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

888.2553 AIOC/4–1851

No. 13
Memorandum of Conversation, by the Director of the Office of Greek, Turkish, and Iranian Affairs (Rountree)¹

top secret

[Washington,] April 18, 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, confined to three representatives of each government in accordance with the request of the British Ambassador, represented the final one of the series of talks with the British on Iran. The British officials who came to Washington for this purpose will depart on April 19.

Mr. McGhee said that the Department’s representative had given considerable thought to the course of action proposed by Ambassador Franks in the meeting of April 17.² He said that while the proposal had several good aspects, he frankly did not believe that it contained enough in the direction of nationalization to make it saleable to the Iranian Government. As to proceeding with that particular plan, however, he felt that a great deal depended upon the tactics employed. If it were presented to Ala on a completely informal and exploratory basis, it is possible that there would not be much reaction even if it proved to be unacceptable. On the other hand, if it were put forward more formally as a definite proposal there is, in the Department’s opinion, a serious possibility that the United Kingdom, and more indirectly the United States and the entire West, would be placed in the position, in the Iranian view, of opposing the forces of nationalization. Mr. McGhee elaborated upon the dangers involved in this possibility, pointing out that it would place the Communists, riding upon the wave of nationalization, in an extremely strong position. Such a development would, of course, seriously weaken the British in regard to any subsequent plan which might be put forward. He therefore strongly urged the British to reconsider their present plan with the objective of adding more of a “flavor” of nationalization in some form that would have minimum effect upon the actual control of the company’s operations.

Mr. McGhee said that he did not wish to put forward specific suggestions as to how this might be done. He said, however, that the problem might be met by the creation of a new Iranian entity in which the sub-soil rights would be vested; this corporation would in turn deal with the AIOC affiliates along the general lines of the present British plan. As another example, a new company might be created with partial Iranian ownership in which the total rights, both sub-soil and production, would be vested.

Mr. McGhee continued by saying that if such a formula could be found, Ala might be able to put it forward to the Parliamentary oil commission as a plan which they themselves could present to the British. In his view it is extremely important that the commission have some idea as to what might be acceptable to the British. He said that a great sales point in the British plan is the “no compensation” element, since any Iranian solution requiring compensation would be onerous to them, especially since they will in any event ultimately get the assets without payment. In the meanwhile they would be receiving 50 per cent of the profits, which probably would represent a larger income than would be possible under Iranian operation.

Mr. McGhee said that if, notwithstanding our strong view on this point, the British are determined to proceed with the present plan, he does not believe that the United States could support them and thus place itself in a position of opposing the forces of nationalization; if, however, a more reasonable formula can be found, we would give them appropriate diplomatic support.

Ambassador Franks expressed disappointment in these views. He said that, with regard to the paper handed to him by Mr. McGhee on the previous day outlining the Department’s reaction to the original British plan, he “had no quarrel” with most of it.³ However, he wondered if the paper, and thus the United States thinking, recognized adequately that the British are dealing with a prime strategic necessity. He said that we could not under-estimate the defense aspects of the current problem. The Ambassador did not suppose that what the United Kingdom had put forth would be exactly what the United States representatives had considered to be the best plan; however, they had come a substantial way toward meeting the points presented by the Department, always bearing in mind the minimum requirements for effective British control.

In regard to the nationalization aspect, the Ambassador said that the exchange of notes with the Prime Minister would fully recognize the desire of the Iranians to obtain control of their oil resources and production, and further state the desire of the British Government, by adapting the existing agreement, to make this possible. In the Ambassador’s view, this general line does offer some accommodation to the principle of nationalization, although admittedly it does not go as far as Mr. McGhee had suggested.

Regarding Ambassador Shepherd’s approach to the Iranian Government, the Ambassador said that it should not be assumed that he will have the attitude of putting things forward simply to be knocked down; on the other hand, he will not engage in discussions with a closed mind. The approach to Ala will simply be for the purpose of opening discussions upon the subject and will be completely informal. Subsequent policies and action might, of course, be affected by developments in this initial approach.

Regarding Mr. McGhee’s comment that we could give support to the present British plan, the Ambassador wondered what was meant. Under the circumstances, there would be no such thing as complete neutrality. If the United States must be neutral, the British would very much hope that it would be a benevolent neutrality; he hoped, of course, that we could go farther. The British know that in any case we would not talk against their plan or endeavor to undermine it, but unfortunately in the present situation a “sad silence” is a verdict.

Mr. McGhee replied that, regarding the strategic aspects of the current problem, the United States did not fail to appreciate the importance to British defense efforts of a satisfactory solution and, indeed, the paper setting forth the Department’s views recognized this.

Regarding American support of the British plan, Mr. McGhee said that our objective is to help stabilize the situation in Iran and render all possible support to the British. However, he emphasized again that it would not be in the interest of either country, or in the interest of the West as a whole, for the United States to become identified with any plan put forth by the British which did not recognize the principle of nationalization and which thus would run an undue risk that we would be placed in opposition to those forces demanding nationalization. For us to take a positive position upon a specific plan might place us in that situation. He said, however, that any neutrality would be benevolent; we will go as far as we can, bearing in mind our desire not to become directly involved in the nationalization issue. He pointed out that the British proposal contained very little that is new. The Iranians already assume that they will obtain the total assets, at least by 1993, and this would merely be confirmed in the new plan; they have already been told that they would obtain an equal share of the profits; previous agreements already have recognized the principle of Iranization and this will therefore not be new. The only new aspect is the creation of an Iranian company to handle internal distribution of petroleum products in Iran. He therefore did not see how the plan could be squared with nationalization in the view of the Iranian negotiators. This does not mean, however, that he was suggesting throwing the plan overboard. He was merely suggesting that a new element be found.

Ambassador Franks said that Mr. McGhee’s views would be given most careful consideration, although he felt that the British Government could not accept the suggestion unless it were shown that there would not in fact be a serious diminution of control by the company. On the other hand, if some new arrangement could be developed which would not diminish the effective control he felt that the British would be receptive. He said that, while further concessions might in fact be made, he felt that they could not sway with the storm so soon against their interests. In such negotiations appetites grow by what they feed upon. On the other hand, the British must guard against the danger of too little, too late. Ambassador Franks said that the British had hoped that the total package of their plan contained so much of our common views that we would go so far as saying it is worth looking into; he would be disappointed if that is not possible. His apprehension is that, if we are not convinced that the plan has some chance of success, the American attitude might be to wonder how long it will take Ambassador Shepherd to sink. He was glad of Mr. McGhee’s assurance that any neutrality would be benevolent neutrality, and said that Ambassador Shepherd would be instructed to keep closely in touch with Ambassador Grady during all stages of his conversations.

Mr. McGhee again emphasized the desirability of a completely informal approach to Ala in the first instance for the purpose of seeking his views as to whether the plan has any chance of success. No risk would be involved in this since, if it is considered by Ala to be unacceptable, a public explosion would be avoided.

Ambassador Franks said that it was intended that the initial approach to Ala would be informal and his reaction might affect the nature of the tactical approach from that point. He pointed out again that looming large in this connection are the respective assessments by the United States and United Kingdom of the depth of feeling in Iran concerning nationalization and the real force of the advocates of nationalization. He believes, based upon the British assessment, that the suggested line has a reasonable chance of success.

Mr. McGhee, in summarizing his position, said that he strongly recommended including in the British plan at least some facade of nationalization. If the British nevertheless go forward under the present plan, he hopes that it will be through a gradual process and handled in such a way that bridges will not be burned if it becomes obviously necessary to seek a new course. Should the British be prepared to offer more to the Iranians, it might be possible for the United States to extend more support. In any event, they would have our benevolent neutrality, although we certainly could not lend support in the face of strong reaction.

Turning to oil questions in other countries, Mr. McGhee said that it had been agreed by IPC to extend an offer to Iraq for equal sharing of profits. If this offer is followed through and the necessary company reorganization is accomplished, he feels that the question of nationalization in Iraq will be avoided. He asked that the British Government use its influence with AIOC (a partner in IPC) to assure that the negotiations with Iraq and implementation of the new arrangement do not become bogged down.

Regarding Kuwait, Mr. McGhee referred to discussions which had taken place between AIOC and the American partner of the Kuwait enterprise (Gulf Oil Company) and said that the American partner is anxious to proceed at once with a 50–50 offer. Although AIOC appears to feel that such an offer should be delayed for some time, perhaps as long as two years, the American company believes that the stability which would be assured by moving at once would be well worth the cost. The assistance of the British Government was requested in influencing the AIOC to agree to an immediate 50–50 offer, and in facilitating the necessary company reorganization, permitting the organization of an American company to exercise the rights of the Gulf Oil Company.

Ambassador Franks took note of Mr. McGhee’s comments concerning Iraq and Kuwait and said that he would pass them on to the British Government.

Ambassador Franks said that since this was the final meeting of the present series, he felt that a brief press release should be issued, and put forward a draft which had been prepared by the British Embassy. Since this draft was not acceptable to the Department’s representatives, it was agreed that Messrs. Furlonge and Rountree would jointly prepare a statement.⁴

1. Drafted by Rountree on Apr. 19 and initialed by McGhee.
2. Regarding this meeting, see the memorandum of conversation, supra.
3. Printed as an attachment to the memorandum of conversation, supra.

4. No copy of the British draft communiqué has been found in Department of State files; for the text of the communiqué released to the press on Apr. 19, apparently the statement prepared by Furlonge and Rountree, see Department of State Bulletin, Apr. 30, 1951, p. 700.

   On Apr. 20, McGhee transmitted to Secretary Acheson a memorandum summarizing the four talks with the British and stating:

   “It was clear from the discussions that the British, at least on the surface, do not consider the depth of the nationalization clamor in Iran to be as great as it is in the Department’s view. Consequently, it is clear that the British believe that they can get by with fewer concessions than we think possible.” (888.2553/4–2051)

   On Apr. 25, Bernard Burrows told Rountree that the Foreign Office had given general approval to the proposals made by Ambassador Franks on Apr. 17 without modifying them as a result of the suggestions made by McGhee on Apr. 18. (Memorandum of conversation, by Rountree; 888.2553/4–2551)