888.2553/2–1453: Telegram

No. 297
The Ambassador in Iran (Henderson) to the Department of State 1

top secret

3184. Eyes only Secretary, Byroade.

Prime Minister asked me see him noon today. He opened conversation by stating that it had become clear British had no desire to come to oil settlement; that he could no longer cope with his critics who were demanding prompt action in view of steady financial, economic deterioration; and that he had therefore decided to send message to Majlis on February 17 informing it there was no longer any hope oil settlement and requesting its approval that Iran begin sell oil at once to any buyer at any prices which would be paid. He realized US concern at sale oil to iron curtain countries but nevertheless in view Iran public opinion, he had no choice in case breakdown conversations other than to sell to any country willing to buy unless US Government or nationals should indicate their readiness to purchase Iran oil in considerable quantities.
I told Prime Minister I thought such action would be premature. I still hoped during course of coming week to receive instructions which would permit me to renew attempt to find bridge between his position and that of British. Prime Minister said he appreciated efforts which had been made to find solution but he now convinced nothing would come of them. I admitted he might be right, but insisted that so long as there was shadow of possibility of settlement, he should not act too hastily. He finally agreed postpone taking action until February 21. If by that day he and British had not arrived at agreement, he would be compelled to send message as outlined to Majlis.

Prime Minister asked what would happen if during coming week conversations would terminate in failure. I said it seemed to me that he in better position that I answer that question. Although I did not wish to endeavor to persuade him against selling oil at cut prices to any buyer, I nevertheless thought it my duty as friend of Iran to tell him that Iran’s financial problem would not be solved by sales of this kind. Few responsible firms would be willing to come forward promptly to buy Iranian oil even at cut prices in absence settlement of compensation problem. Any sales which he might make to iron curtain countries or to adventurous business firms in free world would be so negligible that Iran would continue [Page 666] to be faced with difficult budgetary and economic problems. Only real immediate answer to Iran’s financial and economic difficulties was settlement of compensation problem to be followed by arrangements for sale of oil in substantial quantities to buyers with adequate transport and distribution facilities. Only potential buyer at present able to distribute Iran oil in substantial quantities was AIOC. If Iran sincerely hoped to find solution for its financial and economic difficulties through its oil industry, it should be prepared not only to settle compensation problem but to sell oil in large quantities to AIOC or some international company in which AIOC would play major role. Prime Minister said he prepared to sell oil to international company in which AIOC participated provided agreement could be reached re terms of sale. He saw little chance, however, of solution of compensation problem. I told him that it seemed to me present issue re compensation was that Iran did not wish to agree to terms of reference in adjudication by international court which might result in country being called upon to pay more compensation than it considered itself able to pay, whereas British, in view of opinion of their public and of that of whole business world, could not agree to terms of reference, which would confine payment of compensation to losses of physical property of AIOC in Iran.

Prime Minister agreed but insisted that he had advanced suggestion for avoiding such issue through conclusion of agreement with British for payment by Iran of 25 percent of proceeds from oil exports during number of years to be agreed upon. It was his understanding, however, that British did not want to listen to suggestions of ways of settling oil problem other than through arbitration or adjudication. British could not but realize after our various conversations that no agreement could be reached regarding terms of reference for ICJ. Their refusal, therefore, to consider other ways of solving problem was to him convincing evidence that they did not wish settlement. British while pretending that they desired settlement were using their numerous Iran contacts in endeavor to overthrow him through alliances of forces including Bahtiari and other tribal elements, fanatical religious groups led by irresponsible mullahs, disgruntled reactionary elements in army and bureaucracy, discarded politicians and Communist front organizations. They apparently hoped there would emerge from chaos following such overthrow some government which would be subservient to them. They might possibly succeed in overthrowing his government but if they did so they would also be eliminating Iran from free world. He did not intend remain idle while Iran was being destroyed. He would take countermeasure. He was issuing order for stern suppression of uprisings among Bahtiari tribes. He [Page 667] hoped that execution of this order would not give rise to impression that there was friction between him and Shah. He could not however fail to maintain security in Bahtiari territory merely because wife of Shah was of Bahtiari origin.

I told Prime Minister I was persuaded that British Government was just as anxious as he was for oil settlement; that it would like to reach agreement with him so advantageous both to Iran and UK that it would be durable. It seemed to me that therefore we should be concentrating on settlement of oil problem. He should not be too pessimistic regarding possibility settlement; there was widespread belief few weeks ago that settlement between Egypt and UK of Sudan question would be impossible;2 nevertheless as a result of statesmanship of high order both in UK and in Egypt agreement with Sudan had just been reached. Prime Minister expressed surprise; said he had not heard of this agreement and asked details. I told him my information scanty, but I would outline what I had learned from foreign press reports. He said he quite sure Egypt would be loser. Naguib was British stooge and any Pakistani who would be appointed as neutral would also be under British influence. I told him I not prepared to argue merits of agreement with him; nevertheless such information as I had would not confirm his belief Naguib was British stooge. I knew from personal experience that although Pakistan was member of Commonwealth, Pakistan acted independently in foreign affairs and Pakistanis were not any more pro-British than pro-Egyptian.
After some further discussion, Prime Minister said he would stand by his earlier statement. If by February 21 his counterproposals had not been accepted or if he had not received fresh proposals which seemed to promise solution, he would send message of character outlined to me to Majlis.3
  1. Transmitted in two sections; also sent to London eyes only for Holmes.
  2. For documentation concerning the Anglo-Egyptian agreement of Feb. 12 regarding the Sudan, see vol. ix, Part 2, pp. 1743 ff.
  3. The Embassy in London reported on Feb. 15 that an Embassy official conveyed the contents of telegram 3184 from Tehran to the Foreign Office, with the exception of the references to Naguib and Pakistan in paragraph 4. (Telegram 4542; 888.2553/2–1553)