2347. Noforn. [no foreign dissemination] Limited distribution.

1. On [the] afternoon [of] May 16, shortly after my return to Tehran, [a] meeting was held with [the] consortium group, British Ambassador, Dutch Minister, Hoover, myself and United States-United Kingdom staff members. [Sir Roger Stevens, ___?, Under Sec. of State Herbert Hoover, Jr.] Meeting [was] devoted largely [to] discussion [of] management arrangements. Consortium representatives [were] discouraged as [a] result [of the] meeting with Iranian negotiators [on the] evening [of] May 15, during which [the] Iranians appeared to them to backtrack considerably regarding certain basic aspects, particularly in relation [to] management.

2. Consortium and Iranian negotiators met again [on the] evening [of] May 16, when [the] Iranian delegation tabled [the] memorandum outlining their ideas regarding management and particularly [the] terms of agency arrangement¹ under which [the] consortium would operate. Consortium representatives[’] primary concern was related to [the] preamble which indicated [that the] Iranian Government, as principal, would have extensive authority in “supervising” management operations, and that relations between NIOC [National Iranian Oil Company] and [the] consortium would be “normal relations between principal and agent”. During [a] detailed discussion [of] this memorandum, consortium representatives indicated to Iranian negotiators that with some modification, many points enumerated below [the] preamble would be acceptable, although [the] proposal as [a] whole [was] unacceptable. At [the] suggestion [of the] Iranians, consortium representatives undertook [to] revise [the] memorandum in [a] manner which would render it acceptable to them, such revision [is] to be discussed at [a] meeting scheduled [for the] evening [of] May 17.

3. Early on [the] morning [of] May 17, Hoover and I were asked to call on [the] Foreign Minister [Abdollah Entezam] and Minister [of] Finance, Amini. [Ali Amini] They expressed anxiety regarding [the] progress of negotiation and difficulties arriving at [a] satisfactory agreement, particularly regarding [the] management problem. They asked if Hoover would undertake to intermediate and assist both sides in reaching [an] acceptable formula. Hoover replied [that] he [was] most hesitant [to] accept such responsibility as it might be misconstrued, unless he [is] formally requested [to] do so by both sides. Nevertheless, he [was] glad [to] offer suggestion at any time. In [the] ensuing discussion of specific problems, [the] Ministers showed us [a] copy [of the] memorandum mentioned above. We stated that it [was] our belief, [that the] primary difficulty was that of [the] choice of words. In particular, we pointed out, that [the] term “supervising”, used in [the] document in relation [to] NIOC responsibilities, had [the] connotation [of] indicating direct participation in management, and suggested [the] word “inspect” be substituted. We suggested further, that [a] mutually acceptable set of regulations might be agreed upon and that [the] Iranians have [the] full right of inspection to determine if regulations [are] being complied with. We made clear we were prompted [to] make these suggestions by our knowledge that [the] consortium had no objection to reasonable Iranian Government regulations, nor to [an] inspection by [a] competent body for determination of compliance. On [the] other hand, we had understood from what [the] Ministers told [us], not that [the] Iranian Government did not in fact intend [on] injecting itself into [the] details of management, but sought only (a) assurances that proper regulatory functions of [the] Iranian Government or NIOC could be effectively implemented, and (b) wording of [the] agreement which would make it palatable to [the] Iranian Majlis [Parliament] and public. We felt sure that these considerations could be adequately met through [a] wording which would not lead [the] consortium [to] fear they would not retain effective management control. Furthermore, we asked [the] Iranians if it [was] not possible [to] delete from [the] memorandum [the] phrase “normal relations between principal and agent”, as such wording could be misconstrued in existing circumstances. We stated that we planned [to] attend [a] routine meeting of consortium principals, [the] British Ambassador and Dutch Minister shortly and with their permission would explore possibilities of [the] above approach. They acquiesced and it agreed that Hoover and I would meet with them again later in [the] morning to discuss [the] results.

4. At [a] meeting with [the] consortium group, Harden outlined what had taken place on [the] preceding evening, explaining why [the] Iranian proposals [were] unacceptable. [Orville Harden of Standard Oil Company of New Jersey] We reported our conversation of [a] few minutes before with suggestions we had made to [the] Ministers. Consortium representatives agreed this approach [was] acceptable to them and, at our suggestion, said they would modify [the] wording [of the] Iranian memorandum along [the] lines indicated. We said that their suspicions that [the] Iranian delegation was seeking [to] obtain control of management might not be founded on fact and expressed hope [that the] present difficulty might be overcome if revision of [the] memorandum [was] undertaken with great care bearing in mind [the] Iranian Government’s public relations problem. Consortium representatives agreed we should state to [the] Iranian Ministers their belief that such [a] procedure appeared [to] give hope of [a] mutually satisfactory solution.

5. Later in [the] morning we resumed discussions with [the] Foreign Minister and Finance Minister, who appeared much encouraged by [the] manner in which [the] consortium had received [the] suggestion. Consortium representatives are now preparing [a] modification of [the] Iranian proposal for discussion with [the] Iranian delegation at [a] meeting this evening.

HENDERSON