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

888.2553/3–454: Telegram

No. 432
The Acting Secretary of State to the Embassy in the United Kingdom¹

top secret
priority

Washington, March 4, 1954—8:38 p.m.

4533. Limit distribution.

1. In conversation with Beeley, British Embassy, today Hoover and Byroade made following points:

(a) We appreciate HMG attitude in accepting principle participation outlined Aide-Mémoire (Deptel 4507 to London rpt 1812 Tehran²) which we feel will contribute markedly toward durable solution in Iran. We are in full agreement that shares in consortium should be 40% each AIOC and American companies with remaining 20% divided between French and Shell. Only remaining problem concerns latter division.

(b) We presume AIOC did not consult Foreign Office before giving French option for 8%. This most difficult for us to understand inasmuch as matter was under negotiation at government level and we had specifically raised serious question of wisdom of French participation over 5%. We always glad have French participate and only problem was determination realistic percentage. Decision has many ramifications seriously affecting all other participants.

(c) Primary concern has been find solution in best interests Iran and stability Middle East. Shell has outlets which handle many times that of French. Estimate comparative marketing volumes is ten to one. Option given French would establish ratio which we believe neither realistic nor in best interests Iran. We feel it could potentially cause unfortunate repercussions elsewhere in industry.

(d) We have grave doubts French able handle 8% Iranian oil in addition their large off-take from IPC. As result their surplus IPC oil and as indication stress French under in handling surplus, they already have endeavored force American marketing companies out of French West Africa on discriminatory basis and have given indications of attempt force these companies absorb French crude and refined products elsewhere in areas under French control. We believe it entirely possible French may take similar action against British companies. In absence realistic agreement on French participation we might feel it necessary seek assurances this matter in advance from French Government. Such action would undoubtedly involve considerable further delay which would be most unfortunate this time.

(e) We cannot help but feel this was unilateral action not in spirit of way we have endeavored conduct negotiations up to now. It involves basic relationship as matter principle that goes beyond immediate problem amount French participation.

(f) We agree with HMG that composition consortium is not matter for negotiation with Iranians. We cannot help but be concerned over implication AIOC action which appears unilateral to us. We feel that unless we can have some assurance it will not be repeated on other matters that path ahead will be rough indeed and could in its extreme form prejudice entire concept of consortium.

2. Beeley stated he doubted Foreign Office realized how strong were US views re French participation but could not say to what extent AIOC had consulted Foreign Office before offering 8% option to French. He said he would find out precisely what were terms of option. We told him we had not made points in order obtain explanations but only make certain future course negotiations would be in spirit utmost cooperation.

3. Beeley was advised that formal reply British Aide-Mémoire March 3 would soon be forthcoming along lines paragraph 1 (a) above³ and stating while we continue feel that matter Shell and French participation should be settled prior to undertaking further negotiations in London, we nevertheless are prepared ask principals of American companies to go to London their earliest convenience. In doing so we are largely influenced by assurances of cooperation by HMG which we feel are implied by Aide-Mémoire March 3 and by conversations in Washington and London toward working out realistic participation between these two groups. Would appreciate any comments from London or Tehran.

4. Hoover presently planning depart this weekend for London and expects oil company principals will be gathering there by first of week.⁴

Smith

1. Repeated to Tehran. Drafted by Stutesman and signed by Byroade after being cleared with Hoover, Byroade, and Raynor.
2. See footnote 2, infra.
3. See telegram 4547 to London, Mar. 5, infra.
4. On Mar. 5 the Embassy in London reported to the Department that it had no special comments to make regarding telegram 4533; that the Foreign Office was gratified at the agreement regarding AIOC and American participation in a consortium; and that the composition of the consortium had to be determined in a fashion acceptable to all its members before the negotiating team left London for Tehran. The Embassy also reported that the Foreign Office confirmed that the AIOC had not consulted the Foreign Office before offering the 8 percent “option” to the French. (Telegram 3813; 888.2553/3–554)