788.13/7–3052: Telegram

No. 190
The Ambassador in Iran (Henderson) to the Department of State1

secret
priority

460. 1. I sent msg to Mosadeq yesterday morn that at his convenience I wld like talk with him again. We had therefore another long conversation last evening. I found him more composed than usual. Altho showing emotion at times, he did not engage in extravagances and he made relatively few wild statements. He was apparently endeavoring to restore personal relations of cordial character.

2. I opened conversation by saying I was unhappy at pessimism which he had displayed during our previous talk. I considered him personally only bulwark existing at present between Iran and Communism. I was hoping therefore that statements which he had [Page 422]made to me during previous conversation to effect that Iran army “was finished;” and that in view finan and econ sit Iran was almost inevitably drifting towards Communism did not really represent his sober views. He had exhibited so much courage in past difficult sitns that it was difficult for me believe he had become as pessimistic as his attitude during our last talk wld seem indicate.

3. Mosadeq said he was really deeply concerned at sitn. Army seemed almost hopeless. He had been looking for reliable chief staff to replace Yazdanpanah but thus far he had been able find no one who was both capable and trustworthy. Most Iran gens venal and out-moded. Officers of lower rank did not have prestige which chief of staff must enjoy. Altho it might sound immodest he agreed that he personally at present was only effective barrier in Iran against Communism. No NF leaders were pro-Commie but they were so jealous of each other that he did not know what they wld do or what allies they wld make if he did not have control of them. They wld take instrs from him but not from one another. Re finan sitn of country he had not exaggerated. He did not see how Iran cld carry on without finan help from outside. His govt cld begin printing bank notes but he feared that resort to such expediency wld eventually lead to inflation and to econ deterioration which Commies wld quickly exploit. For time being Tudeh activities were under control. Tudeh had however strengthened itself considerably during recent weeks and no one cld deny it represented grave threat to country’s security.

4. I told Mosadeq that I realized that he was determined not to ask US for finan aid but if we were to talk frankly we shld not hesitate discuss this matter which both of us knew was foremost in his mind. What I might say during our present conversation was not based on any instrs from US Govt and shld not arouse any false hopes that US finan aid might be forthcoming. I wished during our conversation to give him better understanding of what US Governmental position had been during recent months re finan aid. Altho since end last World War US Govt had been giving large amts to various fon countries for purposes reconstruction, econ develop, or def, it had not made practice of extending budgetary assistance, even to most friendly nations, except on emergency basis. US Govt cld assist no country budgetarily unless it was in position to convince US public opinion that such assist was of merely temporary character, unless it cld show that govt to which aid was being given wld soon be able without further budgetary assist to function. US public opinion wld not tolerate US support of budget of any country on what might turn out to be permanent basis.

At time when Mosadeq had asked US for budgetary aid he had not furnished US Govt simultaneously with info which wld give it [Page 423]reason believe that situation which made such aid necessary was of merely temporary character. He had not submitted convincing evidence that his govt contemplated measures which wld make it possible for finan aid, once begun, to be suspended within reasonably short period without giving rise to even more severe finan crisis. US Govt had therefore not been in position to assure US public opinion and US Congress that any budgetary aid extended to Iran wld be only of temporary or emergency character. There were other considerations which had made it still more difficult for US to give this aid. Amer public, including Congress, had been of opinion that finan aid wld not be necessary if Iran wld be willing come to reasonable understanding with UK which wld permit resumption Iran oil exports. No one in US wanted Iran settle oil dispute on basis prejudicial to Iran’s rights or sovereignty. Most Amers, however, have that it possible, if Iran wld assume reasonable and conciliatory attitude, for agrmt to be reached between Iran and UK which wld be to advantage of both nations as well as to whole free world. If US had rendered finan aid to Iran as requested by Mosadeq, Amer public opinion, under conditions which have hitherto prevailed, wld have charged US Govt with subsidizing unreasonable Iran position re oil dispute. UK Govt and people wld also have been resentful if, in such circumstances, US had granted finan aid to Iran. If US had granted aid, it wld have done so in face its own public opinion and wld moreover have created between US and UK rift disastrous to whole free world, including Iran. I added that during our last conversation Mosadeq had told me of Iran’s desperate finan sit but had given me no info which might contribute to change in US Govt’s attitude re finan aid. Only bright spot which I cld find in our conversation had been statement that Iran might be willing under certain circumstances to submit question of compensation to intl arbitration.

5. Mosadeq said there had been misunderstanding between him and Middleton re matter intl arbitration. Middleton apparently had thought Mosadeq was suggesting such arbitration whereas Mosadeq had been under impression that possibility arbitration this kind had first been mentioned by Middleton. He had always found Middleton straight-forward and had great respect for him. He therefore especially regretted that this particular misunderstanding had arisen. During his conversation on preceding day with Middleton he had felt it necessary to inform latter that he cld make no commitments re intl arbitration.

6. I told PriMin I sorry hear of this misunderstanding. Was I to assume discussions with Brit re solution oil problems had been suspended? Mosadeq said that Brit apparently were not interested in solving oil problem. Middleton had told him UK was not in any [Page 424]urgent need of Iran oil and was rapidly developing sources which in short time wld make Iran oil unnecessary to Brit econ. Mosadeq was therefore abandoning any idea of coming to oil agrmt with UK. He was hoping that eventually Iran wld be able find markets other than Brit for its oil. In meantime, Iran Govt was making plans obtain revenues which wld assist in balancing its budget in total absence of oil exports.

7. I told Prime Minister that it must be clear to him that it wld be easier for Iran to realize quick revenues from its oil than from any other source. Prime Minister said that only during recent years had revenues from oil been considered as part of govt’s budget. I pointed out that question was not only one of revenues from oil but also absence of customs receipts of credits from certain exchange transactions connected with oil. There was also heavy budgetary burden of supporting unemployed oil workers and of plant maintenance. Mosadeq agreed, but said he did not see how Iran cld do other at present than try to plan its budget on basis of idle oil industry.

He asked if I had any suggestions to make. I replied in negative adding that although US Govt was of course anxious that dispute which was doing great damage to free world shld be settled it did not wish to interfere. Best way for dispute to be settled was thru direct negots between Iran and UK. PM said Iran wld not take initiative and apparently UK did not desire to make any approaches. I said it might be helpful if he cld at least let me know what Iran’s present position re solution oil prob was. A long conversation followed during which I asked numerous questions and recd partly evasive and partly frank answers from Mosadeq. Mosadeq was cautious and made clear he not committing himself in any way. As result our talk I have come to opinion that there is no chance of Iran Govt under Mosadeq going any further in direction of settling oil dispute with UK than under conditions somewhat as fols:

(a)
Iran Govt wld operate exploitation and extraction facilities in Iran without any control whatsoever from abroad.
(b)
Iran wld expect Brit and Amer Govts and intl oil cos to place no obstacles in way of Iran employing on individual basis such few fon technicians as it might consider nec.
(c)
Iran wld be willing to agree to sell to AIOC or some subsidiary of AIOC most of its oil products on commercial basis. It wld not be willing however to sell its entire production to single purchaser.
(d)
Iran wld be prepared submit ques of compensation to intl arbitration.
(e)
Iran wld continue turn over to AIOC as compensation certain percentage of receipts from sales until such time as compensation had been completely liquidated.
(f)
On conclusion of agrmt AIOC wld abandon all claims to real or movable property situated in Iran.
(g)
On conclusion of agrmt both UK and Iran wld take appropriate steps restore friendship between two countries.

8. I wld like again emphasize that above shld not be considered as offer or suggestion on part any one. It merely reps conclusion which I drew during conv re conditions under which Mosadeq might be willing settle oil dispute at this partic moment. If discussions shld open on basis this kind they might lead to nothing. On other hand, they might result in surprisingly quick agrmt.

9. I asked Mosadeq what specific plans he had in mind for balancing budget in case oil indus contd dormant. He said in first place he hoped speedily to increase sugar production in Iran to such extent no more imports wld be nec. I asked if such measure wld appreciably affect governmental budget as distinguished from national econ. He insisted govt produced sugar cld be sold at considerable profit. He added govt hoped develop in immed future from its textile indus from which it shld realize increased profits. He referred to possibilities of increasing agric yield and production and added that irrigation projects and other public works in South cld absorb idle oil workers. I asked if measures for economic development wld not in initial stage rep drain on governmental budget rather than income. He said Iran economists were endeavoring work out plans whereby such developments cld proceed rapidly with minimum strain on budget. He really hoped that within year situation of budget wld be appreciably improved. He stressed, however, that likelihood of success in improving budgetary situation depended on whether some econ friendly country wld be willing give Iran temporary budgetary aid and sufficient econ aid to enable it to carry out programs, purpose of which wld be primarily increase government revenues.

Henderson
  1. Transmitted in three sections; repeated to London.