargé d’Affaires availed himself of an opportunity offered on March 14, 1937, after a luncheon at the Danish Legation, to ask the Counselor of the Russian Embassy point-blank how the concessions were regarded in Russia.

M. Kartachov immediately became serious and replied that there were two ways of looking at the concessions. First, part of the concession area, Gorgan, was located in the old Russian sphere of influence. It was true that the Russians had voluntarily given up this sphere, but upon condition that if Iran ever granted rights there, it would do so only after consulting the Russian Government. It was true that the Iranians had not accepted this condition, but Russia was nevertheless interested in what happened in that area.

Second, Russian relations with Iran were good; Russian relations with the United States were also good. Iran was a weak country and Russia desired to see it become strong. To become strong it was undoubtedly necessary that Iran should have to resort to foreign capital and, this being the case, Russia would prefer that this capital be American. But Russia would be absolutely opposed to participation therein of capital from any other foreign country. He said he would like to put a question to the Chargé d’Affaires in his turn, and then asked whether there was foreign participation in the company.

The Chargé d’Affaires replied that he desired first of all to make it absolutely clear that the companies concerned were private and [Page 741] that the United States Government was not interested in them and had no connection with them. It had been at considerable pains to make this clear to the Iranian Government. What he could say on the subject was, therefore, simply what he knew from his contacts with Mr. Hart. So far as the Chargé d’Affaires knew the companies were purely American and there was no foreign participation.

M. Kartachov asked whether there was not British participation. The Chargé said that there was not, so far as he knew. He added that he thought the previous history of the negotiations of various American groups for oil concessions in Iran had demonstrated that no American company could hope to obtain a concession if it was connected with British interests in any way. It seemed evident that the Iranian Government felt the British had enough, and would have nothing to do with a company which was associated with them.

M. Kartachov asked whether there was German participation. The Chargé replied that there was none that he knew of. He thought, in fact, that the Germans had been quite surprised by the granting of the concessions.

The Chargé added that what he was saying was derived from his contacts with Mr. Hart and that, since the companies were private concerns, he could give no official assurances in their regard. If M. Kartachov desired to have authoritative information, he would do well to secure it directly from Mr. Hart, who was the representative in Iran of the companies.

M. Kartachov said that he would be greatly pleased if the Chargé would make it possible for him to meet Mr. Hart.

The Chargé replied that he would be glad to ask Mr. Hart to meet him. He was then in Baghdad, but the Chargé would get in touch with him upon his return. A meeting was later arranged at the American Legation on March 17, and at M. Kartachov’s request the Chargé was present as interpreter.