788.13/11–2851: Telegram

No. 135
The Ambassador in Iran (Henderson) to the Department of State1

secret
priority

1985. 1. During conversation which I had yesterday with FM I said I wld like pay my respects to Mosadeq at his convenience. Later in day FM set appointment this morning. Mosadeq recd me [Page 289] in cordial manner and our conversation lasted for approx two hours.

2. Mosadeq said in his opinion US officials had done everything possible while he was in US to bring about agreement. Brit however, seemed to remain aloof. He was under impression Brit preferred that if any agreement shld be reached it shld not be thru intermediation of US or with him. In view present Brit attitude he was beginning to wonder whether any agreement between Iran and UK re oil wld be possible. In meantime Iran financial situation deteriorating govt cld not continue indefinitely without funds from some source to support 70,000 idle workers in oil fields. He wondered what wld be my opinion as to advisability of suggesting amendment to oil nationalization law which wld permit Iran to sell oil to any interested country rather than merely to former customers. He had reason to believe that Iran cld sell fairly large quantities oil at once to such countries as Czechoslovakia, China and Argentina. Shld it not do so in view its urgent need for funds? I said if Iran had opportunity to sell oil to countries other than old customers and desired to do so, I did not think it would be appropriate for me to raise objections. Nevertheless, I thought it only fair to point out that if Iran shld sell oil to Communist China at time when that country was engaging in hostilities against UN, Iran wld at once forfeit sympathy of Amer public and of most peoples of free world. Furthermore, altho it might be possible sell oil to countries like Czechoslovakia for short period, it was not likely that such countries wld be dependable customers because there cld be no natural trade relations of importance between them and Iran. What cld these countries, for instance, over a long period give to Iran in exchange for oil? It would be wiser for Iran to concentrate on endeavors to retain its old customers with whom natural trade channels existed, rather than to try to create unnatural trade ties. Mosadeq indicated that he wld drop, at least for time being, idea of proposing such an amendment.

3. I asked Mosadeq whether, during his various conversations in US, any plans had been submitted to him which, in his opinion, might offer avenue for solution oil problem. Mosadeq replied only suggestion which seemed to him to offer even slight hope was project for Internatl Bank to make loan and to take over operations. He said that during conversations re Internatl Bank, only unsolved problem, so far as he was concerned, was that of amount to be paid for oil. He in general was impressed by various proposals made by reps of bank, but found that they had no assurances that former customers would be willing pay prices for oil which wld leave enough to cover bank’s expenses and give Iran share which country had right to expect. He had thought Internatl Bank wld [Page 290] discuss this matter further with Brit and wld approach him again. Nothing further, however, had been heard from bank. He was still hoping that something cld be worked out by bank which wld be agreeable both to Iran and UK. He saw no other hope just now for agreement. During our conversation he indicated he might agree to plan whereby oil wld be sold thru Internatl Bank to former customers at Gulf price, X percent of proceeds to be retained by company to pay off loan and services, and X percent to be retained by bank in special fund to be used for paying compensation when eventually, an agreement cld be reached between AIOC and the Iran Govt. He gave impression he wld be willing to have Internatl Bank in conjunction with NIOC set up company for employment foreign and Iran experts to exploit oil fields and manage refinery. Said he cld not agree, however, to any Brit oil experts being employed in Iran. When I indicated that such attitude was not conducive to settlement he said it unnecessary stipulate that no Brit experts wld be employed; nevertheless, he did not like idea that Brit nationals again be connected with Iran oil operations, even as individuals.

4. I did not argue with Mosadeq or attempt to obtain more precise ideas his present thinking, since I thought it preferable not to undertake to discuss in absence of instructions any proposition which International Bank may have made or which it may contemplate making. So far as I can see, however, only solution which seems to offer any hope just now rests with Intl Bank. I assume Intl Bank is having discussions with Brit. I wld appreciate any info which Dept might be at liberty to pass on to me as to whether or not Intl Bank still interested in matter.

5. During our talk Mosadeq told me that Amer officials in Wash, in discussing possibility of budgetary aid to Iran, had said that US Congress might well take view that Iran, instead of asking US for such aid, shld try to come to some arrangement with the Brit whereby its urgent financial needs might be met through oil revenues. I said it seemed to me that official in question was merely trying to be fair to Mosadeq in informing him what attitude of Congress was likely to be. I added it wld be unfortunate if he shld have impression that granting of budgetary aid to Iran by US wld be easy at time when US public was inclined to believe Iran wld not need such aid if it wld come to an agrmt with Brit re oil. I said that judging from attitude Amer press State Dept wld meet with considerable opposition in US if it shld undertake to extend budgetary aid to Iran in present conditions. That was one reason why it seemed so important that Iran leave no stone unturned in its efforts to find some way of restoring its oil revenues. I indicated that I saw no hope of restoration of these oil revenues in immed future [Page 291] except under some plan which wld be acceptable to Brit. He seemed to take my frankness in good part.

Henderson
  1. Transmitted in two sections; repeated to London.