Office of the Historian

384. Telegram From the Department of State to the Embassy in Iran1

Washington, January 26, 1957—2:09 p.m.

1401. Embtel 1086.2 Embassy requested make strong representations Shah view prevent introduction suggested legislation.

Suggested legislation would restrict NIOC negotiating freedom of action and make rigid compensation formula greatly exceeding standard 50–50 principle. Thus NIOC may expect exceptional difficulty if not impossibility in negotiating future agreement with any reputable qualified oil extracting, transporting and marketing organization. Importance should be emphasized of entrusting only to qualified company development large oil resources

FYI AGIP generally not considered experienced type problems inherent oil development Iran. Some doubt has been expressed as to the legal basis for AGIP foreign operations and its financial capabilities. AGIP has failed take adequate measures develop Italian oil despite favored position there. Currently is under severe criticism Italy for this failure especially since now dabbling in foreign oil concessions.

Iranian departure from 50–50 compensation principle would create additional problems regarding terms consortium agreement. End FYI.

Standard New Jersey categorically denies understanding affirmed by Mehbud (Despatch 570).3 States no relaxation 50–50 principle contemplated. Firmly opposed participation any operation involving Government ownership especially where oil export involved.

Advise developments.4

Dulles
  1. Source: Department of State, Central Files, 888.2553/1–1757. Secret; Priority. Drafted by W. Van Dusen of FSD and Smith, cleared by GTI and WE, and approved by Rountree.↩
  2. Document 379.↩
  3. Despatch 570, January 15, transmitted a memorandum of conversation between an Embassy official and Finance Minister Foruhar on January 14. (Department of State, Central Files, 788.13/1–1557)↩
  4. The Embassy advised in telegram 1163, January 28, as follows:

    “Deptel 1401 arrived after Amb’s departure on leave. Substance communicated this morning FonMin Ardalan who stated he would transmit Dept’s views to Shah in audience today and would inform Shah I am at his disposal to discuss in greater detail. Ardalan’s reaction was sympathetic and he pointed out Iran’s past experience clearly indicated futility of attempting deal with small companies on oil problems if major companies opposed.” (Ibid., 888.2553/1–2857)

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