888.10/1–1552: Telegram

No. 145
The Ambassador in Iran (Henderson) to the Department of State1

top secret

2640. 1. We have been giving much thought to problem of rapidly deteriorating sitn in Iran, particularly in view Mosadeq’s statement that unless foreign financial aid recd there will be revolution in Iran within 30 days.2 We believe Mosadeq now making his greatest gamble. Win all or lose all. He hopes if he can obtain US finan aid he will become even greater nat hero; he will have triumphed again over Brit; barriers which are holding Iran oil away from world market might begin crumble. If no fon aid forthcoming he may be overthrown at last moment by frightened Majlis or as result some kind of coup, or Iran may drift into chaos and disorder out of which may evolve various kinds of regime, most likely one controlled by Sov Union. He is toying with idea by trying persuade Russia come to Iran’s assistance in case US and UK stand firm, but is not too hopeful Russia will do so. He realizes Russia has good chance take over Iran without expenditure any resources or funds. Nevertheless, if he shld give up hope receiving immed budgetary aid from US, he might not hesitate, regardless eventual consequences, consummate deal with Russia which might enable his govt carry on for time. He is keeping his eye on opposition which had been making some gains in Majlis and is preparing to meet interpellation scheduled for January 22. His two notes to Brits, one protesting at interference in Iran affairs, and other asking for closing Brit Consulates, were clearly written in order that issue of debates on 22nd wld not be whether his govt is good for country, but whether Majlis wld back him in his new dispute with Brits. In present temper country, opposition not likely dare do anything which might be interpreted as def Brit. Similarly, we believe his attempt to place five day limit on receipt reply re US willingness give finan assis (Embtel 2609, January 143) was based in part on hope he cld annihilate what might be left of opposition on 22nd by announcing US assis at hand.

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2. We have some hesitation recommending what action US might take at this crucial juncture. We have tried keep Dept informed developments day by day. Dept has understanding US public sentiments, of attitude intnl oil circles, of intricacies of tech oil problems and of position UK which we do not possess. Nevertheless, we venture make certain suggestions herein with idea Dept shld know and be able correct our thinking.

3. We believe risk sitting tight and letting events take their course too great. Mosadeq in his present mood might well prefer chaos and revolution to what he wld consider as capitulation to Brits. His demands have become progressively steeper. He is not likely retreat. On contrary we believe he will rely increasingly on anti-Brit and anti-fon moves in order arouse emotions and to distract public attn from weaknesses in his own govt. In our opinion:

He has progressed so far he will not agree to return AIOC or any other Brit oil co to Iran, and is not likely agree permit any fon controlled oil co operate in Iran. He is now firmer than ever before in determination that Iran oil co will operate oil industry and that such fon experts as are needed will be in employ and under direct management that co.
He unwilling sell oil at discounts from Persian Gulf prices on scale desired by AIOC and by other oil cos anxious to maintain so-called 50–50 relationships. These discounts we understand about 40 or more percent. Recently he indicated he might be willing accept from prospective buyer discount of 25 percent (Embtel 2601, January 13).4
He would like have agrmt with Brit re amt compensation. He has made several suggestions this connection and is alleged in private convs to have stated amt shld be determined by direct negots without participation of neutrals (Embtel 2260, December 19).4

4. Mosadeq’s attitude re oil may be unreasonable. Nevertheless, it is factor to be considered in connection with formulating decision whether or not US shld assist Iran financially just now. It seems to us it wld be extremely difficult in present intnl sitn give financial aid Iran unless that aid shld be accompanied by measures which at least give promise of ending oil deadlock. Furthermore, giving such aid without such promise wld not be likely solve Irans finan problems; it wld merely mean possible postponement crisis. Therefore, our suggestion is that arrangements be made for extension as soon as possible financial aid to Iran in form loan extended thru US Govt, possibly MSA funds or thru Exim Bank, or thru Int Bank, such loan to be at low rate interest and to be paid over long term from oil revenues; that such loan be made only on conditions similar to those outlined in fol para.

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5. Among conditions for extension loan wld be those along fol lines:

Iran wld agree sell immed exportable surplus all oil, crude and refined, now in storage, to interested oil co or cos at Persian Gulf prices less 30 percent discount. Ques of purchasers is matter to be arranged by Dept in consultation with Brits and cos themselves. Sale cld be made direct or thru some intermediary, such as bank making loan.
Iran wld also sell all addtl oil produced during present calendar yr, up to 15 mil tons, including refined and crude, to same co or cos at same price and discount. Co or cos wld also agree absorb any oil in addition 15 mil tons which Iran may produce during 1952 at same price and discount, but Iran is free sell this addtl oil to any other buyer if it desires.
Iran agree establish at once comm composed (say) three reps Iran (say) three reps UK and (say) three neutral reps to determine amt compensation due as result of “nationalization”. Such comm, which shld not be limited in its deliberations and findings, must report by (say) Mar 15 its findings re compensation including rate and amt interest payable. Both parties to dispute wld agree to abide by decision comm.
Iran wld agree endeavor work out with AIOC equitable method for paying compensation together with interest.
25 percent all proceeds Iran sales abroad of oil, including oil now in storage, wld be deposited with Int Bank or Eximbank to be used for payment compensation. As soon as amt compensation had been determined bank wld turn over to AIOC such funds as may then be deposited with it and wld continue to turn over subsequent funds deposited until all compensation and interest had been paid or until some arrangement had been made between AIOC and Iran otherwise to liquidate compensation.
US, UK and [IBRD?] wld do what they cld to persuade intnl oil cos lend Iran experts needed and requested by Iran to work in Iran oil indus.

6. We realize it will not be easy prevail on Mosadeq or Brit accept such arrangements. Furthermore, AIOC and other oil cos may balk. If Mosadeq shld refuse and offer no reasonable alternative it might be difficult give effective help Iran so long as he remains in power and US might be compelled make that clear and at same time prepare for consequences which might include Iran treatment of US similar to that given to Brit, further unrest in Iran, and possibly even loss Iran to free world. Last eventuality unpleasant, but we might find ourselves unable to prevent it without arousing indignation in US and elsewhere which might endanger our present and future aid programs elsewhere or without recourse to arms. If offer so generous publicly made to Mosadeq and refused by him, many elements this part world, including some in Iran, which have been looking with suspicion on West world, might become convinced oil dispute not merely another manifestation [Page 326] desire West continue exploit weak countries of ME. Brit shld understand they wld be very lucky get as much out of AIOC wreck as this arrangement might give them. If they go into this in right spirit, ignoring unpleasantness of past, they might gradually restore their prestige here. Oil cos shld understand if they refuse cooperate they are running grave risks. They can not afford have Sov satellite on Persian Gulf. Neither wld it be healthful for oil business for such enormous quantities crude oil as Iran apparently can produce without fon aid to be lying alongside wharves available for dumping at any moment. Stockholders of oil cos may not profit as much from Iran oil bought at say $1.22 barrel as from that delivered to them by their own producing orgs at cost of say $1.00 barrel. Nevertheless, they can make fair profit and at same time contribute to world security. There shld be no serious worry about 50–50 formula. Iran not likely make any great profit as result nationalization for some time since its production will have been reduced and it will probably be compelled make payments for compensation and loan for number years.

7. Altho we have tentatively suggested arrangement be in effect during 1952 provision could be made continuance from year to year of purchase at least 15 mil tons until loan and compensation liquidated or until some other satis arrangement could be made for settlement debts and compensation.

8. We are not making suggestions just now re amt loan. That is detail to be worked out if our suggestions seem offer any basis for meeting present sitn. Loan might be made in installments; certain amt to be made at once to tide Iran over for (say) three mos; second installment to be paid (say) about May 1. Also, we are making no suggestions here re method repayment loan. Such repayment could be effected by adding on addtl discounts. If oil in storage could be sold and production resumed immed perhaps relatively small loan would suffice.

9. We realize that even if Dept should try to work out plan along lines suggested it would be extremely difficult to perfect it to such extent as to be able present it in negotiable form to Mosadeq within limited time our disposal. Probably would be nec for matter not only to be refined and cleared with Dept but also with Brit, with appropriate bank, with oil cos, etc. Nevertheless, might be possible accomplish much more rapidly if all parties given understand emergency nature sitn. We could of course offer Iran say $20 mil to tide it over for two mos with statement that we are working on our own plan for at least temporary solution oil prob and that unless Iran can give us full coop in solution this prob we would not be able assist it further after expiration two mo period. One drawback this course would be that if Iran should once get taste Amer [Page 327] dole its resentment against us would be much greater if that dole should be cut off without any substitute income in sight.

10. We doubt that it would be possible for Dept to make any substantive reply to Mosadeq within five day period indicated by him. Since we cannot dismiss the possibility that he may make some rash irrevocable move if he receives no response whatsoever from us within five day period, we suggest that Dept immed authorize me to inform him SecState had asked me to convey to him personal msg to effect that Dept had been informed by me of Iran’s critical finan sitn as outlined to me by PriMin on January 13, was giving matter its urgent consideration, and would endeavor to get reply to him at earliest possible moment.5

  1. Transmitted in three sections and repeated to London.
  2. Reported by Henderson in telegram 2609 from Tehran, Jan. 14, following a talk with Mosadeq on the previous evening. He quoted the Prime Minister as saying: “I am talking with utmost earnestness. I swear before God if Iran does not receive outside financial aid it will collapse and there will be Commie revolution within 30 days.” (880.00 TA/1–1452)
  3. See footnote 2 above.
  4. Not printed.
  5. Not printed.
  6. On Jan. 17 the Department instructed Ambassador Henderson to inform Prime Minister Mosadeq that the U.S. Government would be unable to respond to his request for financial assistance as rapidly as he wished. Moreover, the Department did not want Henderson to convey this information to Mosadeq as a personal message from the Secretary of State, because the Department believed Mosadeq might get the mistaken impression that the United States was impressed by his “ultimatum”. (Telegram 1448; 888.10/1–1552) Henderson reported on Jan. 18 that he conveyed this message to Mosadeq, who expressed appreciation and said he could wait for several days for a reply; but that, if necessary, he was prepared to take emergency measures to sell oil, even at half price to various prospective buyers, including the Soviet Union. (Telegram 2694; 888.10/1–1852)