888.10/1–2652: Telegram

No. 152
The Secretary of State to the Embassy in Iran 1

top secret

1526. Dept has continued discussions with Brit and IBRD concerning possible plans for interim or long-range solution oil problem, although as yet no definitive position has been formulated concerning proposition which might be put up by Bank to Mosadeq. It is hoped that Bank proposal, prepared in light of report by Rieber and Prud’homme, will be available in near future; however, there is no assurance considerable delay can be avoided.

[Page 339]

Assuming, therefore, that reply to Mosadeq’s request for budgetary support must be made in near future, it will be possible to assoc such reply with settlement of oil issue only in gen terms rather than in relation to some specific proposition. For reasons stated Deptel 34552 Dept believes purely negative reply might have very serious repercussions and shld be avoided. On other hand, it is clear that undertaking to render budgetary support in the form requested by Mosadeq cannot be given except as integral part larger proposition on oil issue.

Dept has been considering measures that can be taken short of affirmative response to Mosadeq’s request which will “buy time” necessary to arrive at an agreement with Brit and Bank upon type of settlement which shld be proposed to Mosadeq. Warne’s suggestion contained in Embtel 2696 has certain appealing features, although the disadvantages of its acceptance lead Dept to believe this course shld not be followed. Principal disadvantages are: (a) it wld entail certain legal complications which wld render it desirable at least to consult with Cong leaders; (b) it wld risk later endangering finan ability mission to meet local costs of TCA program; (c) it wld give Mosadeq opportunity make polit capital by announcing arrangement as US decision to provide budgetary support for IranGov; (d) it wld lead to complications with Brit at moment we are endeavoring to convince them of need for new approach; (e) arrangement probably wld in fact be only of limited value in relieving budgetary problem. Dept has, therefore, concluded that decision upon this recommendation shld at least be deferred for the time being and that alternative shld be explored.

It occurs to Dept problem might best be met through device further drawing on IMF by IranGov. As you may know Irans are considering making such a request and Mosadeq when in Cairo requested Saad, Egyptian Director IMF who reps Iran, informally to sound out opinion Fund members. US rep has indicated to Egyptian US wld oppose any such request on technical grounds. US Director IMF communicated this view to Saad in fol words: “US hopes Irans will not put in request for Fund drawing at this time; and if they do so, I regret that US wld not be able to support drawing. Reason for this position is that second drawing by Iran wld gravely embarrass US in relation to current policy respecting drawings. Other members who are in no position to draw on Fund under existing policy and who are eager to draw now, wld cite second Iran drawing as means of obtaining additional drawings for themselves.” On Jan 22 Saad transmitted this view verbatim to Mosadeq. At same time Saad raised with US Director possibility of [Page 340] Fund drawing with pledge of gold collateral, such collateral to be deposited in one of four Fund depositories. In same msg to Mosadeq, Saad asked whether IranGov wld wish to pledge gold against a Fund drawing, saying that this wld not prevent Iran from continuing to regard such gold as part of its currency cover if that was not inconsistent with Iran law. Up to time of his departure Jan 25 Saad had not recd reply from Mosadeq and presumably will rec reply in Cairo. US Director did not give firm reply to Saad’s question respecting US attitude on gold secured drawing, but did say that he was inclined to believe that difficulties mentioned in above quotation of US views wld largely be met by gold collateral. If Iran decides to pledge gold, Dept’s view is that US wld find it very difficult to object to drawing even if we wished to do so, and US Director concurs.

Such IMF drawing wld have many advantages. Additional resources wld be provided promptly in effective form for use by IranGov at any time it wished. Pressure by Mosadeq upon US to provide US assistance might thus be postponed with minimum adverse polit consequences of our denying his request. Moreover, it is hoped that matter cld be arranged in manner so that US cld reap some credit vis-à-vis Mosadeq even though transaction wld not in fact be as between US per se and Iran. It is therefore suggested that if you concur you pursue fol gen line in conversation with Mosadeq:

US sincerely desirous of being in a position to render necessary and proper assistance to Iran and is fully aware of difficult finan problems with which Iran soon will be confronted. Dept is giving careful consideration to this matter in the light of Iran needs and of the realities of present situation.
PriMin will understand difficulties of position in which US finds itself. Settlement of the oil dispute in a manner acceptable to both parties, which is entirely possible, wld have considerable bearing upon need for finan assistance. For USGov to seek from Cong funds for purposes indicated by the PriMin without oil settlement in sight wld inevitably be interpreted as pursuing course of action which wld merely perpetuate fundamental problem, i.e. non-settlement of oil controversy. PriMin shld not interpret this consideration to mean the US at this pt is taking sides in oil controversy or is supporting any particular plan or plans for settlement which may have been made in the past.
US earnestly hopes IBRD soon will present to Iran and Brit-Govs suggestion for settlement, at least on an interim basis, which will make possible immed resumption of oil revenues to IranGov. While US does not know what proposals will be put forward, it is convinced that Bank will deal with matter on an entirely fair and reasonable basis. We are confident that such proposals will be recd by Brit and IranGovs with open minds and on realistic basis, and that they will do everything in their power to seize this opportunity [Page 341] to relieve the very considerable burden which has been placed upon both of them as result of shutdown of Iran oil industry.
We know finan problems with which IranGov is confronted may become acute before there has been adequate time for IBRD to put forth its proposals and for the respective govts to consider them, although we hope there will be as little delay as possible upon proposals. It wld appear to us that resources available to IranGov shld be sufficient to last considerably longer than indicated by PriMin. However, there is no doubt free funds are limited, and we wld like to do what we can under the circumstances and pending a more definitive response to PriMin’s request for US finan aid. US believes that most rapid and effective form of funds from fon sources, pending settlement of oil issues, wld be through further gold secured drawing by IranGov from IMF.
Saad, Egyptian Director IMF has had informal conversations with US reps concerning possibility of further Iran Fund drawing. You might confirm US position on further unsecured drawing, as quoted above. We understand, however, that Saad has suggested to PriMin possibility of gold collateral for second drawing, and that he has pointed out that such collateral might be put up without affecting its status as note cover. If IranGov informs Saad that it is disposed pursue this course and application is made to IMF, US anticipates being able to support Saad’s recommendation. (You shld emphasize that PriMin’s channel shld continue to be through Saad.)
With provision of these additional resources it shld not be necessary for PriMin to consider, as he suggested in his earlier conversations, extraordinary measures such as sale of Iran oil to Sov Bloc. Indeed, he must realize that any such sales at this time wld enormously complicate entire problem not only in relation to reasonable settlement but, in view of Battle Act, the extension by US of econ assistance. We are convinced it wld not be in the interest of Iran to pursue any such course as indicated by PriMin. Finan position of the Gov wld, after the IMF drawing, be such as to provide opportunity to work out arrangements which wld provide lasting benefits. This opportunity shld not be jeopardized by undertaking arrangements which cld at best have only short-term finan advantages with possibly disastrous ultimate consequences.

If you perceive objections foregoing tele comments niact.

  1. Repeated to London. Drafted by Ferguson and Rountree, who also signed it for transmission.
  2. Printed as telegram 1485, supra .