859A.50/4–1847: Telegram
The Chargé in Iceland (Trimble) to the Secretary of State
174, I had long talk with FonMin1 yesterday afternoon re present economic situation which he indicated is causing govt great concern, He said tentative agreement had been reached with British at end of last week whereby latter would purchase 12,000 tons frozen fillets—slightly less than one-half estimated production—and substantial quantity of herring oil (40% according to reliable source) at prices somewhat lower than those sought by Iceland delegation London. By a “curious coincidence” news of proposed terms reached Russians within three days. Latter who have been dragging their heels in current Moscow trade negotiations for over two months immediately offered to purchase most of remaining fillets and unspecified quantity herring oil including part of that earmarked for UK. Russian prices lower than those offered by British. They flatly refused to buy any wet salted fish on grounds that no demand for commodity exists in Soviet market where they allege it is practically unknown. Refusal caused consternation among Iceland authorities as government had been counting on Russia buying upwards of 20,000 tons wet salted fish or roughly two-thirds anticipated production. Decision whether or not to accept offer will be taken by cabinet within 48 hours. Iceland reluctant to agree to Russian terms but sees no other alternative as prospects sale of fillets in US highly uncertain. According to report made to Thors2 Cabinet by former Communist Minister Aki Jakobsson Russian trade representative Semenov had assured him last fall that Soviet Union would buy all wet salted production at high price and was also prepared to purchase all other exportable surpluses. Counting on this govt had therefore guaranteed fish producers price of 17 cents per pound. Efforts by present Iceland negotiators Moscow to communicate with Semenov and obtain a verification of his commitment have been fruitless as he is invariably “indisposed”.
[Page 830]Local Communists according to Benediktsson are preparing to attack govt for its failure to follow through on Semenov’s “promises”. FonMin feels cabinet can weather this particular storm by citing true facts in case but must find outlet for wet salted fish in near future, for if economic conditions continue to deteriorate, as seems likely unless fish can be quickly disposed of, general dissatisfaction will inevitably lead to demand that present “weak” govt be replaced by “strong” one capable of solving problems. In this connection Benediktsson pointed out that even certain members of his own party harbor view that present govt lacks strength while Herman Jonasson is becoming increasingly vociferous in his opposition. If a “strong” govt should be formed it would almost certainly include Communist members.
In view of above possibility Benediktsson who appeared extremely worried inquired as to prospects for sale wet salted fish to Army for use in feeding civilian population US zone Germany. I said we had little info on subject but would be glad to inquire into the matter adding however that since cost of feeding Germans is borne by US taxpayers Army must naturally place its orders where prices are lowest. Benediktsson replied he thought price question could be settled satisfactorily but urged preliminary investigation be instituted as soon as possible in view uncertainties present politico economic situation.
As we see it Russians have been stalling on Iceland negotiators since they are counting on continued deterioration economic conditions which would eventually result in fall of govt and replacement by one having Communist representation and were spurred into making foregoing limited offer only because of fear that British would acquire herring oil which Soviet Union apparently needs. Their failure to bid for wet salted fish however seems to indicate that their present offer is an exception to rather than change in policy. Should Soviet tactics be successful local Communists will undoubtedly seek two portfolios in the govt, aviation in order to hamstring AOA operation Keflavik3 and possibly foreign affairs. If Olafur Thors forms a new govt he would probably refuse to give Communists latter post but might be compelled to let them have aviation portfolio. It is conceivable however [Page 831] that if Herman Jonasson should become PriMin he would be willing to let Communists head both ministries.
Considering implications present situation I strongly recommend Dept and War Dept examine possibilities for purchase wet salted fish by Army for use in Germany or in connection with Greek relief program and furnish me with such preliminary data as may be readily available in order that I may follow up yesterday’s conversation with Benediktsson. Prospects for continuance present govt are favorable provided we can help Iceland to dispose of fish. If we cannot and economic conditions continue to deteriorate as they have every likelihood of doing probability is that cabinet will eventually fall. I fully realize course of action Legation advocating corresponds in certain respects with economic warfare practices but consider it necessary from standpoint strategic interests involved.
- Bjarni Benediktsson, Icelandic Minister for Foreign Affairs.↩
- Olafur Thors.↩
- In the Legation’s Note 727, April 2, to the Minister for Foreign Affairs, not printed, Trimble informed Benediktsson that “the American Overseas Airlines has been designated under contract to the United States War Department to maintain, either directly or through its subsidiary, the Iceland Airport Corporation, on behalf of the United States Government the services and facilities at the Keflavik Airport extended thereto by the Agreement of October 7, 1946, after the United States military forces have been withdrawn from Iceland.” (859A.20/4–2347) For text of Agreement, see Department of State Treaties and Other International Acts Series (TIAS) No. 1566, or 61 Stat. (pt. 3) 2426. Related documentation on the operation of Keflavik airport, not printed, is in Department of State file 859A.7962.↩