29. Memorandum From Henry Villard of the Policy Planning Staff to the Chairman of the Policy Planning Staff (Nitze)1
On the basis of a talk with Allen Dulles last night, and with one of his operatives just returned from Iran, I offer the following further comments in respect to the oil nationalization situation:
1. Nationalization has gone so far in the minds of the Iranians that there is no prospect whatever of a “negotiated” settlement. Feeling is running so high that the best that might be salvaged from the present situation is an operating contract for the British, although even this is only a possibility. We might as well reconcile ourselves to a fait accompli as far as nationalization is concerned but should not allow the principle of compensation to go by default.
2. The Iranians have not yet faced up to the problem of production, operation and marketing of the oil supplies. The main objective has [Page 97] been to nail down the nationalization of the company and they are only now beginning to grapple with the details. In doing so, however, they are not likely to grant the British any rights tending to preserve a semblance of British ownership, even though it means cutting off their nose to spite their face. As Ambassador Grady says in regard to the latter point, they prefer to do it that way.
3. CIA stands ready to proceed at any time with the plan it had in mind when Ala was Prime Minister, provided a useful purpose can be perceived. At present, however, the feeling is that such an effort would be wasted. Ala himself is no longer in a position to utilize the scheme effectively, and there is no one else who can be trusted. I concur in this view.2
4. An American physician, Dr. Forkner of New York, is scheduled to leave next week to examine the Shah and diagnose his trouble. No question of an operation by this American is involved, so I suppose there can be no objection to the move.
The Iranian Government today delivered a virtual ultimatum to the AIOC to nominate a representative within one week for the purpose of discussing nationalization of the oil company. Although the British are reluctant to accept this invitation to “participate in the ceremony of digging their own grave”, as Grady puts it, we are urging them to go ahead. I feel that this represents the last chance the British may have to pull something out of the fire, by bringing up for discussion the realistic problems of production and marketing.
If the British decline the invitation and the situation deteriorates to the point where troops must be sent in, it seems to me that this would mean the end of Iran as a Western-oriented nation. It would completely disorganize the Government and drive the remnants into the arms of the Tudeh, with the result that the Tudeh would soon take over the country, even if it were unable to control the southern part. I doubt that the USSR would find it necessary to send troops into the north at all. The better part of Iran would fall into its hands like a ripe apple.
In any case, I should think the use of British troops in Iran would have serious repercussions not only in the Middle East, but in other parts of the world as well. Even if no lives were lost, the propaganda advantage to the Soviet Union of this “imperialistic action” would be enormous. We should therefore be on our guard against any attitude of the British which would incite the Iranians to take over the oil fields by force, leading to the employment of U.K. troops to “protect British [Page 98] lives” or property and with the Soviets piously sitting on the sidelines while their stooges take over in Teheran.