Subject:

Iranian Oil Consortium

We have learned that Mr. Harden, [Orville Harden of Standard Oil Co. of New Jersey] Chairman of the consortium negotiating team in Tehran, has recommended that the five American companies participating in the consortium consult with the Department¹ before the company principals meet the consortium team in London on May 24. The major issue to be resolved at that meeting is whether the consortium could accept arrangements to operate in Iran as agent of the Iranian Government, although retaining effective management control.

Ambassador Henderson and Mr. Hoover have reported that “unless agency route accepted, no agreement with Iran at present or for the foreseeable future will be possible.” [Loy Henderson and Herbert Hoover, Jr.] They also report their belief that the consortium negotiators fully agree. The Department also believes that any arrangement other than an agency-type contract would bear too close a resemblance to the former AIOC concession to be acceptable to the Iranian public. [Anglo-Iranian Oil Company]

Although we are not certain of the companies’ reaction to this proposition, they apparently fear possible adverse consequence in other concession areas if an agency-type arrangement is made in Iran. They also are concerned that such an arrangement will be unwieldy and lead to misunderstanding and tensions in operations. On the other hand, our information indicates that the British are not averse to an agency-type arrangement.

The NSC [National Security Council] has clearly stated the importance it ascribes to obtaining an early oil settlement in Iran. The Department believes that the very great political, strategic and economic difficulties which would result from a failure to obtain an early settlement outweigh the possible adverse consequences of establishing a precedent in the international oil business or causing operating difficulties for the consortium in Iran.

Recommendations:

1. That you seek the agreement of Deputy Secretary Anderson; [Robert B. Anderson] and, if you think it desirable, of Secretary Humphrey to this proposition. [George M. Humphrey]

2. That you suggest to Deputy Secretary Anderson that it might be desirable for him to participate in the discussion with the companies.

3. That you discuss this problem with the companies on the basis of the attached talking paper, [“not printed”] and, if they show strong reluctance to accept an agency-type agreement, inform them of our opinion that this is the only way to achieve an early and lasting settlement.