Preliminary to any joint US–UK move to inspire the Iranians to replace Mosadeq, there should be prior understanding with the British that:

1. Our common primary objective is to encourage the establishment of a more stable government in Iran, which government would be oriented toward the West.

2. Although it is earnestly hoped that an equitable solution of the oil problem will eventually be possible with the new government—such a solution would in fact be necessary if Iran is to achieve stability—it must be recognized that any successor government would be unlikely to survive if it were to indicate early willingness to accept proposals previously rejected by Mosadeq, including the proposals of February 20, 1953, or probably even were it to indicate an early willingness to reopen negotiations on any basis which might be acceptable to the British.

3. The object being to get a stable government, and it being agreed that the new government would find it difficult, if not impossible, to accept proposals previously rejected, maximum ingenuity and flexibility should be demonstrated in coming forward at the proper time with new proposals.

4. To be acceptable to the Iranian public opinion and thus to the Iranian government, such proposals should:

(a) Recognize nationalization.

(b) Provide that the Iranians should have complete control of all property, installations and production in Iran.

(c) Allow the Iranian Government complete freedom of choice of technical and managerial personnel.

(d) Beyond such specific sales contracts as may be worked out in connection with a settlement, allow the Iranians complete freedom of sales of oil and oil products.

(e) Dispose of the problem of compensation within the framework of the Nine-Point Law and on a basis which would show that Iran is not being saddled with excessive indebtedness to the AIOC. [Anglo-Iranian Oil Company]

5. No commercial concessions or special political privileges should be asked of Iran.

6. While the US agrees with the UK that it would be desirable for the amount of compensation to be determined by impartial international arbitration or adjudication, other methods of determination (or possibly even a moratorium) should not be excluded on principle.

7. Recognizing that the economic and political stability of Iran is to a large degree dependent on the revival of its chief industry, both the US and the UK will take appropriate steps to encourage and facilitate the resumption of large-scale exports of Iranian oil.