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

888.2553/1–653: Telegram

No. 266
The Ambassador in the United Kingdom (Gifford) to the Department of State ¹

top secret
niact

London , January 6, 1953—11 p.m.

3696. Eyes only Secretary and Jernegan. Subsequent to meeting reported Embtel 3662, January 5,² Eden decided he would have consult his Cabinet colleagues before approving interim statement to Mossadeq regarding arbitration. Whole Iranian problem discussed by Cabinet this morning within context of our discussions here to date.

This afternoon, Eden asked Gifford, Byroade, Holmes and Palmer to meet with himself, R. A. Butler, Leathers, Lloyd and top ranking members Persian Oil Committee to discuss progress thus far and future line of action. Discussion covered following points:

1. Form of arbitration. Eden said he felt that we were in agreement on principle regarding referring compensation question to arbitration by ICJ and only remaining problem one of technicality. He conveyed to us message which Henderson could pass on to Mossadeq regarding informal consultations with court. Text of statement and oral explanations which Henderson might make are being covered in separate telegram.³

2. Terms of reference for arbitration. Eden indicated that HMG has made good progress in working out terms of reference based on Coal Nationalization Law. These have been approved by legal advisers of interested government departments and are now before Lord Chancellor for final approval, which he hoped to have tomorrow.

3. International company. He reiterated statement made by Dixon yesterday that HMG would have liked AIOC to be principal customer for Iranian oil, but said that HMG now “willing reluctantly to agree” to a consortium with AIOC’s largest but not majority interest. This company should probably be registered outside the UK, perhaps in Switzerland. From public relations point of view, he thought it should not be registered in US. Maud said Working Party urgently studying possible form international company. Leathers indicated group has in mind that company might consist UK, US, French and Dutch interests. He thought it would probably take six-eight weeks before company could be activated and in position start negotiations sales contract with Iran. We stated this seemed undue length of time and urged all possible speed. (After meeting Maud indicated six or eight week period was purely Leather’s guess and this statement had not resulted from any information furnished him. Maud said he would be quite embarrassed if task should take that long.)

4. DMPA advance. Eden said HMG accepts principle of DMPA advance but feels installments should be tied closely in with commercial arrangements. He voiced same apprehension as Working Party in our previous meetings re removal of incentive for Mossadeq to reach commercial arrangement unless advance clearly tied in.

We explained our conception that DMPA funds are being used to purchase arbitration. If we now tried to link DMPA advance with commercial agreement, we stood grave risk of having possibility of settlement founder. We felt encouraged by Henderson’s recent conversation with Mossadeq and were particularly pleased at former’s initiative in having pressed ahead so quickly with Mossadeq regarding necessity commercial sales agreement. We had been encouraged by Mossadeq’s indication his willingness to negotiate agreement with international company. We emphasized that we were just as concerned as UK to see the sales contract quickly concluded with Iran, in order obviate possibility latter dumping oil. We felt there was no difference between US and UK on this question. Only problem was one of tactics as to how DMPA advance might be used for best tactical advantage. British suggested that problem was to find some middle ground between our reluctance to tie DMPA advance to conclusion of sales agreement and their concern regarding removal of incentive on Mossadeq’s part to culminate agreement. Eden indicated, in this connection, that he thought HMG would be less concerned regarding manner of DMPA advance if Mossadeq would agree regarding arbitration and give commitment similar that which he wrote in his notebook regarding his willingness sign sales contract with international company (paragraph 1, Tehran’s 2506, January 2 to Department). He was somewhat concerned, however, regarding subsequent installments after first part of advance if, say, $50 million were made and queried us closely as to how these subsequent increments of $10 million would be tied to completion sales contract. He felt there was danger that Mossadeq might be content to live as pensioner and neither to deliver under DMPA contract nor to sign commercial sales contract. We reiterated our opposition to tying two problems together and emphasized as evidence our intentions, necessity of our recouping US funds which we are investing in this project which can only be done through flow of oil. This seemed reassure British somewhat, although they continued express concern. They seemed particularly worried regarding size contemplated initial advance of $50 million and asked whether we could not see our way clear to reduce this to $30 million. Eden expressed fear that sizeable initial advance might encourage Mossadeq to think he had breathing spell before opening negotiations with international company.

In effort bridge this gap, we suggested that in addition to obtaining commitment from Mossadeq regarding his intention negotiate commercial arrangement within international company, we might try to pin him down to begin negotiations within given period.

5. Escrow arrangements. During course discussion on DMPA advance, it was apparent that there was some misunderstanding among British regarding manner in which 25 percent of value of oil would be placed in escrow for compensation. We explained matter in detail and Byroade subsequently had separate meeting with Dixon and other Foreign Office, Fuel and Power and Treasury officials on this subject.

6. Marcus deal. Leathers reiterated British concern regarding Marcus deal. British felt that it would be preferable if this complication could be cleared out of way. We told them that we thought they had no cause for concern on this point. British indicated they would be very much reassured if it were possible to get Mossadeq to indicate that he was not interested in Marcus deal. We did not commit ourselves as to this approach, but said we would pass on to them as soon as possible any information which we obtained from Department on Marcus and status of his deal.⁴

7. Price and DMPA contract. After meeting, Dixon and Maud told Byroade that British would no longer object to interim price in DMPA contract. Also that 35 percent discount was all right if British could be satisfied on manner in which we handle question escrow deposits.

Gifford

1. Transmitted in two sections; repeated to Tehran niact and eyes only for Ambassador Henderson.
2. In telegram 3662 Byroade reported that he, Holmes, and Palmer met with Dixon, members of the Persian Oil Committee, and AIOC officials on Jan. 5. The British indicated they were drafting an interim reply concerning the Byroade–British conversations in London that Henderson could present to Mosadeq. The British planned to emphasize in this statement that they did not believe there was any substantial difference between their and the Iranian attitude regarding the manner in which the question of compensation might be referred to arbitration; they were considering suggesting to Mosadeq that they should approach the ICJ to see which of Mosadeq’s suggestions the court could carry into effect; and the British hoped to clear this draft with Eden that very afternoon. (888.2553/1–553)

3. Transmitted to the Department in telegram 3695, Jan. 6. Again, the British believed there was no substantial difference between their and the Iranian attitude regarding the role which the ICJ might play in determining the question of compensation by impartial arbitration. Moreover, the British would welcome the making of informal contact with the Court concerning Mosadeq’s suggestions concerning the method of arbitration, but they thought it preferable for some other nation besides the United Kingdom to sound out the Court. The United States was willing to undertake this task if this procedure were agreeable to Mosadeq. (888.2553/1–653)

   On Jan. 7 Ambassador Henderson reported that he had orally presented the British statement to Mosadeq that evening, and he said he would entrust the United States with the task of approaching the ICJ. Henderson also emphasized that the British had thus far agreed to nothing except impartial arbitration, and that no decision had been made concerning his other suggestions, including terms of reference. (Telegram 2585; 888.2553/1–753)

4. On Jan. 6 the Department informed the Embassy that there had been no further direct approaches from Marcus or Aria, and that the Department had informed Aria that day that the U.S. Government was not interested in financing the contract he had discussed with Department officials on Dec. 26, 1952. Aria did not seem surprised and asserted that he believed he had the financial means available to carry out the deal without Federal government assistance. The Department, however, was unimpressed, believing that Marcus and Aria had neither the money, tankers, nor markets of their own. (Telegram 4445; 888.2553/1–553)