888.2553/2–1152: Telegram

No. 157
The Ambassador in Iran (Henderson) to the Department of State1

secret
priority

3031. Distribution limited to S/S, G and NEA.

1.
I delivered this morning Mosadeq note dtd today containing Pres msg set forth Deptel 1648, Feb 9.
2.
Mosadeq read msg several times, asked if I had any comment. I explained US was bearing heavy finan burden throughout world in effort discourage aggression and create stable lasting peace. US Government would face bitter opposition in Cong and from Amer people in genl if it shld undertake increase this burden by extending loans to country like Iran which had it in its power to help itself. I said US Govt placing much hope on success negots about to take place between Int Bank and Iran. Success these negots shld not only solve Iran’s present finan difficulties but wld result in greater polit and econ stability whole ME.
3.
Mosadeq said that in mid-Jan he had told me that without fon finan aid Iran cld not carry on for longer than one month. At that time he was determined, come what might, not to spend dols recd from Int Monetary Fund which were being held to meet emergencies. He had later been persuaded to spend these dols to meet Iran’s current obligations and was doing so. They wld be exhausted within next few days and govt wld still not have sufficient funds to [Page 350]pay currently due salaries and outstanding bills for services and supplies. In such sitn he cld not with peace of mind enter into negots with Int Bank. He therefore intended in first conversation with Garner to ask bank advance to Iran Govt at once 20 to 30 million dols to enable it to continue to function while negots proceeded. He invited my comment.
4.
I said I cld not speak for Int Bank and cld not of course become involved in negots. I doubted however that Int Bank in spite of its good will for Iran wld be able make such advance. Int Bank was commercial organ. Its loans must have sound finan and commercial basis. I believed it wld be difficult in framework its charter for it to advance loan in Iran’s present finan position unless it had some kind assurances Iran wld be able repay.
5.
Mosadeq then asked if there was any possibility that US Govt cld make such loan to tide Iran over period negots. I replied in negative. I added I had impression that such possibility had already been considered in Wash but it had been decided that neither US Cong or public opinion wld view with favor extension such loan at time when negots were about to begin between bank and Iran Govt. It did not seem necessary these negots shld be protracted. If they shld be successful, bank might be able lend funds immed and if for some reason bank cld not advance funds immed, in spite success negots, it might be easier for US Govt to be of assistance. Mosadeq said he thought he now had better [garble] where he stood. It looked as though there was concerted attempt to put him in such position that he wld have no choice except to agree to such proposals as bank might make or to see Iran go bankrupt. He wld not be so disturbed at this choice if he thought [garble] agent, able to discuss Iran’s oil problem purely on mass merits. He was quite well aware however that bank cld not make or accept any proposals unless they were agreeable to Brit. Brit had not retreated so far as he cld see from their original position. Such concessions as they seemed to have made were merely in form not in substance. Brit were hoping thru finan pressure to force Iran to accept their wishes. Unfortunately, they also seemed to have been able to prevail on US Govt and Int Bank understand Iran wld not surrender to finan pressure. He wld never permit it to be said that he, as PriMin of Iran, had sold his country out. He might be able go on another month without fon finan help if he spent everything his govt had right to spend. US Govt wld be held responsible by Iran and by whole world for what might happen to Iran after that month. Anyone who had been following elections cld see that at present struggle for power in country was between Natl Front and Tudeh grps. Former pro-Brit elements are now entirely out of running. [Page 351]If Natl Front govt shld pass out existence only confusion or Tudeh wld take over.
6.
I told PriMin he was misinterpreting reasons for US Govt’s inability advance him finan aid just now. It was not participating in any scheme to subj him to pressure. US Govt, like Iran Govt, had its own public opinion and legislators to face. As I had already pointed out, neither US public opinion nor Cong wld be likely to view with favor granting of loan to country which had it in its power to obtain funds almost immed from its own resources. I hoped PriMin wld bear in mind in dealing with Int Bank he was negotiating not with opponents but with friends who really were trying to help him and help Iran. He shld also not forget that Bank was finan and commercial, not polit institution. I had no idea what kind proposals wld be made to him but I was confident they wld be based on sound commercial, rather than on polit, considerations. He shld receive them in that light, bearing in mind that in spite of polit atmosphere enveloping oil dispute, operation of oil industry was primarily a business proposition and shld be treated as such.
7.
Mosadeq said if Garner shld refuse his request for immed loan he wld continue pursue negots but wld feel himself handicapped. What, in my opinion, shld he do if he finds bank’s suggestions to him unacceptable? I said in first place I hoped he wld not find such to be case, but if he did he might make counter-proposals and try find some kind of mtg ground. He asked what wld happen if his counter-proposals were unacceptable to bank? I said it seemed logical to me that thru further negots attempt shld be made to find some scheme that wld be acceptable to all interested parties. He said he was no merchant and cld not haggle. If his counter-suggestions shld be unacceptable, negots wld break down. What then?
8.
I said it seemed to me he was trying to ascertain whether in case negots shld break down US Govt might be willing to give finan aid to Iran until some other way cld be worked out for settling oil dispute. He said that was precisely what he was trying to do. I told him I unable give categorical answer. My opinion was it wld be extremely difficult for US Govt in face US public opinion to give finan aid to Iran if US public shld believe that Iran had deliberately turned down fair and reasonable proposals made to it by Int Bank for resumption operation oil industry. I did not know what Amer public opinion wld consider reasonable and fair. I thought however that most Amers wld be inclined believe that Int Bank wld not try impose on Irans sole Iran oil problem which wld be reasonable [unreasonable] or unfair to Iran. US Govt therefore viewed coming negots with considerable anxiety since it believed that outcome might have profound effect on future Iran and on world peace.
9.
PriMin expressed apprec for frankness of conv; said he wished assure me he intended show tremendous amount patience during course coming negots. He hoped however US Govt wld understand there was limit beyond which neither he nor any responsible Iran spokesman cld make concessions.
Henderson
  1. A handwritten note on the source text indicates that this telegram was repeated to London on Feb. 13.