Foreign Relations of the United States, 1950, The Near East, South Asia, and Africa, Volume V

788.00/4–1950

Memorandum by the Assistant Secretary of State for Near Eastern, South Asian, and African Affairs (McGhee) to the Secretary of State ¹

top secret

[Washington,] April 25 [26], 1950.

Subject: The Iranian Crisis

The following is a revision of my memorandum of April 19,² amended to reflect the views expressed in the staff meeting of April 26. You will recall that the recommended program was approved at that meeting subject to the submission of a revised paper to you.³

Problem

To decide upon a course of action for meeting the current Iranian crisis which seriously threatens the security of that country.

Background

A combination of three primary factors has resulted in a critical situation in Iran which, if unchecked by positive American action, might well result in a collapse of the present political structure and its domination by the Soviet Union. These factors are (a) a current economic depression which has resulted in substantial and growing unemployment, business bankruptcies and, in some areas, actual starvation; (b) increased activities of the well-organized clandestine Communist (Tudeh) Party, which has made substantial inroads into many elements of the Iranian population; and (c) disorganization, disunity and confusion among the government leaders, who are unable to offer an effective program for meeting the situation.

Aside from the credit of $26 million for the purchase of surplus military supplies in 1948, direct American aid to Iran has thus far been confined to relatively small military assistance under MAP and a promise of technical advisers under the Point Four program when it becomes operative. The Iranians have made repeated appeals to the United States for economic and financial assistance, but these have been refused on the basis that the Iranian foreign exchange position is relatively good and that the lack of progress in economic development could not be attributed to the inadequacy of foreign currencies. While this remains substantially the case, the favorable exchange position has during the past year been somewhat reversed and there is now a demonstrable need for some form of foreign aid, at least until a new agreement covering the Anglo-Iranian Oil Company concession is ratified under terms which would provide increased royalties and benefits to the Iranian economy.

The failure of the United States to extend aid to Iran at a time when substantial assistance is being rendered to Western Europe, Greece, Turkey and certain other Asian countries, and in light of the announced program for south Asia, has intensified the feeling of Iranian leaders and the Iranian people that the United States is not concerned with their welfare. Indeed, Iran is the only country on the Soviet periphery which is not now receiving or about to receive some form of American economic assistance. Under these circumstances, American prestige in Iran has dropped sharply, and the Iranians ignore American advice and counsel. There is at present a considerable body of influential opinion in Iran which believes that Iran has taken great risks in its firm opposition to Soviet threats, which included armed intervention in 1945–46, and that these risks have been neither appreciated nor rewarded by the West. Lacking any sign of a real American interest in Iran, many important Iranian officials believe that further risks of this nature are no longer warranted.

General Collins was impressed with the seriousness of the situation during his recent visit to Iran. Following his return to Washington he expressed these views in the report of his trip:⁴

In my judgment, the strategic position of Iran and its vulnerability to Russian pentration and subversion make it imperative that adequate action be taken by the United States in order to insure that a “second China” does not develop in Iran . . . .

G–3 should initiate action through the JCS to bring strongly to the attention of the Secretary of Defense and the Secretary of State the importance of prompt economic assistance and adequate MDAP aid to Iran.

The attached memorandum⁵ outlines the current political and economic situation and sets forth a proposed program designed to meet the imminent threat of the loss of this strategic and politically important country. The principal element of the recommendations is that United States aid, under competent control and administration, would provide a lever for prodding the Iranians to take administrative and economic measures absolutely essential to bring any order out of the present chaos. There is of course no proof that Iran would in fact collapse in the absence of the measures recommended; on the other hand, I am firmly convinced that the dangers are so great and the stakes are so high as to make it most unwise to take any chances. The proposed program is outlined on page 8 of the memorandum. In summary, it is:

(a) The early dispatch of a survey mission to Iran to investigate the need for economic assistance and to recommend the terms and conditions under which such aid should be extended;

(b) Obtaining from the Export-Import Bank a commitment to provide, if recommended by the mission, funds to finance selected development projects. While no overall sum should be announced to the Iranians, the mission should know in advance of its departure the amount (perhaps from $25 to $50 million) which the Bank would be prepared to support;⁶

(c) Consideration, subject to negotiation with appropriate Departmental and Defense officials, of the establishment of an Iranian MAP program for 1951 of approximately $20 million, although the actual sum to be released should be under the close control of American representatives in Iran;⁷

(d) Strengthening of United States representation in Iran by opening a new consulate at Isfahan, the assignment of more experienced officers to Tabriz and Meshed, and the augmentation of the economic and political sections of the Tehran Embassy;

(e) Expanding and improving the Department’s informational program in Iran, including the assignment of USIE staff to Tabriz, Meshed and Isfahan;

(f) Dispatching as soon as possible a technical aid group to Iran under Point IV.

(g) Establishing a policy of more direct advice to the Shah concerning Iranian administrative, political and economic matters, using American aid as a lever of persuasion.

It should be made clear that this program does not make or imply any further commitment with respect to United States political or military support of Iran. Although it should be carried out in such a way as to inspire confidence in the Iranian people and government through American financial and economic assistance, it will in no way imply to Iran or the rest of the world any United States guarantee of Iranian independence or integrity. It is desirable to avoid further engagement of the prestige of the United States in such an uncertain area which is so far removed from the bases of United States power. Another reason for avoiding dramatization of the program is to minimize any Iranian assumption that we will resolve their problems for them. We must assure an Iranian realization that failure to carry out the necessary political and economic reforms will not only lose them the benefits of American economic assistance but may also cost them their independence.⁸

I believe that the best qualified person to head the mission recommended in the first point of the program would be Henry F. Grady, now Ambassador to Greece. His extensive experience, particularly in economic matters, and his background in dealing with similar political problems in Greece would make him ideally suited for this difficult task. Moreover, since the major problems in Iran at this point appear to be fundamentally of an economic nature, I believe that there would be great advantages in the designation of Mr. Grady as Ambassador to replace John C. Wiley, who has served for two years in that difficult and often exasperating post, as long as any previous Ambassador has served, and who in any event would shortly be due for reassignment. I think that Mr. Grady could be persuaded to accept both designations, assuming that Tehran can, in light of its critical importance at the moment, be raised to a Class I post.

Recommendations

(a) That you approve in general the program as set forth;

(b) That you authorize immediate negotiations with the Export-Import Bank to obtain a commitment for the extension of loans to Iran, within an agreed-upon total⁹ and as may be recommended by the survey mission;

(c) That you approve the proposal that, subject to his acceptance, Henry F. Grady be designated to head the survey mission to Iran and concurrently to serve as Ambassador to Iran, replacing John C. Wiley; and that the Embassy in Tehran, in light of the present situation, be raised at that time to a Class I post.

(d) That you discuss with the British in London the proposed program and solicit their cooperation in presenting a united front to the Iranians, suggesting in addition that they could make a positive contribution by resolving the dispute over the AIOC contract. (A background paper on this subject has been prepared for the London meetings.)¹⁰

1. Attached to this memorandum were the following notes:

   1) April 26, by Mr. McGhee to the Secretary of State which reads as follows: “The attached paper and the question of his assignment to Iran has been discussed informally with Ambassador Grady. It is believed that his initial reactions are favorable. It is urged that you discuss this question with him at an early opportunity, preferably this week, and urge him strongly to accept the assignment. It would, of course, be more effective if you could indicate the strong desire of the President that he accept, and arrange a meeting with the President.” The editors have found no record of a meeting of Ambassador Grady with President Truman on the questions of Ambassador Grady’s assignment to Iran.

   2) April 27, by Aaron S. Brown, Assistant to the Director of the Executive Secretariat to Mr. Battle, transmitting this memorandum with a copy of the original paper of April 19; and

   3) May 3, by Mr. Battle to Mr. McWilliams which reads as follows:

   “The Secretary has read the attached paper on Iran and has discussed the matter with Ambassador Grady. I do not know what was said in this conversation.

   “I think the next move is to put this in the book for tomorrow.

   “While the Secretary did not indicate approval of the paper, he made no criticism and I think this is tantamount to an approval of it, as drafted.”

   On May 4 Secretary Acheson discussed with President Truman the line of action proposed in the present memorandum by Mr. McGhee. Secretary Acheson’s memorandum of this conversation reads as follows:

   “I explained very briefly to the President what we had in mind, including the change in Ambassador Grady’s assignment and also Ambassador Grady’s interest in going to Japan whenever an ambassadorial post was created there.

   “I told the President that Mr. Webb would go into the matter with him in greater detail next week, but today I only asked whether the proposal in general seemed to him along the right lines. I received his assurance that it did.

   “I told the President that I was not asking to commit himself in regard to any future assignment for Ambassador Grady, but that I had told Mr. Grady that I would be prepared to recommend it to the President when the time occurred.” (Secretary’s Memoranda of Conversation, Lot 65 D 238, memoranda of conversation with the President, 1950)

   Regarding Secretary Acheson’s statement that Mr. Webb would go into the matter in greater detail with the President, Mr. McGhee thought this unnecessary and suggested that Mr. Webb “merely tell the President that we have been discussing the matter with the [Export-Import] Bank and we expect some word from them today. You might also say that Grady has agreed to this assignment and that the papers will be forthcoming.” (Memorandum, May 18, by Mr. McWilliams to Mr. Webb (ibid.)) Mr. Webb did not discuss the “Iranian Crisis” with the President at their meeting of May 18th. The editors have not found a record of such a discussion between Mr. Webb and the President in Department of State files.

   A memorandum, May 18, by Acting Secretary Webb to the President formally recommended the appointment of Henry F. Grady as Ambassador to Iran (Secretary’s Memoranda, Lot 53 D 444). Ambassador Grady was nominated by the President on June 5; the Senate gave its advice and consent to his appointment on June 26; and he was appointed by the President as Ambassador to Iran on June 29.

2. The memorandum, April 19, by Mr. McGhee to the Secretary of State (788.00/4–1950) constituted part of document UM D–97, April 21, 1950, considered at the Under Secretary’s meeting of April 26; see supra. Amendments to the original paper of April 19 are indicated in footnotes below.
3. This paragraph is an amendment to the memorandum of April 19.
4. Memorandum of April 10, by General Collins to the Secretary of the Army, not printed. For Annex 5 of that memorandum, see p. 507.
5. Reference is to the undated paper, prepared in the Department of State and entitled “The Present Crisis in Iran,” p. 509.
6. In the original memorandum of April 19, this paragraph read as follows: “Obtaining from the Export-Import Bank in advance of the mission’s departure a commitment to provide, if recommended by the mission, a line of credit not exceeding $50 million, only a portion of which probably will be used.”
7. This paragraph originally read as follows: “Establishing an Iranian MAP program for 1951 of not less than $20 million, although the actual sum to be released should be under the close control of American representatives in Iran.”
8. This paragraph is an amendment to the memorandum of April 19.
9. The original memorandum of April 19 specified that this total was not to exceed $50 million.

10. This paragraph is an amendment to the original memorandum of April 19. The background paper referred to is printed, p. 529.

    In addition, the memorandum of April 19 contained the sidehead “Concurrences” and a final paragraph which read as follows: “Messrs. [Philip C.] Jessup, Peurifoy [Willard L.] Thorp and Nitze concur. However, Mr. Thorp wishes to study further the procedures and amount in connection with the proposed Export-Import Bank loans. Actual figures for mUitary aid remain to be worked out with S/MDA.”