888.2553/1–2853: Telegram

No. 293
The Ambassador in Iran (Henderson) to the Department of State 1

top secret

2934. Eyes only Secretary and Byroade.

[Page 652]

This evening Mosadeq asked if I could come see him. I went immediately accompanied by Saleh, my Iranian assistant.

Our conversation lasted approximately two and one-half hours. I told him I had not visited him for several days because I had been awaiting fresh instructions from Washington. In view change of administration entire US position was being reviewed in light of our various conversations.

Mosadeq said he had assumed that change of administration might cause recess in our conversations. In our last talk I had told him that I thought it would be difficult for Court to adjudicate question of Iran compensation to former company by strict application of British law nationalizing coal or any other industry. He had subsequently examined coal nationalization law and had concluded I was right. Law was complicated and difficult to understand. It contained many provisions which had no relationship whatsoever to Iran oil problem. He and his advisers now believed it would not be practicable for Court to apply law this kind to present dispute. They therefore wished to amend suggestions which they had made previously. He handed me document in Persian, translation of which contained next paragraph.

“(1) The Iran Govt accepts judgment by the ICJ with regard to ‘property and establishments’ of the oil company in Iran on the basis of any one law relating to nationalization of industries in England which would be acceptable the oil company.

“(2) In case this proposal is not agreeable to the oil company, the company may determine which one of the laws relating to nationalization of industries it would like to have as basis of the judgment by the ICJ, and it may also specify the principles of such law which are agreeable to the company as the basis of judgment, in order that the question may receive consideration.

“(3) Inasmuch as it may take a long time to refer the case to the judgment of the ICJ and obtain a result [and whereas]2 the Iran Govt would like to settle the difference as soon as possible, the Iran Govt desires the oil company to name the amount of compensation to which it considers itself entitled (regardless of Iran’s counterclaims). Perhaps the question of compensation can be settled by direct negotiation and without reference to the Court.”

Saleh translated this document aloud paragraph by paragraph. At end first paragraph I asked Mosadeq if I was to understand he now wished terms of reference expressly to limit compensation to “property and establishments” of oil company in Iran. He replied in affirmative, adding that in any event coal nationalization law not applicable to situation in Iran. In England owners of mines had [Page 653] title to them. In Iran former company did not own any land or subsoil minerals. It owned merely certain physical property above ground and had right to exploit and refine oil. Iran willing to permit company to claim compensation for losses of physical property above ground but not for loss of rights to exploit or refine. If Iran should be willing to agree to pay compensation for loss of such rights that would mean that it would be agreeing to pay compensation for loss of future profits. Iran could not do that.
I reminded Prime Minister of sense of our previous conversations. He had explicitly told me that he would be willing to permit Arbitration Board to settle question compensation on basis any British law nationalizing a British industry acceptable to former company; and that in answer to questions put by me he had stated that such basis for settlement would be agreeable to him even though British law selected would provide for payment to former owners of compensation for loss of future profits. It was on basis this statement to me that our present conversations had been inaugurated. He said he did not remember making such statement to me. We had discussed many things. He thought, however, he had always made it clear that Iran would not agree to any arrangement which might involve payment of compensation for loss future profits. In any event he had emphasized throughout our talks that anything he might say was subject to approval of Majlis. He was convinced from talking with his advisers that Majlis would not agree to any formula which might make it possible for British to claim compensation for loss of future profits. I told Prime Minister that if that was his position, I feared all our conversations had been in vain. I was convinced, as I had told him in conversation of December 25, that British could not accept terms of reference which would limit compensation to losses resulting from confiscation of physical property of company in Iran. I was sure that whole business world would consider that company was right in insisting that in determination of compensation, losses of future profits should be given consideration. If his position as now outlined to me should be conveyed to British our conversations would probably be terminated.
Mosadeq indicated considerable distress, maintaining he anxious for settlement. He suggested that second paragraph of document be translated before further discussion. This paragraph might serve as alternative if first paragraph unacceptable. Saleh translated second paragraph. I said I did not think it would serve any useful purpose for company to specify principles of any British law as suggested in this paragraph since Mosadeq had already made it clear that he would not accept any formula which would make it possible for company to claim compensation for other than physical [Page 654] property in Iran. Prime Minister said he did not see why presentation of this document would mean termination of conversations. If British did not like suggestions contained in it they could give counter suggestions. I said British had already presented their formula in proposals which I had handed him on January 15. He had not really replied to British formula. Instead he was proposing new formulas which had no real resemblance to suggestion of British. Mosadeq asked that third paragraph be translated. I told him that this paragraph, if given consideration, would transfer our conversations into area which I not in position to enter. Both British and Iran Govts had indicated their agreement for US to carry on conversations in an endeavor to achieve oil settlement basis international arbitration or adjudication of question of compensation. Paragraph 3 seemed to suggest discussion of lump sum settlement. I had no authority discuss this kind of settlement. I would submit document in question to US Govt but in doing so I would inform it that I had I told him I unable discuss suggestions of kind contained in paragraph 3.
Mosadeq reverted to paragraph 2 of document. He said he would be willing to consider principles involving compensation for loss of future profits provided he was sure that amount to be claimed would not be exorbitant. His advisers had told him that Majlis would never agree to oil settlement involving risk, even though remote, that court might find Iran liable to pay compensation for loss of profits amounting to 150 million pounds annually for 32 years. I tried to convince him his fears groundless. Judges of Court were reasonable men not likely hand down decision so ridiculous. He insisted that risk existed. If British would let him know what was maximum amount which it would claim he might agree, if that amount was not too exorbitant, that Court could adjudicate claim with terms of reference including compensation for loss of future profits. If British desired to know size Iran’s claims he would be willing give it in return.
I told Mosadeq I disappointed that we seemed so rapidly to be approaching deadlock. I had entertained hopes that settlement might be achieved on a basis which would leave Iran master of its own oil industry, would offer Iran opportunity sell oil abroad on commercial basis, would afford guarantee Iran would not be saddled with burden indebtedness greater than it could bear, which would provide Iran funds to meet its financial needs until oil revenues would again begin to accrue. Mosadeq said I had failed in one respect. I had not been able to guarantee that Iran would not be saddled with burden of indebtedness greater than it could bear. I said if Iran would be called upon to pay its indebtedness only from 25 percent of proceeds derived from sale of oil, burden would not be [Page 655] unbearable. Unfortunately Iran Govt apparently was not willing even to bear this relatively light burden. Mosadeq said it might be willing to bear such burden if it knew number of years involved. Over how many years would Iran be expected to pay? I said that would depend upon judgment of Court. Mosadeq said on a basis of this kind it would not be necessary to go to Court. He would be willing to present to Majlis agreement whereby for certain number of years Iran would pay in settlement compensation 25 percent of gross proceeds from its oil exports. Only question to be settled was number of years. That could be settled in conversation of one hour if British were agreeable. Difficulty with lump sum method would be to satisfy public opinion in Iran and UK. Method of definite number of years but indefinite global amount would be much easier to sell at least to Iran public. Another advantage of this method would be that company would in sense become partner of Iran. Both would want to sell as much Iran oil as possible. I told Mosadeq I unable discuss this kind of settlement with him. I could only discuss settlement based upon international arbitration or adjudication of compensation.
Mosadeq said he hoped some way could be found to prevent termination of conversation. It was important not only to Iran but to world that dispute be settled. I repeated in view of position which he had this evening assumed I could, for moment at least, see no way avoiding deadlock.
My tentative comment. I do not think that Mosadeq could have failed to realize that decision of himself and advisers that terms of reference must be worded so as to limit compensation to loss of physical property of company in Iran would destroy all possibility of settlement of compensation by international arbitration or adjudication. He hoped, therefore, to be able to shift conversations to another basis, that of reaching agreement on lump sum to be paid as compensation or preferably on definite period of years over which Iran would pay 25 percent of gross proceeds from oil exports as compensation.3
  1. Also sent to London eyes only for Holmes.
  2. Brackets in the source text.
  3. On Jan. 29 the Embassy in London reported that it had conveyed the contents of telegram 2934 from Tehran to the British Foreign Office, which expressed the view that Mosadeq’s latest comments would have a most disturbing effect upon the British Government and would undoubtedly delay British consideration of the points contained in the Embassy memorandum handed to the Foreign Office on Jan. 28, which was based upon telegram 4941 to London, Jan. 26, supra . (Telegram 4199; 888.2553/1–2953)