Telegram from Ambassador Henry Grady to Secretary of State Dean Acheson, Number 397

INCOMING TELEGRAM Department of State COBY / of 2 TELEGRAPH BRANCH 6-1-1 313 TOP SECRET A Control: 14279 Action Rec'd: July 27, 1951 NEA FROM: Tehran 2:49 a.m. Info SS TO: Secretary of State G EUR NO: 397, July 27, 8 a.m. E VEMN They DCR NIACT. SENT DEPT 397, LONDON 81, EYES ONLY FOR AMB. FROM HARRIMAN FOR PRESIDENT AND SECRETARY; DISTRIBUTION ONLY AS DIRECTED BY SECRETARY'S OFFICE. For the last two days Brit Amb has been telling Iran officials that Brit Govt will not (rpt not) consider Iran Govt's proposal unless Irans first agree to court decision or status quo, along lines of his statement to FONMIN reported MYTEL to Dept 382, London 74 July 25. In accordance with my suggestion few days ago, the Shah also received him Thursday. I have succeeded so far in inducing Mosadeq to disregard these statements until hearing officially from London, as otherwise he wld have made aggressive statement to Majlis making more difficult if not impossible Brit acceptance of proposal. Thursday evening Rountree called on Shepherd who reiterated these two alternatives. When Rountree pointed out political impossibility of these steps, and that if he continued insistence upon them the only result wld be Iran insistence on prior acceptance of 9 point law, Amb said that he cld not (rpt not) recommend Brit Govt acceptance of proposal, at least until tension was relieved in south. He minimized grave consequences of another impasse. Earlier Thursday afternoon I saw oil comm with FINMIN and Busheri to ask them to take appropriate steps to relieve tension. As Brit Amb had spoken to one of senators along lines stated in first para above, they were indignant and not (rpt not) in mood to make further gesture until Brit reply was known. They said that tension wld automatically be relieved if favorable response was received from Brit. At my earnest request, however, they discussed several ways this might be done at once and decided the only practical and political possibility was to ask Mosadeq to send msg to Abadan request- ing Irans to make every effort to create more friendly atmosphere. They agreed to discuss matter with Mosadeq Thurs night In the TOP SECRET REPRODUCTION OF THIS MESSAGE IS PROHIBITED