The Ambassador in Iran (Henderson) to the Department of State1
558. 1. We are pleased and relieved at constructive suggestions contained in Dept’s aide-mémoire to Brit Amb (Deptel 276 July 31) and sincerely hope that Brit Govt will find it possible accept them in understanding spirit and without feeling impelled to make reservations or add conditions which wld tend detract from conciliatory nature of contemplated approach (Deptel 306 Aug 5).2
2. From Western point of view suggested approach wld certainly appear to be generous. We are not certain however that Iranians in their present suspicious and resentful frame of mind wld regard approach in same light. Some of Mosadeq’s more extreme advisors wld undoubtedly charge that Americans and Brit were trying to trick Iran into submitting question of compensation to internatl arbitration. They would insist that GOI wld be foolish in return for paltry US grant of $10 million and for sale of oil stores to AIOC to agree to procedure which might result in Iran being saddled with debt to AIOC of hundreds of millions of dols. During last ten days extreme Iran nationalists with vociferous Tudeh backing have been carrying on vigorous private and public campaign against submission question compensation to internatl arbitration body. We believe that Mosadeq personally wld be willing to have vexatious question compensation settled by internatl arbitration if such settlement [Page 433] wld mean solution of whole oil problem on basis which wld be acceptable to Iranian public opinion. Proposed approach however does not pretend to carry with it solution of whole oil problem. It would leave him and Iranian in dark as to kind of general settlement which UK and AIOC have in mind. Whether Mosadeq wld have courage to agree internatl arbitration in fact of opposition which is sure to develop unless he in position to point out that his agreement means satis solution whole oil problem we are unable to say. In any event Mosadeq wld in our opinion be in a better position to defend such agreement if US cld offer grant of say $30 million instead of $10 million. Former figures shld enable Iran to pay urgent past due bills and to meet most pressing financial needs for next month or so. Receipts from sale of oil cld then be used in connection with reopening of oil industry. We assume that Dept has suggested grant not larger than $10 million partly because of attitude of UK and US public towards Mosadeq Govt. Nevertheless in view of all that is involved we consider it wld be advantageous to Western world if offer of grant wld be large enough to indicate real desire on part US and UK to help Iran thru difficult situation.
3. If US and UK shld agree to joint approach on basis principles outlined in aide-mémoire we venture suggest that we be authorized to tell Mosadeq informally at time approach is made that (a) if offer is accepted and if it leads to negotiations between UK and Iran looking towards full settlement, US willing continue on temporary basis assist Iran financially during course such negotiations and (b) if oil dispute is settled so that Iran can again begin to set its economy in order US Govt has intention in case Iran desires it so to do to support extension of substantial aid of economic development character to Iran either directly or through Exim and Int Bank.
4. I have not as yet had opportunity discuss this matter with Middleton but have appointment with him morning Aug 7.