888.10/8–1351: Telegram

No. 69
The Ambassador in Iran (Grady) to the Department of State


596. From Grady and Harriman. Up to time of despatch Embtel 3397 June 22,1 Embassy not only repeatedly (re Deptel 337 August 112) maintained that bank loan available but not having been otherwise advised, continued to press for Iran acceptance. Fol Dept’s subsequent instructions, Iran Govt was no longer pressed to accept loan, but it was not possible to advise Iran of any change in US attitude without involving considerable polit dangers. Iran Govt proceeded to seek Majlis approval at risk jeopardizing itself, and US failure to conclude loan within reasonable time wld be severe jolt not simply to Mosadeq Govt, but to our relations with Iran in general. This undoubtedly wld be regarded as lack of confidence in and concern for Iran’s future which wld have deteriorating effect upon present situation, and wld be interpreted as exertion economic pressure in favor Brit. Moreover, it wld be regarded as indication dissatisfaction with Mosadeq Govt, upon which we act at present dependent for satisfactory oil settlement.

We are aware of Brit concern that conclusion of loan might undermine their efforts to settle oil controversy. On other hand, satisfactory oil settlement depends in large measure upon effectiveness of Amer influence, which wld be impaired by our refusal at this time to proceed with loan. Moreover, Brit shld understand that loan will not improve immediately financial situation of Iran Govt, but on the contrary, will require substantial internal financing which will not be possible unless oil revenues are resumed. First effects of loan cannot in any event be realized for many months after admin arrangements concluded and orders placed.

As to ability of Iran to service loan, we believe we must assume satisfactory settlement of oil dispute and resumption of oil revenues to Iran Govt. While there may be financial risks, political danger involved is such as to make it advisable to proceed without usual regard to strict banking criteria.

We believed, therefore, that US shld not indicate reluctance to make loan, and that arrangements should be concluded in due course. This does not mean laymen shld take initiative in expediting [Page 137] matters but that, for time being at least, we shld proceed as necessary to complete arrangements.3

In this connection Busheri has inquired on behalf of Iran Govt re most effective purchasing organization to be employed pursuant to loan agrmnt. He has mentioned two possibilities concerning which he has requested our comment, namely Amer Eastern and Chase National Bank. Wld appreciate views of Dept and Eximbank concerning employment these firms or other suggestions which we might offer as alternatives.

  1. Not printed.
  2. Telegram 337 asked Grady and Harriman for their views on the Export-Import Bank loan to Iran following its ratification by Iran. (888.10/8–1051)
  3. On Aug. 16 the Embassy in London expressed its concern over the loan question indicating that it felt stalling would be the best procedure. If this were impossible, then the problem should be discussed frankly with the British prior to any substantive action. Since the Iranian dispute was the prime topic in the United Kingdom, the question of the loan could have serious repercussions on overall U.S.-U.K. relations. (Telegram 906; 888.10/8–1851)