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218. Memorandum From the Deputy Assistant Secretary of State for Near Eastern, South Asian, and African Affairs (Jernegan) to the Deputy Under Secretary of State (Matthews)1

SUBJECT

  • Need for Certain Policy Decisions on the Iranian Problem

There is some urgency that the Department’s position be clarified on several matters concerning Iran. Advantage may be taken of the presence in the Department of Ambassador Loy Henderson from June 18 to about June 28 to obtain his views. Meetings will be set up of all interested persons after Ambassador Henderson arrives in Washington, but it is suggested that some preliminary thinking be done on the subjects listed below prior to his arrival:

(A) What reply, if any, is to be given Dr. Mosadeq’s request that President Eisenhower act as an arbitrator in the oil dispute?2

It is GTI’s recommendation that no reply be given Dr. Mosadeq on this matter, unless he raises the question again.3

(B) What guidance should be given the prominent oil consultant, Mr. Walter Levy, who has suggested that he send, as a private citizen, a [Page 591]suggestion to Dr. Mosadeq of a figure which would be a basis for a lump sum settlement of the compensation question in the oil dispute?4

It is GTI’s recommendation that the U.S. Government avoid any unwanted interference in the oil dispute, while at the same time permitting Mr. Levy, as a private citizen, to request by letter Dr. Mosadeq’s reaction to his suggestion for an equitable lump sum settlement.5

(C) What reply should TCA make to the National Iranian Oil Company’s request to have 100 employees trained in the United States?6

It is GTI’s recommendation that TCA be informed that there is no policy objection to acceptance of the Iranian request.7

(D) What reply should President Eisenhower make to Dr. Mosadeq’s letter of May 28 requesting increased U.S. aid to Iran?8

It is GTI’s recommendation that the President inform Dr. Mosadeq that the present level of economic aid to Iran will be increased in FY 1954.9

(E) What reply will be made to Mr. Stassen who has instructed DMS to open conversations with the Department on the basis of his understanding that U.S. economic aid to Iran is to be increased by approximately $15,000,000 in FY 1954?

It is GTI’s recommendation that DMS be informed that we consider U.S. policy objectives would be furthered through an increase in [Page 592]economic aid to Iran in FY 1954 and that we will welcome an opportunity to discuss the level and nature of such a program.

In addition to the foregoing problems which require urgent decision, there are the following questions which might also receive attention while Ambassador Henderson is in Washington:

(F) Should the Department remove policy objections to the Export-Import Bank’s consideration of a $25,000,000 loan to Iran for agricultural and road-building machinery?10

It is GTI’s recommendation that the Export-Import Bank be informed that we consider U.S. policy objectives would be furthered if the Export-Import Bank makes the previously contemplated loan to Iran.11

(G) What funds can the U.S. Government use to subsidize an American airline in affiliation with Iranian Airways, which is at present bankrupt and in great danger of falling under the control of persons favorably inclined toward the Soviet Union?12

It is GTI’s recommendation that a policy decision be taken that it is in the U.S. national interest to subsidize a U.S. airline in affiliation with Iranian Airways (Transocean Airlines has already made the agreement but will need assurances of financial support this month) in order to prevent communist entry into Middle East airlines and to support the Iranian economy without directly strengthening Dr. Mosadeq.13

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(H) What action, if any, should the U.S. Government take to increase Iran’s diplomatic and commercial relations with West Germany?14

It is GTI’s recommendation that the Bonn Government be encouraged to establish diplomatic and commercial offices in Iran?15

(I) Should additional efforts be made to strengthen Iran’s military establishment with the objective of increasing its political importance and position in the national economy?16

It is GTI’s recommendation that the present objectives of our military aid program in Iran, aiming at technical standards of equipment and training for the Iranian army, should be broadened to allow our military aid to seek to increase the political importance of Iran’s armed forces and their position in the national economy.17

  1. Source: National Archives, RG 59, Central Files 1950–1954, 888.2553/6–1553. Secret; Security Information. Drafted by Stutesman and Richards. Copies of the memorandum were sent to Assistant Secretary for European Affairs Merchant, Assistant Secretary for Economic Affairs Waugh, and Robert Bowie, Chairman of the Policy Planning Staff.
  2. See Document 199.
  3. To the left of this recommendation in the margin is the handwritten word “no.”
  4. Walter Levy made the proposal in early May. (Memorandum from Richards to Byroade, June 9, which is tab B to another copy of the memorandum in National Archives, RG 59, GTI Files, Lot 57 D 155, Box 41)
  5. To the left of paragraph B in the margin is the handwritten word, “delay.”
  6. According to a memorandum from Richards to Byroade, June 8, TCI had been requested by the NIOC to accept 100 NIOC employees into the United States for “advance training in mechanical, electrical, and chemical engineering, and in petroleum technology and accountancy.” Henderson recommended that the request be met because it accorded with the overall objectives of technical assistance to Iran. Ambassador Aldrich in London, on the other hand, warned that “any move by the United States to facilitate training of individuals on behalf of the NIOC would be interpreted in London as United States Government approval of, or at least acquiescence in, Iran’s oil policy.” (National Archives, RG 59, GTI Files, Lot 57 D 155, Box 41)
  7. To the left of this sentence in the margin is the handwritten word “Delay.”
  8. The text of Mosadeq’s letter, May 28, is in Eisenhower Library, Ann Whitman File, Box 32, Iran 1953–59(9). In a memorandum to Dulles on June 5, Byroade described the three principal points of the letter as: “(1) A recitation of the difficulties experienced by Iran, allegedly as a result of British attitudes and activities. (2) An expression of grave concern over the probable consequences of a further deterioration of the financial and economic situation in Iran, which deterioration can be reversed only by (a) the removal of obstacles to the sale of oil or (b) increased economic aid from the United States. (3) An urgent appeal to the U.S. for increased aid ‘if the American Government is not able to effect a removal’ of the obstacles to the sale of Iranian oil.” The full text of Byroade’s memorandum is in Foreign Relations, 1952–1954, vol. X, Iran, 1951–1954, p. 732 (Document 330).
  9. To the left of this sentence in the margin is the handwritten word “no.”
  10. An Export-Import Bank loan of $25,000,000 for agricultural and road-building machinery for Iran had been proposed in mid-1950 but its approval had been delayed. Extensive documentation on the loan proposal is in Foreign Relations, 1952–1954, vol. X, Iran, 1951–1954. In a memorandum to Byroade, June 10, Richards discussed the policy considerations that had contributed to delays in extending the loan to Iran. “The policy considerations mentioned above have been essentially that the aid proposed would strengthen the Mosadeq Government and would reduce some pressure upon Mosadeq to come to a settlement of the oil dispute. On the other hand, the aid will restore some Iranian confidence in American promises and will materially assist in preventing the collapse of Iran’s agricultural economy.” Richards therefore recommended “that the Export-Import Bank be informed that there is no policy objection to their loaning $25,000,000 to Iran for road building and agricultural machinery if the Bank desires to go ahead with it.” (National Archives, RG 59, GTI Files, Lot 57 D 155, Box 41)
  11. To the left of this question in the margin is a handwritten note that reads: “Postpone. Mossadegh.”
  12. In a memorandum to Byroade, June 11, Richards discussed assisting Transocean Airlines to reach an “affiliation agreement” with Iranian Airways in order to keep Iranian Airways from “falling under control of persons favorably inclined toward the USSR.” According to Richards, the President of Transocean Airlines expected “some financial support from the US Government in order to carry out his proposal.” Richards recommended that the U.S. Government provide assistance through the TCI program. (National Archives, RG 59, GTI Files, Lot 57 D 155, Box 41)
  13. To the left of this paragraph in the margin is the handwritten word “Yes.”
  14. In a memorandum to Byroade, June 11, Richards explained that Iran–West German trade had increased in the last year despite the oil dispute with Great Britain. “This trade not only strengthens Iran’s ties with non-communist areas but siphons off trade which might otherwise go towards the communist bloc.” (National Archives, RG 59, GTI Files, Lot 57 D 155, Box 41)
  15. To the left of this paragraph in the margin is the handwritten word “Yes.”
  16. In a memorandum to Byroade, June 11, Richards wrote that the military in Iran “is being reduced in strength and prestige by Dr. Mosadeq and is being infiltrated by communist agitators.” The Defense Department intended to reduce military aid to Iran in FY 1954, but Henderson and McClure “have already suggested certain measures which might be taken to broaden the type of military aid presently being given. These and other ideas for broadening the objectives of US military aid to Iran can be studied in Washington, if the policy decision is made that it is in the US interest to work towards a restoration of the Iranian Army’s political position in Iran.” (National Archives, RG 59, GTI Files, Lot 57 D 155, Box 41)
  17. To the left of this paragraph in the margin is the handwritten word “Yes.” In a memorandum to Acting Near East and Africa Division Chief [name not declassified] of the Directorate of Plans, June 12, Waller commented on the above questions and recommendations made by GTI. He grouped questions A through E as “part A,” and questions F through I as “part B.” After reviewing GTI’s recommendations in part A, recommen-dations, he wrote, that “if accepted, would reverse American policy toward Mossadeq as stated by Under Secretary of State Smith,” Waller also warned that the recommendations “would prolong Mossadeq’s tenure of office. Furthermore, latter recommendations would make Project TPAJAX inoperable but also inconsistent with national policy.” (Central Intelligence Agency, DDO Files, Job 80–01701R, Box 3, Folder 7, TPAJAX Vol. I)