888.10/11–2851: Telegram

No. 134
The Acting Secretary of State to the Embassy in Iran1


1102. FYI during latter part of Mosadeq’s stay in Wash, he recd Garner Vice Pres IBRD for gen conversation at suggestion of Pak Amb. During course of conversation Garner informally discussed possible participation of Bank in temporary solution oil dispute. Basis of Bank participation wld be full agreement by both parties as to conditions. Before proceeding he requested reaction of Brit Govt to his proposals and was told they cld not be given before Mosadeq’s departure. Garner consulted Dept who encouraged him, and Walter Levy, for technical advise, but was not able to proceed further with Mosadeq. Subsequent to Mosadeq’s departure Brit have expressed some interest and matter therefore has been pursued since that time by Garner with Brit reps here.

Briefly, proposal is (1) Bank to make suitable arrangements for operation of oil fields and refineries by either an Amer or Dutch but not a Brit group. In event Amer group selected it wld preferably be a small group rather than a major producer.

(2) Petroleum to be sold FOB Abadan through normal internatl channels, i.e. Brit channels although this pt not specified in conversations with Mosadeq.

(3) Oil to be sold at a discount with Bank considering discount of 33⅓ percent as working hypothesis, proceeds from sale after discount to be split 50–50 between Bank and IranGov. Bank’s 50 percent wld be used to pay operating expenses and any advances it had to make for working and other capital required to resume operation, balance to be held for payment as compensation if and when agreement reached on this pt. 50 percent available to Irans wld be free of all charges.

While Dept has encouraged Bank to proceed in this matter, it has serious doubts that proposal in present form will be acceptable to both parties, or to US. Garner has not yet run up against particular problems in dealing with either Brits or Irans which have so far blocked all US efforts. Furthermore, there appear to be some specific pts in proposals which we doubt cld be agreed upon:

Brit wld not accept exclusion from oil fields and refinery;
33⅓ percent discount in Dept’s opinion wld make price Iran oil too high to be competitive and wld exceed 50–50 formula. Most [Page 288] unlikely Brit wld accept such a price. Dept in conversations with Mosadeq had in mind 40–45 percent discount; and wld be most reluctant to see any less because of adverse impact on other concessions.
It is difficult to see Mosadeq accepting arrangements whereby Irans wld receive only 50 percent of proceeds of sale of Iran oil, amounting to only 58 cents a barrel after discount.

Plan is still in prelim stages and Bank is in process of refining it. After this is done, Bank contemplates submitting it to both Brit and Irans stating Bank’s willingness advance funds required get Iran oil industry going if proposal acceptable to both parties. While encouraging Garner to proceed with his proposal, Dept has cautioned him regarding reactions elsewhere if Iran receives more favorable terms than other oil producing countries and of dangers involved in permitting IBRD to become involved in internatl oil business on permanent basis or becoming an agency to which other concession-holding countries might look for more favorable concession arrangements. Participation of Bank shld be clearly on temporary basis only.2

  1. Drafted by Ferguson. Repeated to London and Rome, the latter for Secretary Acheson who was there to attend the Eighth Session of the North Atlantic Council.
  2. Garner had flown to Rome on Nov. 26 to discuss possible IBRD participation in the Iranian oil industry with Linder. The proposal he made was similar to that outlined in this telegram and apparently had been drafted by Garner as early as Nov. 16 for the IBRD Board. Linder reported this to Secretary Acheson in a memorandum dated Nov. 28 and transmitted a report on the conversation to the Department on the same day. Copies of the memorandum to Acheson and telegram 2391 from Rome are in file 888.2553/11–2851. For two other accounts of the participation of the World Bank in the efforts to achieve a settlement of the oil question, see Edward S. Mason and Robert Asher, The World Bank Since Bretton Woods (Washington, Brookings Institute, 1973), pp. 595 ff. and Press Release No. 285 of the International Bank for Reconstruction and Development, dated Apr. 3, 1952, and its attachment entitled “Review of the International Bank’s Negotiations concerning the Iranian Oil Problem.” A copy of the press release is in file 888.2553/4–352.