Foreign Relations of the United States, 1955–1957, Near East Region; Iran; Iraq, Volume XII

383. Telegram From the Embassy in Iran to the Department of State¹

Tehran, January 24, 1957—1 p.m.

1133. Ref mytel 1129 Jan 23.²

1. In our conversation Shah said it his firm intention create climate favorable investment foreign capital without which he knew country could never be developed (Embtel 1037).³ I said if I might speak frankly and although I not petroleum expert I believed Iranian views re their share oil revenues from new developments were “exaggerated”. Iran, as he stated, needed money for internal development as well as public revenues. Oil industry undoubtedly had enormous potential. Important thing, it seemed to me, was to get responsible companies interested and operating. Although of course I held no preference for any particular American company or group of companies I naturally hoped some responsible US companies could participate in new projects. He mentioned that Shell, which originally had evinced no interest in participating offshore development now seemed to have changed mind. However he hoped very much some American independent companies would participate. I said above all he should discourage small irresponsible companies which might accept unfavorable conditions demanded by GOI since they lack sufficient capital for development but might later withdraw or go bankrupt.

2. Shah mentioned proposed new oil bill (Embtel 1086).⁴ I said I familiar with its provisions and expressed earnest hope bill would not be so tightly drawn that if really advantageous offer were made not complying entirely with provisions of bill it would have to be rejected. Shah said he personally would ensure suitable escape clause included in bill to cover such contingencies.

3. Shah said GOI felt Qom was national project. There was substantial oil and although of course size field remained to be proved was essential pipeline be built from Qom field through Turkey to Mediterranean with refinery at Iskenderun. Response my query he said estimated cost would run to half billion dollars but believed this could be liquidated in three years. I laughingly rejoined this was tall order; there were few sources from which to obtain sum this magnitude and again it seemed to me only possibility would be group major oil companies supported by several large banks with companies assured long-term marketing agreement. Shah assented.

4. Shah said Bayat was returning from London. If sufficiently vigorous he would resume position NIOC (Embtel 1106).⁵ Mehbud had been useful but he agreed in last analysis contracts with foreign companies must be approved by NIOC board as whole. I observed that some US oilmen who had been here felt Mehbud did not report to him accurately; he acknowledged this might be case. He then said he had heard “fantastic” rumors Mehbud was demanding cut not only for himself but for some third party which he could only interpret as referring to Crown estates or to himself personally. He wished deny this categorically.

Chapin

1. Source: Department of State, Central Files, 888.2553/1–2457. Secret.
2. In telegram 1129, January 23, Chapin summarized briefly his 1-hour discussion with the Shah on January 23. (Ibid., 788.13/1–2357) The discussion is reported in more detail in telegram 1133 printed here and in telegram 1135 from Tehran, January 24. (Ibid., 780.5/1–2457)
3. Dated January 8, not processed through usual Department of State communication channels.
4. Document 379.
5. In telegram 1106, January 19, Chapin reported on a discussion with Ala in which the Iranian Prime Minister informed him that Chairman Morteza Qoli Bayat of the NIOC was recuperating from an illness and would retain his position with the NIOC. Chapin cited other reports that Bayat was still seriously ill. (Department of State, Central Files, 888.10/1–1957)