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

888.2553/1–953: Telegram

No. 272
The Secretary of State to the Embassy in the United Kingdom¹

top secret
niact

Washington, January 9, 1953—5:55 p.m.

4570. Eyes only Amb and Byroade. This telegram refers to London’s 3737 and 3738² and Tehran’s 2608.³

1. We think British preferred terms reference set forth first portion London’s 3738 unacceptable and alternative British text also probably unacceptable. Separate telegram gives our views Byroade’s condensed formula as modified London’s 3745.⁴

2. Re paragraph 1 London’s 3737, we are disturbed at British preference for five-member arbitration panel appointed by Court. It should be pointed out to them that Mosadeq appears attach great importance to participation McNair if Court as whole unavailable. He has never indicated agreement that Court might have full discretion appoint arbitral panel (other than panel composed of Court judges themselves).

3. Re paragraph 3 London’s 3737, believe we can accept Eden’s suggestion that DMPA contract specifically state it is for purchase oil to value $133 million, so long as contract continues to provide that escrow payments made only as oil delivered.

4. Re paragraph 4, London’s 3737, we believe Mosadeq statement to Henderson reported Tehran’s 2608 is satisfactory but should be supplemented by agreement to commence commercial negotiations within (say) 30 days after signature arbitration agreement. Concur Byroade’s view that price and other considerations could not be included in these commitments.

5. Re paragraph 6, London 3737, dealing with subsequent installments, you are correct that Department would not approve of arrangement tying subsequent installments with conclusion of a commercial contract. We also agree with Byroade’s point that if international company could be formed promptly there is definite possibility that sales contract could be concluded before installments made. If international company ready to begin negotiations within a month and Mosadeq commits NIOC to be ready within that time limit, first monthly installment would certainly not be made prior to that time. As we see it, there is a problem only in the event Mosadeq were to commit NIOC to initiate negotiations within a certain time limit and then NIOC did not live up to this commitment. Subject to Henderson’s comments, it is our view that DMPA should be in position to delay proceeding with installments if there is clear lack of good faith on part of NIOC in living up to its commitment to initiate negotiations.

We would want, however, to handle this point in such a way as to not increase Mosadeq’s public relations problem in Iran. It might be adequate if at time agreement is reached with Mosadeq on Heads of Agreement with respect to DMPA advance Henderson gave him a separate letter which would say that it will be difficult for DMPA to determine quantities for which it will want to negotiate delivery schedules, under paragraph 1 of the Heads of Agreement, until negotiations between NIOC and the International Export Company have begun. In event failure to initiate negotiations were responsibility of International Export Company, DMPA would, nevertheless, proceed with negotiation of delivery schedules and with installments of advance.⁵

6. Greatly encouraged by Mosadeq attitude toward future commercial sale Iranian oil as reported numbered paragraph 2, Tehran’s 2608. It seems to us this gives much greater reason for confidence that commercial sales agreement will in fact be accepted. Grounds for this confidence also provided by Mosadeq reaction to Henderson mention of Marcus contract. (Numbered paragraph 3 Tehran’s reftel.) This should relieve British fears previously expressed that Mosadeq would be difficult because he felt he could fall back on Marcus contract.

7. Also encouraged by Byroade’s telephone report today of further progress and his belief British see need give Henderson adequate leeway to negotiate. Approve Byroade decision remain London until “package” completed. In view telephone report, Secretary will not send personal message to Eden.

Acheson

1. Repeated to Tehran eyes only for Ambassador Henderson. Drafted by Nitze and Jernegan and signed by Jernegan.
2. Documents 269 and 270.
3. In telegram 2608, Jan. 8, Ambassador Henderson reported that during a conversation with Mosadeq that evening, he said he was agreeable to using British law as the basis for the terms of reference governing compensation. Mosadeq also expressed understanding of the economic necessity of having Iranian oil return to guaranteed world markets to generate enough money to enable the country to plan its economy. Henderson also explained that there was some concern in the United States and United Kingdom that after the conclusion of arbitration and American purchase agreements and after Iran received substantial advance payments from the United States, Iran would not be interested in negotiating a long-term sales contract with an international company, and that Iran would have no means of paying compensation. Mosadeq insisted he would negotiate with an international company as soon as possible after concluding the arbitration and United States purchasing accords. Henderson also reported that Marcus was unable to carry out his promises, and that Mosadeq had broken off contact with Marcus. (888.2553/1–853)
4. See footnote 2, supra. The telegram presumably under reference is telegram 4557 to London, Jan. 9; see footnote 4, supra.
5. On Jan. 10 Ambassador Henderson reported that he agreed completely with the contents of telegram 4570 to London, with the exception of paragraphs 4 and 5. He thought Mosadeq’s statement that he was prepared to enter into negotiations whenever the international company was ready was preferable to any 30-day clause request which might make him raise the question of why the United States was not satisfied with the statement he said he was willing to make. Henderson also thought if he had to hand Mosadeq the kind of letter suggested in paragraph 5, complications would ensue. He would be compelled to make such a letter public, and there would be numerous suspicious questions raised in the Majlis and press that could affect the atmosphere of the settlement. (Telegram 2634; 888.2553/1–1053)