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

888.2553/1–1753: Telegram

No. 287
The Ambassador in Iran (Henderson) to the Department of State¹

top secret
niact

Tehran, January 17, 1953—11 p.m.

2763. Eyes only Secretary and Byroade.

1. I am setting forth below a number of comments re my conversation this afternoon with Mosadeq.

2. He has of late shown tendencies to change both his mind and tactics. He has assured me on numerous occasions and as late as January 15 he would never agree to admission UK Government as party to dispute. He now does agree. He has insisted Iran must have $100 million advance payment in order to carry on. Now he says he would prefer to have only 50 million rather than to pay 4 and ½ percent interest on 100 million. He has been talking for many months re international arbitration; now he says he prefers “adjudication” to “arbitration”, difference with regard to which I shall not try to discuss.

3. At first glance it would seem that much of work done in London and Washington during January in preparing package proposals was wasted. However, in my opinion that work has turned out to be most useful. It has caused Mosadeq to realize that he was gaining nothing by refusing to accept UK as party to dispute. Furthermore he has been placed in such position that he was almost forced either to reduce some of his ideas to writing or to follow course which would cause world opinion to believe that he was not sincere in his protests that he desired settlement.

4. I was disappointed although not surprised at his rejection of package proposals. Developments of this even it seems to me are in general encouraging.

5. In light this comment it might be possible for Washington and London, if they do not become too impatient, to make redraft of settlement of compensation agreement. I have given this new name to that agrmt since he no longer considers dispute is going to arbitration. Most acute problem in this agreement it seems to me, is still terms of reference. British will not like his formula. I have tried in vain on three occasions to persuade him to make it more liberal but have thus far not succeeded. Perhaps final decision re terms of reference can be deferred until later stage.

6. Mosadeq’s two main objections to DMPA agreement seem trivial. Nevertheless he was earnest and eloquent in presenting them. DMPA might be contract with Iran through some private American company although such procedure would be cumbersome. Mosadeq’s concern about interest seems to me somewhat more understandable.

During recent months he has been repeatedly accused of having “sold out” to US. He is clearly worried lest an agreement involving prices lower than he has been willing publicly to accept elsewhere, as well as payment of interest to US Governmental agency for loan although US has repeatedly been giving aid in form of large grants to neighboring countries, might give fresh ammunition to his political enemies. It is furthermore quite possible that Mosadeq would like to impress both supporters and opponents with an agreement which could be interpreted as indication that US is friendly to, and would like to help, his government. A businesslike agreement of the character proposed would not create impression of US friendliness which he desires. I hope Department and DMPA in spite of rather absurd aspects of our problem here will try to devise some ingenious plan for solving it. Mosadeq’s suggestions re DMPA purchase rather confusing. I believe however that his idea is that: (a) Immediately after compensation settlement agreement has been signed, US Government or some private company acting for DMPA would sign heads of agreement with Government of Iran or NIOC. (b) Simultaneously $50 million would be turned over to NIOC. (c) Iran would sell immediately $65 million worth of crude oil and oil products and deliver to purchaser in accordance with schedule of deliveries to be agreed to. (d) Upon signing of schedule of deliveries $13 million would be placed in escrow, remaining $2 million being turned over to NIOC.²

7. I leave Washington to comment on Mosadeq’s suggestion re change in price of refined oil.

8. I probably may have more comments to make after giving more thought to Mosadeq’s statements and more study to his drafts.

Henderson

1. Also sent to London eyes only for the Ambassador.

2. On Jan. 18 the Department requested that Henderson clarify the meaning of his statement that of the $65 million, the sum of $2 million, after setting aside $13 million in escrow, should revert to the NIOC. The Department assumed that this difference was intended to revert to the United States in lieu of interest to which, in that case, no reference would need to be made in the heads of agreement. (Telegram 1782; 888.2553/1–1753)

   Henderson replied on Jan. 18 that he hoped that interest might be waived in connection with the DMPA agreement, and if such an arrangement could be made, the United States ought to consider returning to the original figure of $100 million which was the sum Iran really needed. (Telegram 2775; 888.2553/1–1853)