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

888.2553/12–1152: Telegram

No. 248
The Ambassador in the United Kingdom (Gifford) to the Department of State¹

secret

London, December 11, 1952—5 p.m.

3288. For Byroade, Linder and Henderson, from Nitze. Met yesterday afternoon with Dixon, Bowker, Maud and other members UK Iranian Oil Committee. I explained our concern with 10 million ton offtake as it affects: (a) Inducement to settlement phase one; (b) Adequacy to meet Iran’s econ problems; and (c) Terms on which NIOC wld be free sell to others. I referred our discussion with US Oil Companies operating in ME; our impression they disposed to help in working out problem to meet Iranian problem; and fact that neither companies nor we had firm ideas as to how such program shld be developed. I went on to say there were certain problems which had arisen from these discussions and certain possible lines of approach to these problems which we thought profitable to explore with HMG.

I said if AIOC cld not itself handle offtake of say 20 million tons, and such offtake necessary to solution, ques arose as to whether other companies operating in area cld help. I said these companies all had adequate sources supply and wld want take oil from Iran only if necess to solution; that we felt if US companies asked to cooperate, Shell and possibly the French company shld also be asked; and that some of our companies felt that if cutbacks in other ME production shld be necess, Kuwait shld bear most of burden. UK rep agreed in general with these points.

I discussed problems which we foresaw if NIOC to offer oil freely to all comsrs and in any amts at prices down to price at which AIOC’s export subsidiary might be buying from NIOC. I said we concerned that in this contingency NIOC’s net return per ton wld remain stable while that of Saudi Arabia, Kuwait and Iran [Iraq] wld decline under 50/50 formula, setting up pressures which cld result in spread of nationalization to those countries. I suggested this problem might be met by provision in AIOC contract which related discount to volume and which was protected by most favored nations type of provision. Brit reps agreed this worth exploring but wondered whether wld be negotiable with Iran.

I said we felt it might be negotiable but only if volume contemplated by AIOC contract was in itself adequate give prospect of meeting Iran’s econ requirements.

I then discussed problems we foresaw in resale arrangements between AIOC’s export subsidiary and other companies which might cooperate in increasing offtake from Iran. I said US companies wld not want this oil; that they probably shld not be asked to pay more for it than AIOC’s cost; and that might be worthwhile exploring possibilities of contract which wld be in nature of a “put”. In other words AIOC wld have right, on adequate notice, to call on cooperating companies to take delivery specified quantities at its cost. Brit reps agreed this idea also worth further exploration.

I went on to say that we were considering working out arrangements under which our companies and AIOC, together with reps of US and UK Govts might meet together to work out more detailed proposals. This might take some time. In meantime we thought might be advisable make limited amount of econ assistance, unconnected with oil settlement, available to Iran. No position on ques taken by UK reps. It was agreed this ques, as well as ques of how far Henderson might go when returns to Iran in indicating what might be possible under phase two shld be subject of further discussion between Acheson and Eden in Paris. Dixon thought Sunday afternoon might be most convenient time for such discussion.

This morning I went over much same ground with Snow and Rice of AIOC. They raised no new problems beyond indicating some scepticism as to NIOC’s ability produce adequate volume and quality. From discussion it appeared they had been thinking of price which, after deducting set aside toward compensation, wld be in line with return elsewhere plus 25 to 30 cents for costs including depreciation.

Gifford

1. Repeated by the Department to Tehran as telegram 1445 (888.2553/12–1552); also repeated to Paris for the Secretary of State, who was there attending the Tenth Session of the North Atlantic Council, Dec. 15–18. Regarding these meetings, see the editorial note in vol. v, Part 1, p. 348.