888.2553/9–2851: Telegram

No. 96
The Secretary of State to the Embassy in the United Kingdom 1

top secret

1740. Fol msg from Dept to FonOff supplements Pres msg Sept 26 to Attlee.2 Pls deliver soonest:

“As pointed out in the President’s brief reply of Sept 26 to the Pri Min’s msg dated Sept 25,3 the Dept feels that to arrest the present rapid deterioration of the situation in Iran some new element must be injected. We are gravely concerned that unless this is done at once conditions in Iran will soon reach a stage where there is imminent danger that the country will be lost to the Western world. The Dept has, therefore, noted with satisfaction that decisions taken by the Brit Cabinet on Sept 27 indicate that the Brit Govt is thinking along these lines. Recognizing the urgency with [Page 181] which precise action is required, the fol suggestions are put forward in the hope that they will be useful to the Brit Govt:

One of the fundamental difficulties in deciding upon what course of action wld be most effective is the improbability of arriving at a satisfactory settlement under existing circumstances. It obviously wld be much easier to find a solution if a more reasonable govt cld come to power under conditions which wld permit the Brit to undertake negotiations on a realistic basis. The Shah recognizes this fact, but it is extremely difficult or impossible for him to assume responsibility for installing a new govt before this can be brought about by natural political changes in Iran. If this shld be done prematurely, there is great danger that the Shah himself wld be overthrown, in which case the last element in Iran on which the Western world can rely wld be lost. Moreover, there is no proof that Dr. Mosadeq, as leader of the opposition to any successor govt, cld not thwart any agreement which his successor wld endeavor to make. For these reasons it is considered unlikely that the Shah will decide to force the resignation of Dr. Mosadeq until there is ample evidence that such a move wld be successful. The U.S. believes, moreover, that obvious fon efforts to bring about the fall of Dr. Mosadeq’s govt have the contrary effect of strengthening his position, and nationalistic elements might use such intervention as an argument against reaching a new oil agreement with Brit interests.

It wld appear that the Mosadeq govt, with little regard for the practical aspects of the oil industry, has consistently attempted to work out some solution to the problem which will give Iran control over and a larger share in the earnings from its oil industry and prevent a resumption of the economic and political hold on the country which the Iranians, rightly or wrongly, have attributed to the AIOC. Fol rejection by the Brit of the recent overtures put forward by Dr. Mosadeq, it is unlikely that he will take any further initiative at this stage.4 It wld, moreover, be difficult for the Shah or other moderate elements to take effective initiative, unless they have a new basis for doing so.

The Dept believes it highly advisable that the Brit Govt maintain constant efforts to convince the Iranian people that it is trying in good will to find a solution which will be acceptable to Iran. Such a continued approach wld disprove Dr. Mosadeq’s claim that the Brit are opposed to a reasonable settlement, wld weaken Dr. Mosadeq if in the light of the Brit attitude he is unable to reach a settlement, and wld make it easier for the emergence of a successor govt willing to make an agreement.

[Page 182]

It is recognized that the Brit Govt wld find it difficult to come forward at this time with new proposals which might be interpreted as weakness towards Dr. Mosadeq, especially if they shld be publicly rejected by him. A possible course of action which wld meet this objection and at the same time wld inject a new element into the situation by giving the Shah something which he can use to bring about an improvement in the situation, wld be through an informal approach in Tehran.

If the Brit Govt shld desire, the Dept wld be prepared to have the American Amb indicate to the Shah the US willingness to endeavor to obtain undertakings from the Brit along certain lines indicated below, provided the Iran Govt was prepared to accept them as a basis for beginning negotiations on a reasonable basis. It is possible that even though the ‘feeler’ might be rejected by Dr. Mosadeq when the Shah discusses it with him, it cld be used to advantage by the Shah in strengthening the moderate elements. Before making the approach we wld, of course, have to be assured that the Brit Govt wld be prepared to agree to the proposals if the Amb’s efforts shld prove successful. The advantage of this arrangement wld be that if he shld fail no formal announcement or communication wld have been made by the Brit.

It seems to us that there are three important points on which you cld give the Iranians assurance, without impairing your fundamental position, which might enable the Shah and the moderate elements to have a real prospect of success in creating a situation which wld make a settlement possible:

We are convinced that the primary concern of the nationalist elements is that Iran must gain control of her natural resources and end fon interference in the internal affairs of Iran which they attribute to the AIOC. There is a widespread fear that, if an agreement is made with the Brit relating to the operation of the oil industry within Iran, the AIOC wld simply be continued under a new name. In order to dispel this fear, it is suggested that the Brit Govt agree to the substitution of Anglo-Dutch interests for the provision of management of operations within the country, with a Dutch or other neutral General Manager. Suitable settlement cld, no doubt, be worked out between the two oil interests. It cld be emphasized that adequate arrangements wld be made to assure that such management (whether under an operating contract or as an integral part of NIOC) wld operate under the general direction of the NIOC and that the AIOC wld be removed from operations within Iran.
An appealing feature of any new proposals wld be some arrangement by which the immediate financial problems with which the country is confronted wld be solved. The Brit might, therefore, agree to undertake as an interim measure, immediately upon the resumption of negotiations with the Iranian Govt to buy and transport oil and products now available in Abadan under an arrangement whereby 50% of the Persian Gulf value of the oil wld be paid [Page 183] to the NIOC, the other 50% to be retained in a special account until final arrangements are made. Purchases wld be made not by AIOC per se but through its transport organization. Simple receipts might be made to the NIOC, with the understanding that these interim arrangements adopted as a modus vivendi wld not prejudice the position of either side regarding shipments of oil after a settlement has been reached.
The Iran Govt has claimed that under the latest Brit proposals Iran wld receive net revenues less than under the financial arrangements offered to the Razmara govt. As a means of counteracting this, the Brit Govt might give assurances that under the arrangements to be worked out Iran wld receive from its oil a net share as high as that recd by any other country under comparable circumstances.

The Dept has put forward its views on this subject at length and in a frank manner in an effort to be helpful in this grave situation. It fully realizes the very real problem with which the Brit Govt is confronted and the difficulty of the decisions which must be made. It is believed, however, that the action proposed herein will be much less difficult than arrangements which might have to be considered if the situation deteriorates further. The US will continue to use its full influence in an endeavor to bring about a peaceful solution.”5

  1. Drafted by McGhee and Rountree; cleared by Webb, Perkins, Nitze, Harriman, and the White House; and repeated to Tehran.
  2. See footnote 7, Document 89.
  3. Transmitted in Document 89.
  4. Regarding the Iranian proposal of Sept. 19 and the British rejection on Sept. 22, see Document 86.
  5. On Sept. 29 Gifford reported that he had delivered this message to the Foreign Office whose first reaction was that it would not be inflexible to suggestions a, b, and c, but that Shepherd had already given the Shah assurances of more favorable proposals if Mosadeq were replaced by a more reasonable government. (Telegram 1574 from London; 888.2553/9–2951)