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

888.2553/5–2954: Telegram

No. 467
The Ambassador in Iran (Henderson) to the Department of State¹

secret
priority

Tehran, May 29, 1954—5 p.m.
[Received 1:17 p.m.]

2432. Limited distribution.

1. We can say with certainty only that (a) from Iran viewpoint UK nationality operating companies unacceptable, and (b) consortium representatives have made it clear that Iranian nationality under plan considered prior UK suggestion re British holding company unacceptable from their viewpoint. It possible British plan set forth Deptel 2330 to Tehran (6435 to London)² would be found palatable to Iran Government. We do not, of course, know attitude consortium representatives; however, it seems most of the considerations which led consortium disapprove simple Iranian nationality operating companies would continue exist under British plan. It difficult for us to see how British proposal would be workable and would not establish precedent seriously inimical consortium interests elsewhere. Regardless nationality of holding company, incorporation operating companies in Iran would subject them to Iranian laws which could in years to come impose such difficulties as to render effective operations difficult or impossible. In our judgment, therefore, US companies should not be advised by US Government to accept arrangement of this kind.

2. We fear it unlikely matter can be settled without prejudice durability or workability of agreement on any basis other than third country nationality of operating companies. If UK has valid arguments re diplomatic protection and financial considerations against utilization of small neutral such as Switzerland and Belgium, we hope British eventually will accept Holland as most desirable alternative. We do not see why this arrangement should present serious political embarrassment to UK especially in view economic relationship between two countries and substantial UK interests in Shell operations. While we can understand British refusal consider US nationality, it appears that acceptance Dutch should not present any greater political embarrassment than acceptance, say, of Swiss. Iranians have indicated to us in confidence that while they continuing officially press for Iranian domicile of companies, they might be willing agree Dutch nationality.

3. Regardless country in which operating companies will be incorporated, it highly important in our judgment that companies headquarters be located in Iran. Consortium has recognized that, while effective management must be hands operating companies, agreement must provide some facade which will make it possible for Iran Government to claim that principle of nationalization law re control of oil industry has not been ignored. Location of head offices of operating companies outside Iran would create appearance Iranian oil industry not only out of hands Iran Government but being run by remote control from foreign country.

Henderson

1. Repeated to London.
2. Telegram 2330, May 28, reported a British suggestion that the holding company for the new consortium be incorporated in the United Kingdom while the operating companies were incorporated in Iran. (888.2553/5–2854)