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

888.2553/10–1052: Telegram

No. 223
The Secretary of State to the Embassy in Iran¹

top secret
priority

Washington, October 10, 1952—7:12 p.m.

889. Eyes only Ambassador. In conversation with Brit Amb Oct 9 Secy stated he felt Mosadeq’s last reply wld probably be unacceptable to Brit and we therefore must consider seriously possibility that Mosadeq wld break off relations with Brit at expiry seven-day period. This wld be unhelpful and wld not make further negots easier.

Secy stated that prior Mosadeq’s latest note Dept had been working on some ideas for solution (Embtel 1413 Oct 7).² It seemed that problem broke down into three main pts:

• First was compensation and counterclaims. On this we felt that no agreement as to principles was possible; that only solution might be lump sum settlement, preferably in oil, but possibly expressed in money terms and liquidated in oil.
• Second part of problem was how get Mosadeq sum of money in hurry. Dept assumed wld be difficult for UK recognize validity Mosadeq’s demand for immed payment 49 million pounds; that probably only way for Mosadeq to get money immed wld be advances against future oil sales.
• Third question was kind of contract for purchase against which such advance might be made.

Secy then informed Brit Amb that our preliminary thinking was that company might be formed to purchase oil from NIOC for resale, principally to AIOC as chief (but not sole) buyer. Brit Amb inquired whether we had any particular firms in mind who might participate in formation of company. Secy replied that with respect to major oil companies we had certain legal difficulties exemplified by present anti-trust proceedings. There were other possibilities such as one or more Amer companies not operating in ME, or private US firms not involved in oil business, or certain fon firms might be considered. Disadvantage of company formed by Eur oil companies wld be that it wld be most difficult or probably impossible for Exim Bank to assist in financing such group.

Secy said he felt it important if possible that some indication shld be given Mosadeq before or at about time he received Brit reply that there were further ideas to discuss. This might prevent Mosadeq from being precipitant in breaking off relations. Secy stated he had no clear ideas as to how this shld be done. Clearly any proposals corresponding to the three fundamentals above stood a much better chance of success if they were accepted by Mosadeq and then put forward to Brit. (FYI. We are thinking of possibility, shld Brit not be adamantly opposed to this type of approach, of sending someone from here, probably Nitze, on a quick trip to Iran.) In view of delicacy with which matters must be approached, if there is to be chance of success it is obvious every precaution be taken against a leak that we are considering with Brit a possible new approach.

Brit Amb was then handed copy of prelim draft of possible formula for settlement Iran oil dispute. This draft, which was understood to be schematic only, fols:

• “1. The National Iranian Oil Company will agree to deliver free of charge 15 million tons of crude oil and 15 million tons of oil products [The distribution between products shall be in the same ratio as the distribution between products in the aggregate output of the Abadan refinery unless otherwise agreed.]³ in full settlement of all claims by or against the Anglo-Iranian Oil Company, delivery to be at a rate of not less than 5 million tons a year. The AngloIranian Oil Company will drop all claims against the National Iranian Oil Company and will give such assistance as the National Iranian Oil Company may request and Anglo-Iranian can conveniently give in helping the National Iranian Oil Company secure markets for its oil and oil products.
• “2. The International Oil Distributing Company (a new company to be formed) will agree to purchase and the National Iranian Oil Company will agree to sell up to 25 million tons of oil and oil products per annum for 10 (15) years at 90% of the posted price of Gulf coast oil and oil products delivered north of Cape Hatteras less U.S. import duties and less $1.70 per barrel freight allowance. To the extent that the International Oil Distributing Company realizes on excess over the posted price north of Cape Hatteras less U.S. duty and $1.70 freight allowance, the National Iranian Oil Company shall receive the benefit of such excess. The National Iranian Oil Company will make such oil and oil products available for loading as rapidly as production can be restored and the International Oil Distributing Company will lift and pay for such oil and oil products as rapidly as markets can be developed and tankers made available. Payment shall be in dollars or sterling, depending upon the currency in which sales by the International Oil Distributing Company are made.
• “3. The International Oil Distributing Company will advance $100 million [Up to 50% of the advance and of its installments may be in sterling rather than in dollars. Repayment shall be in dollars or sterling in the same proportion as the original advance.] to the National Iranian Oil Company as an advance payment against future purchases of oil, $50 million to be paid on ————, the balance in equal monthly installments of $10 million; repayment to be at the rate of 25% of the purchase price of the oil and oil products purchased by the International Oil Distributing Company.”

Foregoing has been communicated by Brit Amb to FonOff and to Middleton for their secret info and comment. Ur views wld be appreciated.⁴

Acheson

1. Repeated to London. Drafted by Richards and Byroade and signed by Byroade.
2. In telegram 1413 Ambassador Henderson reported that he had a conversation with Mosadeq who gave him a cable from Saleh, Iranian Ambassador in Washington, which recounted Saleh’s conversation with Secretary Acheson on Oct. 3, in which the Secretary urged that Iran avoid breaking diplomatic relations with the British. Henderson also reported that Mosadeq then informed Henderson that he was planning to present another set of proposals to the British, which Henderson transmitted to the Department in telegram 1428, Oct. 7, supra. (888.2553/10–752)
3. These and all subsequent brackets are in the source text.
4. On Oct. 11 Ambassador Gifford responded that Foreign Secretary Eden’s reaction to these proposals was adverse; that the Foreign Office had sent a cable to the British Embassy in Washington which reported that the British were, however, willing to give further consideration to the Department’s suggestions; that, regardless of the decision concerning the Department’s proposals, the British Government felt compelled to make a reply to the latest Iranian note (telegram 1428, Oct. 7, supra) in order to set the record straight; and that a text of the proposed reply was enclosed. In conclusion, Gifford was doubtful that the British would accept these latest American suggestions. (Telegram 2129; 888.2553/10–1152) For the substance of the British telegram, see telegram 2592 to London, infra.