888.2553/3–3151: Telegram

The Secretary of State to the Embassy in the United Kingdom 1

top secret

4456. For McGhee. Fol for ur background use London are Dept’s tentative views on specific action recommendations re Iran and Iraq (Deptel 4418 Mar 29).2

Re Iran Dept believes Brit plan, if as reported Deptel 4392 Mar 28,3 represents dangerous course. (This connection not certain Brit Govt is in fact seriously considering course outlined reftel, altho London’s 51424 adds weight this possibility.) Whereas Dept fears consequences Iran nationalization of oil co, Dept believes these considerably less serious than those involved in Brit plan. Current Iran oil situation now believed jeopardizing, in order of US natl interests, (a) world peace, (b) stability and Western orientation Iran, ME and perhaps Moslem world, (c) continuance flow of oil essential to West, (d) stability ME and other fon oil concessions and (e) Brit balance of payments position. Strong course Brit appear to be considering wld seriously endanger (a), (b) and (c), whereas if handled as suggested below, Dept believes (a), (b) and (c) interests wld have best chance of being retained with oil still available to free world even assuming spread oil nationalization.

Since US recognizes right of sovereign state to nationalize, provided prompt and adequate payment made, and since Dept believes equitable solution must be predicated upon UK recognition that “nationalization principle has become law of Iran” and “what is done cannot be undone” as already reported as FonOff’s view (London’s 5044 [Page 297] Mar 215), Dept suggests alternative plan beginning with UK or AIOC statement issued immed in Iran oil field and population centers that co will abide by decision reached by IranGov will endeavor to maintain unbroken and peak production and employment during Oil Commission studies and endeavor to reach mutually profitable agreement under which the interests of Iran and the Iran people wld be fully protected in the development, operation, and distribution of Iran oil and the flow to world consumers maintained. This move believed required to reverse deteriorating situation, show Iran that West interested in Iran best interests, and protect flow of oil against strikes and shutdowns. Risks to other fon concessions of such publicity believed less important to national interest than allowing Iran situation to drift or attempting reported Brit plan.

With populace convinced strikes and terrorism not required to protect nationalization decision, continued flow of oil shld be assured with atmosphere calmed for proceeding with directives given Oil Commission. In such atmosphere, moderate and rational Iran officials cld operate as recommended Tehran’s 2102 Mar 186 and cld be more effectively influenced by fon experts including US (DeGolyer, Levy, Thornburg, etc.), Venezuelan or UK nationals.

During transition period action recommendations Amman’s 165 Mar 237 should be implemented, particularly well publicized US-UK-IBRD aid and US-UK-Moslem state denunciation of terrorist (USSR) methods. Heavy US-UK publicity should be given benefits earned by 50–50 arrangements by private industry in SA and Venezuela and importance to Iran of stable conditions in oil industry.

AIOC negotiators cld meanwhile endeavor work out “nationalization” formula with degree of Iran control of co depending on ability of negotiators and success of above actions. Strategy wld presumably start by suggestion incorporation in Iran of co, progressively yielding as necessary to permit Irans in management positions, as stockholders, as directors. Final offer might be on basis management contract under Board Iran supervisors.

Problem of preventing USSR from demanding equal treatment might be handled by demonstrating arrangement involved no new [Page 298] concession and by strengthening Iran will and ability to resist commercial instruments of USSR.

Brit of course shld understand that any reasonable policy they follow in effort to salvage situation will have our full support.

Re Iraq believe precarious situation existing can be saved by immediate imaginative action IPC. Believe important also this matter not be allowed to drag until Iran case closed if further impetus nationalization Iraq and more costly solution to be avoided. Recognize difficulties solution along Aramco line but understand co considering various solutions this problem. Wld urge that IPC partners examine possibility of package offer including (a) prospective production Kirkuk with some allowance in oil for 20% clause for Mosul concession, (b) increased production Basra with 20% oil clause honored to counter Ryan offers, (c) loan for refinery and management thereof on fee basis and (d) distribution through KOC in Iraq but at price levels in line with Iraq plans for products local refinery. In order reduce Iraq desire to nationalize, wld particularly urge surrender any areas Iraq which co has no present intention develop.

In line with para 6 analysis Amman 164 believe IPC shld recognize inevitability local refineries and low priced petroleum products on nationalized basis in ME producing or transit countries unless co by aggressive action beforehand gives to govts equivalent thereof. ME peoples must be made to feel personally direct benefits of oil by fullest distribution and utilization of cheap fuel. The cost to cos of this type adjustment insignificant in relation total interest in area and cld be acknowledged without enduring the bitterness of nationalization which otherwise threatens.

  1. This telegram was drafted by Funkhouser and Moline and cleared by Coe, Ranney, and Raynor. It was repeated to Baghdad, Tehran, Jidda, Paris, and Moscow.
  2. Same as telegram 933 to Cairo, p. 291.
  3. Scheduled for publication in Foreign Relations, 1952–1954, volume x.
  4. Not printed; it reported on the British attitude toward political and oil problems in Iran and advised the Department of State that any complacency which might have existed before the recent crisis in Iran had given way to genuine alarm over the prospect of losing the British investment and oil supplies vital to the British economy. The closing sentence read: “UK Govt will be under strong Parliamentary and domestic pressure do utmost to protect Brit interests in Iran and there seems be no intention within govt or anywhere else allow Iran investment be lost for want of any determined action.”
  5. Not printed; it advised the Department of State that it would be advised by the British Embassy in Washington about the results of high-level meetings in the British Government concerning the line of action to be adopted as a result of the recent developments in Iran.
  6. Not printed; it reported to the Department of State on a suggested British program of action in Iran.
  7. Presumably this refers to telegram 165 from Amman, March 27, not printed, in which McGhee suggested some possible U.S. lines of action with respect to the situation in Iran. He recommended, among other things, that it might be worthwhile for the Department of State to attempt to obtain public statements of friendly officials in other Muslim countries denouncing acts of violence such as the recent assassinations in Iran.