Office of the Historian

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

Tehran, January 31, 1957—10 p.m.

1184. During audience today (Embtel 1182)2 Shah referred my conversation Ardalan (Embtel 1163)3 and asked me state US position on proposed oil legislation. I communicated substance Deptel 1401.4 Shah said perhaps his intentions misunderstood and he desired make his views perfectly clear. Said over year ago he had discussed with Amb necessity obtaining foreign capital to develop Iran’s vast oil resources. Amb had urged nothing be done disturb arrangements with Consortium and Shah had agreed. Consortium agreement provided assured income on which entire development program dependent. Accordingly GOI had first discussed development project with Consortium which showed no interest expanding area’s activity. Subsequently negotiations had been undertaken with individual companies both in and outside Consortium. Rumors had been circulated by some [Page 885] of these companies that cut had been demanded by Iranian negotiators (Embtel 1133, para 4).5 Shah considered such rumors reflection on his personal integrity which he would not tolerate. For this reason oil legislation has been framed to lay down specific conditions under which agreements might be reached and to obviate possibility suggestions in future that private individuals were benefiting.

I reiterated US apprehension lest proposed legislation impose formula which would prevent agreements with qualified reputable firms. Shah said he would change law to fix maximum Iranian participation at 50 percent ownership but permit negotiation agreements in which Iranian share less than 50 percent. This would provide sufficient flexibility to permit agreements with companies not accepting this formula. Insisted 50 percent limit be included since already accepted by Italian firm “backed by Italian Govt” (AGIP).

With respect Qom field Shah reiterated this strictly Iranian venture which would be developed without foreign participation in ownership. Field had been discovered through Iranian efforts and would not be shared. Concessions to foreign companies should be near sea and not deep interior country. He desired foreign participation in development and operation Qom field under contract with NIOC. Separate agreement for term perhaps 25 years to be sought with reliable company for construction pipeline to Mediterranean and for marketing product. Cost pipeline could be amortized from profits over period years. Shah indicated strong preference for independent companies in all development projects. Requirements European market steadily expanding and major companies already enjoy adequate share. Strong independent companies should be able win place in expanding market. Shah specifically mentioned Cities Service group and Hunt group now active Pakistan.

Shah said he felt foregoing views fair and reasonable and hoped Dept would agree. I undertook communicate Wash immediately and expressed hope I might transmit to him any observations Dept might have.

Shah displayed acute sensitivity to rumors impugning his integrity, reverting to that point at least three times.

Stevens
  1. Source: Department of State, Central Files, 888.2553/1–3157. Secret.↩
  2. In telegram 1182, January 31, the Chargé reported a 1-hour audience he had with the Shah on January 31 in which the Shah “discoursed on a wide range of topics mostly covering familiar ground.” (Ibid., 788.11/1–3157)↩
  3. See footnote 4, Document 384.↩
  4. Document 384.↩
  5. Document 383.↩