888.2553/2–2053: Telegram

No. 300
The Ambassador in Iran (Henderson) to the Department of State 1

top secret

3304. Eyes only Secretary and Byroade.

I found Prime Minister this morning in what seemed to be exceptionally good humor (Embtel 3296, February 20, repeated [Page 671] London 1064).2 Following exchange amenities I told him that after weeks of study and discussion between British and American Governments in light conversations which had taken place between him and myself, I had finally come to present him with some proposals in form two documents, a draft compensation agreement and a draft heads of agreement.
I said first document represented British proposals for settlement compensation problem, proposals which US Government and I myself considered to be fair and which if accepted would enable Iran to surmount difficult problem of compensation without danger of finding itself saddled with unbearable burden of indebtedness. Compensation draft have been prepared in two versions, both of which I would present in due course. He would find in examining them that British had done their utmost, without abandoning principles to which they considered they must adhere, to meet various proposals which he had made. They could not go further.
Re heads of agreement he would find also that US original draft had been amended in order to conform so far as possible with views which had been expressed by him.
I said that before handing him these documents I would like to emphasize that US Government would not have sent them to me and I would not be giving them to him in my present spirit of hopefulness that they would be accepted unless both US Government and I were convinced that their acceptance would be to benefit of Iran Government and people. If he would not find it possible to match conciliatory attitude displayed by British Government, US Government would have no choice other than to decide that no useful purpose would be served for it to endeavor to keep present conversations alive. I had deep sense responsibility in presenting these documents to him and I could understand that he must have an even greater sense of responsibility toward not only his own people but toward peace-loving people everywhere in making decision which now awaited him.
Prime Minister expressed his appreciation of efforts which US Government had made. He said regardless outcome our present conversations he personally had no doubt that US Government in endeavoring promote settlement had interest of Iran at heart. I said that I was convinced that Government UK in spite of absence [Page 672] of relations with Government Iran also had at heart Iran interests and had no desire to obtain agreement which would be at all oppressive to Iran. Substance of proposals I was about to give him would be eloquent testimony of British goodwill.
We first considered two alternative drafts of compensation agreement. In order simplify explanations I asked him first read brief summaries of main points which I had prepared in advance. He read them carefully and after asking few questions maintained that he understood them. He then read full texts of drafts. He said that before discussing them he would like to examine heads of agreement. This document he also read with care. He said this draft so clear he had no question to ask regarding it at this time. He would like however to raise certain points re compensation agreement.

Prime Minister indicated that he would prefer to discuss what we had labeled as alternative compensation agreement. Although he did not say so explicitly I obtained impression he was not interested in draft similar in character to that of January 15. He said it seemed to him that although this draft was somewhat different in form from original proposals made to him on January 15, there was really very little difference in substance. I explained to him along lines suggested in British message of February 19 set forth in Deptel 2145, February 19 various changes and concessions which had been made. I also pointed out that in alternative draft problems arising from payment of interest had been eliminated and that payments could be completed within at least twenty years without undue strain on Iran economy. It could be no hardship for Iran to pay 25 percent of gross receipts from exports of oil plus such annual deliveries of crude oil or oil products as might be necessary. Prime Minister said he noticed British were still asking for 25 percent of gross proceeds, whereas he had suggested 25 percent of net proceeds in accordance with Iran law.

I replied that US Government agreed with British that it might be difficult to determine precisely what net receipts were and that it would be much simpler to use gross proceeds as base. In any event payment based on gross proceeds would not increase amount compensation due; it would merely mean that compensation would be paid faster. Prime Minister said that his idea had been that net proceeds could be set arbitrarily as 80 percent of gross proceeds so that Iran would be paying 20 percent of gross proceeds annually rather than 25 percent. Nevertheless, he inclined personally to agree—he did not know what his advisers would say—that this question was not too important.

Prime Minister said that most serious objection which he had to proposals was to terms of reference. He was sure that in their [Page 673] present form they would be unacceptable. British had made no concession whatsoever in them. They still were asking for inclusion of expression “loss of the company’s enterprise in Iran” and of wording which made it clear that it was their intention that court should employ principles of coal nationalization law in determining amount of compensation due. He had already indicated several times to me that he could not accept terms of reference of this character. He could not understand why British were continuing to insist that coal law be used as basis for determination of compensation to company. I said he himself had first suggested that compensation should be determined on basis of some British law acceptable to company and that language used in present draft had been decided upon in order that his suggestions might be made applicable to case at issue. Prime Minister said he thought it would be much better to give court more leeway in deciding how it should determine amount of compensation due. I said he himself uniformly had insisted that court should not be given full discretion. He had been arguing that court should give compensation for no losses other than for those incurred by company as result confiscation its physical property in Iran. It was to be regretted that formula contained in draft was not satisfactory to him but it represented best efforts of British to meet his desires and US Government considered that it was fair and that its acceptance would not be harmful to Iran in framework of whole draft. Prime Minister repeated that he did not believe that proposals which I have given him could be accepted particularly in view of wording of terms of reference, nevertheless he did not wish to give me definite answer until he could have talk with his advisers.
I told Prime Minister I had no reason to believe his advisers were not patriotic Iranians interested in welfare of country. Nevertheless, I ventured express hope that in talking with them he should remember that they were only three or four men possessed of usual human frailties and that behind them were some 18 million other Iranians whose future happiness and prosperity could be seriously affected by decision which he would make. I hoped that he would find it possible to let his advisers know that they also had grave responsibilities and that if they should begin to emasculate drafts which I had given him he would tell them that their action might result in grave harm to Iran. Prime Minister accepted my remarks with apparent good grace, expressed appreciation again of [Page 674] the efforts which US Government had made and said he would give me answer as soon as possible.3
  1. Transmitted in two sections; also sent to London eyes only for the Chargé.
  2. In telegram 3296 Ambassador Henderson reported that he had presented the proposals to Mosadeq shortly before noon that day, and that Mosadeq had made no comment regarding the heads of agreement and confined his remarks virtually to the terms of reference. Mosadeq said he did not see how he could accept the terms of reference, but that he would discuss them with his advisers. In summary, Mosadeq said he would probably have to reject the proposals primarily because of the terms of reference. (888.2553/2–2053)
  3. On Feb. 20 the Embassy in London reported that it had informed the Foreign Office of the entire substance of telegram 3304 from Tehran. (Telegram 4690; 888.2553/2–2053)