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

888.2553/1–1753: Telegram

No. 285
The Ambassador in Iran (Henderson) to the Department of State¹

secret
niact

Tehran, January 17, 1953—10 p.m.

2761. Eyes only Secretary and Byroade.

1. I have just returned from relatively short visit (90 minutes) with Mosadeq who handed me his reply to package proposals. This telegram being drafted as reply is being translated. Saleh, Prime Minister’s assistant, translated it aloud to me in Mosadeq’s presence and I tentatively discussed certain passages with Prime Minister. Since latter told me it had been approved by his parliamentary advisers and he would like for it to go to Washington and London as approved, I did not try persuade him make any changes.

2. After we had exchanged amenities Mosadeq handed me envelope stating “here is reply which I have promised you.”² I said that before looking at reply I would like to refer to his comments during our last conversation re prices and rate of interest in DMPA contract. United States Government was anxious oil settlement should be achieved in way which would restore Iran’s credit in eyes of business world. Oil settlement should therefore be on a completely businesslike basis. There should not be even a hint that Iran was being given any grants or any special consideration. United States desired to help Iran and I was confident that if oil settlement was effected United States would be contributing much more for Iran’s welfare during coming year than it would receive in interest; nevertheless it seemed to US preferable that there should be no connection between oil settlement and any assistance which it might render Iran.

3. Prime Minister said he had spoken rather strongly re rate of interest. He and intelligent Iranians could understand why proposed contract was on businesslike basis. Iranian people in general, however, would never be able understand why United States should give billion dollars to help Turkey and yet charge 4 and ½ percent interest on loan this kind to Iran. He did not wish urge United States not to charge interest. Therefore in his reply to our proposals he had suggested that sale of oil by Iran be reduced from $133 to $65 million, of which $50 million would be advanced at once in cash and 25 percent of net proceeds from sale would be placed in escrow for possible use in payment of compensation. There would be no interest involved because there would be no loan. Refined and crude oil to value $65 million would be delivered immediately to US.

4. Prime Minister said there was another problem created by name of US purchasing organization. It might be extremely embarrassing for Iranian Government to enter into transaction this kind with Defense Materials Procurement Agency. It would be charged in certain circles in Iran that Government was entering into some kind defense pact with US. Therefore he hoped that US Government either would buy direct from NIOC or that DMPA would make purchase and extend loan through some American company.

5. Referring to Mosadeq’s suggestion that amount of purchase be reduced to $65 million I said that he had been insisting that Iran have at least $100 million in cash. Prime Minister said Iran sorely needed that amount but he preferred to receive only 50 rather than for US to lose Iranian good will by charging interest in advance. Iran could not deliver $133 million worth of oil immediately; it could, however, deliver oil to value of $65 million. I said I convinced that it would be more than 6 months before Iran could have $65 million worth of crude and refined oil ready for delivery. Furthermore in my opinion it would be probably 12 months before tankers could be found to move so much oil from Iran. If he wanted $50 million immediately there would undoubtedly be interest charges for a period of at least one year. Mosadeq said he hoped some device could be found so that there would be no reference to interest charges in contract. I suggested that perhaps something might be arranged by paying lower prices. He made no comment but I could see this suggestion was not pleasing.

6. I said that in my opinion Iran Government was leaning rather far backward in hesitating to deal with DMPA because of its name. DMPA was not a part of US Department Defense. It independent executive agency charged with buying many kinds of raw materials. Any charges that contract between DMPA and NIOC was of political character could be easily disproved. Prime Minister however seemed to be somewhat stubborn on this point. He asked if it would not be possible for purchase to be made through some private American company if not through US Government direct. I suggested purchase might be made through international company mentioned in original draft. He replied that company not as yet organized. Contract should be signed immediately because he needed money. I said I suppose he understood that international company would probably furnish tankers to carry oil because AIOC had more tankers available than any other company. He said that immaterial.

7. Prime Minister pointed out that in his counterproposals he had suggested that price refined oil be set at discount of 35 percent from average or middle US Gulf price rather than from low as stipulated in US proposals. I told him I unable add to comments in this regard to those which I had made in our previous conversation. I would submit his proposals intact. He said that he willing accept our original proposals re price of crude, that is 35 percent discount from Persian Gulf price.

8. I asked Mosadeq re status arbitration agreement. He said his advisers disapproved entirely structure which draft provided for arbitration panel. They were convinced from careful examination of document as it stood that it meant that in end panel would consist of five eminent jurists selected by vice-president of ICJ. Iran did not want anybody other than ICJ to adjudicate dispute. I said only recourse in that case would be for Iran to agree that other party would be UK rather than AIOC. Prime Minister said that was precisely what he and advisers had agreed. They decided they did not want this dispute settled by arbitration before some panel of arbitrators. They wanted case to be adjudicated by ICJ in accordance with its statute. Therefore, they would agree to admit UK Government as other party. I asked him re terms of reference. Saleh translated them aloud. They were similar to those drafted by Prime Minister during our session of January 15. I again said in my opinion they too inflexible. He said his legal advisers insisted they were sufficiently flexible to permit court to determine compensation due AIOC in accordance with any British law passed prior to Iran national law acceptable to AIOC. I said I did not recall date of coal national law and asked if this new stipulation would bar use of that law. He said such was not intent. He would not object if draft was altered to read “any British law passed prior to January 1, 1953”. He reiterated he had no objection to use by British of coal national law.

9. As Saleh translated various passages of Mosadeq’s suggestions re arbitration agreement I observed that according to those suggestions 25 percent of net proceeds of sales of oil rather than of gross proceeds, were to be put in escrow for compensation. I said this a recession from previous statements made to me. Mosadeq said he had previously been in error, he had forgotten provisions of national law. Iran could not pay larger percentage for compensation than that law provided.

10. Referring to proposed exchange of notes between British Government and Iranian Government on subject of foreign ships entering Iranian ports and of lifting by AIOC of its ban on exports of Iranian oil Prime Minister said he considered such exchange unnecessary. I asked him if he meant by that that he thought developments suggested in note would take place without such exchange. He replied in affirmative. He said naturally as soon as agreement had been reached for referring matter compensation to ICJ Iran would not object to entry British or AIOC vessels into Iranian ports and he was sure AIOC would not continue to prevent export Iranian oil.

11. My comments in subsequent telegram.

Henderson

1. Transmitted in two sections; repeated to London eyes only for the Ambassador.
2. See telegram 2762, infra.