Foreign Relations of the United States, 1952-1954, Iran, 1951–1954, Second Edition

121. Memorandum From the Assistant Secretary of State for Near Eastern, South Asian, and African Affairs (Byroade) to Secretary of State Acheson¹

Washington, September 10, 1952.

SUBJECT

• Recommended Change in United States Policy Towards Iran

The Problem

To determine the policy to be followed by the United States in the light of recent developments in the Iranian situation.

Background

On August 30, 1952 there was formally delivered to Dr. Mosadeq a joint message from President Truman and Prime Minister Churchill containing proposals for action by all three governments to bring about an “early and equitable solution” of the oil dispute (Enclosure No. 1).² These proposals were based upon British and American reappraisals of the situation in Iran and represented certain basic changes in British and American attitudes towards solving the oil dispute which is the prime factor for instability in Iran.

British policy had previously been based on assumptions that economic and political pressures on Iran, following the nationalization of the AIOC concession, would bring to power a conservative government which would then reverse the policies of Dr. Mosadeq. After nearly a year and a half of waiting, the first of these assumptions was proved to be correct. The Mosadeq government fell and the conservative Ahmad Qavam was appointed Prime Minister. The second assumption, however, proved to be less sound. Qavam’s first and only public declaration expressed hostility to previous nationalist policies in Iran and assured the world that the oil dispute would soon be ended on reasonable terms. There was an immediate public reaction to this announcement which approximated a revolt in Tehran. The Shah’s indecisiveness and communist agitators contributed measurably to the violent outbreak of July 21 against Qavam but reflective reports from the Embassy ascribe to nationalist, predominantly middle-class, organizations the main force in the anti-Qavam demonstrations. The utter failure of the Qavam government has been taken as evidence that no Iranian politician can hope in present circumstances successfully to moderate extreme nationalist demands. Apparently the British Government, observing the rise and fall of the Qavam government, realized that its policy should no longer be based upon the expectation that a “more reasonable” government would arise to settle the oil dispute.

American policy toward Iran was also reviewed following the restoration of Dr. Mosadeq and his nationalist colleagues to unquestioned dominance in Iranian affairs. It had been generally assumed that Dr. Mosadeq would welcome settlement of the oil dispute if certain legitimate Iranian national aspirations were taken into consideration. The United States had maintained, since nationalization of the British oil concession in Iran, a position as moderator, constantly seeking to bring both disputants forward to some middle ground. After the events of July 21, it was recognized that the Iranians could not realistically be expected to move far forward from their rigid adherence to the terms of the Iranian nationalization law. The U.S. Government, therefore, felt it advisable to join the British who were willing to make substantial concessions in the dispute to present proposals which appeared to meet the outstanding objections of the other side.

On July 31, an Aide-Mémoire³ was handed by the Secretary of State to the British Ambassador suggesting that the United States Government would be willing to join in a joint approach to settle the oil dispute along the following lines:

1. The United States will make an immediate grant of $10 million to the Iranian Government.

2. The AIOC or some other agency designated by the British Government will purchase from Iran all of the oil products presently held in storage by the NIOC at commercial Persian Gulf prices less an appropriate discount.

3. On the basis of the proposal discussed between Dr. Mosadeq and the British Chargé in Tehran on July 25, it would be agreed that an arbitral commission consisting of three persons should be set up immediately to consider the question of compensation. Neither the American grant of $10 million nor the start of British oil purchases would be held up pending the commencement of the arbitral procedure.

4. Negotiations looking toward a more permanent arrangement for the distribution of Iranian oil should be undertaken promptly.

Before a British reply could be received to this Aide-Mémoire another element was injected into the situation by the publication of an Iranian Government Note to the British Government, dated August 7. In this provocatively phrased document the Iranians demanded immediate payment of certain funds which they claimed were owed them by the British Government and the AIOC and declared a readiness “to enter into discussions with the representatives of the former AIOC . . . to look into the legitimate claims of the company within the nationalization law and also to look into the claims of the Iranian Government.” The note added that if direct discussions were not satisfactory to the AIOC, the company could “present its case in the competent Iranian courts.”

The British reaction to our Aide-Mémoire was, at first, not very encouraging and revealed a continuing unwillingness to face what we considered to be the realities of the Iranian situation. A message from the Secretary to Mr. Eden on August 12 reviewed in some detail the United States understanding of the Iranian situation, emphasizing the necessity for meeting the psychological and political issues of the dispute.

On August 20 a message was received by the President directly from Prime Minister Churchill, then acting as Foreign Secretary in the temporary absence of Mr. Eden.⁴ Mr. Churchill proposed that a joint message from him and President Truman be sent to Prime Minister Mosadeq suggesting that “If you Musaddiq will do (A), (B), and (C), we two will do (X), (Y), and (Z).” The subsequent conditions for settlement which the British Government put forward were carefully studied and were found to meet generally the United States view that Dr. Mosadeq might find it possible to accept a simple but rather vague basis for negotiations to settle the oil dispute. In their essence, the proposals provided for international arbitration of all claims and counter-claims and required the AIOC to open discussions on a purely commercial basis for the purchase and marketing of Iranian oil. Furthermore, immediate sums were to be made available to the Iranian Government to cover its budgetary expenses for the interim period until Iranian oil began to flow again to world markets. It was believed that the three fundamental Iranian demands were met (a) through the imposition of no conditions for the return of foreign technicians to Iran or foreign management, of the oil industry, (b) by the recognition of the fact of nationalization, and (c) providing that AIOC should not be the sole purchaser of Iranian oil.

The reaction of the Iranian Government has not yet been finally and officially determined. Prime Minister Mosadeq in his private conversation with United States Ambassador Henderson and British Chargé d’Affaires Middleton declared the proposals flatly unacceptable. During the week which followed delivery of this message, Dr. Mosadeq became more moderate in his view of these proposals. It is believed that the public clarification of certain aspects of the proposals by the Secretary and Mr. Harriman helped to create growing feeling among Iranian leaders that the proposals should be given more careful consideration. In face of this weight of opinion, Dr. Mosadeq issued a press statement (Attachment No. 2)⁵ which attempted again to cloud the issues in the dispute and placed him in his usual position so that he could assert his sponsorship of almost any resolution which Parliament passes in response to the joint US–UK proposals.

In attempting to understand the reasons for Dr. Mosadeq’s immediate emotional revulsion when presented with the joint message it is useful to keep the following points in mind:

1. Dr. Mosadeq has long enjoyed the advantages of confidential bedroom diplomacy. During his Premiership he has on numerous occasions privately given vague assurance of a willingness to settle the oil dispute on reasonable terms but, when confronted with British willingness to attempt to meet his demands as understood, he has either flatly denied his previous assurances or has asserted that he could make no commitment without Parliamentary approval. Publication of the joint US–UK proposals forced Dr. Mosadeq into the open. In rejecting the proposals he must publicly describe his reasons and his true position.

2. Dr. Mosadeq and most Iranians believe that the United States and the United Kingdom are at odds in Iran and that Americans have even encouraged, secretly of course, Dr. Mosadeq’s policies of driving out the British from Iran. There are numerous indications that Dr. Mosadeq has long had the belief that whether he settles the oil dispute with the British or not, the United States Government, for strategic considerations, will break with the British rather than allow Iran to fall into communist hands. The fact that President Truman joined with Prime Minister Churchill in public support of the proposals of August 30 must have disabused Dr. Mosadeq of his belief that the US and UK were on the point of splitting on the Iranian issue.

3. Dr. Mosadeq has continually declared to the world that the only factor preventing an early settlement of the oil dispute was British insistence on forcing Iran to accept a British oil concession in contravention of Iran’s legitimate national rights. By keeping secret most of the previous negotiations to achieve settlement of the oil dispute, Dr. Mosadeq has been able to maintain a position in Iran and before much of world opinion that he is a sort of George Washington fighting in the cause of independence to keep the British imperialists out of Iran. The proposals of August 30 clearly contain nothing which would reflect on Iran’s independence or limit its freedom of action. The oil dispute, therefore, has been removed from the fanciful realm of a “war of independence” to the status of a commercial squabble. It has now become publicly apparent that Iranian bargaining for the maximum benefit to be gained from nationalization of the oil industry has been a major element in preventing settlement of the oil dispute.

4. The search for “middle ground” in the oil controversy was based on an assumption that both sides ultimately would welcome settlement of the dispute on equitable terms. There is now real doubt whether Dr. Mosadeq has any real intention of settling this dispute with the British. The political advantages to be derived from the anti-British emotions inflamed by the dispute and Mosadeq’s personal satisfaction of thwarting the British may keep him from ever settling on any terms with the AIOC.

Attachment

Paper Prepared in the Office of Greek, Turkish, and Iranian Affairs, Bureau of Near Eastern, South Asian, and African Affairs⁶

Washington, undated.

General Situation

Iranian Nationalist Leadership

Although Nationalist leaders are in power in Iran and there is no sound basis for expectation that an anti-nationalist government could survive, there is evidence that the leaders in the National Front are increasingly at odds. The major struggle which seems to be developing is between Dr. Mosadeq and Mullah Kashani. Ambassador Henderson has reported his observation of Prime Minister Mosadeq’s dismay when he heard that Kashani had been elected President of the Majlis. In the Parliamentary debates concerning continuation of martial law after the July 21 riots, there was a definite split in nationalist ranks as the newly created pro-Kashani national movement faction of approximately thirty deputies directly opposed the smaller group of National Front politicians. There are rumors that Mullah Kashani, on his way to Mecca, recently sent a message to Dr. Mosadeq that he expected to assume control of the situation upon his return to Tehran unless Dr. Mosadeq had successfully improved conditions. In the past few days Ambassador Henderson has been informed by high Iranian sources of intrigues to replace Mosadeq with another leader who has not been described but obviously will depend upon the support of Mullah Kashani.

A combination of Mullah Kashani’s personal prestige, his forceful organization of street rioters, anti-Mosadeq conservatives, and nationalist politicians such as Khosro Qashqai could wield very important influence in Iranian affairs. These groups would lead to dangers of demoralizing the Army and joining with the communists. Almost certainly a government dependent upon these elements would be even more unreasonable and difficult to deal with than Dr. Mosadeq.

Iranian Communist Organization

The communist organization in Iran is not strong in numbers but it has shown ability to take advantage of widening opportunities for agitation. Over the past few years the communists have concentrated on developing a disciplined nucleus of leaders with a comparatively numerous screen of front organizations. Agitators are known to be circulating among the peasants and there are believed to be communist cells in every Iranian industry and most dangerously among the unemployed oil workers in Abadan. The Embassy has reported that the communist organization will probably not attempt to stage a violent outbreak against the nationalist government but will, on the contrary, look for opportunities to infiltrate and pervert the nationalist movement. However, if public confidence in the nationalist government weakens and if the armed forces become demoralized, it is entirely possible that the communists may consider it advisable to attempt direct action to gain control of the central government. Observers differ as to the time when the communists may win dominant influence in Iranian affairs but all agree that if the economic and social conditions of Iran worsen hopelessly, a communist coup must eventually be expected.

Questionable British Military Responsibilities for Iran

United States policy toward Iran has been influenced by an understanding that the United Kingdom is responsible for the initiative in military support of Iran in the event of communist subversion or aggression. This understanding was based on United States inability to extend its military responsibilities at the present time and upon the extensive influence which the British had in Iran before nationalization of the oil industry. The first of these considerations should now be subject to review because British influence in Iran has been so completely destroyed that it is now very doubtful whether any legitimate Iranian Government would or even could request British assistance in the event of a communist seizure of power. Even such pro-western figures as the Shah have lately been so reduced in power and prestige that they cannot be expected to act independently of nationalist sentiments even in the face of a communist coup. Anti-British feeling has, in fact, reached such a point that many Iranian leaders are sincere in believing as Nasser Khan Qashqai said to Department of State officials on September 4, “We would prefer the Russians to the British”.

Social Unrest

The ancient social structure of Iran is cracking visibly. Nationalist propaganda has reached into the most isolated communities inflaming anti-foreign sentiments and encouraging hopes for social and economic benefits. In the early days of the oil nationalization struggle, Dr. Mosadeq and his supporters geared their demagoguery to the thesis that British imperialists were responsible for the misery of most Iranians and expulsion of the British from the oil concession would bring immediate benefits. Disillusionment with this propaganda was one of the important factors in the weakening of Dr. Mosadeq’s position during the first half of 1952. The Prime Minister recognized this popular disaffection immediately upon his return to power on July 21 and announced a program of vast social reform, particularly on the problem of land tenure. While these propaganda influences were in operation, economic factors also created feelings of dissatisfaction. Even the primitive agricultural economy of the majority of Iranians has been affected to some extent by the effects of the oil dispute. Although the impact of the loss of oil revenues on Iran’s economy has been comparatively less serious than the effect of such a loss on a more industrial economy, nevertheless there is a sense of hopelessness and frustration in Iran today which rises directly from the deteriorating economic situation.

Loosening of political and military control of the provinces has resulted from political developments in Tehran and the nationalist attempts to decrease the Army’s prestige and power. The figure of the Shah which was significant in keeping some concept of central government before all Iranians has been somewhat diminished by recent events and the spread of anti-monarchial sentiments. United States representatives in Iran report increasing social unrest in every area observed.

Iran’s Military Potential

While reportedly Iran’s military forces are not demoralized and are still being paid, there is little doubt that the Army’s old political influence has been greatly diminished. The Shah, who still reportedly holds the loyalty of the majority of Army officers, has become a shadowy and generally uninfluential figure in the background of political affairs. Scrutiny of Army ranks gives little reason to hope that a strong military leader will arise like Naguib Bey in Egypt. However, the Army is still a potent force for maintaining internal security in Iran and so far the Mosadeq Government has not taken measures which would destroy the Army’s effectiveness to meet internal situations.

Amid rumors and counter-rumors of British intrigue, the tribes in Iran continue generally in the old pattern of life and retain about the same political significance. In their local areas they are regaining some of their old dominance as the Army’s influence wanes. However, except for the Qashqais and to a lesser extent the Bakhtiaris, the tribes wield only slight political influence on the central government. As yet no tribal leader has appeared who could be depended upon to maintain stability throughout the nation in a situation of chaos.

Economic Situation

Before Iran can achieve any measure of political stability, its economy must be restored to some measure of health. The loss of oil income can be replaced either by resumed sales of oil abroad or by foreign budgetary aid. Such a dole would obviously make political blackmail and commercial unrealism pay. It would not salve the constant irritation of the oil dispute nor win friends for the United States in a country where generosity is regarded with great suspicion. This would be particularly true if any strings were attached to such a dole either to control disbursements of the funds or to bring the Iranians to a settlement of the oil dispute. It is far more sound to base a healthy Iranian economy on sales of Iran’s petroleum resources. Enclosure No. 3 is a considered review of Iran’s economic situation.

The so-called “blockade” of Iranian oil sales has been largely the product of (a) commercial concern regarding the price, specifications, and guaranteed flow of Iranian oil, (b) AIOC legal claims to ownership of oil products presently stored in Abadan, (c) major oil companies’ cooperation in refusal to take advantage of the AIOC’s misfortunes, (d) United States Government discouragement of private American companies who have shown an interest in purchasing Iranian oil or assisting in operation of the Iranian oil industry. Since the decision of the ICJ that it had no competence over a dispute between the Iranian sovereign government and a private foreign oil company on Iranian territory, the AIOC legal claim against Iranian oil products is in considerable question and according to informal Department legal opinion might well not stand up in the courts. Although major oil companies have made no effort to purchase Iranian oil, interest has been shown by numerous independents of varying reputation and nationality and by the Argentine and Brazilian Governments. [1 page missing in original] British Embassies in Tehran both report that they see little hope of a “more reasonable” successor to Mosadeq in the foreseeable future.⁷

The communist organization in Iran is growing stronger. Communist agitation among the unemployed oil workers and communist incitement of peasant dissatisfaction against landlords furnish explosive opportunities for sudden outbreaks of violence. Recent government land reform decrees have given hope of increased prosperity to masses of Iranian peasants but Iranian inefficiency and resistance by landlords will probably prevent for some time any actual effect of this reform upon the peasants’ prosperity. Although factors for social revolution are rapidly developing in Iran, the Embassy has reported that the communist organization will probably not attempt an open revolt at this time but rather will seek to take advantage of a deteriorating situation by developing their association with left-wing nationalists and by gradually capturing the leadership of the nationalist movement.

These are political factors but their development is based in the current situation primarily on economic factors. Iran’s deteriorating economic situation is a problem which must be met before any stability or any direction of social evolution can be found. Observers differ as to the time when the communists might take control of the Iranian Government but all agree that if the economic situation continues to deteriorate hopelessly, a communist coup must eventually be expected.

The leaders in the National Front are increasingly at odds. Mullah Kashani’s ascendency to power has undoubtedly fed his known ambitions to be sole authority in Iran. His position in Parliament is such that he could lead a strong Parliamentary group against Dr. Mosadeq or any other target he chose. His street organization has been one of the most important elements in recent nationalist successes. His alliance with the communist organization during the anti-Qavam riots has apparently not been lasting but Kashani’s over ____?____⁸ has led him to declare on various occasions that he could “swallow up” the communists in any alliance. He has joined hands with the Qashqais in destroying the old clique of top army officers. Upon his return from Mecca, Kashani can exert a very forceful influence in Iranian affairs in any direction he desires.

While reportedly Iran’s military forces are not demoralized and are still being paid, there is little doubt that the Army’s old political influence has been destroyed. The Shah is now a shadowy and uninfluential figure very much in the background. Scrutiny of military ranks gives little reason to hope for a strong military leader like Naguib Bay in Egypt. Amid rumors and counter-rumors of unrest and British intrigue, the tribes in Iran continue generally in the same position as before. They are strong in their local areas but except possibly for the Qashqais they wield comparatively little political influence in Tehran. Certainly no tribal leader has appeared who could be depended upon to maintain stability throughout the nation in a situation of chaos.

According to information from top officials in the Bank Melli, inflation of the note issue is about to begin. Economic analysis has been that pessimism regarding failure to end the oil dispute and consternation at the expanded note issue will mean increased financial difficulties to Iran’s economy.

Conclusions:

1. Whether political developments in Iran break up the National Front or in some way change the individuals in positions of power, nationalist policies as previously enunciated will be maintained. It is even likely that any successor to Dr. Mosadeq would be a more extreme nationalist than he is and would possibly be more difficult for the West to support against communist agitation.

2. It is expected that the Iranian Parliament will support the general line of response which Dr. Mosadeq has made publicly to the joint US–UK proposals. It is unlikely although the possibility cannot be discounted that the British will be willing or even able to come much farther forward from the position taken in the proposals delivered to Dr. Mosadeq on August 30. Such a development would bring about an almost complete deadlock in the oil dispute with a large gap still existing between the British and the Iranian positions. In this eventuality it will be hardly useful for the United States to continue to press both sides to come to a mutually satisfactory agreement in the oil dispute, particularly since the United States publicly gave up its position as moderator when it joined with the British in the joint message of August 30.⁹

3. Before Iran can achieve any measure of political stability, its economy must be restored to some measure of health by receipt of oil income. There is of course an alternative of providing Iran with a United States Government dole of monthly budgetary aid. Such a dole would obviously make political blackmail and commercial stubbornness pay well and would not salve the constant irritation of the oil dispute nor would such a dole be likely to win friends for the United States in Iran since generosity of this nature is regarded with great suspicion in the Middle East, particularly if any attempt is made to control disbursements of these funds. National income must be increased in Iran but it should be based upon exploitation of Iran’s own natural resources.

4. United States policy toward Iran has been influenced by an understanding that the United Kingdom is responsible for the initiative in military support of Iran in the event of communist subversion or aggression. This understanding is very questionable in the present situation. The extensive British organization¹⁰ in Iran which was based primarily upon British commercial installations and interests has been totally destroyed. Public antagonism to the British has been so inflamed over the past two years by nationalist propaganda that it is very doubtful whether any legitimate Iranian Government could request British assistance in the event of a communist seizure of power. Even such previously independent pro-western figures as the Shah have been so reduced in power and prestige that they should not be expected to act independently of nationalist sentiments even in the face of a communist coup. Anti-British feeling has, in fact, reached such a point that many Iranian leaders believe themselves to be sincere in saying, as Nasser Khan Qashqai said in Washington on September 4, “We would prefer the Russians to the British”. Other developments in the Middle East have also strongly affected the British military position in that area so that it is doubtful that British military intervention in Iran could be effective even if an Iranian Government were to request British support.

5. The so-called “blockade” of Iranian oil sales has been based upon the legal claim of the AIOC to ownership of the oil products presently stored in Abadan. Legal opinion in the Department of State informally holds that the decision of the ICJ that it had no jurisdiction over the Anglo-Iranian oil dispute was based upon a decision that the dispute was not between two nations but between the Iranian sovereign and a private company on Iranian territory. It is held that a court, deciding upon the AIOC’s claim to ownership of oil lifted by any tanker from Iran, would be required to discuss the validity of the 1933 oil concession and Iran’s sovereign right to abrogate a contract with a private company. It is entirely possible, therefore, that many courts would reject the British claim should a tanker be willing to take the legal risk of lifting Iranian oil.

6. The question of compensation due the AIOC is far from settled. The gap between the joint US–UK proposals and Dr. Mosadeq’s unofficial counter-proposals is very wide. It is the conclusion of NEA political observers that Dr. Mosadeq will not come forward from his position enunciated on September 7 unless he is so instructed definitely by Parliament. It may even be that he does not wish to settle the oil dispute with the British except on terms of absolute capitulation by the British to his extreme terms. Therefore, if the British hope to gain any compensation or desire to remain in the market for Iranian oil they will have capitulated. It is quite true that they have a legal position to maintain, but there would seem to be little satisfaction in maintaining a legal position at the expense of losing Iran or at least Iranian oil.

7. It is pertinent here to make an estimate as to the danger and imminence of a communist rise to power in Iran. The communist organization is growing stronger and its natural opponents are growing weaker. The Shah, who above all else has been anti-communist has lost most of his political influence. The Army is to some extent demoralized and was thoroughly cowed in the July 21 riots, at least in Tehran. The old line senior officers in the Army have recently been purged by Dr. Mosadeq and it is not yet apparent what type of officers will appear in senior positions, whether political appointees under Kashani–Qashqai influence or officers of military quality and forceful character definitely anti-communist or at least essentially nationalist in motivation. Social unrest is increasing as are economic difficulties in Iran. Opportunities for successful action by the communist organization are widening and if the nationalist leadership splits into antagonistic factions or if the communists can establish some form of popular front, with leftist nationalists, Iran may have passed a point of no return in its relations with the communist world. In the estimation of NEA officers, the communists will probably move slowly, consolidating newly acquired positions as they move forward. In all likelihood they would prefer to infiltrate and pervert the nationalist movement rather than risk a head-on collision. Time, therefore, plays into communist hands so long as the economic situation continues to deteriorate without oil revenue and so long as there is continued political instability in Iran. Therefore it is a conclusion of NEA observers that so long as Mosadeq does not dispair of selling his oil to the West in some way and so long as he can squeeze money out of the National Bank, currency inflation and from recently imposed taxes to pay his civil servants and armed forces, neither he nor his nationalist colleagues will deliberately bring the communists into an alliance. Based upon these psychological, political and financial assumptions, it can be estimated that a nationalist government will neither bring in the communists nor fall victim to a communist revolt before next March as a very general date.

8. The above conclusion does not allow us to sit idly by for the next few months. On the contrary now that the deadlock of the oil dispute has been publicly exposed and the previous United States policy as moderator has been abandoned, it is time to develop a new policy for action to meet the Iranian situation.

Recommendations:

It is recommended that the British Government be informed that the United States Government considers the oil dispute to have reached a deadlock which can only be broken if the British set aside or somehow make an arrangement with the Iranians to settle claims for compensation and initiate arrangements to buy Iranian oil. It should be pointed out that strategic considerations which must include reappraisal of military responsibilities in the Persian Gulf area have brought the United States Government to the belief that consideration of maintaining Iran independent from the communist world must override legal considerations in the oil dispute. It should be pointed out that the “blockade” which has been maintained by major oil companies in deference to the AIOC’s legal claim to Iranian oil is breaking and that the United States Government considers it necessary for the strategic considerations described above to assist and encourage sales of Iranian oil setting aside the British legal claim.

2. It is recommended that the Department of State consult with officers of important American oil companies to explore any possibilities of American or other companies buying Iranian oil if the British are unable or unwilling to meet Iranian demands. It has been reported by the Director of PED that even if the major oil companies do not purchase Iranian oil and assuming that British claim to Iranian oil has been set aside or is disregarded by the purchasers, Iran could sell between 100,000 and 150,000 barrels of oil per day. Such sales would probably be made to Argentina, China (Formosa), Belgium, Spain, Italy and Yugoslavia who are not bound by any permanent tie-ups with the international oil industry. The market would have to be built up gradually over a period of time and the Iranians would probably not be able to sell a maximum 150,000 barrels per day immediately. Some sales would probably also be made to the International Cooperative Petroleum Association which supplies oil to a number of European countries. Finally, industries such as City Service and brokers with unknown backing such as Denver, Consolidated have indicated definite interest in purchasing Iranian oil.

It would also seem that the market for Iranian oil probably could be expanded. Brazil has already expressed an interest in purchasing Iranian crude for its refineries and tankers presently being constructed. These would be owned by private Brazilian interests and by the Brazilian Government. In regard to availability of tankers, the Department’s experts have concluded that there are sufficient independent tankers available to move 100,000 to 150,000 barrels per day of Iranian oil.

3. It is recommended that the United States Ambassador in Tehran be instructed to inform Dr. Mosadeq that the United States Government is not in the oil business but that it stands ready if requested to encourage private U.S. firms to assist Iran to produce and sell its oil. He should be authorized to state that the United States, if requested, will explore with major and independent oil companies various means of buying and marketing Iranian oil in substantial quantities. He should state that independent American technicians will be encouraged to assist in the production and refining of Iranian oil although the U.S. Government will not contract for them. In this connection it is noted that Drilexo has already been asked by the Iranian Government to handle the drilling and pipe-line operations for the NIOC and a reputable American engineering consultant has been asked to assist in the management of the oil industry.

4. It is recommended that simultaneously or immediately after Ambassador Henderson’s démarche, the United States should publish a statement of its attitude toward the Iranian situation, briefly reviewing in general terms the numerous U.S. efforts to bring the parties in the oil dispute together and declaring that it seems impossible at the moment to go farther in this role of moderator. Ambassador Henderson’s instructions should be publicized with the statement that the United States Government hopes that Iran will utilize its natural resources by making commercial arrangements with oil companies, assuming that the products of the Iranian oil industry would be available for purchase on reasonable terms by the AIOC as well as others in such a path as to minimize the disruption of normal commercial flows in the international oil trade. The statement could contain a declaration that this United States action does not imply judgment on the merits of British claims in the oil dispute and reference could be made to the provision in the Iranian nationalization law which sets aside a percentage of oil revenue on the assumption that an eventual settlement of British and Iranian claims arising out of the oil dispute will be reached through amicable negotiation.

5. It is recommended that the U.S. go slowly in the situation regarding the question of budgetary aid to the Mosadeq Government. Dr. Mosadeq’s relations with the free world have been characterized by an assumption that strategic dangers implied in the loss of Iran to the free world can be used to cloud any issue of a primarily commercial nature. Iran should be made to realize that it is responsible for its own budgetary position and that the world expects Iran to utilize its great petroleum assets. However, Ambassador Henderson should be informed that if he considers the situation requires immediate financial aid to the Iranian Government, such money may be available. Furthermore, the Export-Import Bank will probably be willing to complete arrangements for a $25 million loan if there is hope of a resumption of oil sales. Iran might also be able to draw a sizeable sum from the International Monetary Fund before it would be necessary for the United States to provide grant or other aid.

1. Source: National Archives, RG 59, GTI Files, Lot 57 D 155, Box 44. Secret; Security Information. Drafted by Stutesman and sent through Matthews. Printed from an uninitialed copy.
2. See Foreign Relations, 1952–1954, vol. X, Iran, 1951–1954, pp. 455–458, 461–469 (Documents 207 and 209–214).
3. Ibid., p. 429–430 (Document 194).
4. See ibid., pp. 447–449 (Document 203).
5. Attached but not printed.
6. Drafted September 10 by Stutesman.
7. Although there is no indication in the source text, the portion of the document from this point, until “Conclusions,” appears to be an earlier draft of the preceding three paragraphs.
8. Underscore and query in the original.
9. See footnote 2 above.
10. This word is struck through in the original.