888.2553/1–153: Telegram

No. 261
The Ambassador in the United Kingdom (Gifford) to the Department of State1

top secret

3611. From Byroade. Holmes, Palmer and I met this afternoon with Dixon, Maud and other Foreign Office officials. I felt it only fair to inform British re Henderson’s latest conversation with Mossadeq, particularly as one subject of discussion was mechanics of advance on our part through AIOC. Unfortunately, third part of Tehran’s 2485, December 31, has not been received, so I was only able to inform them of first two sections. In doing so, I cautioned that whole message not yet available and I therefore hoped that apparently negative line which Mossadeq has taken re sales contract with AIOC would not affect adversely UK thinking re arbitration aspects and that we could continue examine this point on basic assumption that something satisfactory could be worked out on sales aspect. I particularly stressed encouraging portions above reference telegram re Mossadeq’s apparently flexible and reasonable approach to form of arbitration.

Following points emerged during course of conversation:

Arbitration. British legal advisers doubted ICJ justices could form arbitration panel as proposed by Mossadeq (paragraph 3, Tehran’s reference telegram), doubting judges would be willing this circumvent clear intention Article 34 of Charter, as well as provisions of Article which prohibits them from engaging in other business. Moreover, they did not like suggestion that if certain judges did not wish participate in proceedings, they might drop out, since they feared this might result in unbalanced tribunal if judges who might be favorable to them did not feel they could participate. They reiterated, however, that they would be willing take any form of impartial arbitration. Regarding terms of reference, they said they were not clear precisely what Mossadeq had in mind. If his thought was that ICJ should determine which nationalization law to apply, as he seemed to infer at one point in conversation reported Tehran’s 2425, December 26,2 they would consider this dangerous principle as court conceivably would apply some polish act of a confiscatory nature. On the other hand, if Mossadeq’s thought was that question of nationalization law to be applied should be subject agreement between UK and Iran, then idea would not be unattractive [Page 571] to them. HMG and company lawyers examining this possibility as rapidly as possible are including possible applicability UK coal nationalization law. Before developments reported Tehran’s 2485,3 they had considered possible desirability asking us to try to ascertain more precisely Mossadeq’s ideas as to who would decide what nationalization acts should be applied. Now, however, they felt that until we have had opportunity consider latest developments, it would be unwise make further approach along this line. Meanwhile, they would continue urgently to look into matter, but implications were such that they must take sufficient time to reach considered decisions. British on whole I believe accept my view that matter compensation can now be solved.

Commercial agreement act. British interpretation Mossadeq’s apparent refusal consider commercial agreement with AIOC as indication that his only real interest was in getting his hands on $10 [$100] million from US Government. They felt he undoubtedly figured it would take some time before arbitration award was reached and that agreement to arbitration was cheap price to pay for advance of this attractive sum. They expressed apprehension that if $10 [$100] million were made available to him, incentive would be lost to conclude commercial agreement. They thought, therefore, that way in which advance was handled was of crucial importance. I stated that I felt analysis somewhat different and that possibility of sales contract with firm other than AIOC might be predominant factor. I gave them fill in on Marcus deal.4

I gave them copy of Department’s memo contained Deptel 4337, December 31,5 stressing its tentative nature pending conversations in Iran. British expressed concern re following two points:

Commencement of monthly installments of $10 million after initial advance of $30 million did not appear to be tied to conclusion commercial agreement, but merely to agreement between DMPA and NIOC re provisional schedule of shipment. They therefore felt there was danger that incentive to Mossadeq to conclude commercial arrangement might be removed and felt that two points should be tied more closely together.
Preliminary agreement re price on basis US Gulf posted price less 35 percent might well be prejudicial to commercial negotiations on price. They recalled that US and UK have long been in agreement that price formula should not be more favorable to Iran than other concession countries were receiving. While it is impossible to predict effect of this particular price formula prior to its introduction, [Page 572] they felt that mention of any price at all could not help but be prejudicial to commercial negotiations. They asked whether it would not be possible for DMPA to negotiate contract (and make immediate advance) which would leave question of price open until commercial negotiations had been completed. We said that we were doubtful that it would be legally possible for DMPA to negotiate a contract of this kind, but that we would inquire from Department.

I stressed importance which we attached to AIOC participation in moving Iranian oil and my disappointment at Mossadeq’s apparent unwillingness negotiate with AIOC. I asked how long British felt it would take AIOC to negotiate contract assuming Mossadeq’s reluctance could be overcome. British replied they were unable to say, since they felt amount of time involved would depend largely on Mossadeq and more particularly on amount of DMPA funds we advance to him.

I would appreciate Department’s and Tehran’s urgent comments on foregoing, particularly on following points:
Any further indications which Henderson may have as result his conversations which might indicate whether Mossadeq has in mind that Court or two parties in agreement should determine nationalization law to be applied by Court.
Whether Department intended in paper transmitted Deptel 4337, December 31 that advance of $10 million monthly installment should be tied to conclusion commercial sales contract.
Whether DMPA could legally negotiate contract with NIOC which left open question of price pending conclusion commercial sales contract.

Am seeing Dixon again at 3 o’clock (London time) tomorrow afternoon to exchange information re further developments.

British seemed genuinely appreciative of manner in which Henderson has handled conversations.

While I have not as yet seen remainder Tehran’s 2485 feel key problem is manner in which we reply to Mossadeq re his refusal to face up to immediate negotiations on sales contract. Impossible as yet determine British reactions but am somewhat fearful they might find Iran refusal deal with AIOC not as worrisome to them as to us. Possibility of compensation agreement without early sales contract undoubtedly creates dangerous possibility use of Iranian oil in manner which might upset entire international oil structure. On other hand, US and UK combine in moving oil we have International Oil Corporation in effect regardless of what we call it and to openly form a joint company might solve problem. (British, incidentally, stated they hoped US companies could join negotiations with Iran or even take lead.)

[Page 573]

Please furnish guidance as how to handle subject Mossadeq’s latest position on sales contract with British. No view expressed to them today this regard.

  1. Repeated to Tehran eyes only for Henderson.
  2. See footnote 2, Document 256.
  3. Supra.
  4. Marcus and Aria, who represented a small company known as the United States Marketing Council, Inc., proposed a plan to Department officers on Dec. 26, 1952, to solve the Iranian oil crisis; see footnote 4, Document 266. A memorandum on this subject by Assistant Secretary of State Byroade is in file 888.2553/12–2752.
  5. Not printed. (888.2553/12–3152)