SECRET

C. (54) 12
11th January, 1954

On 7th January my colleagues approved the policy recommended in my memorandum C. (54) 3 (C.C. (54) 1st Conclusions, Minute 5).

2. The following day I saw Sir William Fraser, Chairman of the Anglo-Iranian Oil Company. Our conversation is recorded in the annex.

3 . I should be grateful if my colleagues would study it before the Cabinet meeting to-morrow when I shall make a further report on the position.

4. It will be seen from the annex that I deferred to Sir W. Fraser’s suggestion that as a first step Mr. Wright, [Denis Wright] Her Majesty’s Chargé d’Affaires at Tehran, should be asked his opinion of the expediency of asking the Persian Government to agree that two or three representatives of the Company should go to Tehran for a few days in order to form their own judgment. Mr. Wright has replied that he thinks it most undesirable from all points of view that he should put such a request to the Persian Government.

5. Officials will to-day be considering the possibility of getting the basis for negotiations clearer with the Persians before we go further towards forming a consortium. I shall hope to have some recommendations to make to my colleagues on this point to-morrow.

A.E. [Anthony Eden]

Sir William Fraser, the Chairman of the Anglo-Iranian Oil Company, came to see me to-day. Mr. Neville Gass, a Director of the Company, and Sir Pierson Dixon [Deputy Under-Secretary of State for Foreign Affairs] were also present. Sir W. Fraser earlier in the week had asked to see me. Subsequently the meeting was put off owing to his indisposition. It was at my request that he came to-day, since I was anxious to consult him about the conclusions reached by myself and my colleagues in regard to future steps in the Persian oil question.

     2. I gave your telegrams Nos. 15 and 18 to Sir W. Fraser and Mr. Gass to read. After reading them, Sir William said that he noted your view that our next move should be to inform the Persian Government as quickly as possible that we are prepared to forgo insistence on 100 per cent. return of A.I.O.C. and are ready to participate in a consortium provided that A.I.O.C. have a major part in it. It would be a very serious step to abandon the full claim of A.I.O.C. The step was serious not only for the Company but also for Her Majesty’s Government. You had only been in Tehran a very short time. Was it not premature to come to the conclusion that there was no hope of A.I.O.C. getting back? Ought we not to take more time and make more investigation before coming to so serious a conclusion?

     3. Sir W. Fraser went on to propose that, as a next step, the Persian Government should be asked whether they would agree that representatives of the Company should go out to Tehran to form their own judgment on the possibilities of A.I.O.C. returning and the prospects for the forming of an international consortium if this did not seem possible.

     4. I agreed that it would be a serious step both for the Government and for the company to abandon the claim of A.I.O.C. to go back 100 per cent. to Persia. From a prestige point of view the latter would of course be ideal. I wondered whether, however, from a practical point of view it was so desirable. Did the company really want to go back into Persia alone? Would it not suit them better to share the responsibility with other major oil companies having interests in the Middle East provided that they could obtain a 50 per cent. share and adequate compensation? The Cabinet, with whom I had had a preliminary discussion yesterday, felt that an arrangement on these lines would be politically acceptable on the assumption that it would be impracticable for A.I.O.C. to return 100 per cent.

     5. Sir W. Fraser said that he was prepared to admit to me privately, though he begged that this should go no further, that he would prefer an arrangement such as I had described. The question, however, was how we could best attain it. If we threw away our cards too quickly he was afraid that we should not get there. He was confident that his American oil colleagues would agree that A.I.O.C. participation in a consortium should be 50 per cent. or something near it. He did not feel the same confidence with regard to the State Department or even Mr. Hoover. [Herbert Hoover, Jr.] He anticipated great pressure from that quarter. Then there was the question of our negotiating position with the Persians. At present, he thought, this was unsatisfactory. There was no basis of agreement on the essentials for a consortium. The oil companies would certainly insist on effective management of production: your conversations with Persian Ministers indicated, however, that the Persians were far from conceding this. Further, and this was the point which worried Sir William most, the whole negotiation, as things stood at the moment, would proceed from the assumption that the A.I.O.C. were “bad boys.” All these considerations led him to consider that more time should be spent on educating the Persians and trying to prepare a more satisfactory basis for a possible consortium. It was with this in view that he was anxious that, as a next step, representatives of the company should visit Tehran.

     6. I said that I saw the value of Sir William’s proposal. But everything we had heard from you, and earlier from Mr. Henderson, [U.S. Amb. Loy Henderson] indicated that, however unjustly, the A.I.O.C. was still very unpopular in Persia. Dr. Musaddiq and his ideas still had a powerful following, and the Shah was only too prone to pay attention to them. [Dr. Mohammad Mossadegh, former Iranian Premier] The Persian Government, who were not popular in the country, would in my view certainly refuse to accept a mission from A.I.O.C. for fear of its effect on the internal situation. Even to put the proposal to them might be a mistake, since they might well interpret it as a change of policy on our part, and if they refused the request great damage might be done, not only to Anglo-Persian relations, but to the prospects for an oil settlement. Sir W. Fraser agreed that it would be a mistake to court a rebuff. The chief point was that the Persians should accept in advance that it was the A.I.O.C. who would take the initiative with the other companies in forming the consortium. It was also desirable to know in advance that the Persians would agree to A.I.O.C. taking a prominent part in the negotiations for a consortium.

     7. I told Sir W. Fraser that I saw this point and was inclined to agree that we should be well advised to get the basis for the negotiations clearer. We might perhaps, in addition to the points mentioned by Sir William, try to get prior Persian agreement to the A.I.O.C. share being 50 per cent., though this was largely a matter of tactics, and it might be better to confine ourselves to getting Persian agreement to the A.I.O.C. having a major share. Another point on which, of course, it would be useful to obtain prior Persian agreement would be to a survey of Abadan.

     8. I suggested that you might be asked for your opinion on the likelihood of the Persian Government agreeing to representatives of the Company visiting Tehran, and failing that, whether it would be possible to bring the Persians to agree to something on the following lines: supposing that we were willing to work for a consortium, do the Persians accept that A.I.O.C. will take the initiative in forming such a consortium and would they be willing to negotiate with the consortium? You could also be asked your opinion on the possibility of obtaining prior Persian agreement to the further range of questions which we had discussed.

     9. Sir W. Fraser agreed with my suggestion, although he would prefer to ask you the first question (about a visit to Tehran by representatives of the A.I.O.C.) before putting the second to you. I accepted this and said that I would despatch an immediate telegram to you on the first question. We agreed that as soon as your reply was received, the Foreign Office and the other Departments concerned would consider it in consultation with the A.I.O.C. and, if it proved negative, would consult on the drafting of the second question.

     10. In conclusion, I said that it seemed to me that it would be desirable at an early stage for the Company to resume their conversations with the other oil companies. Sir W. Fraser agreed, though he seemed to think that it would not be possible at the moment to make any advance arrangements.