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

888.2553/1–1753: Telegram

No. 286
The Ambassador in Iran (Henderson) to the Department of State¹

top secret
niact

Tehran, January 17, 1953—11 p.m.

2762. Eyes only Secretary and Byroade. There is set forth below translation of document in Persian language handed to me today by Dr. Mosadeq in reply to package proposals which I gave him on January 15 (Embtel 2761, January 17, repeated to London 901):

“Table of Contents.

Concerning the drafts of three agreements attached to the covering memorandum the Iran Government’s position is expressed in four parts:

• First

  With reference to the agreement between the UK and the Iran Government relating to the method of settlement of the claims of the oil company and the Iran Government.

• Second

  Concerning the exchange of letters attached thereto.

• Third

  Concerning the agreement for the sale to an international company.

• Fourth.

  Concerning the agreement for the sale to an international company.

Part I.

Agreement relating to the settlement of claims for compensation to the oil company and of claims of the Iran Government.

Here follows the Iran Government’s position with regard to the draft of arbitration agreement:

(1) With reference to the three proposals concerning arbitration of the question of compensation and counterclaims by all the judges of the International Court of Justice, including the Iran judge, ad hoc or by a number of them; or in the event neither of these two ways should be practicable, through arbitration by five eminent jurists to be designated by the Vice-President of the International Court of Justice, the Iran Government has always held the position that in accordance with the principles of international law, Iran courts are the proper courts to examine such cases. However, inasmuch as this is not acceptable to the British Government and the oil company, and inasmuch as the Iran Government desires to terminate the oil dispute, it is prepared to have the company’s claims for compensation and the Iran Government’s claims settled by a judgment of the International Court of Justice. In case a judgment by the said court should be impeded by the fact that the International Court examines only cases between states, the Iran Government, to remove this impediment, agrees that the said claims be considered by the International Court with the Iran Government and the UK as parties to the litigation, in order that the said court may proceed with examination and judgment in accordance with its own statute and rules of Court. The question of arbitration is therefore excluded.

(2) Part I, paragraph 2 of the said agreement relating to the functions of the Court is modified as follows:

The Iran Government agrees that compensation and method of payment thereof by installments on account of losses caused the oil company as a result of the laws national Iran oil approved March and May 1951 should be determined in accordance with one of the laws, to be selected by the oil company, national industries in the UK, enacted and enforced prior to the laws national the Anglo-Iran oil in July.

(3) With this arrangement there would therefore be no further need of the provision of Part II relating to the rules of procedure and other matters with regard to judicial wages, etc.

(4) Part III concerning the draft of agreement for the method of payment of debts and compensation to the company and the Iran Government is modified as follows:

(a) If in accordance with the verdict of the International Court of Justice, the Iran Government should be indebted to the company, the method of the payment of installments should be as follows:

Out of the funds that have accumulated by that date as a result of the deposit of 25 percent of the net proceeds of sales of oil in conformity with the law nationalizing the Iran oil industry.

By delivery of refined and crude oil under a contract mutually agreed to.

If the proceeds should be inadequate for payment of the Iran Government’s debts, so long as the said debts have not been paid, interest shall be payable at a rate to be determined by the International Court of Justice.

(b) In the event that by verdict of the International Court of Justice the company should be found indebted to the Iranian Government and the company should be unable to pay its debts in conformity with the said verdict, it shall pay interest to the Iranian Government as provided in paragraph (a).

(5) Part IV of the draft agreement is agreeable.

Part II.

Exchange of letters.

With regard to the drafts of letters to be exchanged between the UK and the Iranian Government following the signature of agreement relating to the settlement of claims, the Iranian Government believes that there is no need for exchanging said letters.

Part III.

Draft of agreement relating to oil transaction is modified as follows:

Heads of agreement between the Iranian Government and the Government of USA or an American commercial company for sale of oil.

(1) After the agreement is signed between the UK and the Iranian Government concerning the claims for compensation to the oil company and the Iranian Government’s claims to be referred to the International Court of Justice, the US Government or an American commercial company shall immediately advance the Iranian Government the sum of $50 million against the value of Iranian oil products and crude oil which will form the subject of an agreement to be concluded in accordance with the following principles:

(2) The Government of the US of America or an American commercial company, hereinafter to be called purchaser, shall enter into a contract with the Iranian Government or with the National Iranian Oil Company, hereinafter to be called seller, for the purchase of a quantity of Iranian oil products and crude oil equivalent to $65 million.

(3) Of the purchase price of the oil products said crude oil delivered to the purchaser under the said contract, after deduction of 20 percent which for the time being is computed as expenses of production, 25 percent shall be deposited in escrow in the Federal Reserve Bank of New York to be disbursed in accordance with verdict issued by the International Court of Justice. The balance of the purchase price shall be paid by the purchaser to the seller after the contract is signed.

(4) The purchaser and seller shall agree on a schedule of shipments with due regard to the availability and quality of oil products and crude oil which should be shipped according to the schedule, and on the suitability of port, loading and other essential facilities.

(5) The price of refined oil products to be delivered to the purchaser against the above sum shall be the medium (or average) US Gulf price minus 35 percent reduction.

In case it should not be possible to deliver refined products in sufficient quantity, the purchaser shall have the option to take delivery of crude oil for the remainder with the same discount from the present Persian Gulf posted price.

(6) Delivery of oil under the sale contract shall continue until the account of $65 million is liquidated.

(7) This agreement is binding on both parties and both parties agree to work out the details for the implementation of the principles mentioned in this agreement.

Part IV.

Agreement for sale to an international company.

It is agreed that the National Iranian Oil Company shall enter into negotiations with an international company registered outside Iran and the United Kingdom for the conclusion of a commercial agreement relating to the sale of oil products and crude oil in substantial quantities and over a period of years mutually agreed upon. The Anglo-Iranian Oil Company, which exists outside Iran, may also be included in the said international company.”

Henderson

1. Transmitted in two sections; also sent to London for the Ambassador only.