888.10/9–2151: Telegram

No. 85
The Ambassador in Iran (Grady) to the Department of State

top secret

975. Saw Mosadeq this morning and communicated to him essentials of Deptel 524 Sept 7. I stressed fact that bank’s concern was based on certain financial questions which it wished to have cleared up before signing loan agrmt with Iranian Govt. I pointed out that when bank agreed year ago to make loan to Iran it stated it wld do so on two conditions; namely, that there wld be adequate supply of dollar exchange to service loan and that there wld be enough rials available to take care of local costs involved in successful implementation of loan. I advised Mosadeq that Iranian Govt gave at once written assurances on these two points which I passed along to Export-Import Bank. I added that for various reasons situation with ref to these two points is by no means as favorable today as it was year ago but when Iranian Govt is in position to present plans showing how provision will be made for meeting local currency and fon exchange requirements State Dept wld arrange for early discussions between Iranians and bank on these matters.

PriMin became angry and said that our govt was working with Brit Govt to boycott Iran in order to force an oil settlement that was satisfactory to Brit. He said he wld at once write Majlis to drop loan matter (the loan agmt itself has not yet, in accord with Export-Import Bank loan legis been finally approved by budgetary and fon commissions) and wld make statement to press. I urged him to take no such hasty action; that he was mistaken in assuming that we were in any sense boycotting Iran; that problems were technical, not political ones and were due largely to long delays which have taken place since loan became available in Jan of this year. I stressed fact that points raised by Export-Import Bank did not mean that bank was unwilling to make loan and that what [Page 162] bank wanted in way of assurances cld result merely in matter of delay.

He was insistent that action of our govt was tied in with oil question, stating that nothing had changed since bank was prepared to sign loan agreement except development of oil problem. He referred to statement in press, assuming to quote bank authority in Washington as saying there wld be neither an Export-Import Bank loan nor an internatl bank loan to Iran until oil question was settled. I replied that I felt sure that no such statement had been made by Export-Import Bank. I also assured him that when I got to Washington1 I wld go thoroughly into matter of loan. I said that assurances to bank with regard to fon exchange and govt revenues were not tied to consummation of oil agrmt with Brit, but that shld assurances be given of adequate revenues, from whatever source, the bank’s concern wld be met.

He then said that since the people wld be reading statement referred to above in local press that I shld give him in writing what I said to him verbally. I cld see no way of avoiding this, nor did I deem it advisable to do so, since he wld make statement to Majlis and press which wld be in terms of his own convictions in matter. I have prepared letter which I will send him today and I am transmitting it to Dept in fol wire.2

  1. When Grady was appointed Ambassador to Iran in June 1950, he had undertaken the assignment for 1 year. At the end of May 1951, he indicated that he would like to be relieved by July 15. (Memorandum by McGhee, May 29; 123 Grady, Henry F.) The failure of the Stokes Mission presented the first occasion for his relief, and Grady left Tehran on Sept. 19. The nomination of the new Ambassador to Iran, Loy Henderson, formerly Ambassador to India, was approved by the Senate on Sept. 13. Henderson arrived in Tehran on Sept. 22 and presented his credentials to the Shah on Sept. 29.
  2. Telegram 976 from Tehran, Sept. 11. (888.10/9–1151) A more extensive account of this conversation was transmitted as an enclosure to despatch 345 from Tehran, Sept. 11. (888.10/9–1151)