A Consortium It Is
Anthony Eden on Iranian Oil (Jan. 1954)

Arash Norouzi
The Mossadegh Project
| July 10, 2019                                                          


(THIS DOCUMENT IS THE PROPERTY OF HER BRITTANIC MAJESTY’S GOVERNMENT)
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Printed for the Cabinet. January 1954


TOP SECRET
Copy No. 70

C. (54) 3
5th January, 1954

CABINET

PERSIAN OIL


MEMORANDUM BY THE SECRETARY OF STATE FOR FOREIGN AFFAIRS


British Foreign Secretary Anthony Eden The brief with which Her Majesty’s Charge d’Affaires at Tehran, Mr. Wright, [Denis Wright] was provided set out a line of argument which had as its objective a direct settlement between the Persian Government and the Anglo-Iranian Oil Company, (A.I.O.C.); that, from the point of view of Her Majesty’s Government, would be the most satisfactory outcome. In any case, Her Majesty’s Government required to be able to form their own judgment of the chances of such a solution, and that judgment would be based to some extent upon the Persian Government response to such a line of argument.

     2. All earlier indications, however, had been that a direct settlement between the Persian Government and the A.I.O.C. could not be achieved. Recognising this, the Company recently invited representatives of other companies with major oil interests in the Middle East to join them in discussions, on a hypothetical basis about the problems that would arise when Persian oil should again flow into its traditional markets. The companies represented at these exploratory talks were Shell, the five major American oil companies and the Compagnie Francaise des Pétroles. Mr. Hoover, Oil Adviser to the United States State Department, was present. [Herbert Hoover, Jr.]

     3. The upshot of the talks was that it would probably be feasible to form a group of companies to go into Persia on the following basis: —

(a) the A.I.O.C. would have a share as close to 50 per cent. as the Persians could be brought to accept;

(b) the other companies, including Shell (half British) would buy their interest in the group, paying the A.I.O.C. either in capital, in revenue or with free oil;

(c) Persia would pay the A.I.O.C. compensation for that part of the value of their concession that was not covered by the purchase consideration mentioned at (b) above, such payment probably faking the form of free oil;

(d) the representatives of the group would negotiate an agreement with the Persian Government to manage production and marketing on terms similar to other Middle East oil agreements; and

(e) satisfactory arrangements would be made in regard to the currency in which payments were made to the Persians.

     4. There was also some discussion about the part that the International Bank might play in an oil settlement. The attitude of the American companies towards this was that the Bank might well play the part of intermediary in the early stages of negotiation, should the Persian attitude make this necessary; but the Americans were not anxious that the Bank should play a permanent part in the Persian oil industry.

     5. Her Majesty’s Chargé d’Affaires has now reported that he has begun to speak to his brief in regard to the A.I.O.C. The Persian Foreign Minister, Mr. Entezam, [Abdollah Entezam] replied that he was certain that public opinion in Persia would not tolerate the return of the Company, and that any attempt by the Persian Government to bring it back would greatly embarrass them and Anglo-Persian relations. Mr. Entezam went on to say that he fully accepted the importance of our principles that the A.I.O.C. should receive compensation and that Persia could not expect to do better out of her oil than her neighbours out of theirs. He then said that although the Persian Government had not yet made up their minds, they were thinking along the lines of a solution whereby: —

(i) the marketing of oil would be done by a consortium of foreign companies, in which no single company should have a predominant share;

(ii) the extraction and refining of oil would be carried out by a Persian company, with some foreign assistance; and

(iii) the International Bank might act in some way as an intermediary, since this might make any solution more acceptable to Persian public opinion.

     6. The above represents only a first exchange of views and Mr. Wright is hoping shortly to talk with the Persian Prime Minister himself. [Fazlollah Zahedi] But it seems improbable that the Prime Minister’s attitude towards the A.I.O.C. will differ from that of his Minister for Foreign Affairs or that either can be persuaded to modify their views. We may therefore expect Mr. Wright shortly to advise us that there is no hope of the A.I.O.C.’s returning to Persia alone. Although the company have hitherto been loth [sic—loathe] to accept this, I think it likely that they may in fact prefer to share with others the risks of returning to Persia.

     7. Meanwhile, we should not allow Persian ideas to harden; and there is another important time factor, in that the emergency aid granted by the United States Government to Persia is rapidly running out. We cannot at this stage formulate a precise plan for a multi-national solution, since such a plan can only be the result of further and more definite talks between the oil companies. It seems certain, however, that those companies will insist on effective control of extraction and refining as well as of marketing.

     8. As to the method of negotiating such a multi-national solution with the Persian Government, it would be difficult for Her Majesty’s Chargé d’Affaires, even in collaboration with the United States Ambassador and Mr. Hoover, to negotiate so complicated and technical an affair on behalf of a multi-national consortium which includes French and Dutch, besides British and American, interests. On the other hand, there is the danger that the American companies in direct negotiations might seek to push the Persians too hard or farther than we and the United States Government should think wise towards accepting foreign control of the Persian oil industry; and the more parties there are to the Western side of the negotiations, the greater the risk that the Persians would succeed in driving wedges between them. To my mind, a decision whether to negotiate on the governmental or business level can only be taken after careful discussion with the United States Government.

     9. I accordingly recommend that, if Mr. Wright shortly confirms (as I fear he will) that the Persian Government are unalterably opposed to the return of the A.I.O.C.: —

(a) We should adopt a policy of working towards a multi-national consortium of oil interests as set out at paragraph 3 above; with some form of participation by the International Bank if the United States Government and the companies themselves agree that it is desirable.

(b) We should consult with the A.I.O.C. and invite them, on the assumption that they accept the position that a direct settlement between them and the Persian Government cannot be achieved, to co-operate in this policy and for that purpose to resume forthwith their discussions with the other oil companies.

(c) The United States Government should be informed of the position.

(d) Once the discussions in (b) were on the point of resumption, we should authorise Mr. Wright to tell the Persian Government that Her Majesty’s Government had noted their inclination towards a solution based on a multi-national consortium and that in fact discussions between the A.I.O.C. and other oil companies were now being resumed in order to discover whether such a consortium could be formed.

(e) We should (simultaneously with (d) above) consult the United States Government about the best method of negotiation—i.e.whether it should be governmental or by representatives of the prospective consortium, perhaps with governmental observers present and in consultation with the Governments concerned.

(f) Mr. Wright would then be instructed to inform the Persian Government of the outcome of (e);

A. E. [Anthony Eden]

Foreign Office, S.W. 1,
        4th January, 1954.

[Annotations by Arash Norouzi]




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Related links:

Relations Between the Shah and Her Majesty’s Embassy at Tehran | Denis Wright (Jan. 1954)

John Foster Dulles: “Extreme nationalization is the greatest problem” (Sept. 23, 1953)

American Policy in the Middle East During 1953 | Iran (1954)



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