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

400. Telegram From the Department of State of the Embassy in Iran¹

Washington , April 9, 1957—6:41 p.m.

1940. Deptels 1401 and 1850;² Rome tel 3830;³ Tehran tel 1547.⁴ Recent developments in connection with reported AGIP contract call for your again discussing this matter with Shah. You should approach him by way of follow-up to your earlier approach pursuant to Deptel 1401. You should point out that AGIP’s entering into picture on basis reported raises serious problems that may adversely affect not only American interests, but also Iranian interests as well. Within that context you should make following points orally (no note verbale to be delivered):

1. Reported agreement would upset present 50–50 principle governing distribution of oil revenue in Iran and world at large and might threaten present advantageous marketing arrangement now enjoyed by Iran.

2. Present marketing arrangements now enjoyed by Iran are unique in their breadth and provide greater diversity of outlets than had previously or have since been made available to oil producing country. At time when there is potential oil surplus, efforts under this particular agreement to market its share of Iranian oil at perhaps reduced prices, may have unsettling effect on industry’s price structure and may actually result in less oil revenue to Iran.

3. Agreement will be interpreted as 75–25 split by other oil producers in Mid-East countries. This may have world-wide as well as area-wide repercussions on present arrangements for distribution of oil revenue. It may have very detrimental impact on political and economic stability of area. It will deter responsible foreign oil groups from participating in Iranian oil development.

4. Public knowledge in Iran of 75–25 split arrangement may lead extreme nationalist groups, aided and abetted by Communists, to publicly attack present consortium arrangements which call for 50–50 split. This could set in motion chain reaction that might not only jeopardize present highly advantageous consortium arrangments but as in 1951–53 immobilize Iranian oil production and have grave political consequences.

5. It is in Iran’s interest for NIOC to associate itself with firms commanding financial resources to carry out extensive programs involved, technical experience to cope with Iran’s unusual oil development problems and marketing facilities to market oil in orderly manner. Unless such arrangements are made with such firms, both Iranian Government and NIOC will suffer and chances will be reduced of making other arrangements covering other areas in Iran with reputable, well-financed, widely experienced firms with adequate marketing facilities.

You should inform Shah that since AGIP is an Italian state enterprise, industry-wide implications of this arrangement have also been discussed with Italian Government.

Herter

1. Source: Department of State, Central Files, 888.2553/3–2957. Secret; Priority. Drafted in GTI and cleared with FSD, ITR, WE, RA, and NE. Repeated to London and Rome.
2. Telegram 1401 is Document 384. In telegram 1850, March 28, the Department informed the Embassies in London, Rome, and Tehran that the United Kingdom was delivering an aide-mémoire to the Italian Government expressing concern over the breaching of the 50/50 principle. (Department of State, Central Files, 888.2553/3–2757)
3. In telegram 3830, March 25, the Embassy in Rome reported that it had made an informal approach to the Italian Foreign Office expressing concern over the possible adverse effects of the Iranian-Italian oil agreement. (Ibid.)
4. Dated March 29, not printed. (Ibid., 888.2553/3–2957)