DEPARTMENT OF STATE Memorandum of Conversation
DATE: October 8, 1952
SUBJECT: Iran
PARTICIPANTS: Treasury: Mr. Snyder, Mr. Overby Defense: Mr. Lovett, General Bradley Justice: Mr. McGranery, Mr. Emmerglick State: Mr. Acheson, Mr. Nitze
The Secretary opened the meeting with an extended and detailed exposition of the position in which we now find ourselves with respect to Iran. He described the origin of the joint Truman-Churchill proposal, Mossadegh's reaction to it, and the nature of Mossadegh's reply. He then described the history of our negotiations with the British with respect to our parallel replies to Mossadegh's counterproposals.
He then pointed out that at the time of our reply to Mossadegh's counterproposals, we were working on a formula for the solution of the Iranian oil crisis. Prior to the time we could take any effective action to restrain Mossadegh from again taking precipitant action, Mossadegh had made a further reply to the British and also to ourselves in which he had demanded £20 million within seven days to be followed by negotiations to last for not more than three weeks, to be conditional upon the United Kingdom's accepting the
- 2 -
framework of his counterproposals and paying an additional £29 million at the expiration of the three-week period. The Secretary explained the nature of Mossadegh's purported claim for £49 million and the reasons why it was beyond the realm of possibility that the British could accede to Mossadegh's terms.
The Secretary then explained why it was impossible for Iran to accept any solution put forward by the United Kingdom, why it was that Mossadegh could not be expected to develop a sensible proposal himself, why it was unlikely that any effective solution could be expected to result from any independent, such as Alton Jones, and therefore why it was necessary for us to come up with some type of a solution which we could try to sell to Mossadegh and have him put forward as his own.
The Secretary then outlined the essential elements of the problem, the first one being compensation. He said that it would be impossible for the British to accept a proposal which cut off any recognition of compensation for the unilateral cancellation of its contract and why the Iranians could not accept any proposal which recognized this principle. He thought the only solution would be to work out a specific amount of compensation expressed either in terms of tons of oil to be delivered free of charge or in terms of money obligation to be liquidated through the delivery of oil, the settlement to be in liquidation of all claims and counterclaims.
The second problem was how do you get money to Mossadegh promptly. He did not believe it possible to get the British to pay Mossadegh any money against his fictitious claim for £49 million. He thought Mossadegh needed money in fairly sizable amounts promptly. The only way he saw that this could be worked out would be through an advance against future purchases of oil. He thought a portion of this advance, say $50,000,000, might be made by private interests but that a further portion, say $50,000,000 would have to come from an Export-Import Bank loan. He therefore had been thinking of the possibility that an Internal Oil Distributing Company be formed by certain "have-not" American oil companies with the possible participation of British or Dutch firms, that this company would contract to purchase oil and oil products for, say, 15 years from the National Iranian Oil Company at 90% of the east coast U.S. price
- 3 -
less duty and less freight from Abadan with the provision that any excess realized by the company over the east coast price would be paid to the National Iranian Oil Company. This company might then sell 75% of the oil and oil products which it purchased to Anglo-Iranian.
The Secretary then referred to the delicate situation which would arise if the British were unfavorably inclined to a solution of the type outlined. He said that no one other than the majors and Anglo-Iranian had sufficient tankers to move large quantities of Iranian oil. In order to bring pressure on the British to accept, it might be necessary to suggest that the majors would move the oil if Anglo-Iranian did not. He said that the decision as to whether we would in fact ask the majors to do so and thus strive for a unilateral solution of the Iranian problem was a very difficult one and not one which he thought could be decided at this time. He then outlined certain of the difficulties which we would face in any attempt at a unilateral solution.
Mr. Nitze then referred to Alton Jones' estimate as to the small quantities of oil which it would be possible for him or any other independent or combination of independents to move in the absence of cooperation from Anglo-Iranian or the majors.
Mr. Snyder said that he thought the problem was basically a legal problem. He felt sure that the financial aspects of the transactions could be handled if the legal hurdles could be overcome.
Mr. McGranery said that the Secretary had presented a most formidable legal meal. It would be most difficult to work out a program involving the majors and at the same time maintain the present anti-trust action. He thought he understood the serious nature of the considerations advanced by the Secretary. Mr. Emmerglick said that even where one begins to consider a program involving just one of the majors, one becomes so caught up in the interrelated ramifications of the oil business that serious problems are presented.
- 4 -
Mr. Acheson said that the problem becomes somewhat easier if one supposes that Anglo-Iranian cooperates and purchases most of the oil. In that event, it would not be necessary to ask for the cooperation of any of the U.S. majors, now defendants in the anti-trust action. Mr. Emmerglick indicated that any program involving Anglo-Iranian, even if it did not involve the other defendants to the suit, would present serious difficulties.
Mr. McGranery said he thought he understood State's position. It was difficult for him however to give a legal opinion on short notice. The subject raised by the Secretary was not the one that he and Mr. Emmerglick had anticipated when they came over. He felt that anything along the lines of what the Secretary had suggested would cause the collapse of the anti- trust suit. He wanted to go as far as was consistent with maintaining the legal action. At the moment he couldn't think of any solution or any contribution which he could make. What he would like to do would be to consult with some of his associates. The problem was that we would be turning to men whom we have accused of a criminal action to help us work out a program based on the national security interest.
Mr. Lovett said that he might be prejudiced but he wanted to state clearly that he thought the anti-trust action was a mistake and ran serious risks of undermining United States interests in the Middle East and in Venezuela. He outlined some of the military considerations which would be involved in the loss of Iran to the Communists. He then described a plan which he had suggested approximately a year ago for a possible solution. This would have involved the creation of an oil distributing company with large nominal capital but small paid-in capital; the U.S. Government agreeing to buy Iranian output, the company setting aside 25% of its receipts in escrow until such time as there was a settlement of the compensation issue; the price to be based upon world prices less cost, insurance, and freight; the distributing arrangements to be reviewed annually by a process agreed in advance. Mr. McGranery said that in his opinion the Export-Import Bank was the only proper way for the U.S. Government to get involved in the transaction.
- 5 -
General Bradley then gave a further exposition of the military considerations involved in the possible loss of Iran. He also expressed himself as believing that the criminal suit against the oil companies was an extremely bad thing from the standpoint of military consideration. Mr. Emmerglick said that the military consideration operated in favor of the suit, the as-is agreements resulted in the holding down of production and an increase in prices and in uniform bidding. He thought all these things were of greater military significance than the considerations advanced by General Bradley.
Mr. McGranery said that a criminal action before a grand jury was useful in securing necessary documents. He had recently issued an order in the Department of Justice that before an actual indictment is sought, Mr. McGranery himself will review the case. He recognized the possible injustice which some of these cases caused, but he thought this was something that Congress ought to act on.
General Bradley said that from the Joint Chiefs of Staff point of view it appeared that we were spending billions for defense and throwing out of the window the entire benefit through such actions as the anti-trust suit. We may very well be throwing out the window access to the iron and oil reserves which we are trying to defend by making criminals of those who are running these foreign enterprises. He said that the Chiefs did not care how much money the Department of Justice might take from the oil companies in the way of fines; he only did not want to see the oil resources lost. The loss of Iran would put us in a position where instead of having six months in which to protect the Suez Canal and Africa we might be reduced to three months. One can't get forces into the Middle East in that time.
Mr. McGranery said he thought there were two problems. The first of these was whether anything could be done which would be helpful toward meeting the Secretary's problem without prejudicing the suit; and, the second, if the first were impossible, was whether the national interest in finding a solution to the Secretary's problem was more important than the principles involved in the suit.
- 6 -
Mr. Acheson said that he would like to get away from the question of the suit and see whether it would be possible to form a company which included one or more of the American "have not" companies, and then have it sell oil to the Anglo-Iranian. Mr. McGranery said that this would be a cartel with the blessings of the Government.
Mr. Emmerglick went on to say that, under the domestic interpretation of our anti-trust laws, any agreement between two or more natural competitors which had the effect of reducing competition was in violation of the anti- trust law. It was their belief that this same doctrine was applicable to the foreign operations of oil companies doing business in the United States. If a civil action rather than a criminal action were to be brought, the Department of Justice would have to seek to put an end to this kind of operation. The necessary consequences of a civil action would be to put an end to joint companies or arrangements, whether they affected tankers, oil operations, production, or marketing. Mr. Emmerglick said that the immunities which the Government had given the oil companies during the war and in connection with the Abadan shut-down were already causing him embarrassment in the conduct of the suit.
In reply to a question, Mr. McGranery said that the Webb-Pomerene law had been greatly watered down in its applicability in recent years and there no longer was a Webb-Pomerene Export Association in the oil industry. He said he would like to have time to explore with his associates the problem raised by the Secretary.
Mr. Acheson returned to the question as to whether it would be illegal for four or five American companies to join together in the formation of a distributing company and then sell 75% of the oil to Anglo-Iranian.
Mr. McGranery said he thought the first step might be all right, but the second step presented difficulties.
Mr. Emmerglick said that Anglo-Iranian would use any such arrangement in their defense in the present suit. The Department of Justice could not get away from the concentrated arrangements on tankers and
- 7 -
markets in which Anglo-Iranian and Standard Oil of New Jersey were the principal participants. If such arrangements as the Secretary had described were now in existence, the Department of Justice would be very quick to spell out the integrated networks of arrangements which were associated with the participants.
Mr. McGranery said the question was whether the end justified the means. It was clear that the objectives which the Secretary had in mind were very important. The question was whether it would be possible to find a way to achieve these ends without throwing the present case out of court, or else whether to throw the case out of court which he personally thought would be wholly unjustified.
After some discussion, it was agreed that Mr. McGranery should have until Saturday to explore the situation further with his associates. Mr. Emmerglick expressed the hope that the State Department would not find it necessary to talk to the oil companies prior to that time.
S/P:PHNitze:a 10-8-52