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

888.10/10–3150: Telegram

The Ambassador in Iran (Grady) to the Secretary of State

secret

Tehran, October 31, 1950—2 p. m.

998. Re London’s 2349, October 24 (repeated Tehran 55, Cairo 47), our comments as follows:

1. UK guarantee convertibility one year only is, of course, virtually no concession at all since repayment does not begin until after three years and, assuming interest due only on credit actually used, first year’s interest will amount to not more than one or two hundred thousand dollars.

2. Re paragraph 3: Present coverage requirement would necessitate 60 percent gold coverage for new currency issue. Gold in Banking Department March 20, 1950, was about 5 million pounds sterling which (if none required for banking reserves) would, together with proposed 3 million-pound loan, produce only 720 million rials of new currency, very little compared to the 1.7 billion worth rial notes already held by Banking Department. Furthermore, in addition currency issue would require legislation which government not likely to undertake for currency increase on only 720 million rials.

3. Re paragraph 4: Most AIOC 8 million pound advance being used to balance budget and to finance plan organization rial expenditures and questionable whether much will ever be available for purchase sterling capital equipment.

4. Re paragraph 5: As indicated London’s 2415 October 27 (repeated Tehran 54, Cairo 51),¹ UK provision up to 6 million dollars for purchase US machinery not available sterling sources means nothing unless it means UK loan, need for which highly unlikely under supplemental oil agreement.

5. UK in far better position than US to aid Iran. Had it really wanted to do so, it would have more actively encouraged AIOC to sweeten supplementary oil agreement with some concessions to make possible for Prime Minister to get it ratified by Majlis but has shown little inclination to do so, prolongation of dispute offers prospect of small advantages compared to risk involved.

6. UK well aware importance we attach Export-Import loan and apparently assumes (London’s 2349 paragraph b2) its refusal to guarantee convertibility to service loan for more than one year precludes, at least for time being, consummation loan and such refusal obviously designed to do so. UK cannot control Iranian purchases under US loan but can retain its position to control Iranian purchases, when it so desires, by making Iran dependent on sterling convertibility or UK loan for purchase US goods. Furthermore, in order to maintain its prestige and economic and political influence in Iran, it is apparently attempting to force us, if US aid cannot be stopped to admit UK as an equal partner in our program. For instance, if revision of Iran’s exchange and import control necessary for such aid, it desires to advise regarding such revision.

7. It can only be concluded that UK bent on sabotaging our efforts to strengthen Iran in order to preserve its dubious supremacy and control here. Not only is such course inconsistent with our mutual interest, as reflected in ERP and NAT (to which we are making staggering contributions) to stem Communist and Soviet aggression, but it jeopardizes the global position of the Western democracies.

8. Not only for these reasons (including fact that UK proposals to facilitate US loan to Iran amount to less than nothing), but also because of strong anti-British feeling here, UK association with US in aid program would be a serious liability. Therefore, we must proceed independently.

Sent Department 998, repeated information London 56, Cairo 32.

Grady

1. Not printed.