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

888.2553/1–853: Telegram

No. 269
The Ambassador in the United Kingdom (Gifford) to the Department of State¹

top secret
niact

London, January 8, 1953—11 p.m.

3737. From Byroade. In the discussions today with Eden points which were discussed (other than terms of reference reported separately) were as follows:

1. Form of arbitration. British clearly do not like idea of Court appointing such of its own judges as are willing to serve as arbitration panel. I gathered they would not refuse such a course if Court preferred this method, but they would clearly wish whole Court, or at least a substantial and balanced majority, to participate.

British do not wish any arbitration panel less than 5 members. If Mosadeq’s second alternative could be increased in some manner from 3 to 5 they would not object.

British clearly prefer that Court appoint a 5-member arbitration panel, with all members selected at discretion of Court. Question as to whether to refer to alternative methods of form of arbitration in formal communication to Court was left for further discussion after our initial contacts with Court.

[2.] Tactics. I agreed with British that immediate task before us was to prepare a “package” approach consisting of following:

(1) Draft arbitration agreement;

(2) Main outlines of DMPA contract and manner in handling US advance;

(3) Commitments desired from Mosadeq re opening of negotiations before a commercial contract.

3. Method of handling escrow. Eden reluctantly accepted fact we could not handle escrow problem in manner that would allow funds to be set aside prior to actual delivery of oil. He stated that if DMPA contract could be for oil to value of $133 million instead of $110 million, this would help meet his problem. I suppose he meant that he could point out that US was buying $133 million worth of oil, but that only $100 million of this amount would accrue to Iran while $33 million would be placed in escrow for AIOC. Also it would be clear to other concession countries that because of compensation element, DMPA terms not more favorable than 50–50. I told him I thought our contract would necessarily have to be for total amount of oil to be purchased by DMPA and as this was equivalent of $133 million worth, I believed his point had been met. Please confirm total quantity to be specified in DMPA contract.

4. Commitments from Mosadeq. British clearly delighted we would seek two commitments from Mosadeq mentioned under point three my telegram 3694 to Department (repeated Tehran 127). I pointed out we had not yet received Henderson’s comments and I did not think in any event we could go beyond asking Mosadeq to agree formally to substance previous statement to Henderson in this regard. There was some discussion as to whether matters of price, etc. could be brought into those commitments. I stated I believed it to be unreasonable request commitments such matters in advance of commercial negotiations.

5. Initial advance. I informed British we will attempt to restrict our initial advance to $40 million unless it were found impossible to obtain cooperation of Mosadeq on other essential points of a settlement if we stuck adamantly to lower figure.

6. Subsequent installments. I had planned not to raise this subject again with British but to assume in future in view of vagueness of past discussions that they did not object to manner in which we planned to handle these installments. British raised point, however, and pressed again for us to tie subsequent installments to conclusion of a commercial contract. I stated I was certain Washington would not approve of this arrangement. To do so would be accepting a provision that our Ambassador has told us emphatically will not work. Eden asked if we could not tie installments in some way to beginning of negotiations and indicate to Mosadeq that faster oil flowed, quicker he would get his subsequent installments. I stated that if international company could be formed in a hurry there was every possibility that a sales contract could be concluded long before installments would all be made. If British would be able through international company to begin negotiations within a month and Mosadeq committed himself to be ready within that time limit, there was as well every probability that first installment would not be made prior to that time. I agreed to explore possibility of some connection between installments and beginning of negotiations, but refused to agree to tie them in any way to conclusion of a sales contract.

The above haggling on amounts and timing of installments can not help but be annoying under the circumstances. It represents a fundamental difference on tactics between US and British so obvious in many problems. It is the theory of the “dangling carrot” which will force better terms in negotiations and is the same problem I run into here on the subject of Egypt. I believe it fruitless to continue extended conversations on such subjects. If you have any ideas as to whether we could make some tie-in between our installments and the beginning of negotiations, they would be appreciated. If not, I plan to stick to our present position as representing firm position of the Secretary.

Gifford

1. Repeated to Tehran eyes only for Ambassador Henderson.