888.2553/11–751: Telegram

No. 125
The Acting Secretary of State to the Secretary of State, at Paris1

top secret

Telac 13. For the Secretary (eyes only Sec, Harriman, Linder). Fol are Dept’s flash reactions to Actel 82 and present Iran situation:

Altho Dept will await final word from Sec, which is expected before 5:00 p.m. Washington time, as to whether or not Mosadeq shld be encouraged to stay in Washington longer, it is assumed answer will be negative. In that case Dept wld recommend advising Dr. Mosadeq that conversations with Brit similar to those conducted with him have failed to reveal sufficient area of agreement which wld result in an understanding being reached during short time he cld remain in Washington. We therefore cannot urge him to delay his return to Iran. He has indicated that unless we ask him to stay he will announce tonight his departure on the 15th. We wld seek to avoid any expression of blame for breakdown of negots, pointing out that problems remaining seem to be management of the industry in Iran, compensation to Brit interests, and price of oil. We wld discreetly point out that his own positions in the matter have contributed to failure to reach agreement.
Dept concurs with your reaction to Brit suggestion of participation by American companies which from standpoint of ownership it is assumed wld be limited to refinery altho it cld include participation as consultants to NIOC in remaining oil operation. For reasons that the Sec stated, we believe this suggestion shld not in any way be linked to our present initiative, but that we shld give consideration to it only after being invited to do so by both Brit and Irans. In addition to adverse political reaction in UK and Iran, we doubt that participation by US companies wld make Brit companies any more palatable to Iran, and indeed might be construed [Page 268] mere device to reimpose Brit company on Iran. Believe US companies wld be disinclined to enter such difficult and complicated picture when they have access to adequate oil reserves elsewhere.
Dept reaction is against any suggestion that US companies purchase oil on interim basis from Iran in absence of agreement with Brit. It is felt such action wld Constitute only temporary palliative to Iran situation, which wld not be worth the afront to Brit public opinion and weakening of Brit position which wld be involved. It wld in addition constitute our sanction of purchases under conditions which we wld, in the absence of a new agreement, call confiscation as a result of unilateral Iran action. Moreover it not clear that difficult legal question re ownership of oil wld not be pressed by AIOC.
Dept is acutely aware, however, of grave consequences of the US neither (1) using full weight of its position vis-à-vis Brit to get them to agree to proposal which we consider reasonable and which from purely financial point of view is as good as they may ever get even though it does not meet Brit prestige and internal political problems; nor (2) taking direct steps to help Iran avert imminent collapse of its economy. If it becomes clear that Brit do not wish to negotiate with Mosadeq under any reasonable conditions problem is accentuated by fact that US Govt has, as is known, taken positive steps to prevent certain American oil interests and cooperative organizations from negotiating with Iran. This connection, public and Congressional reaction to our standing aside and risking the loss or dismemberment of Iran shld be carefully weighed.
Preliminary Dept views are that US shld as minimum advise Brit that if they do not proceed with negots US Govt may be compelled render such economic assistance as it has at its disposal, including economic and military aid under the MSP and Ex-Im Bank loans, to assist Iran even in absence of solution to oil problem. This connection, Irans have requested permission to talk to Ex-Im Bank. In addition they will, when breakdown of talks is revealed to them, request short term economic assistance to prevent collapse. Dept wld appreciate expression of Sec’s opinion as to whether or not consideration shld be given to Ex-Im Bank loan or short term financial assistance. In meantime our position of keeping Ex-Im Bank loan open but “dragging our feet” on its implementation will be maintained.

  1. Drafted by McGhee and cleared by the Executive Secretariat, the Policy Planning Staff, the Office of the Deputy Under Secretary, and the Bureau of European Affairs.
  2. Supra.