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

888.2553/1–1753: Telegram

No. 284
The Ambassador in Iran (Henderson) to the Department of State¹

top secret
niact

Tehran, January 17, 1953—3 p.m.

2754. Eyes only Secretary and Byroade.

1. I shall endeavor in this telegram present summary my seven hour conversation of January 15 with Mosadeq, refraining so far as possible from enlarging on details. I hope, nevertheless, it will give fairly accurate sketch of what took place.

2. During exchange introductory remarks I emphasized importance of what we about to do and say; stating documents to be discussed were product tremendous amount of work on part of State Department, US Embassies in Tehran and London, British Foreign Office and other British and US agencies. They had been prepared with idea of conforming so far as possible with views which Mosadeq had expressed to me during our various conversations. They might seem wordy at places, but considerable number words sometimes necessary to provide for various contingencies and to describe complicated situations. I thought best procedure would be for us examine all documents in preliminary way and later to review the minute detail. During preliminary examination and review I would at his request try to explain significance of any passage not clear to him or state reasons for incorporating any provisions which he might question.

3. Mosadeq began review of documents in order their presentation. He carefully and slowly read Persian text of covering memo and expressed surprise at reference to agreement between Government of Iran and Government of UK. He said he thought he had made clear from very beginning that he would not sign arbitration agreement with UK Government as such. He would sign only with “former company” or with UK Government acting on behalf of former company. I told him that his views in this regard were known in London; that British Government had felt very strongly that it should be party not only to arbitration agreement but to arbitration proceedings; that finally as concession to his wishes it had agreed that AIOC would be party to arbitration proceedings but that British Government should sign arbitration agreement. It was not easy to present sound argument as to why British Government should not be party arbitration agreement. It was international practice for agreements that kind to be signed between governments rather than by governments with private parties. I myself had been able to find no instance in which arbitration agreement for determination compensation for losses incurred as result national had been negotiated and signed between government and private company. My understanding was that agreement in Mexico for instance re compensation for losses incurred by American and British oil companies as result Mexican national laws had been entered into between governments concerned. British Government conceived that it was its duty in view its responsibility to protect interests British nationals in various parts of world for it to be party to agreement of this kind. Furthermore it was not customary for governments to sign contracts on behalf any nationals. It would be most unusual for a government to act as an agent for one of its nationals when signing an international agreement. Prime Minister said if British continued adhere to this position there no use going any further. He could never admit that British Government was in any way a party to Iran dispute with former company. I suggested we ignore this issue for time being and proceed further with documents. If we should find agreement on other matters we might take up this point again with London.

4. Prime Minister said he wished it also understood he would not be willing to enter into agreement with AIOC. From Iran point of view that company did not exist. His agreement would have to be with officials of “former AIOC”. I expressed surprise pointing out that on several occasions he had told me that agreement should be with AIOC. He replied he was sure he had used expression “with former company”. I pointed out AIOC corporation registered in UK doing business in various parts world. It had hundreds of ships, many oil wells and refineries which were visible to naked eye. I feared that he would make himself and Iran ridiculous before whole world if he should insist on using expression in referring to AIOC which would indicate that in opinion Iranian Government that company no longer existed. I did not for his sake desire to send back to Washington and London suggestions from him which would indicate that AIOC no longer existed. For period over hour our discussion on this point persisted. He finally said he would be willing in first reference in each document to use following expression in mentioning AIOC: “AIOC Limited, British corporation operating outside Iran, which shall hereinafter be called the company”. In personal letter which I wrote to him on January 16² I again mentioned this point and suggested that if he was adamant about not referring to company merely as AIOC, he at least agree to some such expression as “AIOC Limited, a British corporation not operating at present time in Iran”.

5. Mosadeq registered objections to practically every passage of introductory portion and part I of arbitration agreement. Most objections of such petty character as not to be worthy detailed mention. He was particularly critical second paragraph of introduction beginning “conscious” and ending “parties” and insisted that passage be entirely deleted. He also redrafted first and third paragraphs of preamble without, however, making any particular change in their meaning.

6. One of our longest discussions was with reference to point which he raised in part I, paragraph 1, subparagraph a. He insisted that in event of death, incapacity or withdrawal from tribunal of any one member, successor should be chosen by unanimous vote of remaining members. He expressed fear that as result of bribery panel could be reduced by withdrawals of various judges and those who remained would be so few in number that it would be possible to corrupt them by payment enormous sums of money. He said that point had not occurred to him before but some provision should be made with respect to it to protect interests Iran. I told him that if successor must be named as result unanimous decision, single member tribunal, Iran member for instance, could cause breakdown arbitration proceedings. He said he would prefer that proceedings break down rather than that replacement of any member who had withdrawn should be some person not approved by Iranian member. Discussion this point lasted another hour. I was finally compelled to tell him that if he continued to insist on unanimity, machinery which proposals were endeavoring to create for arbitration would be extremely weak, in fact meaningless. If therefore, his view in this regard was absolutely fixed it might be better for us to terminate conversations and conclude settlement by arbitration as out of question. Reluctantly he abandoned his position and inserted formula which in my opinion with certain textual changes would be acceptable to British. It would serve no purpose to set forth that formula here.

7. Prime Minister insisted on breaking part I, paragraph 1, subparagraph b into two parts, b and c respectively. His various suggested redrafts made these subparagraphs so confusing they were practically meaningless. After discussion of perhaps another hour he abandoned all his redrafts and agreed that subparagraph not so bad as it stood although he again insisted on several changes which I shall not endeavor incorporate here because he said any change which he made must be reconsidered by him before submission to me.

8. We also had considerable discussion regarding subparagraph c. He finally agreed that paragraph did not need much redrafting although he suggested several unimportant textual changes.

9. He reached zenith his emotions when considering part I, paragraph 2. He said terms of reference quite different from those which he had said he would accept. After considerable amount of scribbling he decided following would be acceptable to him. “2. Function of tribunal shall be: (1) To determine the sum required to pay the compensation which the company may claim as the result of the nationalization of the oil industry in Iran in accord with one of the laws of the UK acceptable to the company enacted for the nationalization of an industry of the UK. (2) To examine the counter-claims of Iran in accordance with the provisions of British private law and to determine the sum required to meet them.” I told Prime Minister I was confident such formula could not be accepted by British Government and I thought public opinion of world would likely regard British Government right in refusing accept it. Finding it useless to endeavor to persuade him to agree to incorporation of words “loss of its enterprise” I suggested that he at least insert words “in accordance with principles for determination of compensation set forth in one of the laws.” I pointed out that his wording so inflexible that court might have difficulty in giving proper application of British law which might be selected. It might be almost impossible for instance to determine compensation for loss of oil concession in Iran “according to” British laws nationalizing coal or steel. Prime Minister said inflexibility was precisely what he wanted. He did not wish British be able through smart lawyers to take advantage of flexibility of wording in order broaden basis for determining compensation. I also took exception to phrase “provisions of British private law” pointing out that it quite possible that no British laws existed which would be applicable to all of counter-claims which Iran might desire to present. Furthermore, reference to British private law might well be considered as bordering on sarcasm and I was sure that in serious document of this kind he did not wish any phrases inserted which might be so interpreted. We agreed again to discuss terms of reference on a later occasion.

10. Prime Minister said [part] I, paragraph 3 should be eliminated entirely. Saw no reason for reference to international law. I said that phraseology in this paragraph had been taken almost word for word from ICJ statute. British apparently were of opinion that since ICJ itself would not be able to act as arbitrator between state and private company, arbitration panel should at least be governed by same principles of international law as those which governed ICJ. I thought that he would be in rather weak position if he would object to panel being governed by international law to any less extent than court. He said he convinced that purpose this insertion was to generalize or weaken stipulation contained in paragraph 2, subparagraph 1 above. I said I thought he would be putting Iran in rather bad light if he did not at least agree to retention of paragraph 3 through words “international law”. After some discussion on this point we decided later to revert to it.

11. He also made number of textual changes which however turned out to be of no substantive significance in [part] I paragraph 4.

12. He made no suggestions in remainder of arbitration agreement other than to express displeasure at provision regarding interest on sum found due one party by other. Said this was point which had never been raised before. I remarked nevertheless it did seem both fair and logical. He indicated that he must give further thought to this matter.

13. He read drafts of exchange of letters with quizzical expression. I explained their purpose. His only remark was to effect that this was something which we could discuss after we had examined “heads of agreement”.

14. Prime Minister read entire text “heads of agreement” before making any remarks. After asking several questions regarding prices he said he willing accept our price for refined but not that for crude. He was able sell oil at Persian Gulf prices and saw no reason why he should sell to US at less. I explained that price offered by DMPA for crude was similar to that for which DMPA could purchase crude in East US if cost of transport, duty and ordinary commercial discounts were taken into consideration. DMPA was not trying to buy crude oil at bargain prices. As US Government commercial agency entrusted with purchasing for government it could not offer Iran prices for crude oil higher than those for which it could purchase crude oil elsewhere. In any event there would be no transactions in crude oil if Iran would be in position to deliver refined products. DMPA would prefer refined products to crude. Prime Minister suggested that sentence relating to crude oil be eliminated. I replied that impossible. If for some reason refinery should not function at some time in future so that Iran could not deliver refined products, DMPA must insure itself against loss its advance payments by stipulating that Iran furnish crude oil. Prime Minister said, with display of temper, he would never agree to “give away” Iran crude oil to anyone at 35 percent discount from Persian Gulf price. I said Iran had nothing really to lose by agreeing sell crude oil at this price if it unable supply refined products. Iran could produce almost limitless quantities of crude at little cost. It would not be giving crude away by selling it at 35 percent discount. It would still be making a handsome profit. If he worried regarding establishment precedent we might be able insert formula indicating that prices determined in unusual circumstances and should not be regarded as precedent.

15. Prime Minister said he considers 4½ percent interest exorbitant particularly if he should have to pay it on whole $133 million. I explained that interest would be payable only on such portions of $100 million as may be currently due by NIOC to DMPA. He said Federal Reserve Bank paying Iran only two percent interest on Iran deposits while US Government demanding 4½ from Iran. I said contract under discussion not between governments but between commercial organizations. Even though these two commercial organizations might be government-owned they must nevertheless carry on business in accordance with usual business practices. DMPA usually charged five percent on advances and never less than 4½ percent. When NIOC entered into commercial transactions it could expect to receive same kind of treatment as any other company private or government owned engaging in international business. Prime Minister either in anger or feigned anger said he could never accept this kind contract. He would not pay usury and he would not make a present even to US Government of Iran’s natural resources. I began to collect my documents. I told him that if he had impression US Government endeavoring take unfair advantages of Iran’s need for cash advance it would be preferable for us not to discuss this problem further. US Government had no desire to exercise pressure on him to enter into any kind contractual relations which in his opinion were disadvantageous to Iran. Prime Minister softened, said he thought perhaps this contract might be worked out to mutual satisfaction; it seemed to him to be well and clearly drawn. We could revert to it later.

16. After he had finished examining five documents Prime Minister said that he had decided that it might be preferable for him to go over them again in private on following day, January 16; he thought that he would be able during course that day draw up a document setting forth what he might be able accept and let me have it. In sending in his draft, however, I should indicate that it represented my ideas rather than his. I told Prime Minister that if I sent in any document as redraft it must be with understanding that he had assured me that he would be prepared to sign it if it was acceptable to British and subsequently to give it full public support. Prime Minister expressed appreciation for interest which US had taken in this matter.

Henderson

1. Transmitted in four sections; repeated to London eyes only for the Ambassador.
2. The text is in telegram 2755 from Tehran, Jan. 17. (888.2553/1–1753)