888.2553/1–253: Telegram

No. 263
The Ambassador in Iran (Henderson) to the Department of State1

top secret

2506. 1. I have just returned from another exhausting and difficult three-hour conversation with Mosadeq. During our conversation Saleh read to him in Persian statement prepared by me set forth in Embtel 2505 to Department and 782 to London January 2.2 During and after the reading of this statement there was considerable discussion. Mosadeq refused, however, to retreat from his position that he would not grant to AIOC tremendous power over Iran’s economic life which that company would possess if it had contractual rights over long period to purchase bulk Iran’s oil production. He admitted reluctantly and rather indirectly towards end our conversation that perhaps AIOC was in possession of transport and marketing facilities which Iran needed to dispose of its oil. He agreed that although he would not be willing to obligate Iran to sell large quantities of oil to AIOC over long period he would be prepared to negotiate with American company or with “international company” in which AIOC would be participant for sale of substantial quantities of oil and oil production over a period to be determined. He explained term “international company” as company composed of participants of more than one nationality and registered in some country other than UK. He indicated that since AIOC would probably play important role in such company it should not be registered in UK. At end our conversation this subject he wrote in Persian following in his little notebook: “We are willing to sign agreement for sale of a definite quantity of crude and refined oil over a definite period of years with an international organization in which the former AIOC may or may not be a participant or with a US company or agency.”

2. During our conversation we touched again on question of arbitration and he wrote following in his notebook in Persian: “The Iranian Government is willing to settle the question of compensation [Page 576] with the former company by arbitration on the basis of any English law, acceptable to the former AIOC, nationalizing any industry in conformity with our previous conversations held on dates December 25 and 31.” After writing that, he went into considerable detail about various terms of payment and so forth. I stopped him, pointing out that I was not in a position to negotiate details with him, I was merely discussing principles. I suggested that we might find ourselves in a hopelessly confused state if I should try to pass messages back and forth re technical details of settlement of various phases of oil problem. He agreed and scratched out all he had written on this subject. In response to my inquiry as to whether the passage quoted above still held good, he replied in affirmative.

3. He again referred to method of paying off compensation, and wrote down following in his little book in Persian: “After the signing of arbitration agreement, 25 percent of the proceeds of all sales abroad of crude oil and oil products shall be deposited in a bank acceptable to both parties. The amount so deposited will be used so far as may be necessary to pay any compensation which may be found due the former company. If there is any balance left after payment of compensation that balance shall be turned over to the Iranian Government. After the decision of the Arbitration Board is handed down if Iran is still found to be owing to the former company 25 percent of the proceeds of sales abroad will be payable to the former company until the full amount of compensation has been paid.” At this point Prime Minister said he desired to make one exception to withholding of 25 percent for compensation. He wanted whole $100 million from American Government (see Embtel 2504 and London 781).3 He needed it all and did not want $75 million. I said it would look more generous on his part and create better impression in general if he would also agree to put into escrow 25 percent of this amount. He replied that he would like to do it but Iran needed every cent. He added that US could rest assured that none of this amount would be wasted. It wld be used to strengthen Iran economy and help preserve as part of free world until such time as oil revenues should again begin to flow. I told him that to be quite frank I had just received indication today that US agency which purchased raw materials including oil seemed to be reluctant to pay down whole $100 million immediately upon signing of agreement of arbitration. My impression was that organization was thinking of paying approximately one-third of that amount immediately upon signature of arbitration agreement provided simultaneously a sales contract could be entered into with NIOC or Iranian Government and of paying remainder [Page 577] subsequently over period of six or seven months. Prime Minister said he would not register too great objection to part-payment at time of signature but he hoped that Iran could receive at least $50 million in cash at outset. He had complete confidence in any contract made by US Government and would not worry if he had US agreement to pay remainder over period of several months.

  1. Transmitted in two sections; also sent to London.
  2. In telegram 2505 Ambassador Henderson reported that he would read a prepared statement to Mosadeq at his conference with the Prime Minister later that day. In general the statement emphasized the great importance from Iran’s point of view of concluding commercial arrangements with the AIOC because a) without a commercial agreement the British Government could not be assured of payment of a compensation award; b) the U.S. Government would receive a great deal of criticism if it advanced the money in the absence of a commercial arrangement; and c) it would be a symbol of good faith on the part of all parties. (888.2553/1–253)
  3. Dated Jan. 2, not printed. (888.2553/1–253)