788.00/6–1653: Telegram

No. 331
The Chargé in Iran (Mattison) to the Department of State


4658. In belief it would be useful to Ambassador and Department forthcoming conversations re Iran, brief analytical comment follows on developments here since Ambassador’s departure:

Thus far in June no essential change has occurred in internal situation Mosadeq Government. Strongest critics admit for near future government control state administration, armed forces and radio, strong combination. However, country’s internal problems and public dissatisfactions have not lessened.
In Majlis opposition continues unabated with both sides preparing for important and unpredictable election Majlis officers scheduled end June. Opposition hopes re-elect Kashani. National movement candidate not yet certain, with some internal dissension evident. Government anxious gain victory since this could cripple opposition use this forum. Meanwhile, controversial issues such as Committee of Eight Bill and Deputy Baqai’s immunity question being delayed.
Criticism government more marked in press by appearance several opposition journals. Government circles maintain strong criticism oppositionists, particularly Kashani who with others is consistently dubbed British agent. Opposition has begun reiterate theme Mosadeq regime being supported by Tudeh and that some government leaders pro-Communist. If present-scale opposition activity maintained, it would be surprising if Prime Minister did not make countermoves, which, however, may be deferred until results election Majlis officers.
Position of Shah, already weakened as symbol rallying point of opposition, was not helped by trip of Queen Soraya to Europe, which was given unfavorable publicity here (aided by Communist press). Unexpected return Queen June 14 indicates Shah aware of this.
Economic difficulties of country beginning to show in price increases and resurgent wage demands. Inventories acquired at favorable exchange rates (e.g. 41 to dollar) largely exhausted and Bazaar now ordering on short-term basis at current rate (e.g. 105 to dollar). Spiraling prices bound to result unless government able [Page 734] arrest trend which it presently lacks means to do. TCI dollar aid indispensable surmount sugar crisis but it cannot meet all growing dollar deficiencies. Anticipated bumper crops may help delay inflation, general awareness of which also indicated by increasing rate investment private construction activities.
Secretary’s report on his trip and Ambassador’s consultations have caused widespread speculation. Line in pro-government circles, not necessarily belief, has been US on verge modifying its policy toward Iran and much-needed economic and financial aid will be forthcoming irrespective of an oil settlement. Opposition circles take contrary view that firmer attitude will be shown by US toward Mosadeq Government and oil question.
Iranian public interest high over possibility serious Iran-Soviet negotiations typified by hurried return to Iran of Soviet Ambassador, his talks with Mosadeq and concurrent signature new Iran–Soviet trade quota list. Scope of talks closely guarded with no leaks, but they may be connected with expected conclusion Korean fighting and attempt to obtain Iranian support for Red China and related Soviet objectives. However, various other aspects Iran–Soviet relations may not be excluded.