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

888.2553/12–3152: Telegram

No. 260
The Ambassador in Iran (Henderson) to the Department of State¹

top secret
priority

Tehran, December 31, 1952—6 p.m.

2485. Dept eyes only Secretary and Jernegan.

1. Upon receipt Deptel 1568, Dec 29, I requested another interview this morning with Mosadeq. Our conversation again lasted nearly three hours. He was obviously ill and his physical condition added somewhat to my difficulties.

2. I first discussed with him technical difficulties re arbitral procedure which would be encountered in proceedings before ICJ if he continued to insist that AIOC be other party to arbitration. I showed him copy statute of ICJ providing that only states may be parties to proceedings before court. I told him matter had not as yet been discussed with British Government which had hitherto insisted that it rather than AIOC be other party to arbitration. I then suggested two alternatives listed as (a) and (b) in reftel.

3. Mosadeq said he quite aware Article 34 of Charter provided “only states may be parties in cases before the court”. He had never contemplated that formal juridical case be presented to court. His idea was that Justices who were members of ICJ could form an arbitration panel composed of themselves and that this panel as board of arbitration rather than as court would consider question compensation. He hoped that court as contribution to international comity would not object to its Justices forming board of arbitration. In response to my question he said that all Justices should be offered opportunity to sit on panel but that if any of them did not desire to do so remaining Justices would be considered as full panel. If ICJ found some technical or other objection to permitting its Justices to act in such capacity his alternative suggestion would be that Mr. McNair, British Justice, and Mr. Sanjabi, Iran Justice, should form nucleus of an arbitration board of three and that they would agree upon third member. He said that he would prefer arbitral agreement be signed by AIOC but he would not seriously object if British Government would sign agreement in capacity of representative of AIOC. I asked whether it would not be possible for British Government to appear before ICJ itself in capacity of government acting as representative of one of its nationals. He replied he considered two alternatives which he had suggested to be fair and did not care contemplate other alternatives. In order that his position might be clear he would write down what he had in mind. He thereupon scribbled number of sentences in his notebook in Persian which he permitted Saleh, my Iran assistant, to copy. Translation of what he wrote is as follows:

“Either all the judges of the International Court of Justice who are members of the court at the time of the signing of the agreement are appointed as arbitrators, or only the two judges who were members of the court when the Anglo-Iran case was heard, namely McNair and Dr. Sanjabi, to be appointed by both parties as arbitrators. These two arbitrators will appoint a joint arbitrator.

The agreement may be signed by the British Government representing the company.

In case McNair should be the President of the ICJ and he should preside over this arbitral tribunal Iran Government would have no objection, and it would even be prepared to give up the idea of sending it special judge who had been appointed at the time the Anglo-Iran case was before the ICJ.

As soon as the arbitral agreement is signed the American Government or any American firm shall pay $100 million and shall purchase oil afterwards until such time as its account is settled. In the event Iran should be found by the arbitral tribunal to be owing the former company, Iran shall pay 25 percent of the proceeds of oil that she would sell abroad every year until this debt is entirely paid off.

If any member of the ICJ, who should be a member at the time of the signing of the arbitral agreement, should leave the court, it will still be he himself who shall act as arbitrator, not his successor.

These conversations shall not be valid until they have been approved by the Majlis”.

4. After I had read what Prime Minister had written I said I would like to raise several points. In first place it seemed to me unwise to state in arbitral agreement how such compensation as may be found due was to be paid. Might not it be better to allow arbitration panel to determine method of payment? Mosadeq replied vigorously in negative. He said manner payment must be within framework national law and that should be understood in early stages negotiations. He said he was willing as alternative to agree that compensation be paid in oil valued at “Gulf” prices to be delivered in five annual installments. It my understanding that he meant Persian Gulf prices although during our conversation he made one reference to “Gulf of Mexico” prices. I told him I thought it would serve no purpose to suggest that compensation be paid with oil value at Gulf prices because neither AIOC nor any other large company would be willing purchase oil at those prices without heavy discounts and that by placing such high value on oil delivered as compensation Iran wld be cutting down materially amount of compensation. He said that in that case he would allow 25 percent clause to stand.

5. I then pointed out that his formula had made no reference to conclusion of purchase contract with some oil company such as subsidiary AIOC or national company including AIOC which would assure Iran minimum amount of annual oil sales over fixed term of years. Prime Minister said he had been giving this matter deep thought and had decided he did not wish to commit himself at this time to enter into negotiations with AIOC for sale of Iranian oil. After compensation problem had been disposed of by reference to arbitration and after he had received 100 million dollars from US Government for oil to be delivered in accordance with terms to be agreed upon between Government of Iran and Government of US, either direct or through some company, he would then decide through what channels Iran would dispose of its oil exports. I was somewhat taken aback at this statement. I said that although during our previous conversation he had not definitely agreed to enter into negotiations with AIOC or some subsidiary of AIOC he nevertheless had seemed to be in general agreement with US suggestions for disposal Iranian oil as outlined by me. On various occasions he had told me that if arbitration question was once disposed of he would have no objection to entering into negotiations with AIOC direct for sale of Iranian oil provided it was understood that such negotiations would not mean that AIOC be given monopoly. Was I to understand that he had now changed his mind? Mosadeq replied he now feared it might be dangerous to trust AIOC to purchase bulk of Iranian oil. There danger that UK in order bring pressure on Iran might at some time or other cause AIOC cease purchasing Iran oil with disastrous results for Iran. If AIOC would be willing to deposit 200 million dollars in some neutral place which would be forfeit if it should fail to live up to its contract with Iranian Government he would consider selling any amount to AIOC. I told him that if AIOC entered into contract with him it would of course be liable for damages for breach thereof. Neither AIOC nor any other company would be willing to allow 200 million dollars to remain idle merely so it could serve as guarantee fulfilment of contract. Such transaction unprecedented in international foreign trade. If UK and US should agree to refer question of compensation to arbitration they also would have no guarantee that Iran would abide by decision of arbitration panel. They wld have to trust Iran’s good faith. Similarly, Iran must place some trust in good faith of UK if satisfactory sale contract for Iranian oil was to be negotiated. Prime Minister said he could not promise at this time to enter into negotiations with AIOC or any other company. I asked him if UK in good faith and with goodwill should agree to terms of arbitration along lines suggested by him would his attitude towards AIOC be likely to change in this respect. He said he could not make any promises at this time. He would see how situation looked after compensation agreement had been entered into.

6. I reminded Prime Minister during our conversation December 25 I had outlined to him Four Point program consisting of (a) compensation, (b) sale of Iranian oil, (c) Iran to continue as master of its own oil industry, and (d) payment in advance of $100 million on oil to be purchased by US in order to enable Iranian Government meet its current urgent needs. These four points were related to one another. In contemplating advance of $100 million US Government was prompted by desire to see oil dispute between UK and Iran settled and to see Iran once more selling oil in foreign markets in sufficient quantities to enable it to meet its budgetary and other needs. Iran by refusing simultaneously take steps to assure sale of its oil abroad was distorting program which US Government had in mind. Prime Minister said it seemed to him US Government was worrying too much regarding future welfare Iran. What Iran needed now was $100 million and with that it could carry on until it could work out arrangements for substantial sales oil. He did not believe AIOC really wanted buy Iranian oil. If it did Iran would be glad to sell it oil on same terms as it would any other foreign company. He did not at this time wish, however, to take any action or give any promise which might place AIOC in favored position. I pointed out that by force of circumstances AIOC was already in favored position as purchaser. It alone of all oil companies of world already had at its disposal transport and marketing facilities for handling large quantities Iranian oil. It could also sell oil in sterling countries which did not have funds to purchase dollar oil. Mosadeq continued to insist that at this juncture he would give no commitment re entering into long term sales contract with AIOC or AIOC subsidiary. He said he hoped US Government would not try bring pressure on Iran to sell oil to AIOC by refusing otherwise to buy from Iran $100 million worth of oil upon conclusion of arbitration agreement.

7. I told Mosadeq that it was with great reluctance that I was presenting his present attitude to my government. For me to do so would strengthen arguments those groups in US and UK who maintained that he changed his mind so frequently it was almost impossible to deal with him. Furthermore his attitude would make it more difficult for British to make concessions which would be necessary if his ideas regarding terms of reference for arbitration would be accepted by them. His attitude, I felt, would prolong negotiations. I hoped that he would think matter over and change his mind again before our next conversation, this time in helpful way. It seemed to me that he had taken a constructive attitude regarding arbitration and I hoped he would do same regarding sale of oil. He should understand that I was not pressing him in interest of AIOC. AIOC could do nicely without Iranian oil. My concern was for Iran which should sell at least 20 millions tons a year if it was to enjoy real prosperity.

8. Mosadeq said he was afraid in any event considerable time would elapse before an agreement could be made regarding oil. Perhaps US Government in order tide Iran over this period sell Iran 120,000 tons of sugar on credit which would be repaid later in form of oil or proceeds from oil. Iran used 200,000 tons of sugar annually, it produced 80,000 tons; its import needs were 120,000. With this importation of sugar Iran could carry on for a month or two until oil question could be solved. British would not be so much offended if US would assist Iran in this way as they would be if US would make direct financial loans.

9. I said that although I doubted that my Government could enter into transaction this kind, I would pass along his suggestion. So far as British Government was concerned it knew enough about financial matters to be able understand that US sale of this amount of sugar on credit to Iran was tantamount to giving budgetary assistance.²

Henderson

1. Transmitted in three sections; repeated to London eyes only for the Ambassador and Byroade.
2. On Dec. 31 Ambassador Henderson observed that although he was disappointed with the stance Mosadeq had adopted, he was not surprised that the Prime Minister had reversed his position in several respects. Henderson viewed this development merely as a temporary setback and recommended that the United States urge the British to proceed with arbitration of compensation without insisting on negotiations for a commercial sales contract, while the United States went forward with plans to advance Mosadeq the $100 million. (Telegram 2486; 888.2553/12–3152)