Foreign Relations of the United States, 1952–1954, Iran, 1951–1954, Volume X

Conference files, lot 59 D 95, CF 111

No. 182
United States Minutes of Conversation Held by Middle East Experts on the Iranian Situation, United States–United Kingdom Ministerial Talks, London, British Foreign Office, June 24, 1952¹

secret
MTL CONV–2

June 24, 1952

Present:

• United States:
  • Mr. Nitze
  • Mr. Palmer
• United Kingdom:
  • Sir Roger Makins
  • Mr. Middleton
  • Mr. Ramsbottom

After today’s bilateral meeting² a further conversation took place in Sir Roger Makins’ office on Iran.

Mr. Middleton indicated he thought Mosadeq could hang on until August. He doubted that the Shah would act before then or that the financial situation would be sufficiently acute until that time to bring about Mosadeq’s downfall. He felt there was a possibility that Mosadeq might resign if the Hague Court decision were favorable, since he would be able to point to this as exemplifying his triumph and to retire in a burst of glory.

Mr. Nitze spoke of our concern regarding the financial situation which a new government would face upon assuming office. It seemed to us that this dictated the necessity of the US and the UK being prepared to move quickly both with regard to a settlement of the oil problem and to extending interim financial assistance until the oil could start flowing again. He said that we had been making preliminary arrangements in Washington so that we would have the necessary flexibility to act when the time came. He thought we could make ten million dollars a month available for six months.

Mr. Middleton agreed about the necessity of being prepared to act quickly with respect to settling the oil controversy and financing the government. He thought, however, that there was a danger in the United States extending financial assistance, since it would lay the new government open to charges that it is a stooge of the Western powers. We must try to avoid this. He thought that there were certain steps which a new government could take to improve its own position. If it could instill confidence, it might be able to attract some of the loose capital which is very much in evidence in Tehran at the present time. He also thought the note cover could be reduced. This would require Majlis approval, which might be hard to get. It would undoubtedly be opposed by the land owners, etc. The British Embassy’s estimate was that such action might have some inflationary effect (roughly 20 percent). Neither the US nor the UK Embassy thought that runaway inflation would result. Even if the Majlis were opposed to a reduction in the note cover, it was always possible that the government could accomplish it by decree and get away with it. It might, moreover, be politically acceptable to the Majlis if it were backed by an IMF guarantee.

In response to Mr. Nitze’s inquiry, Sir Roger Makins summarized the recent ministerial decisions as follows:

1. The UK would like to see a long-term settlement of the oil controversy.

2. It thought that such an agreement was within the bounds of practicality under conditions which would not give the Iranians more favorable treatment than that received by other countries in the area with major concessions.

3. The Management Agency would be under contract to NIOC, but with sufficient day to day authority to assure efficient management. It was recognized that there would be reluctance by the Iranian Government to make an arrangement which would open it to charges that it had handed over the industry to another foreign interest.

Mr. Middleton thought that there were favorable psychological factors in the situation which would work in favor of Iranian acceptance of such an arrangement. The present NIOC personnel are terrified of losing their jobs. Many are aware of their inability to operate the industry and would prefer to see a separate and independent agency which would do all the work.

Mr. Nitze asked how the British visualized the Management Agency being created.

Sir Roger Makins said that he was sorry but he simply was not in a position to go into this matter at the present time. The question required much further homework and conversations with oil companies.

Mr. Nitze asked whether the British had Shell in mind and Sir Roger replied they had no preconceived notices whatsoever.

Mr. Middleton thought that if there were a sudden change of government, it would be possible to put forward the principles of the Management Agency idea to the Iranian Government and to spell the details out later.

Sir Roger Makins intervened to say that he was not sure that the British Government would want to do this until it had made further progress in its thinking.

Mr. Middleton said that his thought was that the presentation of the general outline of a scheme for long-term settlement involving the Management Agency idea would help a new Iranian Government in preparing the way for detailed negotiations.

Sir Roger Makins reverted to the question of US thoughts on the question of the type of Management Agency which might be employed.

Mr. Nitze reiterated that we had had in mind an engineering firm. Our thinking on this problem had arisen primarily from indications which we had had of the reluctance of the major US companies to participate directly. They had all indicated, however, that they were willing to second [send?] personnel. He thought there were many problems to consider in choosing a company, particularly the question of its political wisdom. The wise handling of its relations with the NIOC and the Iranian Government would require all the tact and flexibility which could be brought to bear on it.

Sir Roger Makins said that the question of the reward which the Management Agency would receive is a vexing one.

Mr. Nitze agreed. If it were fixed on a percentage basis, it could soon mount up to considerable proportions. He felt a fixed fee arrangement would probably be preferable. He thought that some companies, whether oil companies or engineering companies, with contracts with the oil industry would probably be willing to do the job at a reasonable fee in view of the importance which is widely attached to a settlement of the oil controversy.

Sir Roger Makins agreed that a fixed fee would probably be the best basis.

Note: During the course of a dinner conversation at Mr. Palmer’s house on June 25, Mr. Middleton told Mr. Nitze and Mr. Palmer in confidence that Mr. Eden had been in error in the meeting on the 24th in referring to AIOC as the “sole purchaser” of Iranian oil under the long-term scheme which the Cabinet had considered. The UK proposals provide that AIOC would take 85–90% of the output and have first refusal on the remaining 10–15% which the Iranian Government would otherwise be free to dispose of.

Mr. Middleton also stressed the importance of the Cabinet decision on the long-term arrangement which, he said, represented the first decision by HMG that AIOC could not return to Iran in its former capacity. Middleton thought that this was a great step forward and greatly enhanced the prospects of a settlement.

Mr. Middleton also said that a period of 15 years for the new arrangements is about what they had in mind.

Mr. Middleton said negotiations with Iran would require considerable negotiating skill. He thought that tactically it might be wise to make an initial claim for very substantial compensation and then waive the claim as part of the final arrangement. This would give the Iranian negotiators an overt success from which they could draw necessary kudos.

Mr. Nitze asked whether they had anyone in mind to conduct negotiations of this kind. He at first said no. On further reflection he thought they might use Sir Kinehan Cornwallis.

1. On June 22, Secretary Acheson began a trip to Europe and to Brazil to honor invitations from Oxford University, where he was to receive an honorary degree, from Mayor Reuter to lay the cornerstone of the American Memorial Library in Berlin, from Chancellor Figl to visit Vienna, and from Foreign Minister Neves da Fontoura to come to Brazil. In addition to fulfilling social engagements, Acheson and his party planned to conduct high-level policy discussions with his various hosts on a wide range of topics. One of the most important subjects for consideration in London was Iran; see Document 184.
2. Reference is to a Ministerial talk held earlier on June 24, the minutes of which were designated MTL USUK–2. Foreign Secretary Eden reported that the British Government had decided, in the event of a change of government in Iran, to offer the Iranians a long-term settlement of the oil controversy based upon the establishment of a management agency composed of several oil companies under contract to the National Iranian Oil Company. The Anglo-Iranian Oil Company, under a different name, however, would be the sole purchaser of the Iranian crude produced. The British also hoped to have representation in the management agency, although the British presence need not necessarily be through AIOC. The British emphasized, however, that they were not prepared to proceed as yet beyond this broad framework, as their plans were incomplete. They thought the most difficult problem to solve would be the relationship of the management agency to the Iranian Government. Secretary Acheson suggested that further consideration be given to this proposal, and it was agreed that Nitze and Makins would pursue the Iranian problem further after the conclusion of the meeting. (Conference files, lot 59 D 95, CF 111)