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

364. Memorandum From the Central Intelligence Agency Representative on the NSC 5402 Working Group (Waller) to the Special Assistant to the Director of Central Intelligence (Jackson)¹

Washington, March 19, 1954.

SUBJECT

• Summary of Action Taken By OCB Working Group (NSC 5402) at March 18 Meeting

1. The meeting on March 18 was almost exclusively devoted to para. 15 NSC 5402.² In view of recent reports indicating that negotiations in London between the major American oil companies and AIOC with regard to compensation had reached a deadlock,³ the OCB Working Group drafted recommendations for action to be presented to the next meeting of the OCB. The draft is worded essentially as follows although minor editing was to be done before it was to be passed to the OCB:

“Bearing in mind para 15 (c) of NSC 5402 and the April 1 date therein mentioned by which time consideration should be given to taking independent action if a settlement has not been reached; and in view of recent reports that a stalemate had been reached in London in oil company discussions, the 5402 Working Group has today considered alternate lines of action which might be adopted:

(a) U.S. Government purchase Iranian oil in the absence of a settlement of the Anglo-Iranian oil dispute. While this would have the advantage of providing substantial income to Iran, there are serious obstacles:

(1) The U.S. Government has stated publicly that it would not purchase Iranian oil while the title is in dispute.

(2) U.S. Government subsidization of Iran’s expropriation of a foreign investment would have ill-effect upon American investments abroad.

(3) It would have a serious adverse effect on U.S.–U.K. relations.

(4) Problems of disposing of significant quantities of oil by the United States would be almost insurmountable.

(b) U.S. private companies to buy Iranian oil in the absence of a settlement of the Anglo-Iranian oil dispute. There are serious obstacles:

(1) It is questionable whether the U.S. Government is in a position to force private American oil companies to take such action.

(2) It can be expected that major American oil companies capable of handling sufficient Iranian oil to provide significant revenues to the Iranian Government would strenuously oppose the establishment of a precedent making expropriation without payment of compensation a profitable course of action for foreign countries.

(3) Although there have been certain indications of interest by American “independent” oil companies in purchasing cheap Iranian oil at distressed prices, in the absence of a settlement of the Anglo-Iranian oil dispute, it is improbable that even a group of them could market sufficient oil to provide early and substantial revenues to the Iranian Government.

(4) Lack of clear title discourages any private purchase.

(5) The only markets presently available to independent oil companies are in the U.S. and importations of large quantities of oil to this market would seriously affect U.S. domestic oil producing industries.

(c) Subsidize the Iranian Government by grants of economic aid in the absence of a settlement of the Anglo-Iranian oil dispute. There are serious obstacles:

(1) Congress may object to covering the budget gap in Iran ($5,000,000 per month) for an indefinite period.

(2) Subsidization removes to some extent economic pressures upon the Iranian Government to come to an early settlement of the oil dispute.

(3) The psychological and political repercussions from Iran’s inability to dispose of its oil and develop its own source of income will certainly adversely affect maintenance of stability in that country.

(d) Use exceptional pressures to induce the British to offer a reasonable proposal for an early settlement. In addition to such direct pressures take psychological actions overt and/or covert to further impress the British with the seriousness with which the United States is considering independent action in the Middle East.

The foregoing (d) course of action is recommended by the 5402 Working Group. Although it is recognized that the group is not competent to judge whether the dangers of such exceptional pressures to the Anglo-American alliance are sufficient to out-weigh the dangers of failing to achieve an early oil settlement in Iran.

It is recommended that the Chairman of the OCB consider sending a telegram along the following lines to Mr. Hoover at London:

“Consideration is being given to psychological pressures on the British Government. Request your advice regarding ways in which such pressure might be most effective in encouraging more reasonable approach re Iran oil problem. For example, we are thinking of further indications to the British that the U.S. may be forced to take unilateral action in Iran and the Middle East; also that attitudes of Congress re aid to U.K. may be greatly influenced by impression of reasonableness of British position on Iran oil.”

2. It is suggested that the DCI be advised of the above soonest and prior to the next OCB meeting.⁴

John H. Waller

1. Source: Central Intelligence Agency, Office of the Director of Intelligence, Job 80R01731R, Box 30, Folder 1010, NSC 5402—Iran. Top Secret.
2. Document 355.
3. An apparent reference to the deadlock in negotiations surrounding AIOC’s position on financial participation and compensation. In telegram 4773 to London, March 17, the Department criticized AIOC’s position as being unacceptable to both the Iranian Government and the American companies willing to participate in the oil consortium. For telegram 4773, see Foreign Relations, 1952–1954, vol. X, Iran, 1951–1954, pp. 949–950 (Document 436).
4. At the end of the memorandum, Jackson added a handwritten note that reads: “23 March—Waller informed me that Gen. Smith had a talk with the British Ambassador and that a cable was sent to London along the above lines. The negotiations are going along better as of this date.”