Memorandum, State Department Summary of Telegrams

MLT(Naval Aide 1278 OFFICE OF THE SECRETARY OF STATE they WASHINGTON DECLASSIFIED E.O. 12065, Sec. 3-402 November 8, 1951 State Dept. Guidelines, March 6, 1982 By DOB NLT, Date 9-6-87 T o s E SUMMARY OF TELEGRAMS IRAN There was a meeting in Paris yesterday on Iran attended by Messrs. Eden, Flett, Rowan and Ferguson for the UK and Messrs. Acheson, Harriman, Gifford, Perkins and Linder for the US. Mr. Ferguson (UK) led off with the statement that fair compensation must be obtained in order to protect British assets in other areas. Iranian counter - claims were without merit and, if admitted, would have serious repercussions in other places. Compensation might be waived on a clear and demonstrable 50-50 arrangement and an assured supply of oil. In the opininn of the UK, how- ever, neither of these conditions is met. The AIOC is unwilling to buy oil on a cost plus basis since the refiner would have no incentive to control costs and would be under constant pressure to increase expenditures for amenities. The AIOC would object in principle to a fixed price rather than profit sharing, but it would accept the former if free oil were provided as compensation. Ferguson stated that the Dutch would be unwilling to run the refinery because: a) they would require some measure of control oyer crude production to insure that suitable types of crude were produced; b) there are not sufficient technicians when US and UK nationals are excluded; c) neutrals on the Board would not be reassuring since they would be appointed by Iran. Mr. Rowan of the UK referred to the crisis in the UK and the Chancellor's stand 01 fighting inflation internally; the measures announced yesterday represented only a beginning. If the UK is weak in respect to Iran all confidence will be lost and the effect on their invisible earnings will be catastrophic. Oil is important to the UK, but the British position in the Mid- dle East is vital. In Iran the British face a finite loss to which they can re- - concile themselves, but to make a bad agreement (such as they consider the US proposal) would expose them to an incalculable risk. Rowan's specific objections to the American proposal were: 1. The effect in other places of the exclusion of Britishers. 2. No compensation. (Compensation can be waived, he said, only if a clear and demonstrable 50-50 arrangement is reached; there was disagreement as to whether the US proposal did in fact déviate substantially from the 50-50 basis.) TOPSECREI