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

888.10/8–2751: Telegram

No. 84
The Acting Secretary of State to the Embassy in Iran¹

top secret

Washington, September 7, 1951—2 p.m.

524. For Ambassador Grady. While we fully appreciate importance views expressed urtel 814 Aug 27² and earlier msgs on same subj, Iran assumption early implementation Exim Bank loan is foregone conclusion shld be resisted. For reasons set forth below we neither wish to proceed with loan in normal manner at this time nor do we want Irans to obtain impression we are using loan as polit weapon in oil controversy. It is necessary, therefore, to devise formula which will meet these requirements.

Among our reasons for proceeding slowly with loan are:

1. Present IranGov will tend to use our action as evidence Amer support of Iran position in oil controversy, may be encouraged to continue present intransigence and may use this evidence Amer support to strengthen its own internal polit position.

2. Failure of Mosadeq gov to do anything for its country either by settling oil controversy or obtaining fon loans might tend to bring about a more reasonable attitude and possibly a change of pol if not of gov.

3. Present good position of US in Iran is of little value if Iran through its own folly falls into Communist hands as result of economic chaos. We must therefore be willing to take certain risks at present in order to safeguard future independence of Iran which to great extent depends on settlement oil question.

4. Proceeding with loan wld unduly strain US–UK relations.

5. US position vis-à-vis other countries especially those in area and those subj to heavy Communist pressure might be jeopardized by assumption that US determination resist Communism so great that it is willing to support such policies as those followed by Iran-Gov regardless of merits of case or principles involved.

6. If we start negots without clear understanding that Irans must demonstrate how they plan meet local currency and fon exchange requirements, negots might drag on indefinitely and eventually collapse. Such a development wld probably have more serious effect on our position in Iran than if we frankly pt out to Irans now magnitude of econ problems involved in concluding loan projects.

Our problem is to seek formula which will for time being at least minimize polit considerations involved in loan and allow econ financial considerations to guide decision. Accordingly, we think it advisable Mosadeq be informed why Dept believes sending mission here premature:

1. At time loan was negotiated last year Iran had balance of payments and earnings prospects sufficient to justify favorable action on loan application. At present, however, question arises as to how local costs, upon which success of program depends, wld be financed. You cld emphasize that with greatest good will such basic criteria as this cannot be ignored in internatl loan matters and Exim Bank cannot proceed with loan in absence Iran ability to provide such funds.

2. In effort dispel Iran idea we are using loan as polit tool, you cld pt out we are proceeding to implement our mil and Pt Four programs.

3. We remain ready to arrange discussions between Irans and Bank regarding implementation of loan when former show plans have been perfected meet local currency and fon exchange requirements.

FYI, we realize Irans will assume our action based on Brit pressure and is first step by US in imposing econ sanctions. We have no intention imposing sanctions and are assisting Irans in various ways as was case before oil negots suspended. Furthermore, as stated Deptel 476,³ while US will continue work in close concert UK, US will follow independent pol in Iran.

For reasons set forth above, Dept wld appreciate ur discussing matter with Mosadeq and let us know his reaction.

Webb

1. Drafted by Dorsz and Ferguson and cleared by Thorp, McGhee, Bonbright, and the Export-Import Bank.
2. Document 77.
3. Not printed.