888.2553–AIOC/7–1350: Telegram
The Ambassador in Iran (Grady) to the Secretary of State
111. Have had informal discussion with Northcroft,1 Thornburg, PriMin, and Shah on prospects Majlis ratification of supplementary [Page 567] agreement to AIOC concession. Have made clear our interest is in (1) internal political stability which is largely dependent upon relations between government and AIOC and (2) availability for use by government in its economic development plans of minimum of 24 million sterling, which supplementary agreement provides to be paid by AIOC when agreement becomes effective. Draw following conclusions from conversations:
- (1)
- PriMin feels supplementary agreement should not have provided for Majlis ratification. Was political mistake for Ali Mansur to submit agreement to Majlis since never any real chance of passage. Impossible withdraw ratification bill once submitted, unless AIOC extends additional benefits and concessions as basis for new Majlis bill with which Razmara could identify himself and defend. He suggested not prepared do this until he has a new Majlis which he proposes to secure sometime within three to six months.
- (2)
- Razmara insisting AIOC advance to Iranian Government entire amount accumulated difference between old and new royalty rates for past two years, plus additional amounts due from 20% of undistributed reserves. Furthermore AIOC must immediately begin pay royalties on new basis.
- (3)
- Shah agrees supplementary agreement must be modified in some respects which he considers minor and doubts wisdom extreme position as outlined above. Shah proposes AIOC agree to increase total number Iranian employees and extend to Iranian Government right of audit AIOC books to extent accounts relate financial benefits to government. Even though in Shah’s view these points are minor, such concessions seem to be equivalent renegotiation. I personally doubt that AIOC would submit to even limited audit.
- (4)
- Discussion with Northcroft and statements by British Ambassador to member my staff suggests AIOC officials might be willing agree another advance of 6,000,000 pounds which would be within amount due by next February from royalties at present rates. This amount could probably be of only limited assistance to extremely difficult budget position of government.
The program for economic development and recovery requires funds from three sources:
- (a)
- Additional credits from Bank Melli which rough estimates indicate could be as much as rials 2.5 billion;
- (b)
- US loan or loans; and
- (c)
- AIOC payment under supplemental agreement.
US Government assistance alone in magnitude presently considered can have only limited effect. Protracted delay in payment funds available from AIOC under supplemental agreement or even partial payment of only 6,000,000 pounds will leave government ordinary budget and financing of airy recovery program in continuing serious position.
[Page 568]We have not as yet had a budget statement from the government which means anything. At the suggestion of the PriMin some of my group and I are meeting tonight with Dr. Taqi Nasr, the FinMin, who has just returned from Geneva, and we may get a clearer picture of the financial problem together with more specific and meaningful budget statement.
(g) The PriMin plans shortly approach Northcroft to urge necessity of modification of supplemental agreement along lines indicated to me. Possible this overture could lead to a negotiated settlement acceptable to both parties. However, if AIOC are to accept even modified revision supplemental agreement, it seems to be important that someone come to Tehran from London office AIOC who has not previously participated in negotiation and who could be more effective than persons now on scene in dealing with this complicated and difficult problem (as the PriMin put it, the British look on this matter purely as an oil question, whereas Iranians have come to regard it as political issue.) PriMin feels on other hand that AIOC should be sufficiently concerned with economic future of Iran as to be more conciliatory and flexible. AIOC has heretofore been adamant in refusing even to consider modification agreement signed July, 1949.
I have heard highest commendation of Basil Jackson, one of the AIOC directors. I suggest Department consider asking our Embassy London informally to discuss basic problem with Jackson asking that he be appraised seriousness of situation as we see it. Northcroft and local AIOC officials have been unduly optimistic past year of action by Iranian Government and are still counting heavily on financial necessities of government to force action. In effect this would force PriMin to seek ratification from the Majlis at great poltical hazard. Such a view entirely misjudges the temper of Iranian officials, particularly Razmara. Furthermore, developing controversies between other Persian Gulf Oil Companies and concessionary governments will serve only to increase difficulties of ratification present supplemental agreement in future.
I have stressed in my talks with those here, and stress now, that we are not attempting to aid either side in the impasse, but that we have a very definite and vital interest in the Iranian Government’s obtaining funds agreed by AIOC in supplemental agreement at an early date, if economic program is to gain momentum and the atmosphere here is to be cleared by solution this problem. It is conceivable that a continued inflexible position by AIOC might, by depriving the government of funds for essential activity and future initiation of the development and recovery programs to which it is committed, would [Page 569] result in the overthrow of the present government with all that this implies at this particular moment.
Sent Department 111, pouched Cairo unnumbered (for Lager).2
Note: Paragraphs not numbered or lettered consecutively.