888.2553/3–1754: Telegram

No. 436
The Secretary of State to the Embassy in the United Kingdom 1

top secret

4773. Limited distribution. Following communicated to Makins today by Secretary:

We are deeply troubled by reports from London indicating that discussions between oil companies regarding the establishment of a consortium to produce and market Iranian oil have reached a stalemate over the questions of financial participation and compensation to the AIOC.2 We are very disappointed that our joint efforts to resolve the Iranian problem now appear to be obstructed by a totally unrealistic attitude on the part of the AIOC. It is particularly serious that this obstruction has arisen at a time when, as a result of the establishment of a reasonable successor to Mosadeq, there exists in Iran the most favorable atmosphere apparent in the past three years or foreseeable in the future for an early settlement of the oil dispute.
Sir William Fraser’s proposals that Iran should pay compensation to the AIOC in the amount of 110 million tons of free oil, [Page 950] valued at present prices at $1,460 billion, over a 20-year period, and that members of the international consortium should proportionately pay the equivalent of $1,270 billion (stated on a 100 percent basis) are utterly unrealistic in the light of political conditions in Iran and international commercial considerations.3 We are particularly surprised at the nature of the proposals because we had often previously inquired concerning the AIOC’s ideas on compensation. Although we never received any specific information on this subject, we had not expected that AIOC thinking would be so insensitive to the facts of the present situation. We believe that such proposals would be completely unacceptable to any Iranian Government. Evidently they are unacceptable to the American oil companies.
We do not feel that we can urge the American oil companies to reconsider their view of the AIOC proposals or to refrain from breaking off negotiations, as is their present intention, unless there is a drastic change in Fraser’s attitude. Such a development would undoubtedly have very serious repercussions in Iran and would force us to reconsider our whole attitude toward the Iranian oil question since it would appear impossible ever to obtain a reasonable solution to the Anglo-Iranian oil dispute in the face of such obstacles. It might ultimately force us, with great reluctance, to review the whole scope of our Middle East relationships.

  1. Also sent to Tehran. Drafted by Stutesman and Jernegan and approved by Under Secretary Smith. Copies were distributed to Treasury for Secretary Humphrey and to Defense for Deputy Secretary Anderson.
  2. Reported in telegram 3986 from London, Mar. 16. (888.2553/3–1654)
  3. The Department informed the Embassy on Mar. 17 that the figures “$1,460 billion” and “$1,270 billion” should read “$1,460 million” and “$1,270 million”. (Telegram 4776 to London; 888.2553/3–1754)