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305. Memorandum From the Deputy Director for Plans (Wisner) to Director of Central Intelligence Dulles1

SUBJECT

  • The first stages of negotiations for the settlement of the oil dispute, and other matters pertaining to Iran

1. You are, of course, aware of the role played by this Agency prior to your departure in alerting various other departments and agencies (principally State and MSA) to the necessity of being prepared to provide economic assistance to Iran in certain eventualities. We have been prompt in following up these preliminary preparations and have, I think, done all that could be expected of us (CIA) in the direction of getting things moving. As a matter of fact, this has led us inevitably into certain aspects of the opening phases of consideration and negotiation (hopefully) looking toward a settlement of the Anglo-Iranian oil controversy. One of the reasons for our participation has been our close knowledge of the facts, including the local temperaments and temperatures in Iran, as well as the fact that our channel of communications was used at the beginning. But in addition, we have had our own financial interest at stake in that our pocket-book is affected and will be further affected if something is not got under way quickly to produce revenues for the Iranian Government.

2. We have discussed various aspects of these related matters with General Smith, Henry Byroade, Governor Stassen and others, making it clear to all concerned at all times that we were most anxious to avoid creating the impression that we are concerning ourselves with matters not within our range of interest. One development which has occurred and which you should know about is that (with General Cabell’s authorization) I supported Henry Byroade’s appeal for assistance in the form of getting Paul Nitze in on the State Department thinking and planning—if only on an arms’ length, no title, no pay, basis. This was overruled for reasons deemed sufficient by higher echelons—a decision which I personally regard as regrettable in view of the vast amount of knowledge, background and experience which Paul has had throughout the entire history of the Iranian negotiations. (It will be recalled that he headed the US negotiation team which went to London about a year ago.)

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3. Because of your own interest and familiarity with some of the past history of these negotiations, it has seemed to me that you might be interested in the first two suggestions which were offered by Paul Nitze, following which I presume he would have fallen out of play. Paul proposed, very tentatively of course, that

a. Consideration be given to the possible applicability in the Iranian situation of the Mexican arbitration formula (as distinguished from the settlement which was ultimately arrived at between the Mexican and British Governments). According to Paul, the Mexican arbitration formula was a new invention at the time it was brought forth. It consisted basically of having each party pick his own “arbitrator” with the understanding, in advance, that if those two “arbitrators” could arrive at an agreement as between them, the contracting parties would not be bound by it but rather would have the opportunity of accepting or rejecting. This is, of course, not an arbitration at all, but rather a negotiation dressed up in the trappings of an arbitration for the purpose of achieving certain psychological effects. This worked in Mexico. It has not been tried or suggested in Iran. It might be a way of getting things started there.

b. We get some sort of negotiations going immediately for the purpose of creating some revenues for the Iranian Government. These should not be as a part of any over-all settlement to come, and should be so designed as to avoid setting the lines of the over-all negotiation. Moreover, the transaction sought should be clearly explainable in these terms by both parties. Paul’s thought in this connection was, again subject to further study and modification, for the Iranians to make certain of the oil in the tanks available to the British—in return for which certain of the counter-claims asserted by the Iranians would be recognized and met with cash settlements by the British. The point here is that the two acts do not meet as they are not directly related. The advantage from the British standpoint would be two-fold, viz.: (1) Their position concerning ownership of the oil in the tanks would thus be recognized; and (2) since the money would not be paid for the oil but rather in settlement of certain collateral counter-claims, there would be an avoidance of any inference of pricing. The advantage from the Iranian point of view would be that their position concerning the counter-claims would be recognized and, last but not least, they would get some much-needed cash.

Frank G. Wisner2
  1. Source: Central Intelligence Agency, DDO Files, Job 80–01701R, Box 3, Folder 10, TPAJAX. Secret; Security Information; Eyes Only. At the bottom of the page is a handwritten note that reads: “No other copies made—Orig shown to DDCI by FGW.”
  2. Printed from a copy with this typed signature and a note that indicates Wisner signed the memorandum on August 28.