888.2553/1–1853: Telegram
No. 290
The Ambassador in the United Kingdom
(Gifford) to the
Department of State1
niact
3936. Two meetings held at Foreign Office today devoted principally discussion Tehran’s 2762.2 Preliminary impression two Foreign Office officials at first meeting was that counterproposals not too bad, though some difficulties apparent. At later meeting with Representatives Treasury, Minister Fuel and Power, AIOC and [Page 640] other Foreign Office officials, including Legal Adviser, first impression materially revised and several substantial doubts expressed.
At outset of second meeting at Foreign Office today the British stated that proposals made to Mosadeq were sent with general idea that they represented final positions. They had been approved by Ministers with this thought in mind and were agreed only under pressure of getting a final agreement within few days. Mosadeq’s counterproposals went beyond “final position” in several respects.
Terms of reference to ICJ was the most troublesome. Reference to “losses” was too vague. British preferences for “property, rights and interests” and acceptance of “enterprise” were recalled. What British were seeking to protect was claim for loss of concession and future profits therefrom. Word “losses” was bad enough standing alone, but tying the reference to the British Nationalization Act (that is the Coal Act) made it even worse for in the case of the coal industry compensation was for assets taken over by the state. British pointed out that assets under coal law were physical properties, including collieries, unworked coal, et cetera, while in Iran there was not a true parallel in the case of the oil lands, since company did not own these lands, but simply had concession agreement permitting exploitation. While Coal Act provided for transfer of assets to public ownership, Iran nationalization law did not purport to transfer concession.
Position was at best ambiguous, requiring extensive argument even before impartial court which might be persuaded to accept a narrow Iranian view on the issue. This particularly so if history of negotiations produced to show change from wording preferred by British to that suggested by Mosadeq who British convinced clearly understands fears they entertain. British legal adviser also expressed fear that if generalized term “losses” used in terms, then Iran might try establish to ICJ that in fact AIOC had not sustained over-all loss, but had recouped losses through operations elsewhere.
British were not persuaded by argument that the ICJ being a reasonable Court would surely count as loss the loss of concession from which all other losses derived. Concession agreement should in effect be considered analagous to ownership of mines in case of Coal Act. Nor were British impressed by argument that “losses” was wider term than “loss of enterprise” and might include ancillary expenses of company stemming indirectly from nationalization.
British minimized significance Mosadeq’s agreement to put issue to ICJ (which they accept) saying point cost him nothing, particularly if he drew limiting terms of reference as he had. His ulterior motive in such definition might be deduced from his statement he was seeking inflexible formula.
[Page 641]Some discussion ensued on possibility of minute of agreement interpreting satisfactorily such language as British now feel unsatisfactory, particularly to cover point of loss of future profits in light Mosadeq’s statement he understood British claim would be made on this point. Generally held by British, such documents unlikely be worth much. They noted, however, that our discussion somewhat in the dark, since we have new formula from Mosadeq, but on many points we do not know his objections to ours.
Uncertainty of Mosadeq’s intention with regard to method of payment was discussed. British particularly concerned whether he would retain reference to payment in sterling and anxious ascertain relationship between Mosadeq’s redrafted articles 2 and 8. British noted also that escrow in jeopardy, since rewording would provide for escrow payments only until ICJ verdict reached. There after compensation would apparently be in kind dependent on a contract which might not be signed. In its negotiation, however, Mosadeq would hold all the cards.
Mosadeq’s abandonment of $50 million request was seen by the British as his price for retaining freedom of action which would be limited if he had installment payments forthcoming against some standard of performance.
Regarding DMPA agreement, we pointed out that there would be no problem regarding name of agency or charging interest.
Dropping of the exchange of letters on non-interference with tugs, tankers and other craft was said to be particularly disturbing to AIOC and this exchange considered by British officials to be required. Point of worry was principally tugs, dredges and ancillary craft which AIOC succeeded in removing from Iranian waters but which would have to return to make loading ports operative. Sister craft left in Iranian waters were seized by Iran. Tankers are apparently less worrisome since they could be seized again after leaving Iranian ports.
We pointed out this problem in last resort comes back question of good faith. If this were present, no letter required; if lacking, letter would be worth nothing.
Another point of British concern was deletion of reference in DMPA agreement to prompt start of negotiations of commercial contract. This reference had not been as strong anyway as British wanted.
Final comment was on the point of the 25 percent set aside from net proceeds. British say this would destroy 50–50 principle. Their figure was 46–54, but arithmetic was not checked. British noted point could be met by increase in discount. They aware Iranian law but say it permissive. Further they believe international agreement leading to payment into escrow of 25 percent of total proceeds [Page 642] would supersede any provisions of Nationalization Law. We said this might be legally true but would increase political difficulties with Majlis.
Throughout both meetings we tried as persuasively as we could to reassure British on points that were bothering them. As our preceding telegram makes clear, however, they were primarily disturbed by Mosadeq’s intentions in apparently dismissing somewhat summarily much of wording which British regard important to protection their interests.
For Department’s guidance in connection any conversation with British Embassy, we have informed British of following telegrams: Tehran’s 2754, 2755, 2761, 2762, 2763, 2764, and 2765 to Department, also Department’s 4770.3
- Transmitted in two sections; repeated to Tehran.↩
- Document 286.↩
- For telegrams 2754, 2761, 2762, and 2763, see Documents 284–287. Telegram 2755 is not printed, but see footnote 2, Document 284. The last three reference telegrams are not printed. (888.2553/1–1753, 888.2553/1–1753, and 888.2553/1–1853, respectively)↩