888.2553/12–352: Telegram

No. 244
The Secretary of State to the Embassy in Iran 1

top secret

1338. Eyes only Mattison personal from Henderson. In ur discretion, pls deliver in utmost confidence fol personal msg from me to Mosadeq:

  • “1. As I expected I found on my arrival here that the US Govt is deeply concerned at the situation in Iran and responsible members and officials of Govt are of opinion that it is extremely important for Iran’s future prosperity that oil dispute be settled as soon as possible. They have, therefore, been carefully exploring every avenue which might possibly lead to settlement. They face, however, a basic problem in disposal of the matter of compensation in a manner which would be acceptable to the Govt of Iran and to the British. A number of suggestions have been made as to formulae which might possibly be agreed to by Iran and the Brit for governing arbitral proceedings instituted for the purpose of determining the amount of compensation due. Among those suggestions is a formula which wld take into consideration ur note of Sept 24 to PriMin Churchill 2 in which the fol statement was made:
  • 2. ‘Determination of the amount of compensation to be paid for property belonging to the former oil company at the time of the nationalization of the oil industry in Iran and arrangements for paying this by installments based on any law carried out by any country for nationalizing its industries in similar instances which may be agreed to by the former oil company.’
  • 3. With this statement of yours in mind, US officials who have been studying the question of compensation have asked for my opinion whether you wld consider a formula somewhat as follows:
  • 4. There shall be submitted to some Board of Arbitration agreed to by both disputants, possibly appointed by the Internatl Court of Justice, the question of compensation to be paid in respect of the nationalization of the enterprise of the Anglo-Iranian Oil Company in Iran. This Board shall not question the validity of Iran’s Nationalization Law and shall in setting the amount of compensation consider those standards which the Brit Govt used in determining the amount of compensation to be paid to any of the enterprises which it nationalized during the past ten years which in their opinion may be appropriate.
  • 5. The problem which I wish frankly to place before you is that it is apparently the view of the Brit Govt, a view widely shared by the whole internatl business world, that any formula for determination [Page 541] of the value of property nationalized shld not specifically deny the Board of Arbitration the privilege of considering the earning value of property. It is thought that any appraisal of property which fails to take into account, as one of many factors, its earning power wld strike directly at the whole fabric of investment both national and internatl. I am wondering if there is not room within your formula quoted above to accommodate this pt of view.
  • 6. The US has not consulted with the Brit on this matter nor are the Brit aware of this confidential msg from me to you. No one can know in advance which nationalization law might be chosen by the arbitrators as basis for determination of compensation. There are many such laws and the Board of Arbitration would be free to choose the most appropriate one. Nevertheless, since it is my sincere desire that you be fully informed before making any reply on this important matter, I must point out to you that the British Coal Industry Nationalization Law of Dec 1945 has the fol provision for determination of compensation:
  • 7. ‘The Tribunal shall determine the global sum required to provide a fair compensation to the owners of the assets described in Annex I hereto for the transfer of those assets to public ownership, and for that purpose shall ascertain the amount which the assets might be expected to realize if sold as one unit in the open market as assets of a going concern by a willing seller to a willing buyer on the basis of (a) the net annual maintainable revenue, that is to say the net annual revenue which the assets as a whole might reasonably be expected to earn in the future, if they were not transferred to public ownership, and (b) the number of years purchase to be applied thereto.’
  • 8. I wld be grateful if you cld let me know through Mr. Mattison in confidence whether you wld be willing to agree that some board of arbitration determine the amount of compensation to be paid to the Anglo-Iranian Oil Company on the basis of your formula quoted in para 2 if carried out according to para 4. Of course, I would also appreciate any other comments which might be helpful in connection with this matter and I can assure you that anything which you might tell me will be treated with such degree of confidence as you might specify. Kindest regards.”

In communication foregoing to Mosadeq you shld make its personal unofficial character absolutely clear. Pls also inform Mosadeq that it wld be personally most embarrassing to me were substance this msg to become public. Translation of msg may be handed Mosadeq in interests accuracy and understanding, but any translation shld be informal and unofficial and on plain paper. Reply shld be through you only.

  1. Drafted by Richards and Stutesman and cleared in draft by the Secretary of State, Henderson, Fisher, and by Nitze, Linder, and Bonbright. Approved for transmission by Byroade.
  2. See footnote 1, Document 216.