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

888.2553/5–3154: Telegram

No. 471
The Acting Secretary of State to the Embassy in Iran¹

secret
niact

Washington, May 31, 1954—8:16 p.m.

2343. Noforn. Limited distribution. Ambassador from Hoover.

1. It might perhaps be useful to point out to Shah that quite aside from other considerations, of which there many, effect of changing prime ministers at this time might seriously jeopardize oil negotiations for following reasons:

A. Over period of last nine months we have endeavored to convince US members of consortium that Iran now has responsible and stable government and that notwithstanding difficulties of past, companies can now look forward with confidence to (a) making very large investments in Iranian oil industry and (b) placing long-term dependence upon Iran as an alternate source of supply for their world-wide marketing commitments. An arbitrary change of government at this time, during most crucial period of the negotiations, would be regarded by them as casting grave doubt upon these basic assumptions. Unfortunately, it probable that authentic rumors of present situation will reach them in any event. Regardless of anything we may say to contrary, such rumors would tend to substantiate, in their minds, fears and reservations which have already been aroused by statements of irresponsible Iranian elements while consortium negotiating team was recently in Tehran. I believe it to be virtual necessity, if confidence to be maintained and oil solution reached, for Shah to offset this situation by personally taking strongest possible stand (a) backing up Zahedi Government and (b) supporting a realistic solution before public and parliament.

B. I have some doubts, parenthetically, that I could convince US members of consortium that they should start discussions all over again with a new government, after almost two months of patient (but frustrating) negotiations they have already gone through.

2. It seems to me that recent developments, precipitated by Shah, might give us opening to press an alternate approach and perhaps reach understanding which might not otherwise have been possible. We might insist, for instance, that before consortium negotiating team returns to Tehran certain concrete assurances from Shah and Zahedi Government would be necessary if negotiations to be continued. Points to be covered would include among others those outlined paragraphs 2 and 3 of Tehran’s 2421 to Dept (735 to London, May 29),² along following lines:

(a) While we hopeful consortium can accept agency type agreement, if it did so then consortium would receive irrevocable right of effective management control over basic technical and commercial operations;

(b) Sales of crude oil by NIOC would be limited exclusively to amounts received under royalty provisions of agreement and would be credited at full posted price against 50/50 income to Iranian Government;

(c) Remaining commercial details of agreement would place Iranian oil in competitive position with respect to other substantial producing areas in Middle East;

(d) Agreement, if reached, would be unequivocally supported by Shah and submitted to parliament for ratification.

3. Proposed course of action outlined in paragraph 2 above has not been discussed with either consortium members or with British. Believe companies would probably welcome such approach, if successful, as means of avoiding further frustrating discussions with Iranians on these major points. Assume, if British were agreeable, they would insist upon participation in discussions with Shah and Government, and I see every reason for their inclusion.

4. Tehran’s comments are requested re feasibility of this approach.³

Murphy

1. Repeated to London. Drafted and signed by Hoover and cleared in substance with Jernegan.
2. On May 29 Ambassador Henderson reported that he had told the Shah that the U.S. Government had been able to persuade the five American oil companies to join Dutch Shell and AIOC in trying to reach an oil settlement; that he, Henderson, was confident the companies would go as far as they could without sacrificing principles which might ruin their operations elsewhere in order to find an agreement which was compatible with Iran’s national aspirations. For example, Henderson thought the consortium might be willing to agree to operate in Iran on an agency basis, provided the consortium’s powers as agent would be irrevocable, it would control its technical and commercial operations in Iran, and other conditions of the settlement were acceptable to it. Henderson also said that the Shah should realize, however, that neither the companies nor other commercial organizations capable of marketing Iranian oil could possibly enter an arrangement which would not give them this effective management control. Therefore, Henderson hoped that if the consortium agreed on an agency basis, the Iranian Government would agree to allow the consortium effective control over operations. Otherwise, it would be useless to continue negotiations. (Telegram 2421; 888.2553/5–2954)
3. On June 1 Ambassador Henderson reported that the Shah the previous evening, May 31, had decided to give Zahedi full support and hoped the United States and United Kingdom would do likewise. Henderson also appreciated Hoover’s suggestions outlined in telegram 2343. After careful consideration, however, he believed it was preferable not to adopt the course proposed for the following reasons: 1) if the approach were discussed with the British, they would likely insist upon the inclusion of additional conditions of primary interest to them regarding the nationality of the operating companies, the agreement on compensation, and others; 2) the first three items in paragraph 2 of Department telegram 2343 would involve negotiations at the governmental level which should, in Henderson’s view, be negotiated by the consortium. Regarding paragraph 2 (d) of telegram 2343, Henderson said that both he and the British Ambassador made it clear to the Shah that the consortium had to insist upon an agreement being ratified by the Majlis, and that the Shah, Henderson thought, was persuaded of this necessity and would give his full support to Majlis ratification. (Telegram 2448; 888.2553/6–154)