888.2553/10–2052: Telegram
No. 230
The Ambassador in the United Kingdom
(Gifford) to the
Department of State1
2296. Re Embtel 2288.2 At subsequent meeting at which AIOC reps and Levy were present discussion began consideration paragraph 2 of original proposal as communicated to Brit last week (Deptel 2563 Oct 10).3 It was agreed first sentence worked out to approx $1.00 per barrel for crude on present US quotations. Nitze explained second sentence necessary because certain products such as fuel oil cld not be appropriately handled under formula contained in first sentence. The AIOC representatives had interpreted second sentence to mean any excess up to their full sales realization wld have to be turned over to Iran and AIOC wld therefore receive no profit in excess of 10 per cent of US quotations. Nitze explained formula had been devised on assumption distributing company management wld be independent of AIOC and wld be in position negotiate best possible terms with AIOC and others, but that such terms wld undoubtedly have to be at lower prices than AIOC’s full sales realization if AIOC was to be expected to absorb any substantial quantities.
Nitze went on to say that in view of fact that distributing company might be AIOC subsidiary, we had attempted work out further price formula which might be applicable under such circumstances. Nitze then outlined price formula which Dept has under heading “formula suggested by Walter Levy” and which provides for a base crude oil price calculation on US East Coast less duty, less freight, less 15 per cent ($1.09 on present prices) and refining through—put charge of $5.00 a ton.
There was extended discussion as to how this wld work out in practice. At this point Brit given copy of draft proposal incorporating Levy formula and worked out so that compensation handled as part of distribution contract. Copy of this proposal is fol tel.
Brit wanted to study this over night. From such discussion as followed it appeared Brit felt themselves on horns of dilemma. On one hand this wld like to get compensation and not be involved in commercial or foreign exchange problems involved in marketing [Page 503] Iranian oil. On other hand, they were concerned with problem of what wld happen to Iranian oil if compensation question were cleared up and no legal bar to others buying Iranian oil. Nitze pointed out these problems were inherent in any settlement of Iranian controversy and wld arise immediately if Iran were to accept arbitration by ICJ as contemplated by our joint proposals. He emphasized seriousness of consequences of no solution and of our desire to work thru with Brit best way of arriving at solution.
- Repeated to Tehran and to the U.S. Mission at the United Nations in New York for the Secretary of State. (888.2553/10–2052)↩
- Supra.↩
- Printed as telegram 889 to Tehran, Document 223.↩