888.10/1–2252: Telegram

No. 151
The Secretary of State to the Embassy in Iran 1

top secret

1485. Whole range current Iran policy questions receiving Dept’s urgent attn. As you know, this subj discussed at Top levels during Churchill’s visit here, and US–UK working groups continuing mtgs. Fol reflect present US thinking upon several pressing aspects:

Re Mosadeq’s request US aid and implied threat turn to Sovs in absence favorable reply, Dept assumes that although econ situation admittedly serious urgency in his mind is directly related to his own polit position especially Majlis interpellation. Briefly, principal arguments favoring US finan assistance at this time considered to be (a) possible use aid as bargaining weapon in connection other aspects problem such as settlement of oil controversy, 511 assurances, mil missions; (b) assurance that Iran economy will not collapse; (c) possible overall improvement Amer position in Iran; (d) avoidance possible reckless and disastrous action on part of Mosadeq.

Arguments opposed this course wld be that aid (a) wld relieve principal pressure now upon IranGov for settlement of oil dispute; (b) wld represent signal victory for Mosadeq and cld be expected weaken effectiveness his opposition and render Shah even more powerless than at present; (c) might be interpreted yielding to extortion and thus increase Mosadeq’s obstinacy in dealing with US; (d) wld raise grave problem in our relations with Brit; (e) wld invite criticism US underwriting dispute between fon countries, settlement of which wld substantially reduce aid requirements of both; (f) wld, in yielding to what might be interpreted as extortion, set unfortunate precedent and open door to similar demands by other small countries.

On basis foregoing considerations Dept has concluded favorable response shld in no event be made to Mosadeq before expiration his “ultimatum” period, and without prior consultation with Brit. Moreover Dept believes any such budgetary support must, as you suggest, be associated in some way with oil solution. Until, however, position upon this question has been worked out it obviously is important that Mosadeq not get impression that US has entirely [Page 337] negative attitude. Dept’s suggested interim reply to Mosadeq (Deptel 1448 Jan 17)2 drafted in light these considerations and bearing in mind unwisdom implying too much optimism re final outcome.

Dept hopes soon to have more definitive view concerning manner in which budgetary support might be related directly to oil question, and possibility rendering some form budgetary assistance as suggested Embtel 2696. In this case Dept will tele nature of suggested approach to Mosadeq.

FYI, in Wash discussions with Brit principal US objectives have been (a) to impress upon Brit dangers in Iran situation and possibility that continuation of present trend without oil settlement or US finan assistance wld involve imminent danger that Iran will collapse or wittingly turn to Soviets; (b) to point out that Mosadeq’s internal polit position appears to be as strong as ever with no indications that he will fall, consequently advisability dealing with him if at all possible; (c) to demonstrate that even if Mosadeq shld fall it is unlikely any successor cld negotiate an agreement which wld be wholly satis from Brit point of view; (d) to make Brit aware that US may feel compelled in near future to take action designed prevent collapse Iran econ in absence successful conclusion oil agreement; (e) to obtain Brit agreement that US and UK reps shld jointly evolve plan which it shld be possible to persuade IranGov to accept, such plan to be used by us in guiding IBRD in proposals it soon will formulate. This connection, plans also must be formulated in case IBRD approach fails; (f) to point out to Brit that while we believe US approaches to Mosadeq shld not indicate great alarm or urgency, we do in fact feel great urgency in finding agreement with Brit upon our respective policies and objectives in Iran.

We have advised Brit that we believe agreement upon compensation probably indispensable part any workable plan, and have suggested possibility that realistic compensation figure might be established contingent upon IranGov agreeing give discounts upon sales of oil. Taken together, compensation and discount might make it possible to work out finan arrangements which wld make commercially feasible Brit agreement purchase oil and wld not have serious adverse effects upon arrangements elsewhere.

In gen, Brit have taken less alarmist view concerning possibilities chaos Iran and continue believe good settlement can eventually be reached if Brit and US both “stand firm”. In any event Brit admittedly prepared assume much greater risk in Iran than US. They have stated, however, that they prepared to deal with Mosadeq on any reasonable basis and have agreed to continue joint US–UK [Page 338] discussions on possible solution. Next session sched Jan 23.3 Minutes of mtgs thus far and statement US position have been air pouched.

Re other aspects current problems, Dept agrees ur estimate (urtel 2705 Jan 19) continued pressure upon Mosadeq to give 511a assurances wld serve no useful purpose. Dept has been considering advisability of discussing with Cong possibility of exception in case of Iran in order permit resumption mil aid programs. We are aware of real polit problems with which Mosadeq presented this connection, and our judgment wld be that any IranGov wld find it difficult under present circumstances to comply with legis. On other hand the difficulties involved in granting an exception to only one country are obvious, the least of which wld not be the danger of adverse Cong and public reaction in US. Dept wld, therefore, appreciate ur advice whether we shld let present situation continue for time being or whether any such special course shld be pursued, bearing in mind advisability of US not showing undue concern over continuation Amer aid to Iran.

Dept most appreciative ur thorough reports and thoughtful analyses as well as manner in which you have handled Mosadeq. We agree risk sitting tight and letting events take their course is too great and we are discussing policies to be followed in light this consideration.

  1. Repeated to London. Drafted by Rountree and Ferguson and cleared with H. Freeman Matthews, Deputy Under Secretary of State; Willard L. Thorp, Assistant Secretary of State for Economic Affairs; G. Hayden Raynor, Director, Office of British Commonwealth and Northern European Affairs; Charles E. Bohlen, Counselor; as well as with Nitze, Merchant, and Ohly.
  2. See footnote 5, Document 145.
  3. No record of such a meeting has been found in Department of State files.