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206. Memorandum From the Counselor of Embassy (Mattison) to the Ambassador to Iran (Henderson)1

SUBJECT

  • Your Conversations with the Secretary2

The following is an attempt to jot down some thoughts in connection with your conversations with the Secretary on present problems in Iran.

1. Present situation in Iran

We have every evidence that the speed of Iran’s economic and political decline has accelerated in recent months.

On the economic side some small sales of oil have had a temporary propaganda affect, but there has been nothing which would affect the basic economic picture. The need for foreign exchange has become acute; the open market rate which a year ago stood around 75 is now over 100. The urgent essential demands for foreign exchange have to a certain extent been met by TCI assistance but that has not been enough to counteract the overall down-hill trend, and the prospect of reduced TCI aid in the 1954 fiscal year makes the picture even darker. Local currency needs have been met in the printing press route and there has been a non-admitted increase in note circulation of perhaps three billion rials (official rate 32 rials to the dollar; “open market” rate 100 rials to the dollar). The inflationary effect of this is only just beginning to be felt.

On the political side we find that there has been a similar deterioration. The National Movement upon whom Mosadeq depends for support has split up into numerous factions. The Majlis has been unable to [Page 565]conduct normal business for over a month. Mosadeq and the Shah have come into conflict which has weakened both. This conflict has also had the effect of increasing the Prime Minister’s reliance upon the Tudeh Party as the only organization which can give him the kind of support in the streets that he feels himself to need. To gain this support he has had to tolerate further Tudeh penetration of the Government. Intrigue and counter intrigue continue but there has yet not appeared on the scene any political or military figure who has the ability to carry the Shah with him in a decisive move against Mosadeq.

2. Problem created by the situation

This set of circumstances has produced problems which render the determination of and operation of U.S. policy in Iran extremely difficult. The following are some of the major problems:

a. In the abscence of an oil settlements there is a possibility which should not be over emphasized but which nevertheless exists that Iran will fall behind the Iron Curtain.

b. An oil settlement seems remote as a result of the attitude of both sides; one while Mosadeq is Prime Minister appears almost out of question. Other factors sharpen the desirability that Mosadeq be replaced by a more reasonable person. However, no opponent who had a reasonable chance of succeeding in overthrowing Mosadeq has yet presented himself.

c. A greater degree of economic or financial assistance than we are presently giving would strengthen the position of Mosadeq in his determination not to reach a settlement. Withholding of such assistance on the other hand strengthens the determination of the British for a “tough” settlement.

d. Prompt financial assistance to a successor government without an oil settlement as a condition precedent might well result in the new government’s being equally stubborn on the question.

e. A demand on our part that a new government make an oil settlement as a prerequisite of financial aid might if yielded to by the new government result in its immediate overthrow. In other words there is a possibility that no Iranian government in the foreseeable future would be in a position to accept oil proposals which would be agreeable to the British Government.

f. Any attempt by a coup or by foreign intrigue to bring about a more “reasonable” government in Iran could be dangerous. If it should fail it would probably hasten the country’s disappearance behind the Iron Curtain.

g. The political and economic decline in Iran has produced factors of unrest and distrust which have been exploited by extremist elements against the United States and have made our operations in Iran increas[Page 566]ingly difficult. Americans and American installations have been attacked. There have been no serious injuries to persons as yet but these may occur any day.

h. The withdrawal or sharp curtailment of the number of American dependents in Iran would cripple the Technical Assistance program in Iran, as the very nature of the program requires a comparatively large staff of technicians and most of these technicians will not come to Iran or remain in Iran unless their dependents are with them.

3. Alternatives available to the U.S.

None of the alternatives is easy. Some of them are extremely difficult. The following represent a few of them with comment on the probable effects.

Alternative A

We could inform the Iranians that under present conditions in Iran it was impossible for our Technical and Military assistance programs to operate, and that we were curtailing their number or if necessary withdrawing all of them and reducing our diplomatic establishment to a minimum type of operation.

Comment:

Favorable: This action might give the Iranians pause. Under conditions in the foreseeable future the emphasis on the TCA and Military approach requires the presence of large numbers of U.S. technicians and their families, which is and will be a mounting irritant to the Iranian public. The removal of a sizeable number of Americans would lessen Iranian public irritation over the presence of Americans and also indicate to the public that U.S. did not intend to maintain Americans where they were not wanted.

Unfavorable: This might merely hasten chaos in Iran and speed up the coming into power of a Tudeh or Tudeh controlled government. It could be interpreted as a defeatist policy on our part at a time when positive action is called for. It would discourage many of our friends and encourage our enemies. Furthermore, the help which our aid missions render still contributes to Iranian stability in spite of the difficulties which these missions are encountering.

Alternative B

We could inform the British that we considered the situation in Iran so serious that we could no longer continue to refrain from purchasing Iranian oil or from granting Iran financial or substantial economic aid. This in effect would mean the adoption of a policy independent of that of the British. Such a policy could take two forms.

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a. Outright substantial financial assistance to the present or a successor Iranian Government in sufficient amount to permit it to survive without an oil settlement.

Comment:

Favorable: Such a source of action, for a time at least, would undoubtedly be popular with the Iranian Government and public. Our stock would soar and we could in all probability achieve most of our policy aims in Iran.

Unfavorable: The effect of such action might be disastrous to our overall world-wide relationships with the British. Such action might also be regarded as flouting a recognized principle of international economic relations through countenancing appropriation without compensation.

b. An offer on a take it or leave it basis to the Iranian and British Governments containing proposals which we considered fair for settlement of the problem on a lump-sum compensation basis. This offer would also include a statement of the maximum financial assistance which we would make available to Iran to tide it over during the transition back to an oil economy.

Comment:

Favorable: If the Iranians should accept this proposal and the British refuse, we could consider ourselves free to proceed with outright economic aid and purchase of oil. If neither side should accept we would then be in a position to re-evaluate our policy and take decisions with a free hand. Such a course would also force the Iranians to “put up or shut up” insofar as their announced willingness to pay compensation goes.

Unfavorable: If the British should accept and the Iranians refuse, we would be forced to wash our hands of the Iranian problem. Both parties might well be resentful at U.S. interference. The British public, for instance, might regard it at another illustration of the way the U.S. is trying to dominate the U.K.

Alternative C

We could attempt to intervene by all practicable means in the internal affairs of Iran and endeavor to bring in a government that was willing to reach an agreement on British terms.

Comment:

Favorable: On the theory that anything which would achieve our ends would be good, this might sound like an excellent solution.

Unfavorable: This would probably take the form of a military dictatorship or a dictatorship supported by the military, as there is some [Page 568]doubt that sufficient popular support could be obtained for a settlement on present British terms.

It might be accomplished by “peculiar” pressure on the Chamber of Deputies. However, no agreement would be of value or be enforceable for any substantial period of time unless it was reasonably acceptable to the Iranian public. There is at present no Iranian on the political scene who has displayed the necessary force and personality successfully to replace Mosadeq.

Alternative D

We could renew our pressure on both the British and Iranians to come to a more reasonable attitude with regard to compensation. This is essentially a policy of continuing our policies in Iran of using every suitable occasion to impress upon Iranian leaders the necessity of coming to an arrangement on this matter and of inaugurating a policy with regard to the British of insisting that they do not remain passive in this matter. The British should understand that sooner or later if they maintain their present attitude (a) Iran will be lost to the free world or (b) Iranian oil will find its way into the world markets in quantities and in a manner which can create acute discomfort for the AIOC.

Comment:

Favorable: This alternative would seem to contain less immediate hazards than those mentioned heretofore. It would be in keeping with the practice which the U.S. customarily follows in trying to bring about a solution of problems between its friends.

Unfavorable: There is a possibility despite all that we might do along these lines, that Iran will drift into chaos and that we would be open to the accusations of not taking sufficiently positive action.3

  1. Source: National Archives, RG 59, Central Files 1950–1954, 788.00/5–2153. Top Secret; Security Information. The memorandum is attached to a May 21 letter from Mattison to Richards which reads: “Before the Ambassador left I tried to jot down a few things with regard to ‘our’ problem of Iran. The Ambassador, before leaving for Karachi, suggested that we send this to you for your information. Needless to say, I don’t claim complete pride of authorship as the Ambassador and Roy both had some suggestions for changes which were incorporated in the memo. You will note that no recommendations are contained in the document, primarily because we are not at all sure of what the best course is. We hope that the Ambassador’s conversations with the Secretary may help to firm up our ideas.”
  2. Dulles and Stassen visited the Near and Middle East May 9–29. Henderson and Warne flew to Karachi on May 22 to brief Dulles on the current situation in Iran. In telegram 4472 from Tehran, May 20, Henderson summarized the points that Mosadeq wanted him to convey to Secretary Dulles. See Foreign Relations, 1952–1954, vol. X, Iran, 1951–1954, pp. 727–728 (Document 326).
  3. Telegram 4524 from Tehran, May 25, Henderson transmitted the text of an oral message Dulles authorized him to convey to Mosadeq upon the Ambassador’s return from meeting with the Secretary in Karachi. The Secretary wished to communicate to Mosadeq that his trip to the Near East and Middle East had been a fact-finding trip and that he was disappointed at not having been able to visit Iran. He nevertheless wished to express his regret “hear you apparently coming opinion it would serve no useful purpose continue searching for solution problem compensation; and that therefore you thinking of ignoring that problem in making plans restoration Iranian economy.” The Secretary urged Mosadeq to continue to work with the British to find a solution to the oil dispute. Telegram 4524 is printed in full in Foreign Relations, 1952–1954, vol. X, Iran, 1951–1954, pp. 728–729 (Document 327).