888.10/7–3152: Telegram

No. 194
The Secretary of State to the Embassy in Iran 1

top secret

276. In view critical Iran situation, Dept considered it advisable make fol proposal joint US–UK action. Fol Aide-Mémoire handed by Secy to Brit Amb Franks today:2

“Amer Govt considers situation Iran has become most critical and it essential immed steps be taken in effort prevent loss Iran to West.

There seems little likelihood that Shah or conservative elements will recapture polit influence from nationalist Govt Mosadeq. Meanwhile, danger communist capture power is increasing.

Unpalatable though it is, there seems no reasonable alternative to supporting present Govt. Such support must be in manner which will not relinquish Brit claims to compensation for nationalization AIOC in Iran. Furthermore, it must be done in such way as to be justifiable to both Brit and Amer public opinion. Also there must be some prospect that Iran will benefit from resumption of oil revenues to end that budgetary finan aid will not be required indefinitely.

We think time element is so short that first step in providing funds to IranGovt must be taken before any final elaborate agreement cld be worked out.

We therefore propose that Brit and Amer Govts jointly make offer along fol lines to Dr. Mosadeq:

US will make immed grant $10 million to IranGovt.
AIOC or some other agency designated by Brit Govt will purchase from Iran all oil products presently held in storage by NIOC at commercial Persian Gulf prices less an appropriate discount.
On basis proposal discussed between Mosadeq and Brit Chargé Tehran July 25,3 it wld be agreed that arbitral commission consisting three persons be set up immed to consider question compensation. Neither Amer grant $10 million nor start Brit oil purchases wld be held up pending commencement arbitral procedure.
Negots looking toward more permanent arrangement for distribution Iran oil be undertaken promptly.

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If question shld be raised regarding sale oil in excess that sold to AIOC, Irans shld be told that Govts US and UK have agreed that no obstacles wld be placed in way such sales.”4

  1. Repeated to London. Drafted by John H. Stutesman, Jr., GTI, and approved by Byroade.
  2. A memorandum of their conversation is in file 888.2553/7–3152.
  3. See footnote 2, Document 188.
  4. On Aug. 5 the Embassy in London informed the Department that the Foreign Office had told American officials that the British Cabinet was planning to consider the proposals outlined in the aide-mémoire of July 31 on Aug. 7. (Telegram 642; 888.10/8–552)