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

888.2553/4–554: Telegram

No. 452
The Ambassador in the United Kingdom (Aldrich) to the Department of State¹

secret
niact

London, April 5, 1954—3 p.m.

4354. Limited distribution.

Re Embtel 4353,² following is that part of text of memo of understanding among companies relating to relations and indemnities which was agreed by companies and is acceptable to HMG.

• “1. (a) The interests concerned (hereafter collectively called ‘the consortium’) will endeavor to make an arrangement (hereafter called ‘the new agreement’) with the Government of Iran which would be acceptable to each of those interests and which would enable Iranian oil to flow again into the world’s markets on a commercial basis.

  “(b) It is understood that HMG’s Government will endeavor to come to a settlement (hereafter called ‘the settlement’) with the Government of Iran of the claims and counterclaims of the AngloIranian and the Government of Iran.

  “(c) In the course of the negotiations for the new agreement and the settlement, the following releases and indemnities will be sought:

  • “(i) By the Government of Iran in favor of the Anglo-Iranian.
    • “(a) A release by that government from all claims and demands of that government in respect of any matter prior to the effective date of the new agreement,
    • “(b) An indemnity by that government in respect of any claims and demands that may be made against the Anglo-Iranian by third parties arising out of the oil operations in Iran of the Anglo-Iranian prior to the events of 1951, and
    • “(c) An indemnity by that government in respect of any claims and demands arising directly or indirectly from the events of 1951 that may be made against the Anglo-Iranian by third parties.
  • “(ii) By the Anglo-Iranian in favor of the Government of Iran a release by the Anglo-Iranian from any claims and demands of the Anglo-Iranian in respect of any matter prior to the effective date of the new agreement.
  • “(iii) By the Government of Iran in favor of each of the members of the consortium and such of their affiliates as will enter into the new agreement.
    • “(a) A release by that government from all claims and demands of that government in respect of any matter prior to the effective date of the new agreement,
    • “(b) An indemnity by that government in respect of any claims and demands that may be made against any member of the consortium (and their above-mentioned affiliates) by the third parties arising out of the oil operations in Iran of the Anglo-Iranian prior to the events of 1951, and
    • “(c) An indemnity by that government in respect of any claims and demands arising directly or indirectly from the events of 1951 that may be made against any member of the consortium (and their above-mentioned affiliates) by third parties.

  “(d) It is the intention that, insofar as the foregoing releases and indemnities affect the Anglo-Iranian, they shall be included in the settlement, and, insofar as they affect the consortium, they shall be included in the new agreement. HMG will, therefore, negotiate those affecting the Anglo-Iranian with Government of Iran and leave all others to be negotiated by the consortium (if, however, it appears to HMG during the course of negotiations that it would be appropriate and desirable that they negotiate the other releases and indemnities they will, if so requested by the consortium, be prepared to negotiate these others in behalf of the consortium for inclusion in the new agreement).

• “2. If the new agreement is made by the consortium with the Government of Iran and such legislative and executive actions are taken in Iran as will give the new agreement the force and effect of law, and if the settlement is come to between HMG and the Government of Iran and if the releases and indemnities hereinbefore mentioned are obtained then it is the intention that:—.”

Remainder memo largely concerns details payments and participation. There seems to us no problem regarding foregoing but American companies would appreciate Department’s and Hoover’s views.

In proposed exchange of letters re memorandum of understanding there was a reference to the “understanding between HMG and US dated 26 March 1954”.³ We suggested reference also be made to our memo March 27 (Embtel 4196). British objected claiming it would then be necessary for them indicate disagreement on point C of our memo of March 27.⁴ Matter finally tentatively agreed by having pertinent sentences exchange of letters refer simply to “understanding between HMG and US Government on this subject”. Please confirm acceptability.

2. Another problem regarding memo of understanding arises in connection with the following which is quoted from memo of understanding: “(b) If a member transfers, by assignment or otherwise, the whole or part of its interest in the consortium in accordance with such terms as may be agreed between the members regarding transfer of interests, the obligation of the member to make the payments as set out in subparagraph (i) and (ii) above shall, unless otherwise agreed, continue unaltered. For this purpose crude oil and products owned or sold by any successor of any original member of the consortium and exported from Iran shall be deemed to be owned or sold by such original member and exported.” In this connection AIOC wishes other members continue be responsible in the event a company to which transfer is made should fail to live up to obligations. American companies say request eminently reasonable and one they are fully prepared to assume where they responsible for selection companies to which transfer would be made, since this will not be so in case of independents. American companies though reluctant assume responsibility in that circumstance, have agreed to do so under terms indicated below.

HMG also unwilling take responsibility in this instance, contending problem derives basically from US anti-trust laws and solution therefore an American matter. Moreover, it not in position expertly to pass on financial capacity or integrity of US oil companies.

To cover this point and to give precision to subject matter of Embtel 4241,⁵ following is substantive part of addendum to agreement:

“There appear to be some considerations which would make it desirable for the five American companies, which have been participating in the negotiations regarding the consortium, to reserve the freedom to transfer some part of their total participation (aggregating 40 percent) to other American oil companies provided that no objection is taken to them by HMG or Government of Iran. This freedom should exist for a period of six months from the effective date of an agreement between the consortium and the Government of Iran.

“Within such period of time and if the conditions stated below are met, each of the five American companies would be free to transfer up to 1 percent of its participation, making a total of up to 5 percent, to other established American oil companies of sufficient responsibility to undertake the financial obligations of their participation, or to an American company formed by such other companies. There would be required as conditions of any such transfer of participation that:

• “(1) It would be taken on the same terms and conditions on which that part of the participation PGs acquired by the five American companies;
• “(2) The transferees (S) would assume, in respect of that part of the participation thus transferred, all of the obligations of consortium members, including the obligation to make identical payments to Anglo-Iranian;
• “(3) If there were a default for a period of 30 days in making these payments to Anglo-Iranian the participation of the defaulting transferee (S) would revert to the transferor (S) at the option of the latter; and
• “(4) If there were more than one transferee, they would undertake to act as a single bloc in all matters relating to the consortium’s operations either by agreement to that effect or by forming a company for that purpose.

“Provided the above reservation is granted and the necessary exception is made to cover it, the five American companies would agree to any undertaking, satisfactory to all the consortium members, that there would be no disposal by a consortium member of its interest for a period of five years after the effective date of an agreement between the consortium and the Government of Iran, except to a subsidiary or affiliated company (to be defined).”

Please if at all possible issue overnight instructions since consortium representatives have chartered plane to leave London Wednesday p.m. after members consortium have initialed memo of understanding and Iran invitation issued, which cannot take place until clearance from Washington obtained.⁶

Aldrich

1. Repeated to Tehran.
2. In telegram 4353, Apr. 5, the Embassy reported that at a meeting that morning at the Foreign Office, U.S. and British officials considered certain outstanding points in a proposed memorandum of understanding among the companies that were forming the consortium, and that these points would be elaborated on more fully in telegram 4354. (888.2553/4–554)
3. See Document 447.

4. Telegram 4196, Mar. 27, is not printed; point C of the memorandum reads:

   “(C) The US Government believes a commercially acceptable arrangement on a 50–50 basis, is of paramount importance in minimizing nationalization elsewhere and will have fully as great an effect on other countries, if not much greater, than would compensation of the type contemplated by Her Majesty’s Government.” (888.2553/3–2754)

5. Not printed. (888.2553/3–3054)
6. On Apr. 6 the Embassy in London informed the Department that all the details of the consortium memorandum of understanding had been concluded, and the only matters still outstanding were those referred to in telegram 4354. (Telegram 4375; 888.2553/4–654)