888.2553/1–153: Telegram

No. 262
The Secretary of State to the Embassy in the United Kingdom 1


4382. Eyes only Gifford and Byroade. Reurtel 3611, Jan. 1, preliminary reaction of Department on three points as to which you requested Department’s urgent comments is as follows:

As to point A, para 10, Tehran’s 2425, repeated London 754,2 clearly indicates that Mossadeq at one point in conversation was quite prepared to agree that AIOC could choose which nationalization law it considered as being most favorable to it.

We doubt whether Mossadeq’s subsequent reference to decision by ICJ as to law to be used as basis for determining amount of compensation should be taken as a firm change in Mossadeq’s position. Henderson however should clarify this point.

As to point B, it was not Department’s intention in paper, transmitted Deptel 4337, Dec. 31,3 to make advance of ten million dollars monthly installments contingent upon conclusion commercial sales contract. It was Department’s intention however to cast DMPA advance in such form as to give every proper inducement to the negotiation of a commercial agreement which we hoped could be concluded promptly.

As British will understand, we might have preferred a lump-sum settlement tied in with a simultaneous solution of the commercial contract problem. This, however, was unacceptable to the U.K., and we have been proceeding on the general theory of their paper, entitled “The Persian Oil Dispute” sent to the Department as Despatch No. 2353, November 19.4 That paper made it quite clear that once there had been agreement on arbitration, Iran would be free to sell oil to all comers and neither AIOC or Iran would be under obligation to enter into commercial agreement.

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DMPA has an interest in having a commercial agreement arrived at. Its assurance of continuing deliveries would be better under such circumstances. However, in view of the fact that Mossadeq has been brought around to a general acceptance of arbitration without his former conditions on the assurance that, once firm agreement on this has been reached, he will receive a one hundred million dollar advance from DMPA, we do not see how we can go back to a position of making a substantial portion of the advance contingent upon the conclusions of a commercial agreement with AIOC.

We do, however, believe every effort should be made to get assurances from Mossadeq that NIOC would negotiate in good faith with “Export Company” looking toward a commercial agreement.

As to your point C, we believe some form of understanding with respect to price is necessary to cover (a) the period prior to the negotiation of a commercial agreement and (b) the contingency that no commercial agreement is finally arrived at. We doubt whether Mossadeq would agree to, or if he did that we could rely on, a commitment to let DMPA fix the discount from time to time unilaterally as it saw fit. If the UK can suggest a formula more acceptable to them than that contained in Deptel 4337, we would give it prompt consideration.

FYI in light of Henderson’s telegrams we may have to consider increasing the immediately payable portion of the advance to forty or fifty millions.

Re last para your 3611, we doubt whether any of the US majors would be prepared to participate in formation Export Company or take lead in negotiations. Cities Service or other independents might be prepared to do so, but we don’t know whether this would be acceptable to UK.

Maximum indication of cooperation we received from majors was that they would try to find a basis for helping AIOC dispose of oil or products for which it could not itself find market if that were necessary to working out of proper deal.

We could, of course, reopen these questions with majors but doubt wisdom of doing so at this time.

  1. Repeated to Tehran eyes only for Henderson. Drafted by Nitze; cleared by Jernegan, Bonbright, Linder, and Metzger; and signed by Nitze.
  2. See footnote 2, Document 256.
  3. Not printed. (888.2553/12–3152)
  4. See footnote 3, Document 237.