Memorandum of Conversation, by Colonel
- Prime Minister Mossadegh, Iran
- Assistant Secretary of State George C. McGhee, U.S.
- Colonel V. Walters
Mr. McGhee, after the usual exchange of amenities with Dr. Mossadegh, spoke of Dr. Mossadegh’s call during lunch in which the Prime Minister had indicated that the question of compensation [Page 214] must be settled first.2 He inquired whether the Prime Minister meant that a definite settlement should be reached or a formula agreed upon. The Prime Minister said he meant a definite agreement should be reached to settle the question of compensation. Mr. McGhee expressed doubt that this could be done in a short period such as ten days and it would require examination of the company’s books and close study. Dr. Mossadegh said that his insistence on this point was caused by the fact that he had made a commitment to Parliament that he would not settle other matters before the question of compensation had been settled. He said that of the three ways he had mentioned this morning, it was perhaps easiest to have the matter settled “by the Presidency of the United States”. He could delegate that authority and would abide by its decision. He said that Iran had some counter claims based on nonpayment of royalties and customs duties on goods imported in Iran by the AIOC that were not essential for the operation of the industry.
Mr. McGhee said that the Prime Minister had spoken this morning of the urgency of the situation in Iran.3 He inquired how long Dr. Mossadegh thought the present situation could go on, if no new factors entered the situation. The Prime Minister replied that he thought about a month, but emphasized again the gravity of the situation in Iran and the underlying threat to Iranian independence. Mr. McGhee said that in view of the problem presented by the forthcoming British elections, he wondered if talks were started prior to the Security Council action, would Dr. Mossadegh be willing to continue talks even though it was obvious that no decision could be reached before the election. Dr. Mossadegh said that he would, if the Security Council would declare its incompetence to discuss Iranian oil nationalization. If it did declare its competence then he would be obliged to make a most vigorous defense of Iran and would then continue the talks if the British were still willing to talk after he had said what he thought about them. He again expressed the belief that they were anxious to drag things out in order to give economic pressure more time to induce the Iranians to be compliant. He said that the Iranian budget, which totaled some one billion tomans, was in deficit by some 300 or 400 million tomans. This was an extremely serious situation and represented a constant threat to Iranian independence and therefore to world peace. Mr. McGhee said he was well aware of this fact.[Page 215]
Dr. Mossadegh then said that many Americans thought the independence of Iran could best be protected by military aid but that when you took the man away from the land to make him a soldier, you diminished agricultural production. Not until Iran had begun to mechanize her agriculture would there be men available in sufficient numbers to defend the country. As things stood now the budget contained no appropriations for productive purposes but only appropriations for the salaries of Government officials and current expenses. Therefore it was important that something be done to assist in increasing agricultural production. Mr. McGhee said that he had appeared recently before three Congressional Committees defending a project which called for a grant of 25 million dollars to Iran for the purpose of assisting the mechanization of agriculture. He could not promise it would be approved but indications were that it would be. Dr. Mossadegh then said that there had been a 25 million dollar loan to Iran pending for a long time and that no one had had the courage to introduce legislation making it possible to accept this until he himself had done so. He said that a bad impression had been caused in Iran by the fact that shortly after the Parliament had approved acceptance of the loan, the Iranian Government had received a note from the United States Embassy asking whether the Iranians had sufficient local currency to make possible the use of this loan. Mr. McGhee explained that the Export-Import Bank was not under the State Department and that the legislation authorizing it to loan money required that the Bank ascertain whether recipients of loans had available local currency in sufficient quantities to permit satisfactory use of the loan and that the sending of this note by the United States Embassy in Tehran had been a mere coincidence in so far as it had occurred immediately after the Parliament had approved acceptance of the loan. Dr. Mossadegh said that he was aware of this, but that it had nevertheless created a bad impression. Mr. McGhee again emphasized that the 25 million dollar grant of which he had spoken was a grant and not a loan and that it should have a double-barrelled effect in that it would give the Iranian sufficient local currency to make it possible for them to qualify for the Export-Import loan. Dr. Mossadegh said he understood this and was very appreciative.
Mr. McGhee then asked Dr. Mossadegh whether he would be willing to give the sales discount of which he had spoken in the morning to the Purchasing Organization not only for the oil for the United Kingdom but also on the oil which the Purchasing Organization might acquire on behalf of other customers. Dr. Mossadegh said that he would be willing to do so.[Page 216]
Mr. McGhee then spoke of the sale discount and asked Dr. Mossadegh whether he would be willing to consider giving an increased discount in lieu of compensation. Dr. Mossadegh said that he would providing the question of duration could be satisfactorily settled.
Mr. McGhee asked whether Dr. Mossadegh recognized the problems presented by the need of a technical director and access to technological advances and inquired whether the two could not be combined. Dr. Mossadegh expressed a preference for handling them separately but did not appear adamant on this point.
Mr. McGhee then spoke of the need for access to technical knowledge of the oil business. He asked whether Dr. Mossadegh had thought this question out at any length. The Prime Minister said that he had not, but wondered if the technical director could not take care of this matter by hiring additional personnel. Mr. McGhee said that he did not think it would be done on an individual basis; that there were two ways in which it was done throughout the world; one was by having subsidiary companies of the very large oil companies, and the other was by a consortium as in Iraq. Dr. Mossadegh said that there was great suspicion in Iran against the idea of an agency which some viewed as a disguised concession. Mr. McGhee explained that the agency would not own anything and would not share in the profits; it would work only on a fee basis. Mr. McGhee felt that this was perhaps the best way to insure access to technical knowledge throughout the world. He cited the case of Mexico which had not insured for itself access to this technical knowledge and had fallen from a position of the world’s second largest petroleum exporter to a situation where it was barely self-sufficient in petroleum products. Dr. Mossadegh seemed reassured by the fact that the agency would receive only a fee and did not indicate either outright acceptance or rejection of the idea. It was pointed out to Dr. Mossadegh that the agency could furnish him both a technical director and the technical knowledge required to make Iran’s oil industry competitive. Dr. Mossadegh then indicated, in reply to a question, that he would be willing to accept an American or a Dutchman as technical director, stating that the Dutch had excellent specialists in this field.
Mr. McGhee then asked the Foreign [Prime] Minister whether he was aware of the fact that foreign technicians working in Iran would have to receive higher salaries than their Iranian opposite numbers. The Prime Minister said he was fully aware of this as the foreign technicians were working far from their homelands and the Iranians were working at home. He was quite prepared to pay higher salaries to the foreign technicians.
Mr. McGhee then returned to the question of the nationality of the technical director. Dr. Mossadegh indicated that Iran had lost [Page 217] confidence in the British and when there was no confidence you could not work out a mutually satisfactory agreement. He said that the British were always acting with the interest of their own pocket in mind, whereas the United States was a disinterested party. He said that he did not want the technical director to be an Englishman but was quite willing to take the individual British technicians. Mr. McGhee pointed out that the recruitment of technicians was an extremely complicated problem. There were not many of them unemployed and it had taken the Anglo-Iranian a long time to build up their staff. He had recently asked an American expert how long it would take to build up a similar staff starting from scratch and he had been told that it would take at least five years. Dr. Mossadegh seemed impressed by this figure.
Mr. McGhee then asked whether Dr. Mossadegh in the light of Iran’s difficulties would be willing to sell some of the stored oil products on a basis of receiving part payment in cash, part to be retained by the purchaser until a settlement was reached. Dr. Mossadegh said he did not like this idea. The stored oil represented eight months’ supply for Iran’s internal consumption. If they were a long time in reaching a settlement with the British and sold this oil they would then be without oil for their own requirements. The British were anxious to create an oil shortage in Iran as a means of putting pressure on the Iranians. He said the British had actually offered to purchase for cash the oil now in storage and he had refused to sell it.
Mr. McGhee said that Dr. Mossadegh had a great opportunity to improve the living standard of the Iranian people by an agreement which he had it in his power to conclude. Dr. Mossadegh said he was aware of this and was therefore anxious to finish this question and achieve a settlement.
Dr. Mossadegh then spoke of U.S. military assistance to Iran. He said that this would not prove a real bulwark to defend Iran unless living conditions were improved. The lower ranks of the Army and school teachers were very discontented due to their low pay. This was a dangerous situation and if an agitator could put himself at their head there would be a revolution in Iran. This was a danger which both the British and the United States must recognize. If it occurred world peace would be seriously endangered. Mr. McGhee then asked if Dr. Mossadegh did not feel that some military aid was necessary. The Prime Minister replied that legitimate defense was the duty of every country and that if Iran could mechanize her agriculture she could then make available the necessary manpower for national defense. Present forces were adequate only for internal security. Assistant Secretary McGhee then asked Dr. Mossadegh to give the West a chance to prove it was a friend of Iran. Dr. Mossadegh [Page 218] said he knew that this was so in the case of the United States but that the AIOC had interfered continuously in Iran’s internal affairs to insure the election of deputies subservient to them.
He said that all he had said to Mr. McGhee had been exploratory and should not be communicated to the British as coming from him as a commitment. He said he felt the United States should make its good offices available in achieving a settlement. Mr. McGhee said that the interest of the United States had always been to get negotiations going in order to achieve a settlement. Dr. Mossadegh said that this was also his wish. He repeated his earnest desire to settle this whole question.
Dr. Mossadegh then asked what the situation was with regard to the Security Council. He had asked for a two-day’s postponement in order to give him a chance to recover his health before addressing the Security Council. Mr. McGhee said he did not know whether this two-day postponement would be granted but he did not anticipate serious difficulties of this sort. Dr. Mossadegh asked what he should do. Mr. McGhee said that he was going to Washington later in the day and would talk with the Secretary and other high officials of the United States Government. He would then probably return to New York and see Dr. Mossadegh again. In the meantime someone from the U.S. United Nations Delegation would probably call and see Dr. Mossadegh. Dr. Mossadegh thanked Mr. McGhee and said that he had developed great confidence in him during the last two days. He had spoken to Mr. McGhee as he would speak to his own brother, with the utmost frankness and trust. Mr. McGhee thanked Dr. Mossadegh for this expression and assured him that he would protect his confidence. Mr. McGhee then took leave of Dr. Mossadegh.