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

888.2553/1–1953: Telegram

No. 291
The Ambassador in Iran (Henderson) to the Department of State¹

top secret
niact

Tehran, January 19, 1953—8 p.m.

2802. Eyes only Secretary and Byroade:

1. When I sent my various telegrams on evening January 17 commenting tentatively on documents received from Mosadeq, I had not had opportunity carefully to analyze his proposals regarding arbitration and to compare them with those handed him on January 15. Further study yesterday brought realization of changes mentioned in London telegram to Tehran 161, January 18 repeated Department 3935.

2. I called on Mosadeq shortly after noon today in order obtain clarification and explanation of these changes as well as answers to questions raised by British. I asked why in Article 2 of I of his redraft he had stipulated that method of payment of compensation should be determined in accordance with some British law. It had been my understanding gained during previous conversations with him that amount of compensation was to be determined on basis of a British law whereas method of payment was already prescribed in Iranian national law; that was, payment of 25 percent of revenues from sale of Iranian oil. After considerable confusing conversation it finally became clear that what Mosadeq now had in mind was as follows:

(a) Method of payment was to be in accordance with same British law on basis of which compensation was to be determined.

(b) 25 percent of net proceeds would be set aside in escrow until verdict was reached.

(c) Verdict would include determination “according to British law” of amount and time due of installments.

(d) Escrow fund would be kept alive by continual deposits in it of 25 percent of net proceeds so long as sums were needed from it to meet next installment due.

(e) If at any time after installment due had been paid there would be balance left in escrow, such balance would be turned over to Government of Iran. If not sufficient amount in escrow to pay installments falling due, Iran must begin to pay interest on unpaid amounts and continue to pay interest until all installments were paid up to date.

3. I told Prime Minister this was quite new idea to me. I read to him various excerpts quoting him from my telegrams of December 26² and January 2.³ I said that based on what I had understood to be his willingness that amount compensation was be determined on basis of a British law and payment of compensation be made as provided by Iran law, officials of US Government had had long and laborious negotiations with British Government; enormous amount of effort had been made by many people in direction settlement. Ideas which he was now presenting, it seemed to me, might well undermine very basis of agreement on which so much labor had been spent. I read to him portion of what he wrote in his little book on January 2 “after the decision of the arbitration board is handed down, if Iran is still found to be owing the former company, 25 percent of the proceeds of sales abroad will be payable to the former company until the full amount of compensation has been paid”. Prime Minister was unyielding. He said he was sorry if there had been misunderstanding. What he had meant was that 25 percent of the sales abroad would be paid to fund from which sums would be taken to pay installments which may be due in accordance with decision of court. I read to him excerpt from my telegram reporting my conversation of December 25 in which I quoted him as saying “he was still preparing refer to International Court for arbitration matter of determination of amount of compensation owed by Iran to AIOC, due regard being given to Iran counterclaims.

The only terms of reference would be that International Court in determining amount of compensation due, should base itself on any law carried out by any country for nationalization its industries which might be agreed to by former AIOC”. I told him that in order to make sure that I had understood what he said I had repeated these two sentences to him. He said he did not recall precisely what he had said on December 25, but he was certain he had never intended to indicate that only amount of compensation should be determined by court on basis of British law. His formal statements had always been to effect that Iran would be willing to settle question of compensation with former company by arbitration on basis of British law. He had always intended that method of payment as well as amount of compensation due would be determined by court in accordance with some British law.

4. I told Prime Minister that because of his insistence that terms of reference provide that compensation be determined “in accordance with” a British law instead of “in accordance with the principles” of a British law, it was already proving to be extremely difficult to obtain any agreement. If he would now also insist that method of payment should also be determined “in accordance with” a British law, I was afraid that agreement would be impossible. I spent more than hour trying to convince him by means of illustrations how difficult it would be for Court to adjudicate question of compensation due as result oil nationalization by strict application of British law nationalizing, say, coal or steel industry. I read to him excerpts from coal nationalization law and pointed out how impossible it would be strictly to apply them to AIOC compensation problem. He reluctantly agreed that it would be impossible to apply letter of law. He said he nevertheless objected employment of word “principle” because use of that word might cause Court to ignore certain details in British law which would be advantageous to Iran. I had difficulty making him understand that words “in principle” did not have same significance as words “main points”. He has studied law in French language in Switzerland and France and should have been easily to understand this distinction.

5. I asked him why he objected to inclusion of words “loss of enterprise”. He said such words not in any British law and his proposal was in accordance with British law. He inquired if I knew what law British had in mind. I replied I thought they were considering coal nationalization law. He said he would read that law carefully and then talk with me again about problem of strict application. I asked him if I was to understand that he would prefer that our negotiations fail rather than to agree that compensation should be determined according to principles of British law and method of payment should be governed by Iran national law. He evaded direct answer to this question, but said he did not see how he could change Iran’s established policy in this respect. He would examine coal nationalization law and talk to me again.

6. My comment on above: I do not wish to go so far as to charge Prime Minister with lack of frankness in his dealings with me re determination of method of paying compensation. It may be that his mind, which is sometimes rather vague, failed to grasp fully significance of things which I have said to him and which he has said to me in past. Nevertheless, during our long conversation on January 15, he tentatively wrote down formula for terms of reference, translation of which I incorporated in Embtel 2754 of January 17 to Department to London 898, which contained no reference to method of payment. It is possible that his advisers have been reminding him of something he has overlooked.

7. I referred to his failure in counterdraft to provide for continuance of deposits in escrow fund after verdict had been handed down. He said that was oversight and suggested that in his draft after words “of the net proceeds of sales of oil” the words “or will accumulate” be added. Since this phrasing seemed to be merely subsidiary aspect of main problem regarding method of payment treated above I did not discuss it with him in detail.

8. I regret that I failed to ask him why he omitted “sterling” from redraft of Article 4 and Article 8 paragraphs (1) and (2). I doubt however that there was any real significance in that omission. I shall take this matter up with him during our next conversation.

9. I also failed ask him if he intended omit Article 2 paragraph 2 relating to Iran’s counterclaims. I believe however this omission was intentional; that he thought that reference in early part of document to fact that Iran prepared to have Iranian Government’s claim settled by court took care of this. I shall inquire regarding this point during our next conversation.

10. I asked Mosadeq why, even though he might consider exchange of letters unnecessary, he should object to exchange of assurances contained in them. He said he would go into that matter when agreements were signed. He did not believe that exchange of this kind should be connected with other agreements. Iran had no intention of seizing any British or company boats or other British or company property which might subsequent to agreement be introduced into Iran or Iranian waters in accordance with Iranian law. If compensation agreement was concluded British would have no cause to worry on this score. He said commitment contained in his Document No. 4 could be incorporated in an exchange of letters between himself and me.

11. I told Prime Minister that I felt it incumbent upon myself to inform US Government—and my views would undoubtedly be conveyed to British Government—whether in my opinion he was really interested in concluding long term sales contract with some international company in which AIOC was participant. He sat up in bed, placed his hand on his forehead and solemnly swore that he was extremely anxious to negotiate and conclude long term sales contract as soon as possible with such international company. He said Iran must sell its oil in order to live and he would like to sell as much of it as possible to international company. “I would be quite willing at any time to sit down at banquet table with directors of such company.” I intend express my honest personal opinion regarding strength of his desires in this respect after another conversation with him.

12. I asked Mosadeq whether he would still find it objectionable to deal with DMPA in case at beginning of contract its name should be given in full and its functions explained and if thereafter it be referred to as DMPA. Mosadeq said, no he could not enter into arrangements with American agency which by its name might indicate that Iran was selling United States war materials.

13. Before leaving Mosadeq I again referred to problems of terms of reference. I told him that his decision in this regard might well determine whether or not any room for agreement could be found. His present formula in my opinion was so unworkable that it could not be accepted by British and would not in general be considered reasonable in case it should be known to world that differences with respect to it resulted in breakdown of negotiations. I supported by number illustrations my reasons for believing that Iran itself might be in much more favorable position if it should agree that method of payment of claims should be met by devoting 25 percent of oil revenues to this purpose rather than in accordance with a British law which would probably not be applicable if strictly applied. Mosadeq said again he would discuss this matter in subsequent conversation but he did not indicate he had any intention of altering his attitude. Mosadeq said he was afraid difference regarding terms of reference was another British excuse for not coming to agreement. I told him that I knew for fact that he was entirely wrong in this premise. Not only British, but I personally, members of Embassy who had followed our conversations, and I was sure American officials in Washington and London acquainted with matter were unanimous in believing that it would be impossible for court to come to fair verdict if bound by terms of reference on which he was now insisting.⁴

Henderson

1. Transmitted in four sections; also sent to London eyes only for the Ambassador.
2. Reference is to telegram 2425 from Tehran, Dec. 26, 1952. For a summary of that telegram, see Documents 256 and 257.
3. Document 263.
4. Later that day Ambassador Henderson characterized this session with Mosadeq as the most discouraging discussion which he had had with the Iranian, and admitted that he was beginning to lose hope that Mosadeq could ever be prevailed upon to come to what the United States and United Kingdom would regard as a reasonable and fair settlement. (Telegram 2803; 888.2553/1–1953)