888.2553/8–1251: Telegram

No. 67
The Special Assistant to the President (Harriman) to the Department of State 1

top secret

589. Eyes only President and Secretary; distribution only as directed by Secretary’s office. After consultation with London on general principles involved, Stokes has prepared for discussion with Iranian Government suggestion as to possible arrangement between British and Iranians. Plan was developed after detailed discussions with my staff, particularly with Levy on technical aspects.2 I have refrained from giving it my approval, but have said that it appeared to provide good basis for discussion. I believe it essential, in order to maintain a neutral position at this time, to avoid impression that I have endorsed any particular plan. Covering memorandum and suggested plan follow:

[Here follows the text of the British memorandum and an eight-point attachment outlining the British proposal. Apparently this was an advance copy of the British proposal, since on August 13 Stokes presented a similar draft to the Iranian Delegation at the talks as a basis for discussion. For text of the draft presented on August 13, which is the same except for minor changes and the renumbering [Page 133] of paragraph 5 as paragraph 3, see British Cmd. 8425, pages 54–55 or Documents (R.I.I.A.) for 1951, pages 502–504.]

Stokes handed copy of foregoing to Bushehri this morning (Saturday3) with suggestion that he consider it and discuss it with Mosadeq, advising Stokes as to whether it should be presented to Mixed Oil Commission group and other Iranian Government negotiations at meeting scheduled late this afternoon. In subsequent conversation with me Bushehri mentioned three questions regarding first paragraph of attachment which had come to his mind, but said he wished to have document translated in order that he could study it more carefully and discuss it with Prime Minister. His questions related to (1) whether Iranian Government could agree to new arrangement extending beyond period of 11 years, i.e., end of the D’Arcy concession;4 (2) with regard to compensation aspect of paragraph 1 of document, he stated that while equal sharing of profits might be reasonable if assets of company were turned over without compensation, he doubted that this would be satisfactory if compensation was included in cost. Moreover, he said that if compensation for assets is raised, Iranian Government would have substantial counterclaims; (3) regarding transfer of assets of Kermanshah Petroleum Corporation, arrangements were vague and would require clarification.

In commenting upon these questions I pointed out that it would appear to make good business sense to assure the sales arrangements for as long a period as possible, particularly since customers might, if period established is too short, seek alternative sources of supply to assure their ability to maintain steady flow to their markets over long term. In connection with compensation aspect, both as regards his points two and three, I said it was a matter to be worked out in detailed negotiations, but pointed out the value to Iranians of obtaining a guaranteed market and technical skills and that whatever figure was agreed to between them for compensation would be handled similarly to charges for depreciation.

Bushehri informed Stokes just before latter’s meeting with Iranian Government delegation this afternoon that Mosadeq had asked that he be given time to study translation British document before it is handed to Iranian negotiators.

[Page 134]

My guess is that Mosadeq will have vigorous objections to British suggestions, but I hope outright rejection can be avoided and detailed discussion of points objected to can be arranged.5

  1. Repeated to London eyes only for the Ambassador.
  2. On Aug. 6 and 7 Levy met three times with members of the British Delegation and Ambassador Shepherd. At the first meeting he discussed various British proposals and ideas on the oil crisis. At the two meetings on Aug. 7, he asked the British Delegation to consider the possibility of a sales agreement among the previous AIOC customers as an answer to the oil question. Memoranda of these conversations, and of another conversation on Aug. 7 between Levy and Dr. Pirnia, Under Secretary in the Iranian Ministry of Finance, during which the idea of a sales agreement had been initially broached, are in files 888.2553/7–1651 and 888.2553/10–1051.
  3. Aug. 11.
  4. See footnote 3, Document 216.
  5. On Aug. 13 Harriman reported that Mosadeq’s reaction to Stokes’ proposal was unfavorable on three counts: (1) the Prime Minister refused to sell to one purchaser and proposed instead individual sales contracts with all customers; (2) he wanted NIOC to have a board of directors consisting of four Iranians and eight foreign neutrals and to have it employ the oil staff including the present British personnel; and (3) he wanted half of the profits to apply only to the British share of the sales and this half would include compensation for nationalized properties. Harriman commented that these counterproposals were “obviously unacceptable” to the British, especially the second, while the first offered no evident solution and the last was “untenable”. (Telegram 601 from Tehran; 888.2553/8–1351)