888.2553/1–1853: Telegram

No. 288
The Secretary of State to the Embassy in the United Kingdom1

top secret

4774. Eyes only Ambassador. As explained to Holmes in telephone conversation today, our general feeling on arbitration and DMPA agreements is as follows:

On Arbitration Agreement (which should be renamed Compensation Agreement), we consider it great step forward that Mosadeq has agreed to let dispute be one between states. This greatly simplifies nature of Agreement and complexity of text required. Believe only points of substance remaining are terms of reference and manner in which question of gross versus net proceeds is handled.

On terms of reference, it is still our hope that British can agree to deletion of word “enterprise” and restudy of point here today still leaves us unconvinced that their position would be prejudiced by this omission. If they still cannot agree our preferred position, we would suggest at least some changes in first part of sentence to make it read as follows: “to determine the sum required to provide fair compensation to the AIOC for the loss caused the oil company by the nationalization of its enterprise in Iran as the result, etc.” If they feel strongly, we would agree to try again use of word “principles” instead of “basis”. Mosadeq’s point that UK law to be chosen should be previous to Nationalization Laws in Iran seems reasonable, however, and should be acceptable.

Question of net versus gross proceeds will be covered later in connection with our comments on DMPA agreement and same form as suggested therein should be used in Compensation Agreement.

Mosadeq’s redraft of DMPA agreement presents us with more fundamental problems. We feel we can meet what we first thought were his primary objections, i.e., question of interest rates and DMPA nomenclature. Close analysis his redraft, however, indicates such a general loosening of provisions as to contain very little even moral obligation on part of Iran in connection with future agreement on long-term sales contract. While we do not know Mosadeq’s intentions, his redraft can certainly be used to confirm British suspicion that his primary concern is one of obtaining immediate funds from US without regard to following through on long-term arrangements for sale of Iranian oil. Among points which could be [Page 637] construed in this direction are fact that his commitment to negotiate a commercial contract has been taken out of our DMPA contract and, as well, contains no commitment on timing of negotiations. Question of subsequent installments and leverage contained therein has been discarded for a one-shot advance from US. Fact that he would be willing sacrifice considerable amount of money in order change nature of agreement cannot help but be viewed with suspicion. Non-agreement with our provision that International Company act as agent for US can also be interpreted in same light. There are other points on question of price and escrow arrangements which we find difficult but which have less bearing on the important consideration of underlying motives behind Mosadeq’s redraft.

In considering all of above we have come to conclusion that best tactic is to continue to use our draft as basis for further discussion. We will make such changes as we can to meet Mosadeq’s points that do not have real bearing on question of future intentions re commercial negotiations. We would retain in this context our original offer to advance $100 million against future deliveries of oil with explanation that US made this offer on basis of what it considered to be real needs of Iran. If Mosadeq wishes to cut amount in half we would of course be happy to agree but we would not agree for this consideration to drop other points of the agreement which we consider not only important but honest and fair, and which were in large part based upon his previous statements to Henderson.

On question of exchange of letters we hope British will accept our view that these are non-essential in the context of the other agreements. If they persist in their present view at least some method should be found to separate this exchange from initial package which would become public.

Would hope that our views as above on DMPA deal will be reassuring to British and result in quick concurrence suggested changes in draft already approved by them. If compensation agreement can be pushed along we should be in position another early meeting with Mosadeq, as much of textual material would already have been translated in Tehran.

There will follow by separate messages: (1) our suggested redraft of compensation agreement and (2) redraft to replace DMPA headings with comments on key points therein.2

  1. Also sent to Tehran eyes only for the Ambassador. Drafted and signed by Byroade.
  2. Reference is to telegrams 4775 and 4776 to London, neither printed. (888.2553/1–1853)