888.2553/6–2354: Telegram
No. 479
The Ambassador in Iran (Henderson) to the Department of State1
secret
Tehran, June 23, 1954—7
p.m.
2575. Limited distribution. From Hoover. Consortium representatives report upon first meeting with Iranian delegation evening June 222 as follows:
- 1.
- Consortium stated it would not continue ask for lease type agreement and would be satisfied with one based on purchase and sale of oil on condition other provisions of agreement satisfactory. Consortium proposed that contract document not use words “agent” or “agency” in describing relationship between Iran/NIOC and consortium, but instead should outline factually respective rights and obligations each party. Minister Finance Amini stated Iranians would take under advisement. (Later in evening at casual meeting Amini intimated he most hopeful “formula” could be found acceptable both sides; that since substance of arrangement generally agreed, problem of finding suitable words should not be insurmountable.)
- 2.
- Consortium outlined proposed organization consisting (a) Dutch operating companies having full management powers, (b) Dutch managing director and entire top management staff domiciled in Iran, (c) British holding company with limited powers over operating companies, and (d) British service company, responsible only to operating companies, to carry out purchasing and engineering functions necessary in UK. Iranians mildly expressed preference for Iranian incorporation, and while reserving judgment took encouraging attitude. Consortium representatives’ impression was that Iranians will agree to arrangement but need explanations which they can use publicly as to why Iranian companies unacceptable. Finance Minister did not appear greatly impressed with strength of argument put forward by Page that local incorporation would establish precedent dangerous to consortium’s operations in other countries.
- 3.
- Consortium proposed moderately increased offtakes, namely 12.5, 20 and 30 million tons in first three years respectively, compared to previous maximum offer 10, 20 and 25 million tons. Iranians expressed keen desire for higher offtake guarantees, especially for period following third year. Consortium submitted brief written statement saying it would be “policy” to increase offtake from Iran in accordance with supply and demand for Middle East crude, assuming favorable operating and economic conditions existed in Iran. Iranians obviously expect more and will undoubtedly trade strenuously. When consortium was asked if it would make financial loans or advances to offset “restricted” offtake during early years, representatives replied they unable do so themselves in view surrounding circumstances, and suggested matter financial needs over and above oil proceeds might properly be function of interested governments. They offered, however, pay crude royalties and taxes on monthly basis rather than annual.
- 4.
- Consortium stated above proposals conditional upon receiving full rights for basic operation management and 40 year term for contract. It our impression both management and term are sticking points with companies. On matter of 40 year term, consortium representatives state to us that compromise on purchase and sale type agreement already constitutes major concession with possible unsettling effects in other countries, and that if most serious repercussions are to be avoided term must be comparable with concessions elsewhere. Furthermore, state they specifically instructed by principals accept nothing less than 40 years.
- 5.
- Consortium stated to Iranians that some other aspects of deal such as prices (i.e. discount), etc. might be “adjusted” if necessary, but agreement on points enumerated in above paragraphs should be reached in principle first, otherwise discussion other problems [Page 1033] would be waste time. Iranians made no comment but we doubt they will give up opportunity trade to advantage on some minor problems in process working out major ones.
- 6.
- It general reaction of consortium representatives that both sides reasonably satisfied outcome first meeting and optimistic ultimately achieving agreement. Our contact with Iranians tends substantiate this as their own attitude also, although it certain that difficult trading will develop in coming meetings.
- 7.
- US company representatives ask Department not communicate contents this or other Embassy telegrams reporting progress negotiations to principals in US unless specifically requested do so.
Henderson