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

888.2553/10–2953: Telegram

No. 377
The Ambassador in Iran (Henderson) to the Department of State¹

secret
priority

Tehran, October 29, 1953—2 p.m.

996. Prime Minister invited Hoover and me dinner last evening for further oil discussion.²Entezam, Minister Foreign Affairs, and Ardeshir, son of Zahedi, also present. In response our questions, Prime Minister indicated report given him by factfinding oil commission not particularly helpful. Report oral but he expecting it in written form. He opened conversation by asking precise definition word “enterprise” contained in terms of reference in proposals made to Mosadeq February 20. We endeavored explain significance, pointing out, however, this irrelevant since proposals February 20 out-moded by events and changes in situation.

2. During ensuing discussions Prime Minister said any solution which would put Iran on 50–50 basis sure create difficulties for government. Iranian people had been led believe such formula unfair to Iran. Iran in different position from other ME oil countries. Foreign capital investment in Iranian oil industry had been repaid many times by exorbitant profits realized by AIOC. Iranian oil industry should be considered as going concern already paid for from these profits. Such great profits over long period time had not been made from oil other ME countries. Hoover pointed out Iranian oil could find its way again to world markets only on commercial basis. Potential distributors this oil could not consider history concession in determining how much they could pay for oil. No matter how much profits AIOC might have realized in past these distributors could not as business enterprises pay more for Iranian oil than for that available in other ME countries. It might be possible in drafting agreement avoid spelling out any 50–50 formula. In place such formula there might be proposition to effect that Iran must receive no less income per ton for its oil than most favored nation in this respect of ME. After further conversation Prime Minister appeared reluctantly and unhappily acquiesce in our expressed views that Iranian oil could not re-enter world markets in substantial quantities unless distributors could obtain it as cheaply as they could oil from other ME countries.

3. Prime Minister said difficult though it would be for Iranian Government satisfy public with solution involving 50–50 formula it would be still more difficult to satisfy it with settlement which would place control extracting and refining in hands foreigners. Hoover agreed this would be one of most difficult areas negotiation. He thought, however, that with goodwill on both sides solution could be found through study and negotiation whereby distributors would have sufficient control within framework nine-point law of extraction and refining processes to give them necessary assurance that they would receive steady flow oil and products of volume, variety, and quality needed to meet fluctuating demands their customers. Prime Minister made several suggestions among which was one to effect that NIOC would contract to sell specific amount oil and oil products to distributors over term years, distributors to be authorized to enter Iran for purpose of extracting and refining. Hoover said there variety ways bridging problem of control. They might, however, more appropriately be discussed during course negotiations. Iran should understand in advance, however, that distributors must have sufficient control production, refining and delivery to enable them rely upon steady flow from Iran such oil and products as they may contract to distribute.

4. Prime Minister repeated it would be difficult enough for any government face Iranian public with solution involving 50–50 treatment re price and relinquishment to extent at least by Iran of its control over its oil industry; it would be too much however for his or any other government to enter into agreement which would involve open or disguised return to Iran of AIOC. It would serve no purpose therefore for Iran enter in negotiations looking forward to return AIOC in any form. Iranian Government might agree to sell its oil and products to group distributing companies, including AIOC, and might even be able to give certain operating privileges in Iran to such group. AIOC however must not be more than minority member in such group and must not be in position dominate it. During discussion which followed Prime Minister said this statement should not be interpreted as indication he anti-British or that Iranian Government or people were inherently anti-British. His government desired friendly relations in future with UK and he was sure that although Iranian people were still in somewhat emotional state re British as result Mosadeq propaganda of last two years, this emotion would gradually subside. Any attempt bring AIOC back to Iran even with restricted rights would not be in interest of present or future relations between UK and Iran. Hoover said this particular point could more appropriately be considered during negotiations. In his opinion however it would not only be difficult but might be unwise from point view Iranian interests for Iran to object to participation by UK companies to extent at least 50 percent in any distributing group that might be formed. Prime Minister thought that it might be possible for AIOC and other British companies together to represent 50 percent of new company but he indicated this was matter which he would like to consider and discuss later, perhaps during or in advance of negotiations. He wished make clear however that AIOC should have at most only minority interests in any international group of distributors and should not be placed in position to dominate such group. Such group in his opinion should include as many as possible of major distributing companies now operating in Middle East.

5. Prime Minister referred to vexatious problem of compensation. He did not see why if Iran should agree sell oil on 50–50 basis it should also be compelled pay compensation, particularly if Iranian counterclaims against AIOC should be extinguished. We obtained impression from remarks made by both Ministers it their thinking that distributing group should absorb any compensation which its members might agree with AIOC to be due. They expressed view that if AIOC was to be participant in this group and Iran counterclaims against AIOC should be taken into consideration, amount compensation should not be very great. Hoover said this matter also seemed be one for discussion either between interested companies or during negotiations. Prime Minister however continued show interest in matter compensation. During conversation on this subject question developed as to manner in which negotiations might be approached and as to who should participate. Both Prime Minister and Foreign Minister seemed be of opinion that, in case Iran should decide that it prepared deal with international group of distributing companies, best procedure might be for these companies to work out agreement among themselves as to kind of proposals to be made to Iran, and then for their representatives to approach Government Iran or NIOC with these proposals. If negotiations could take place between Iran or NIOC on one hand and representatives of the international group distributors on other, British Government would not be involved except as protector of interests AIOC other British companies and Iranian negotiators would not be compelled face negotiators AIOC. They seemed think that negotiation this kind would serve remove dispute from field AngloIranian relations and reduce it to status commercial negotiation with international group distributors. Compensation problem which had so seriously disturbed relations between UK and Iran would thus be disposed of privately by agreement between members group of distributors.

6. In view of repeated concern expressed by Prime Minister at public reaction to agreement giving foreign companies rights to operate in Iran, Hoover asked Prime Minister if in his opinion it would be easier for government as matter public relations to negotiate with group distributors through intermediation International Bank. Would public reaction Iran be less unfavorable to solution involving conclusion agreement with International Bank which would make parallel agreement with group distributors? Hoover stressed in asking question he did not know whether charter Bank would permit it to act as screen between Iran and group of distributors; whether Bank would be willing to act in this capacity; and whether intermediation of Bank would be agreeable to Government US, Government UK, AIOC or potential members distribution group. Prime Minister said he thought it wld be much easier for Iranian Government if negotiations could be conducted through International Bank instead of direct with group companies. Iranian public in his opinion would find it less difficult to reconcile itself to agreement in which International Bank acted as middleman rather than to one involving granting by Iran of certain operating rights in Iran direct to companies foreign nationality.

7. Foreign Minister after private discussion with Prime Minister said that within next day or two he would prepare brief informal unsigned statement containing outline of current Iranian thinking re oil.³ If Shah and Prime Minister would approve he would give it to Hoover who would be at liberty show it to Secretary of State or, if considered advisable, to British. It should be understood however that such statement was to be treated as confidential; it was not to be considered as commitment on part Iranian Government since it would be subject to change until such time as basis could be laid for negotiations. His purpose in giving it to Hoover would be merely to aid him in describing present atmosphere re oil in Iran. Statement would be only general character; it would omit many details which had been touched upon orally. Prime Minister and Foreign Minister stressed all conversations with Hoover and myself had been of exploratory character. No commitments sought or given by either side. Hoover agreed, reiterating he had no authority intermediate or seek solution problem. His mission one of factfinding for Secretary State. He intended however while in London to describe to British privately and frankly situation re oil as he had found it in Iran. If it should appear he might be of further service he prepared return Iran. His tentative intention depart for London KLM plane leaving Tehran morning November 1.

8. It was agreed that if press should inquire re discussions which had taken place during course dinner reply would be that Hoover and I had continued our discussions with Prime Minister and Foreign Minister and that Hoover would probably complete this stage his fact-finding mission during next few days and would leave for US to report to Secretary State, stopping in London en route for fact-finding purposes.

Henderson

1. Transmitted in three sections; also sent to London.

2. Herbert Hoover, Jr., arrived in Tehran as scheduled on Oct. 17, and was presented to the Foreign Minister on Oct. 18, at which time it was agreed that he would have no conferences with Iranian officials until the Shah and Zahedi returned from Isfahan on Oct. 20. On Oct. 21 Henderson presented Hoover to the Prime Minister, at which time Hoover gave Zahedi a document detailing the situation concerning the global supply and demand of Middle Eastern oil. The text of this document was transmitted to the Department in telegram 949, Oct. 22. (888.2553/10–2253) At this meeting, it was also arranged that on Oct. 22 Hoover would meet with the Prime Minister’s newly-appointed oil advisory committee to assist it in preparing as soon as possible a report for the Prime Minister setting forth facts concerning the international oil situation. (Telegram 948, Oct. 22; 888.2553/10–2253)

   Ambassador Henderson reported on Oct. 24 that Hoover, at that point, had had two meetings with the Iranian oil committee. At the first, Oct. 22, the committee read Hoover’s paper; at the second, Oct. 23, the committee asked Hoover questions that his memorandum had raised. (Telegram 970; 888.2553/10–2453) On Oct. 26, Henderson reported that at the third session, held Oct. 25, the committee had concluded its factfinding task and would report to the Prime Minister. Hoover and the committee agreed that the heart of the problem was to work out a formula which reconciled Iran’s nationalization law with practical operating problems. The Ambassador concluded that he and Hoover expected to have another meeting with Zahedi following his receipt of the committee report. (Telegram 978; 888.2553/10–2653)

3. See infra.