888.10/6–952: Telegram

No. 180
The Secretary of State to the Embassy in Iran1

top secret

2835. 1. Dept appreciates views set forth ur 47692 and concern you express re Brit attitude is to some extent shared in Dept. From conversation with Brit, we believe, however, statement Brit conditions contained Deptel 27883 makes Brit position appear more rigid and less compromising than it in fact is. Conversations with Brit here and in London have made basic Brit position fairly clear; namely UK need for Iran oil substantially diminished by success alternative arrangements, and commercial incentive to settlement is, therefore, not as strong as few months ago. Main incentive is polit and Brit are not willing jeopardize Brit commercial arrangements neighboring countries and Brit prestige throughout world solely reach agreement which wld stabilize Iran situation. They, therefore, insist that any deal which may be worked out with Iran not be of nature which wld serve as temptation to other countries.

2. Indications are Brit are considering various alternative plans, including possibility of an interim settlement which wld defer decision on some of more difficult issues such as compensation, with the thought if the operation cld be started once again details of a long-term arrangement cld be worked out in better atmosphere. Fol comments, however, reflect Dept’s thoughts upon proposals set forth in Deptel 2788.

3. As regards Brit participation in direction of managing agency which might be appointed under long-range agreement to operate [Page 394] Iran oil industry under contract to NIOC, we do not believe Brit wld insist that there be majority Brit participation but rather that there be some Brit element in higher echelons as well as at purely technical level. We wld agree with Rieber that in long-range settlement industry cld probably be operated without any Brit technicians and Brit concern in this question relates largely to questions of prestige and psychological repercussions elsewhere if Irans succeeded in operating industry after having expelled all Brit personnel. While Dept has not taken position Brit technicians essential in long-range settlement, it does believe any contract or agreement which specifically excludes Brit from any role in operation wld be more than we cld reasonably expect Brit accept. Moreover, as practical matter if large-scale production is to be achieved within reasonably short time after agreement, we believe it wld be essential that at least some Brit technicians be employed. Dept hopes that in any agreement fact that Brit might be used in managerial positions need not be highlighted but wld simply come within gen principle that Brit employees wld not be excluded from operation.

4. Re compensation, Dept understands Brit position to be that even though commercially feasible arrangement might be made with Iran and thus one within formula which wld not otherwise upset concessions elsewhere, fact that Iran had acquired ownership Brit properties wld compel injection element of compensation. Since Irans presumably are unable pay compensation in absence new arrangement for disposal of oil, new agreement wld be essential element in determining compensation. Presumably, therefore, amt of compensation per se to be paid wld be estabd in light net loss to Brit by virtue changed situation. Since amt cld be determined only with knowledge of what difference is, it is difficult see how compensation can be determined in advance negots upon entire settlement.

5. As regards 50–50 formula, while considerable importance attached to this principle, fact is that it can cover variety of arrangements as we well know based on differences which presently exist throughout ME. Any agreement with Iran wld be for sale of given product at given prices rather than sharing of profits and there wld be considerable latitude in arrangements which cld be worked out. 50–50 formula wld be used primarily as standard against which final agreement on price cld be measured rather than as substantive pt which must be agreed upon. Since Iran as owner of properties wld be in position do what it chose with proceeds and if latter not reapplied for development, etc., Iran share wld be in excess 50–50. Essential fact is Iran oil must be competitive and regardless rights or wrongs present dispute, Irans will not be able to sell their oil at premium markedly out of line with gen ME picture. [Page 395] Brit condition that Irans must not receive more favorable treatment than they wld have if they had not expropriated AIOC properties shld not therefore cause undue concern.

6. Dept does not believe length of contract major issue although if compensation is to be paid, as seems inevitable, in free oil, it is difficult see how it cld be done in less than 15 years without seriously overburdening Iran. We have no reason believe Brit wld insist on any longer period.

7. Dept concurs desirability discussing matter frankly with Middleton. It is hoped while he is in London he will urge upon Brit Govt (a) necessity for preparing negot realistically with Iran Gov immed upon installation new Govt (see Deptel 2810 June 9, to London as 6480,4 re proposed msg from Brit to Shah this connection), (b) importance that Brit proposals, especially those relating to Brit technicians and finan arrangements, take fully into account Iran sensitiveness and limitations upon what any Iran Gov can do. It is hoped also that Middleton will realize desirability if necessary of US, under conditions outlined Deptel 2742,5 rendering interim finan aid to Iran Gov sincerely desirous of settling oil controversy.

8. FYI, re para 9 reftel, although you will note from foregoing Dept has no assurance as to how flexible Brit will be re negot, we believe it possible within framework proposals discussed to find solution which shld be acceptable to any reasonable and realistic Iran Gov. If this is not the case, however, we have not taken position US wld not render aid Iran Gov which gives evidence its reasonableness in absence their “capitulation” to Brit although we wld like to have Brit agreement before doing so. Only solution to problem will be through adoption conciliatory attitude both parties, and US position shld be to press both sides to this end. Believe line set forth Deptel 2742 on this subj can be conveyed to Shah and other trusted Irans as contemplated.

  1. Repeated to London. Drafted by C. Vaughan Ferguson and Rountree and approved by Berry.
  2. In telegram 4769, June 9, Henderson expressed concern over the lack of a British conciliatory attitude. He informed the Department that the British position appeared “to indicate that no matter how unequitable to Iran old AIOC agreement might have been Iran could have no hope at least in foreseeable future of obtaining any more equitable treatment.” (888.10/6–952)
  3. Not printed. (888.10/6–552)
  4. See footnote 2, Document 178.
  5. Document 177.