888.10/1–2952: Telegram

No. 153
The Ambassador in Iran (Henderson) to the Department of State

top secret
priority

2848. No distribution except to S/S and NEA and G.

[Page 342]
1.
I called on Mosadeq this morn in order discuss with him Dept’s reply as incorporated in Deptel 1526 Jan 26 to his request for fin aid. I told him that US Govt had been giving careful consideration to his request; that it was hopeful that International Bank cld find some way solving both oil problem and Iran’s fin problem; that it was reluctant approach Cong leaders at this particular time with suggestion that funds appropriated for econ and mil aid be diverted to fin aid for Iran because it believed that suggestions for fin aid for Iran, unaccompanied by some indication that oil problem was on way to solution wld not be well recd. I told PriMin that in order he shld understand clearly Dept’s position and certain suggestions which Dept had to offer I wld read to him fol summary. I then read this summary set forth below sentence by sentence, so that it cld be discussed as we went thru it:

“US Govt thoroughly understands present Iran fin difficulties and worries and is anxious to find some way to be of assistance. At present not only the officials of US Govt, but many Amers interested in fon affairs and sympathetic to Iran are placing great hope in the International Bank as the instrument to break the deadlock in the oil dispute and to help Iran to attain secure fin position. When the US Govt persuaded Cong to appropriate funds which are at present at its disposal for fon aid, it had not contemplated that they wld be used for budgetary assistance purposes. The US Govt, therefore, cld not divert these funds for such use without first consulting Cong leaders.

“The US Govt is convinced it wld be inopportune to raise this matter with Cong leaders. These leaders wld be sure to object on the ground that Iran has rich resources in its oil which, if exploited, shld make loans this kind unnecessary that it shld be possible to find some way advantageous to all parties concerned to bring about a resumption of Iran oil production and exploitation; that until it becomes clear that it is useless to continue to search for this way US funds appropriated for the purpose of extending mil and econ aid shld not be used to replace revenue which shld and can be obtained from oil; and that the International Bank at present is doing its best to work out some plan which wld make it possible for Iran to begin almost immed to receive revenues from its oil. The US Govt realizes that Iran may require additional funds from some outside source before any International Bank scheme cld be perfected, accepted, and put into practice. It understands Saad had suggested to the PriMin that perhaps Iran cld make additional drawing against the IMF, using note cover gold as collateral. If Iran shld find that its laws permitted such a transaction and if it shld apply for additional drawing with gold as collateral, it is belief of Dept of State that the US and most other interested countries wld support application. Iran might, therefore, obtain funds from the IMF which wld enable it to carry on at least until the International Bank scheme had been given a chance. The reply as to whether or not Iran wld be in position to apply for additional drawing under such conditions shld be made direct to Saad. It wld be [Page 343]helpful, however, if Amb Henderson cld be informed re the nature of the reply so that he can inform the US Govt whether or not Iran will have sufficient funds to take care of its minimum needs for the next few months.”

2.
Mosadeq expressed considerable disappointment in receiving such negative reply. He said he and his advisers had already given consideration to Saad’s suggestion that gold serving as cover for Iran currency be pledged with IMF as security against further withdrawals that fund. Decision was that (a) it would be illegal for this gold to be pledged without specific authorization from Majlis which it was impossible at this time to obtain (b) it did not appear to be sound financial practice to have same gold serve as security for bank notes and for loan from IMF, and (c) if it shld become known that this gold being used as security for loan confidence in Iran currency would drop and value of currency would decline with disastrous speed. He added that he did not place much hope in International Bank intervention. He did not believe Brits would permit International Bank to propose any plan other than one which would enable Brits to regain their political and economic strangle hold over Iran. Furthermore, even if bank did make proposal which could be acceptable to Iran Govt and public opinion, such proposal could not possibly be put into effect in time to save Iran from financial collapse towards which it was heading so rapidly. He hoped therefore that US Govt could devise some way giving Iran necessary financial assistance immediately.
3.
PriMin thereupon extricated from his bedside envelope addressed to President Truman which he handed to me with request that I read its contents. Envelope contained letter from PriMin to President renewing request made on Nov 9, 19511 for financial aid. After I had read letter PriMin asked if I had any comments, I said I thought letter might have been more effective if less of it had been devoted to attacks upon Brits. PriMin said he was writing to President exactly as he felt. He hoped I would send contents letter to President if possible by telegram since every day financial situation was becoming more desperate. Text this letter being sent Dept in telegram 2849, Jan 292 and original being forwarded thru Dept under cover despatch.3 In response my inquiry PriMin said he hoped text as well as existence letter could be kept secret; otherwise it might in certain circumstances be used as propaganda material by Commies.
4.
Before leaving PriMin I told him I was sure US Govt was concerned re Iran financial position and hoped to find some way to help Iran extricate itself. I again emphasized that in my opinion problem of US Govt was that as Congressional leaders as well as US public opinion were convinced that US financial assistance to Iran would be merely temporary palliative unless oil flow could be restored and that therefore any financial assistance which might be extended Iran by US should be in connection with some move which gave promise of termination of oil dispute deadlock. Mosadeq said that he was afraid that Brits would never retreat from their present position so long as they were able to maintain international blockade against Iran oil. Only hope therefore for breaking deadlock was for other countries to begin to buy Iran oil. Iran was not begging for gifts; it was merely asking one of its friends for loan. If US desired it would be quite willing turn over to US in return for financial assistance all oil which it now possessed at 50 percent discount. I told PriMin if US should begin buy Iran oil such prospects as still existed for settlement of Iran-Brit oil dispute would rapidly disappear. I was confident therefore that US wld not in present circumstances buy any Iran oil. I said although by nature I was pessimist I nevertheless still had hope that International Bank would be able to come forward with some kind scheme which would eventually be acceptable to Iran and to UK.
Henderson
  1. See footnote 4, Document 126.
  2. Not printed. (888.2553/1–2952)
  3. The original text of Mosadeq’s letter to President Truman was forwarded to Washington in despatch 859 from Tehran, Jan. 29. (888.10/1–2952)