Foreign Relations of the United States, 1964–1968, Volume XXII, Iran

63. Briefing Memorandum From the Director of the Office of South Asian Affairs (Cameron) to Secretary of State Rusk¹

Washington, January 6, 1965.

SUBJECT

• Your Appointment with the Foreign Minister of Iran, Thursday, January 7, 12:00 Noon

Foreign Minister Aram (see attached biographic sketch)² is calling, on instruction from his Government, to discuss problems being encountered in the final stages of negotiation for a revised oil agreement with the Iranian Oil Consortium. He will very likely request United States Government intercession with American companies participating in the Consortium to modify certain terms of the offer.

When Iranian officials approached us, here and in Tehran, during the past month to use our influence with the American companies, we have reminded them that our influence is not sufficient to force the companies to abandon a position which they consider important in their operations abroad. While this remains true, our present difficulties with the Shah over the Gudarzian affair would suggest a somewhat more forthcoming approach to Mr. Aram on this occasion. I recommend that, while reminding him again of the limits of our influence, you offer the Department’s services in contacting American companies, advising them in detail of the Iranian position, and reporting back to the Iranian officials on the results of these approaches.

Mr. Jernegan will accompany Mr. Aram in his call on you, as will Mr. Ensor (E/FSE) and Mr. Tiger (NEA/GTI).

Background

The proposed agreement, which has been offered by the operating companies to all of the Middle Eastern producing countries participating in OPEC (Organization of Petroleum Exporting Countries), involves an agreement to treat royalty payments as an item of operating expenses rather than as part of the country’s 50 percent share of profits. This would net the producing countries substantially higher revenues. The companies agreed to make the offer retroactive for the calendar year 1964 if the producing countries would accept it by December 31, 1964. This deadline has now been extended to January 26, 1965. As of December 31, the offer had been accepted by Saudi Arabia, in principle, and by Kuwait, subject to parliamentary ratification.

On December 31 Iran finally accepted the fiscal provisions of the offer, but it is still balking at other conditions, namely those involving a quit-claim and arbitration procedures. The Consortium wants a quit-claim (waiver) of all additional monetary demands by Iran for the years preceding the new agreement, whereas Iran wants such a waiver limited to questions involving the level of posted prices. As regards arbitration, Iran contends that the current proposal provides the Consortium with a unilateral right to demand arbitration in the event of an alleged breach of the agreement, but denies a similar right to Iran. Iran further claims that there are adequate arbitration mechanisms in its existing agreement and demands special consideration for having helped the companies work out arbitration arrangements with the Arab countries, where no such mechanisms had existed. This special consideration, in the Iranian mind, should take the form of exempting Iran from the arbitration provisions worked out for Arab producing countries.

During ten days of discussions in London (December 20–30) there was apparently some progress on the quit-claim problem, but the arbitration provision remains a sticking point. On December 31 the Prime Minister told Ambassador Holmes that the Consortium’s offer was “entirely unacceptable,” adding that “it would be utterly impossible for his Government to present anything less than equal treatment to the Iranian Parliament.” The companies have taken an equally strong position against retaining unique arbitration provisions for Iran. However, as of December 31 it was evident that both sides had some expectation of being able to settle these differences by January 26. The Consortium was to have despatched three high-level representatives from London to Tehran on January 5 to resume negotiations, but no word has yet been received as to their progress.³

1. Source: Department of State, Central Files, POL IRAN-U.S. Confidential. Drafted by Tiger and John G. Oliver in FSE; cleared in draft by the Office of International Resources’ Chief of Fuels and Energy Division Andrew F. Ensor in the Bureau of Economic Affairs and William D. Wolle (NEA/NE). A handwritten note on the source text reads, “S saw.”
2. Attached but not printed. Secretary Rusk met with Foreign Minister Aram at 12:25 p.m. on January 7. No memorandum of conversation of their meeting has been found.
3. A supplemental briefing memorandum from Jernegan to Rusk on January 6 reported that the Consortium representatives in Tehran were prepared to yield significantly on the arbitration issue, but that their new proposals would still fall short of the completely reciprocal arbitration rights which the Iranians had been seeking. They also pointed out to Holmes that any modification agreed to with Iran would necessitate renegotiation to grant similar concessions to the Arab countries. (Department of State, NEA/IRN Files: Lot 70 D 552, CHRON FILE, IRAN 1965, Memoranda through S/S (Staff Studies))