199. Telegram From the Embassy in Iran to the Department of State1

4304. 1. During my talk Mosadeq May 3 he said he contemplating new approach oil problem. NIOC or government bring suit against AIOC in Iranian courts to recover on claims during period AIOC operated concession and on new claims arising from damages inflicted since nationalization. AIOC would be invited appear bring records submit counter claims. Case would be conducted with fairness apparent to all impartial observers. What would I think such approach?

2. I said it might afford considerable international entertainment but not (repeat not) likely solve oil problem. Public UK and various other countries could not (repeat not) be convinced trial such circumstance would be fair. AIOC almost certain not (repeat not) answer summons. Trial absentia would have little weight. Prime Minister insisted Iranian courts proper tribunal; AIOC might not (repeat not) be interested pressing its claims against Iran but Iranian claims active and could not (repeat not) languish. I said I thought free world would consider international tribunal more appropriate than Iranian courts for settlement claims. I asked if he would object my informing US Government his plans. He said matter still under consideration not (repeat not) discussed with leading political advisers. Therefore confidential. I could however tell US Government if I thought no (repeat no) leaks.

3. Prime Minister remarked I did not (repeat not) seem favorably impressed his idea. I repeated I did not (repeat not) think his contemplated approach would serve any useful purposes so far as settlement oil dispute was concerned. Prime Minister apparently on impulse said “I am willing have this dispute settled by someone whom Britain and I can trust. I agreeable President Eisenhower act as arbiter. I ready give him full power to decide issue. Will you be good enough to ask President Eisenhower if he would undertake settle this matter for us?” I replied I had no (repeat no) authority convey any additional messages re settlement oil dispute. Appropriate way to make suggestions re settlement dispute by direct contact with British or through Swiss who represented British interests. Prime Minister said he wished make no (repeat no) formal suggestions unless he had some reason hope they might be acceptable. Would I not (repeat not) be willing at least report our conversations US Government? I agreed provided it be clearly understood he was not (repeat not) making any proposals to me; that we [Page 547] were not (repeat not) reviving discussions re settlement oil problem. Was I to understand he prepared give President Eisenhower full powers with no (repeat no) strings attached settle oil dispute and accept without reserve whatever decision President might make? Prime Minister hesitated. He said only decision President Eisenhower would be called upon to make would be amount of compensation due after deduction Iran’s counterclaims. Although he trusted President completely, Iran public sentiment would never allow any foreigner decide question British return Iran. British could never return regardless of Iranian Government in power. After further thought Prime Minister said if British indicate willingness abide by decision US President, he would ask Majlis gave him full power go to US to lay case before President. After arrival in US he would send message requesting Majlis to permit him transfer his full powers to President. He must obtain Majlis approval for each step in explosive problem matter this kind. I asked if he sure, (a) Majlis would give him full powers, or (b) Majlis would later be willing authorize him transfer full powers to President. He said if British in good faith would be willing to give full powers to President and British would cease for time being causing him trouble through their agents in Iran he convinced Majlis would follow his lead this matter. I said then danger this new idea might give rise false hope of settlement. If British should be prevailed upon to give President full powers Iran public might well say British willingness this regard indicates British sure decision will be their favor. Prime Minister said he sure he could manage situation Iran if UK Government could manage in London. I would report our conversation to US Government but not (repeat not) in form of offer. US President faced with staggering burden duties. It would not (repeat not) be easy for him act as arbiter in case this kind. Furthermore, task of thankless character sure to create resentment in both countries. Nevertheless if President had reason believe dispute might be disposed of as result his personal arbitration he might view importance to free world of obtaining settlement undertake task. Unfortunately I not (repeat not) in position as result of informal conversation this kind assure US Government there good reason believe dispute could be settled this way. In past, Prime Minister had suggested various approaches to me but after consulting his advisers had attached so many conditions approaches proved blind alleys. Nevertheless I would report his remarks to State Department.

4. I also told Prime Minister that even if US Government should be willing again to become involved in this dispute it would not (repeat not) be easy induce UK endeavor find solution oil dispute so long as Mosadeq remained Prime Minister. UK Government seemed believe as it made concession after concession Mosadeq continued to retreat apparently in expectation that British would make fresh concessions. My impression was British had lost practically all hope any settlement [Page 548] while Mosadeq remained Prime Minister. Prime Minister maintained he desired dispute settled; he had never moved backwards; in fact on occasions he had been willing make concessions which would have rendered him vulnerable sharp criticism by Iran public and by political leaders opposed to him including even stooges of British.

5. In view my previous experience with Mosadeq I not (repeat not) inclined place hope in settlement oil problem through channels which he now suggests. Even if British Government would find it possible entrust President decide dispute it would in my opinion be very difficult for Mosadeq obtain full powers from Majlis or transfer those powers to President. In any event Majlis likely insist decision be in framework nine-point national law and in right pass on President’s decision. Furthermore I doubt British would be happy at idea of matter of compensation being completely divorced from question future disposition Iran oil.

6. Even though Mosadeq’s latest suggestion likely collapse before making appreciable headway I do not (repeat not) think it in interest free world for US take completely negative attitude at time we stressing settlement question compensation may be key future fate Iran. I venture suggest therefore unless it decided President in no (repeat no) event should become involved in this troublesome problem matter be discussed with British and they be informed unless they strenuously object US answer be that President did not (repeat not) believe he could be useful in this matter unless he should be informed jointly by Iran and UK their desire submit to him such differences as they unable to settle between themselves for decision and that government of both countries would do utmost persuade their respective legislatures to approve any decision President might make. US Government therefore suggests if after careful consideration Prime Minister desires make such approach he might directly contact UK or contact through Swiss. If it believed unwise for President become involved I might be authorized inform Mosadeq that although this expression confidence in President deeply appreciated, President believes he could be more useful to both Iran and UK in future if he should refrain from making decisions on merits their respective claims; that he hoped Iran and UK would be able find solution as result direct contact or by agreement on some arbiter other than President in whom both would have confidence.

7. Have marked this telegram Noforn merely because Department and London might desire decide between themselves what if anything tell British.

  1. Source: National Archives, RG 59, Central Files 1950–1954, 888.2553/5–453. Secret; Noforn. Received at 2:23 p.m.