888.2553/7–2451: Telegram

No. 52
The Special Assistant to the President (Harriman) to the Department of State 1

top secret

340. From Harriman for the President and Secretary. No distribution except as directed by the Secretary’s office. Iranian Cabinet met most of Monday over questions which Oil Committee discussed with me on Sunday and reported in my telegram 324 of July 23.2 Finance Minister and representatives of Oil Committee met with me late Monday afternoon.3 They reported to me Cabinet had agreed to inclusion of the word “principle” and gave me draft of formula for meeting with British as follows: “In case the British Govt on behalf of the former Anglo-Iranian Oil Company recognizes the principle of nationalization of the oil industry in Iran, the Iranian Govt would be prepared to enter into negotiations with the representatives of the British Govt on behalf of the former company.”

They explained omission of reference to discussion of any other matters of mutual interests referred to in my above telegram was only because Oil Committee had no competence in anything except oil but that govt would, of course, be ready to discuss any such matters. They then said in order that I might be fully informed of attitude of Iranian Govt and Cabinet had decided that I should be given translation of minute of meeting at which above decision was made and approved by entire Cabinet and Oil Committee.

This minute, in addition to setting forth as point (1) the above quoted statement, included the following points: (2) before sending representatives to Tehran British Govt should make formal statement of its consent to principle of nationalization of oil industry on behalf of former oil company, and (3) by the principle of nationalization of oil industry is meant proposal which was approved by special Oil Committee of Majlis and confirmed by law of March 20, text of which proposal is: “In the name of the prosperity of Iranian nation and with view to helping secure world peace we, the undersigned, propose that oil industry of Iran be declared as nationalized throughout all regions of country without exception, that is to say [Page 110] all operations for exploration, extraction and exploitation shall be in the hands of the government.”

Continuing under (3) minutes said: “In this connection for Mr. Harriman’s further info, copy of note which representatives of former oil company submitted to Iranian Government on their methods of accepting principle of nationalization of oil industry, which note was not acceptable, is enclosed (Jackson’s Proposal4).”

They explain that only formula in first para above was intended to be formally communicated to British, and that points (2) and (3) were being communicated to me only in order that I might know the basis for their conclusion.

I told them that I would of course have to inform British Government of this minute which they had given me and that I was sure as it stood it would make proposal under point (1) unacceptable to British Government without likewise making qualification on its part. I explained British Government could not be expected to accept by implication this law without clear understanding of its interpretation. I emphasized difference between acceptance of principle of nationalization and acceptance of law. They stated they were only referring to first law and not to nine-point law and to them first law merely established principle of nationalization. I said, for example, that phrase “in the hands of the Government” could be implemented in number of different ways and British Government obviously could not agree in advance of negotiation upon manner of carrying it out. I said further that they had led me to believe they were prepared to consider foreign-owned company to act as agent for Iran National Oil Company in conducting operations in Iran and asked whether this was within their interpretation of the above language. They replied “the hands of” might equally well be translated “under authority of and, therefore, such an arrangement they considered would be possible. They emphasized that Jackson’s proposal was objectionable because they considered it was AIOC “appearing with different face”.

All Iranian officials, even those considered most friendly to British, are determined Government should have sufficient control over operations so as to avoid political activities in which they contend company has historically engaged. I pointed out to them that I had consistently maintained this subject was one which they could not discuss with me but had to work out in their negotiations with British.

Returning to their proposal they suggested I pass it on to British and obtain from British Government its reaction questions or comments. I declined to do this on grounds it would lead to endless [Page 111] communications on subjects which should be matters for negotiation after British had come to Tehran, and also that this would place me in position of mediator which I was unwilling to assume. After considerable discussion I said I would be prepared to do following:

Advise British Government of Iranian Government’s formula for arranging meeting with British as quoted in first paragraph above.
Inform British Government of Cabinet minute which, because of manner in which it was being transmitted, would in no sense bind British should they agree to make statement recognizing principle of nationalization on behalf of AIOC.
In connection with third point of Cabinet minute I must be authorized to advise British Government that “Iranian Government is prepared to negotiate the manner in which the law will be carried out insofar as it affects British interests”.

The Committee agreed to (a) and (b) but pointed out they could not speak for government regarding (c). This matter was subsequently discussed at Cabinet meeting and I have been advised by Minister Busheri that government has now authorized me to make statement contained in (c).

Throughout our discussions representatives of Iran Government have frequently stated they believed if member of British Government came to Tehran with good-will and understanding of national aspirations of Iranian peoples settlement could be found satisfactory to both sides. This was reiterated several times at our last meeting. I believe this is so, provided British Minister approaches negotiations with flexible point of view and is prepared to take into account very strong public emotion which is roused throughout the country.

In opinion of all Americans here and responsible Iranians with whom I have talked, any Iranian Government, whether it be that of Mosadeq or someone else, cannot run counter to this emotion. Levy and I have consistently made it plain that Iranian Government could not expect to obtain financial return greater than that of other countries under comparable conditions. We have also made it plain that the operation in Iran must be run on an efficient basis and this could only be accomplished through foreign-owned company operating with freedom in day to day management though acting under policy principles established by government or National Oil Company.

The question that appears to give Iranians greatest concern is how they can prevent AIOC from returning under different guise and operating politically in manner in which they maintain has been the case in the past; also, manner in which arrangements [Page 112] could be worked out and not give appearance of setting aside nationalization law. I believe they recognize that they cannot conduct operations but want access to all information and supervision beyond board membership as was set forth in Jackson’s proposal. They also want training of Iranians for increasingly important administrative and technical positions as they qualify.

I believe they now understand they are dependent upon AIOC for shipping and marketing. If British agree to negotiations I believe it would be well for them to be prepared to include, if company to operate within Iran, certain interests in addition to AIOC, such as Shell or AIOC affiliates in other countries. I am in no sense suggesting inclusion of any American interests.

It is my impression that atmosphere exists in Tehran today in which British can make satisfactory settlement and I doubt whether as favorable situation will present itself again. With all of the increasing difficulties and grave dangers involved in delay, I believe the sooner member of British Government with appropriate advisers, including representative of AIOC, comes to Tehran the better it will be. Although this proposal will not be all that British would like I strongly recommend that it be accepted if at all possible.5

In phrasing the proposal Iranians obviously had in mind the last paragraph of British Ambassador’s aide-mémoire of May 246 to Foreign Minister suggesting sending of government mission to Tehran headed by member of government. I am informing British Ambassador here early Tuesday morning. I recommend that you discuss matter fully with Franks in Washington and instruct Gifford to discuss it with British, urging them to accept.7

[Page 113]

Although it is better psychologically for me not to leave here, I am prepared to go to London on short notice if it is considered advisable.

  1. Repeated to London eyes only for the Ambassador.
  2. Supra .
  3. The meeting took place at 6:30 p.m., July 23. At the same time Levy and Howe met with Hassibi to discuss the world oil situation in the event that Iranian oil were not available. A memorandum of their conversation is in file 888.2553/10–1051.
  4. See Document 29.
  5. At 1 p.m. Harriman transmitted the following:

    “I omitted from my telegram earlier today reference to discussions with mixed oil committee regarding ICJ decision. Up to this time Brit have stuck to the court’s decision, which I have pointed out to Iranians, while Iran Government has rejected that decision and has strictly adhered to nine-point nationalization law. It has been with considerable difficulty that Iranians have been persuaded not to insist upon nine-point law as basis for discussions with British and it is obviously equally important that the British not interject the ICJ court’s decision in their reply to Iran Government’s offer of discussions. This does not mean, of course, that either side has repudiated its position if no settlement is reached in negotiations.” (Telegram 347; 888.2553/7–2451)

  6. Presumably Harriman is referring to the aide-mémoire of May 19; see footnote 4, Document 21.
  7. At 7 p.m., July 24, the Department of State cabled Gifford and asked him to communicate the substance of this telegram to Morrison and urge him “as forcefully as possible” to accept the Iranian proposal. Gifford was informed further that this seemed likely to be the best offer and that the Department of State was taking similar action with Ambassador Franks. (Telegram 562; 888.2553/7–2451)