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

888.2553/2–1954: Telegram

No. 426
The Acting Secretary of State to the Embassy in Iran¹

top secret
priority

Washington, February 19, 1954—12:34 p.m.

1749. Limited distribution. Following Aide-Mémoire handed British Ambassador morning of February 19:

• “1. During recent discussions in London, Mr. Herbert Hoover, Jr. received in effect the following British proposals:

  A. The principals of United States companies should come to London soon to negotiate with the AIOC percentages of participation as well as management, investment and other key factors relative to establishment of Iranian oil consortium.

  B. As soon as possible thereafter, group of consortium representatives would go to Iran for definitive negotiations with Iranian Government, such negotiations to determine, among other things, respective percentage participation of members, including maximum interest by AIOC which would be acceptable in Iran.

• 2. Foregoing proposals have been considered by US Government at Cabinet level and have been discussed with US companies concerned. Following reflects firm position of US Government on above two points:

  A. US Government does not feel US companies are in position to bargain with AIOC on matter percentages. US companies have been invited to participate in consortium by AIOC and have been urged to do so by US Government. They have no commercial desire participate and will do so solely in interest of contributing to sound solution in Iran and to improvement of international situation in Middle East.

  B. In absence of firm agreement on percentages of participation, US Government does not feel US companies can join in definitive negotiations with Iranian Government without risking serious misunderstandings, thereby weakening solid front that will be necessary if successful negotiations are to be carried out. US Government believes that such misunderstandings might well jeopardize firm relationships which must exist between US and UK in Iran, and are so necessary to successful solution of this problem as well as to stability of entire Middle East.

• 3. Until matter of percentage of participation is determined upon some basis which all parties can fully support, US Government feels that it is not feasible (a) for principals of US companies to negotiate certain additional points necessary to set up consortium or (b) for consortium to undertake final negotiations with Iranian Government in Tehran. US Government has therefore suggested to principals of US companies that they should not go to London for meetings tentatively scheduled for February 22 until matter of percentage participation has been resolved.
• 4. US Government considers that agreement on percentage of participation in consortium should be reached at governmental levels for reasons set forth in paragraph 2(A) above and in view of fact that this is not ordinary commercial negotiation.
• 5. US Government is aware of views of British Government that AIOC should have 50 percent interest in venture. US Government deeply regrets that it is unable support this position as it feels that such a percentage would gratuitously place in hands of opponents of present Iranian Government powerful weapon against consummation of satisfactory agreement, and its subsequent approval by Majlis. Furthermore, even if agreement could be reached and ratified on that basis, US Government has most serious doubts, in light of its inevitable distortion by Iranian demagogues, that it would endure over period of years to degree which would permit effective operations. US Government feels that this added and unnecessary risk should not be run and accordingly cannot urge US companies participate under arrangement which it feels would inevitably invite most serious repercussions.
• 6. US Government wishes emphasize that foregoing should in no sense be interpreted as desire on its part or on part of US companies to control or dominate proposed operations in Iran. There is no desire have larger US interest than that of AIOC. Furthermore, US would not oppose total British interest of over 50 percent accomplished by associating Shell in venture, and would in fact be prepared to support such an arrangement with Iranian Government. US believes that this position should forestall any British public or Parliamentary feeling that there is an effort to obtain US dominance in enterprise. Position of US as regards percentage participation by AIOC based on considerations of Iranian political factors which are believed to be completely overriding in this matter. Such arrangement would become focal point for Tudeh and communist propaganda on one hand, together with that of extreme nationalists on other. US Government feels that oil settlement must be one which will be conducive to developing stability in Iran which it regards as of utmost importance in view of constant Soviet threat.
• 7. To accomplish desired results, US suggests percentage participation of magnitude of 35 percent by AIOC, 30 percent by Shell, and 35 percent total by US companies.
• 8. US Government fully shares concern of Government of UK that oil settlement should be pressed at earliest possible moment. It is believed highly desirably that Prime Minister Zahedi be in position present oil agreement acceptable to Iranian public for formal approval early in new session of Majlis.
• 9. US Government therefore hopes question of participation may be settled promptly at government level in order that principals of US companies may be in position proceed London near future to resolve other outstanding questions.”²

Smith

1. Repeated to London.
2. On Feb. 19 the Department informed the Embassy that, when handing the aide-mémoire to the British Ambassador, the Acting Secretary emphasized that the U.S. position had been the subject of extended discussions in the U.S. Government, including the Cabinet and the NSC, and that the U.S. position was firm. (Telegram 4285 to London; 888.2553/2–1954)