888.2553/11–751: Telegram

No. 124
The Secretary of State to the Department of State

top secret

Actel 8. Eyes only Matthews, Nitze, McGhee. For McGhee, Nitze from Linder. Meeting at British residence attended by Eden, Flett, Rowan, Fergusson, Acheson, Harriman, Gifford, Perkins, Linder.

Fergusson led off with statement fair compensation must be obtained in order protect their assets in other areas. Iranian counter claims without merit and if admitted would have serious repercussions other places. However, compensation might be waived on a clear and demonstrable 50–50 arrangement and an assured supply of oil. Their opinion neither is met.
AIOC unwilling buy oil on a cost plus basis since refiner would have no incentive control costs and would be under constant pressure increase expenditures for amenities.
They object in principle to a fixed price rather than profit sharing but would accept former if free oil were provided as compensation.
Stated Dutch would be unwilling to run refinery because (a) they would require some measure control over crude production to insure that suitable types of crude produced, (b) there are not sufficient technicians when US and UK nationals are excluded, (c) neutrals on board give no assurance since they would be appointed by Iran.
Rowan followed referring to crisis in UK and Chancellor stand fight inflation internally. Measures announced today represent only a beginning. If UK is weak in respect Iran all confidence will be lost and effect on their invisible earnings will be catastrophic. Oil is important but their position in the Middle East is vital. In Iran they are faced with a finite loss to which they can reconcile themselves but to make a bad agreement (which you by now have gathered they think our proposal is) would expose them to an incalculable risk. His specific points were:
Effect in other places of exclusion of Britishers.
No compensation which can be waived only if clear and demonstrable 50–50 arrangement.
No assurance that oil will be produced.
No commitment by Mosadeq.
It would be very harmful to their prestige with other governments if it were known that UK would even consider negotiations on such a basis.
Finally that there still is considerable divergence in our political appraisals.
There followed a lengthy and fruitless discussion as to whether our proposal did in fact deviate substantially from the 50–50.
Eden then made his proposal that we should urge US companies to join them, in order to work out a joint Anglo-Amer deal with Iran. He stated that we were partners in the whole of the ME and this should be no exception. His analysis of the situation had persuaded him that the Iranians had succeeded in driving a wedge between us and in playing us off against each other.

Secretary replied that the real wedge was our differing political appraisal of the situation. Naturally we would give most serious consideration to their proposal but warned that there were gravest dangers inherent in it. He feared violent adverse public reaction in UK. Moreover, he thought the Iranians would also believe they had been tricked by us. It was agreed by Eden that were we to consider this favorably they would of course extend the invitation to which the Secretary added the Iranians would have to do likewise.

Eden again stated we were partners in the entire ME and of course it would just be too bad if we supported Mosadeq. He added that Churchill very much liked the idea that we should join them.

As indicative of their attitude at this point, Fergusson remarked that only the Brit and Amers could make it possible for Mosadeq to obtain the fruits of his oil. There was no indication that any weight whatever had been given to the joint appraisal from Tehran.1

The conclusion which appears inescapable is that while they have endeavored to rationalize their rejection of our proposal, even had we been able to close at a price appreciably below $1.10 (which of course we are far from having in hand) they would be disinclined to meet our time limits and probably would continue to endeavor to avoid negotiation. We believe they are perfectly prepared to continue to take all the risks of doing nothing—having in mind the possibility, no matter how remote, of drawing us in. Nor should one omit from consideration the difficult political situation in which the new government would find itself when having attacked the weakness of the old, it makes under this Prime Minister an arrangement which may be interpreted as more appeasement. Either one discounts completely their sincerity or one must accept the strong indication which we have had that they really believe that [Page 267] to yield in Iran is to write vitally important chapter in the decline of the UK.

The Secretary has read this cable and concurs in the report.

  1. Presumably that transmitted in Document 122.