The Ambassador in France (Bruce) to the Department of State
2743. Eyes only Matthews, Nitze, McGhee, from Linder for McGhee. Fol is entirely informal memorandum handed us by Eden at mtg evening November 8.1 This was in response to our Secy’s request made preceding evening for an outline of their minimum requirements.[Page 273]
“The following principles taken as a whole represent in our opinion the minimum requirements which must be satisfied in any settlement of the Persian dispute. We believed that they are fully consistent with the acceptance by His Majesty’s Govt of the gen principle of nationalization and that they are in fact the conditions upon which any oil company wld need to be satisfied before undertaking any responsibility for running any part of the Persian oil industry or contracting to buy and market large quantities of Persian oil; and without the cooperation of the oil companies Persia cannot hope to derive any substantial benefit from her oil.
There must be fair compensation for loss caused by the “nationalization” of concessionary rights and properties to be agreed between the two parties or, in default, settled by arbitration.
The amount of compensation cannot be settled unilaterally. It must be agreed between the parties, or if agmt is not possible, settled by independent arbitration acceptable to both parties or by the Internatl Court of Justice.
Unless the principle of leaving the question of compensation to be settled by some independent judicial authority is accepted, no Brit (or Amer) interest in foreign countries is safeguarded against breach of contract, and there is no possibility of encouraging foreign investment in backward countries to save them from Communism, which is as much as objective of Amer as it is of Brit policy.
It is not enough when nationalization occurs that there shld be acceptance of the principle of fair compensation. As Mr. Harriman publicly stated, there must also be security for effective means of paying compensation.
In the case of Persian oil, compensation can only be paid if their oil industry is maintained at about its present scale and in effect in the form of oil. This requires:—
- That there shld be efficient management of the oil fields and refinery and effective coordination between the two;
- That some company having world-wide markets shld be prepared as a commercial proposition to rely over a period of time upon Persian oil instead of other countries oil for supplying those markets.
No company with world-wide markets can possibly afford to commit itself to rely on Persian oil unless the persons responsible for managing the oil fields and refinery are, in the opinion of the company:—
- Properly qualified.
- Guaranteed adequate powers. To ensure that the oil will be forthcoming at the right time in the right quantity and quality and at an econ price.
It is not enough that Persia shld agree to appoint a number or even a majority of neutrals to the board of the Natl Iranian Oil Company. The neutrals or the majority of the board must be people in whom any company running the refinery or committing itself for the marketing of Persian oils (whether crude or refined) have confidence. Such companies must also have confidence that these people will have adequate powers guaranteed to them for the carrying out of their responsibilities.
Persia shld not by reason of her unilateral expropriation AIOC secure, over-all, a more favorable return from her oil than other concessionary govts who have respected their contracts.
Subject to the establishment of fair and effective compensation (in the form of free oil) and of efficient management of the Persian Oil Industry (both crude and refined products) on which effective compensation depends, it seems possible to consider a scheme under which Persia secured more than 50 percent of the profits arising out of the remainder of her oil production.
This possibility, however, is a matter on which His Majesty’s Govt cld not commit AIOC or any other oil company.
His Majesty’s Govt cannot undertake to negotiate on a basis involving the exclusion of its own nations from any country.
Even if we accept the Amer view that it is important to maintain Mosadeq in power and that so long as he is in power AIOC cannot as such operate in Persia, we must at least insist that in practice, as well as in form, neither Brit concerns nor Brit subjs shld be excluded from [the oil industry by the?] foreigners who will have to help Persia to run its oil industry.
Any other principles will be fatal to any foreign investment in any country, since no company operating anywhere wld have any security whatsoever.
Furthermore, no Brit Govt cld secure the acceptance by Parliament by any other principle.”
- No further record of this meeting has been found in Department of State files.↩