My Dinner With Fazlollah
Henderson/Hoover Talk Oil With Zahedi/Entezam

Arash Norouzi
The Mossadegh Project
| May 24, 2019                                                          


Gen. Fazlollah Zahedi At the invitation of the newly installed Iranian Premier, Fazlollah Zahedi, U.S. Ambassador Loy Henderson and the President’s special envoy Herbert Hoover, Jr. joined Zahedi and Foreign Minister Abdollah Entezam to discuss oil matters over dinner on Oct. 28th, 1953.

Over the course of the evening Zahedi expressed various concerns, worrying that Iran might be compelled to accept terms like:

• An undesired 50-50 arrangement
• Foreign control over the extraction and refinement of oil
• The return of the AIOC in another form
• Compensation to Britain for the seized oil assets, loss of revenue

Henderson and Hoover attempted to assuage Zahedi’s fears of a negative public reaction in Iran, suggesting the foreign role could be camouflaged by having the World Bank act as an intermediary. This idea, previously pondered during talks with the British a month prior, was accepted in a subsequent, non-binding memo sent to Henderson by Entezam on Nov. 2nd.




888.2553/10–2953: Telegram

No. 377

The Ambassador in Iran (Henderson) to the Department of State [Loy W. Henderson to State Dept.]

TEHRAN, October 29, 1953—2 p.m.


SECRET
PRIORITY


Ambassador Loy W. Henderson 996. [The] Prime Minister [Fazlollah Zahedi] invited Hoover [special envoy Herbert Hoover, Jr.] and me [to] dinner last evening for further oil discussion.1 Entezam, Minister [of] Foreign Affairs, [Abdollah Entezam] and Ardeshir, son of Zahedi, [were] also present. [Ardeshir Zahedi] In response [to] our questions, [the] Prime Minister indicated [that the] report given [to] him by [the] factfinding oil commission [was] not particularly helpful. [The] Report [was] oral but he [is] expecting it in written form. He opened [the] conversation by asking [the] precise definition [of the] word “enterprise” contained in [the] terms of reference in proposals made to Mosadeq [on] February 20. [Dr. Mohammad Mossadegh] We endeavored [to] explain [its] significance, pointing out, however, [that] this [is] irrelevant since [the] proposals [of] February 20 [have been] out-moded by events and changes in [the] situation.

2. During [the] ensuing discussions [the] Prime Minister said [that] any solution which would put Iran on [a] 50–50 basis [was] sure [to] create difficulties for [the] government. [The] Iranian people had been led [to] believe [that] such [a] formula [was] unfair to Iran. Iran [is] in [a] different position from other Middle Eastern oil countries. Foreign capital investment in [the] Iranian oil industry had been repaid many times by exorbitant profits realized by AIOC. [Anglo-Iranian Oil Company] [The] Iranian oil industry should be considered as [a] going concern already paid for from these profits. Such great profits over [a] long period [of] time had not been made from oil [in] other Middle Eastern countries. Hoover pointed out [that] Iranian oil could find its way again to world markets only on [a] commercial basis. Potential distributors [of] this oil could not consider [the] history [of this] concession in determining how much they could pay for oil. No matter how much profits AIOC might have realized in [the] past these distributors could not as business enterprises pay more for Iranian oil than for that available in other Middle Eastern countries. It might be possible in drafting [an] agreement [to] avoid spelling out any 50–50 formula. In place [of] such [a] formula there might be [a] proposition to [the] effect that Iran must receive no less income per ton for its oil than [the] most favored nation in this respect of [the] Middle East. After further conversation [the] Prime Minister appeared [to] reluctantly and unhappily acquiesce in our expressed views that Iranian oil could not re-enter world markets in substantial quantities unless distributors could obtain it as cheaply as they could oil from other Middle Eastern countries.

3. [The] Prime Minister said difficult though it would be for [the] Iranian Government [to] satisfy [the] public with [a] solution involving [a] 50–50 formula it would be still more difficult to satisfy it with [a] settlement which would place control [of] extracting and refining in [the] hands [of] foreigners. Hoover agreed this would be one of [the] most difficult areas [of the] negotiation. He thought, however, that with goodwill on both sides [a] solution could be found through study and negotiation whereby distributors would have sufficient control within [the] framework [of the] nine-point law of extraction and refining processes to give them [the] necessary assurance that they would receive [a] steady flow [of] oil and products of volume, variety, and quality needed to meet [the] fluctuating demands [of] their customers. [The] Prime Minister made several suggestions among which was one to [the] effect that NIOC [National Iranian Oil Company] would contract to sell [a] specific amount [of] oil and oil products to distributors over [a] term [of] years, [with] distributors to be authorized to enter Iran for [the] purpose of extracting and refining. Hoover said there [are a] variety [of] ways [of] bridging [the] problem of control. They might, however, more appropriately be discussed during [the] course [of] negotiations. Iran should understand in advance, however, that distributors must have sufficient control [of] production, refining and delivery to enable them [to] rely upon [a] steady flow from Iran [for] such oil and products as they may contract to distribute.

4. [The] Prime Minister repeated [that] it would be difficult enough for any government [to] face [the] Iranian public with [a] solution involving [a] 50–50 treatment regarding price and relinquishment to [the] extent at least by Iran of its control over its oil industry; it would be too much however for his or any other government to enter into [an] agreement which would involve [an] open or disguised return to Iran of AIOC. It would serve no purpose therefore for Iran [to] enter in negotiations looking forward to [the] return [of] AIOC in any form. [The] Iranian Government might agree to sell its oil and products to [a] group [of] distributing companies, including AIOC, and might even be able to give certain operating privileges in Iran to such [a] group. AIOC however must not be more than [a] minority member in such [a] group and must not be in [a] position [to] dominate it. During [the] discussion which followed [the] Prime Minister said this statement should not be interpreted as [an] indication [that] he [is] anti-British or that [the] Iranian Government or people were inherently anti-British. His government desired friendly relations in [the] future with [the] UK and he was sure that although [the] Iranian people were still in [a] somewhat emotional state regarding [the] British as [a] result [of] Mosadeq propaganda of [the] last two years, this emotion would gradually subside. Any attempt [to] bring AIOC back to Iran even with restricted rights would not be in [the] interest of present or future relations between [the] UK and Iran. Hoover said this particular point could more appropriately be considered during negotiations. In his opinion however it would not only be difficult but might be unwise from [the] point [of] view [of] Iranian interests for Iran to object to participation by UK companies to [the] extent [of] at least 50 percent in any distributing group that might be formed. [The] Prime Minister thought that it might be possible for AIOC and other British companies together to represent 50 percent of [the] new company but he indicated [that] this was [a] matter which he would like to consider and discuss later, perhaps during or in advance of negotiations. He wished [to] make clear however that AIOC should have at most only minority interests in any international group of distributors and should not be placed in [the] position to dominate such [a] group. Such [a] group in his opinion should include as many as possible of [the] major distributing companies now operating in [the] Middle East.

5. [The] Prime Minister referred to [the] vexatious problem of compensation. He did not see why if Iran should agree [to] sell oil on [a] 50–50 basis it should also be compelled [to] pay compensation, particularly if Iranian counterclaims against AIOC should be extinguished. We obtained [the] impression from remarks made by both Ministers [that] it [is] their thinking that [a] distributing group should absorb any compensation which its members might agree with AIOC to be due. They expressed [the] view that if AIOC was to be [a] participant in this group and Iranian counterclaims against AIOC should be taken into consideration, [the] amount [of] compensation should not be very great. Hoover said this matter also seemed [to] be one for discussion either between interested companies or during negotiations. [The] Prime Minister however continued [to] show interest in [the] matter [of] compensation. During [our] conversation on this subject [the] question developed as to [the] manner in which negotiations might be approached and as to who should participate. Both [the] Prime Minister and Foreign Minister seemed be of [the] opinion that, in case Iran should decide that it [was] prepared [to] deal with [an] international group of distributing companies, [the] best procedure might be for these companies to work out [an] agreement among themselves as to [the] kind of proposals to be made to Iran, and then for their representatives to approach [the] Government [of] Iran or NIOC with these proposals. If negotiations could take place between Iran or NIOC on [the] one hand and representatives of the international group [of] distributors on [the] other, [the] British Government would not be involved except as [the] protector of [the] interests [of] AIOC [—] other British companies and Iranian negotiators would not be compelled [to] face negotiators [from] AIOC. They seemed [to] think that negotiation [of] this kind would serve [to] remove [the] dispute from [the] field [of] Anglo-Iranian relations and reduce it to [the] status [of a] commercial negotiation with [an] international group [of] distributors. [The] Compensation problem which had so seriously disturbed relations between [the] UK and Iran would thus be disposed of privately by agreement between members [of a] group of distributors.

6. In view of [the] repeated concern expressed by [the] Prime Minister at [the] public reaction to [an] agreement giving foreign companies rights to operate in Iran, Hoover asked [the] Prime Minister if in his opinion it would be easier for [the] government as [a] matter [of] public relations to negotiate with [a] group [of] distributors through intermediation [of the] International Bank. Would public reaction [in] Iran be less unfavorable to [a] solution involving [the] conclusion [of an] agreement with [the] International Bank which would make [a] parallel agreement with [a] group [of] distributors? Hoover stressed in asking [the] question he did not know whether [the] charter Bank would permit it to act as [a] screen between Iran and [a] group of distributors; whether [the] Bank would be willing to act in this capacity; and whether intermediation of [the] Bank would be agreeable to Government US, Government UK, AIOC or potential members [of a] distribution group. Prime Minister said he thought it would be much easier for [the] Iranian Government if negotiations could be conducted through [the] International Bank instead of direct[ly] with [a] group [of] companies. [The] Iranian public in his opinion would find it less difficult to reconcile itself to [an] agreement in which [the] International Bank acted as [the] middleman rather than to one involving [the] granting by Iran of certain operating rights in Iran direct[ly] to companies [of] foreign nationality.

Iranian Foreign Minister Abdollah Entezam (1895-1983) 7. [The] Foreign Minister after private discussion with [the] Prime Minister said that within [the] next day or two he would prepare [a] brief informal unsigned statement containing [an] outline of current Iranian thinking regarding oil. If [the] Shah and [the] Prime Minister would approve he would give it to Hoover who would be at liberty [to] show it to [the] Secretary of State or, if considered advisable, to [the] British. It should be understood however that such [a] statement was to be treated as confidential; it was not to be considered as [a] commitment on [the] part [of the] Iranian Government since it would be subject to change until such time as [a] basis could be laid for negotiations. His purpose in giving it to Hoover would be merely to aid him in describing [the] present atmosphere regarding oil in Iran. [The] Statement would be only general [in] character; it would omit many details which had been touched upon orally. [The] Prime Minister and Foreign Minister stressed [that] all conversations with Hoover and myself had been of exploratory character. No commitments sought or given by either side. Hoover agreed, reiterating he had no authority [to] intermediate or seek solution [to the] problem. His mission [was] one of factfinding for [the] Secretary [of] State. [John Foster Dulles] He intended however while in London to describe to [the] British privately and frankly [the] situation regarding oil as he had found it in Iran. If it should appear he might be of further service he [was] prepared [to] return [to] Iran. His tentative intention [was to] depart for [a] London KLM plane leaving Tehran [the] morning [of] November 1. [KLM Royal Dutch Airlines]

8. It was agreed that if [the] press should inquire regarding [the] discussions which had taken place during [the] course [of] dinner [our] reply would be that Hoover and I had continued our discussions with [the] Prime Minister and Foreign Minister and that Hoover would probably complete this stage [of] his fact-finding mission during [the] next few days and would leave for [the] US to report to [the] Secretary [of] State, stopping in London en route for fact-finding purposes.

HENDERSON


• Bracketed text added and abbreviations removed from original for better readability. [Annotations by Arash Norouzi]

• Source: Foreign Relations of the United States, 1952–1954, Iran, 1951–1954, Volume X (1989)

• “Transmitted in three sections; also sent to London” — U.S. State Department Office of the Historian.
    Note: Correctly or not, the numbered points (#2-8) begin with #2 in the FRUS transcript.

1 “Herbert Hoover, Jr., arrived in Tehran as scheduled on Oct. 17, and was presented to the Foreign Minister on Oct. 18, at which time it was agreed that he would have no conferences with Iranian officials until the Shah and Zahedi returned from Isfahan on Oct. 20. On Oct. 21 Henderson presented Hoover to the Prime Minister, at which time Hoover gave Zahedi a document detailing the situation concerning the global supply and demand of Middle Eastern oil. The text of this document was transmitted to the Department in telegram 949, Oct. 22. (888.2553/10–2253) At this meeting, it was also arranged that on Oct. 22 Hoover would meet with the Prime Minister’s newly-appointed oil advisory committee to assist it in preparing as soon as possible a report for the Prime Minister setting forth facts concerning the international oil situation. (Telegram 948, Oct. 22; 888.2553/10–2253)

Ambassador Henderson reported on Oct. 24 that Hoover, at that point, had had two meetings with the Iranian oil committee. At the first, Oct. 22, the committee read Hoover’s paper; at the second, Oct. 23, the committee asked Hoover questions that his memorandum had raised. (Telegram 970; 888.2553/10–2453) On Oct. 26, Henderson reported that at the third session, held Oct. 25, the committee had concluded its factfinding task and would report to the Prime Minister. Hoover and the committee agreed that the heart of the problem was to work out a formula which reconciled Iran’s nationalization law with practical operating problems. The Ambassador concluded that he and Hoover expected to have another meeting with Zahedi following his receipt of the committee report. (Telegram 978; 888.2553/10–2653)” — U.S. State Department Office of the Historian


Search MohammadMossadegh.com



Related links:

John Foster Dulles Congratulates Abdollah Entezam, Zahedi (Aug. 1954)

CIA Propaganda and Psy-Ops in Iran To Help Zahedi Survive (July 1954)

U.S. Considers 2-Year World Bank Takeover of Iranian Oil (1953)



MOSSADEGH t-shirts — “If I sit silently, I have sinned”

Facebook  Twitter  YouTube  Tumblr   Instagram