Foreign Relations of the United States, 1952–1954, Iran, 1951–1954, Volume X

888.2553 AIOC/4–1751

No. 12
Memorandum of Conversation, by the Director of the Office of Greek, Turkish, and Iranian Affairs (Rountree)¹

top secret

[Washington,] April 17, 1951.

Participants:

• The British Ambassador
• Sir Leslie Rowan, British Embassy
• Mr. Geoffrey Furlonge, British Foreign Office
• Mr. George McGhee, Assistant Secretary
• Mr. G. Hayden Raynor, EUR
• Mr. William M. Rountree, GTI

This meeting, continuing the British and American talks on Iran, was limited to three representatives of each government in accordance with the requests of the British Ambassador.²

Ambassador Franks said that, following our initial talks, the Embassy had put to the British Government the substance of the United States position on the AIOC problem as he understood it to be. The British Government had given intensive thought to this problem and the Ambassador had now received a communication setting forth the present views of the Foreign Office and the Foreign Minister, which had not yet been presented to the British Cabinet.

Ambassador Franks said that the present Foreign Office thinking is that the problem should be approached in two stages: (1) diplomatic efforts in paving the way for negotiations and (2) the negotiations themselves. While he could not say now how the detailed negotiations would take place, he said that the “stage setting” should be handled by the British Government and not by AIOC.

It is proposed by the Foreign Office that the British Ambassador in Tehran call upon the Iranian Prime Minister and put to him in an informal manner the following points:

A. That the British Government cannot accept the Iranian position that the AIOC controversy is not a matter of concern to it. The British Government is vitally concerned in this important British interest.

B. The Ambassador would then review the actual situation as regards the AIOC controversy, pointing out the several major factors involved. These would include: appropriate recognition of the Majlis legislation concerning nationalization; the fact that the company is in Iran by virtue of an agreement which does not allow for unilateral cancellation; the importance of the industry to Iran and Great Britain, as well as to the entire free world; and the need for mutually acceptable arrangements which would permit the company’s continued operation, recognizing the adverse consequences to all concerned if this were not done.

C. The Ambassador would then reiterate the interest of the British Government in the independence and integrity of Iran and in the welfare of the Iranian people. He would point out that in the common interest the oil situation should not be permitted to interfere with the continued good relations of the two countries.

D. The Ambassador would say that it is possible to turn the present situation to advantage by establishing a new relationship and association with respect to the oil industry under which both countries would benefit.

E. The Ambassador would then consider means by which this relationship can be developed, (1) in its long-term aspects and (2) in its short-term aspects. With regard to the long term, the Ambassador would recognize the desire of the Iranian people to participate to a greater extent in the oil industry and would say that the British Government would earnestly support means to accomplish that end. Under the terms of the present contract the total assets of the company would pass to Iran upon expiration of the concession in 1993. If title should pass before that time, the Iranian Government would be liable for compensation and the possibility of a substantial loss of revenues from the operation. This would impose an unnecessary burden, and it is desirable therefore that a plan be evolved to enable Iran to obtain the assets by more practicable means. The British Government will cooperate fully in this plan.

As to the short-term aspects, any agreement concerning the operation of the company would be as between the Iranian Government and AIOC, and the British Ambassador could do no more than suggest broad lines along which the form of this agreement might take. Generally speaking, the arrangement might include the creation of a new company, registered in the United Kingdom, which would hold the concession and assets of AIOC in Iran. Iranians would be represented on the Board of Directors of this corporation, the profits of which would be shared equally. The arrangement might include the distribution of petroleum products within Iran by a separate Iranian firm owned and operated by Iranians, who would receive the fullest cooperation of AIOC. The Ambassador would recognize the common desire of the two governments for Iranization of the new UK-registered company, and the British Government and AIOC would cooperate fully in carrying out an Iranization scheme.

F. The Ambassador would then express the hope that the Iranian Government will feel ready to open negotiations along the broad lines outlined. However, he would point out the desirability of establishing a clear basis upon which the discussions will take place and would suggest an exchange of notes between the British and Iranian Governments including the following points:

(1) A statement of mutual good will.

(2) Recognition of the British Government’s desire that the Iranian Government assume in due time full control of the oil operation.

(3) Recognition of the British Government’s desire to bring about greater and increasing Iranian participation, commencing at once.

(4) Agreement upon the necessity of the two governments’ consulting on all points of disagreement under the new arrangement which might be evolved.

The Ambassador pointed out that the foregoing course has been decided upon after taking fully into account the suggestions of the Department’s representatives, for which the British Government was most appreciative. He recognized, of course, that all of the points made on the American side had not been met, but felt that a good deal of ground had been given. He commented that the British would be opposed to any course which would represent straight appeasement to the pressures that had been created, as it felt that not only would a great deal in Iran be lost but that a dangerous principle would be established. On the other hand, the British feel compelled to take fully into account the events of the past two months in Iran and must therefore be prepared to accommodate itself to some extent to the new situation thus created. The Ambassador felt that both the British and the Iranians must give from any extreme positions toward the middle, and thus accomplish an agreement which would be in their mutual interest.

The Ambassador expressed considerable confidence that the approach adopted by the Foreign Office had many constructive elements, and that it therefore had a good chance of success. He therefore hoped that the United States Government would give its “quiet support” to the plan. He particularly requested, with regard to the proposed exchange of notes with the Iranian Government, that we be prepared to indicate informally to the Iranians that a relationship permitting further detailed negotiations should be established.³

Mr. McGhee, in thanking the Ambassador for outlining the current British views, said that he was pleased to note several improvements over the proposal set forth during earlier meetings. He pointed out that Ala had previously taken the position that the matter of the AIOC negotiations is as between the Iranian Government and the AIOC, and his position in Iran would therefore be difficult if he undertook discussions with the British Government. Ambassador Franks replied that the British distinguished between the talks which Ambassador Shepherd would have with Ala, which would be completely informal and unpublicized, and the actual negotiations which would, of course, be between the company and the Iranian Government. The British Government feels, however, that it must approach Ala in the first instance to provide a broad basis upon which the negotiations can take place.

Mr. McGhee expressed some concern that the proposal still would not provide a basis upon which the Iranian negotiators could claim that it recognized the principle of nationalization. He wondered, therefore, if the greatest possible effort had been made to inject into the British proposal elements which would make it possible to square the plan with the nationalization clamor. Ambassador Franks, admitting that he could only guess upon this point, said that he felt that there were enough such elements in the proposal to enable the Iranians satisfactorily to handle this aspect, provided they wanted to do so.

Mr. McGhee commented that the only three elements in this connection are (a) Iranization of the company, (b) the 50–50 sharing of profits, and (c) the creation of an Iranian firm to handle internal distribution of petroleum products. He wondered whether it would not be possible, perhaps even by some fiction, to provide more of a selling point to the Iranians. At this juncture, Mr. McGhee said that the Department had, following our first meetings, given considerable thought to the previous British proposal, and had formulated certain views which he would like to set forth, even though the more recent information from Ambassador Franks met many of the points.

(Mr. McGhee then read the attached paper, a copy of which he informally handed Ambassador Franks.)

In reverting to the new British proposal, Mr. McGhee again emphasized that his major concern was whether it could be adapted to the principle of nationalization. He expressed the feeling that in its present form it does not go sufficiently far in this direction so that the Iranian political forces demanding nationalization can be placated. He said, however, that the Department’s representatives will consider the British proposal carefully and would endeavor to be prepared by April 18 to make specific comments.

Ambassador Franks said that, whether or not the Department’s representatives agreed upon the precise lines of the British proposal, he hoped that the United States would feel that the general approach is reasonable and that we would therefore give it our quiet support. The Ambassador was convinced that the plan is a good basis upon which to begin discussions with the Iranians and that, while he may be wrong, it has a good chance for success. The Ambassador asked that the Department take fully into account this British view in formulating its own position.

In reply to Mr. Raynor’s question, the Ambassador stated that the British plan for the creation of a new corporation registered in the United Kingdom did not contemplate that the Iranian Government would be part owners. Mr. McGhee pointed out that this may be the main difficulty in the plan, and commented that it may be possible, consistent with the principle of equal sharing of profits, to establish some basis upon which Iranian partial ownership can be established without in fact diminishing the effective British control of the company. He said, however, that further comment in this connection would be withheld until the Department had a chance to study the plan in more detail.

The Ambassador said, in reply to Mr. Raynor’s question, that the British Government would not favor the registration in Iran of the new corporation, as this arrangement would place the corporation at the mercy of the Iranian parliament.

Mr. McGhee referred to the persistent rumors in Iran that the British are endeavoring to bring about the downfall of Ala and installation of Seyid Zia as Prime Minister, and said that while we gave no credence to such reports we felt that the existence of the rumors had in fact created a difficult situation. He expressed the belief that both the British and American governments should give wholehearted support to the Shah and, while he is in office, to Ala, and felt that anything the British could do to assure Ala that he does have British support would be to the good. In this connection, Mr. McGhee said that the Department is considering a new program in Iran which would provide additional concrete proof of our support of the Shah and his Government, and suggested that Mr. Rountree and Mr. Furlonge discuss in more detail the elements of that program in a separate meeting. (This meeting was arranged for April 18.) Mr. McGhee expressed the hope that the British Government would consider what steps it might take to bolster the position of the Shah and his Government.

Mr. McGhee referred to telegrams that had been received from Tehran to the effect that the British frigate Flamingo will steam slowly past Abadan to Basra. He said that the Iranian Government had indicated concern over the possibility that British action implying the threat of force would create an extremely serious situation, and expressed the hope that the movement of the frigate near Abadan could be cancelled. At Mr. McGhee’s request, the Ambassador undertook to convey this view to the Foreign Office.

[Attachment]

Paper Prepared in the Department of State

top secret

[Washington, undated.]

United States views on questions raised during discussions with the British on Iran:

1. Although we recognize that many aspects of the present situation in Iran are matters to be dealt with directly by the AIOC and the British Government on one hand and the Iranian Government on the other, nevertheless, because of our own great interest in Iran, we wish to make known our views as clearly as possible with the hope that agreement can be reached as to the future courses of action by the US and UK Governments. We would like to emphasize the vital necessity of full cooperation in future actions with respect to Iran by the US and UK Governments and their respective oil interests.

2. We fully understand the importance of the AIOC to the UK economy. We would expect, however, because of the overriding importance to the UK, the US and the whole free world of continued peace and stability in the area and the continued flow of Iranian oil into world commerce, that the UK will not allow these objectives to be subordinated to commercial or balance of payments considerations.

3. We would be opposed to the adoption of “strong” measures by the British to obtain a favorable solution to the problem of the AIOC concession, such as the manipulation into office of an Iranian Premier of UK choosing or the introduction of force or the threat of force. We assume that the British do not now contemplate such action.…

4. In our judgment, the original offer for continuation of AIOC operations as proposed by the British delegation in the meeting of April 10 will not be acceptable to the Iranians since it does not even pay “lip service” to nationalization; that it, therefore, faces certain rejection; that the United States as a result cannot support it and strongly recommends that the British not make such an offer since it would tend to prejudice Iranian acceptance of any future offer.

5. The US does not wish to propose specific terms which might be acceptable both to the AIOC, the UK and Iran, since it is believed that any specific proposal should come from the AIOC. It nevertheless feels that to be acceptable any such proposal must, as a minimum, embody the following elements: accommodation to the principle of nationalization; fifty-fifty profit sharing or its equivalent; progressive Iranianization; satisfactory arrangements for internal distribution of oil products. It is hoped that AIOC can maintain operational control, and that the stability of the AIOC position and concession rights in the Middle East generally will not be weakened.

6. The United States could only support a proposal to the Iranians which it feels has a reasonable chance of success. Any United States support of a specific proposal the AIOC may make to the Iranians would be general and not support for the particular provisions of the offer, would not be public and would, for the time being at least, be confined to discreet diplomatic action by the American Ambassador.

7. Aside from the particular solution to the Iranian oil problem, the United States believes that the British and American Governments independently should render all possible support to the Shah and the Iranian Government. This support should be backed up by economic and technical assistance, and military equipment and training, to the fullest practicable extent. For its part the United States is prepared immediately to consider increasing military assistance and the extension of grant economic aid in addition to loans which already have been authorized.

1. Drafted by Rountree on Apr. 18 and initialed by McGhee.
2. Telegram 1825 to Tehran, Apr. 11, provided a summary of the first two meetings. The Department felt that the British position in Iran demonstrated some flexibility but expressed doubt that any British plan which did not recognize the principle of nationalization of the AIOC would be hard to sell to the Iranians. (888.2553/4–1151)
3. Attached to the source text was a summary of the U.S. views on the position set forth by Ambassador Franks, not printed; regarding these views, see the memorandum of conversation, infra.