Telegram from Ambassador Henry Grady to Secretary of State Dean Acheson, Number 240

NLT/PSF -5UBJ.360 copy / OF2 INCOMING TELEGRAM Department of State 670 TELEGRAPH BRANCH 15 X TON SECRET A Action Control: 8581 Rec'd: July 17, 1951 NEA FROM: Tehran 11:14 a.m. Info TO: Secretary of State SS a a Sec. 3(E) and G NO: 240, July 17, 3 p.m. 5-31-7f D pr. of State letter, EUR PROUEST NLY DCR By NLT He NARS D le 10.274 PRIORITY FROM HARRIMAN FOR THE PRESIDENT AND SECRETARY ; DISTRIBUTION ONLY AS DIRECTED BY THE SECRETARY'S OFFICE. Sunday Grady briefed me on developments and at his suggestion I saw Mosadeq yesterday alone except for an interpreter. I called on him in the morning and he came to my residence in the late afternoon. Between the talks Grady and I lunched with Shah. At my first talk Mosadeq received me most cordially at his home. His only significant remark was: "When there are two divergent points of view it is good to have the help of a third party. Otherwise he gave me his interpretation of events as told to and reported by Grady on numerous occasions. I proposed that we should discuss the details of the problems of oil production and distribution at our next meeting. For the afternoon session he brought with him Hasibi, Under Secretary of Finance and Saleh, chairman of the National Oil TROMAN Co. Walter Levy gave these two men probably their first frank any AND detailed education on the technical aspects of how the world- wide oil business was conducted. While these technical dis- C.S. cussions were being carried on, I talked with Mosadeq about how a settlement might be reached. He was completely rigid in his statements. He had, no desire to talk with representatives of the British Government or the oil company. He asked that I propose a formula of settlement, provided it conformed to the nine points of the recent Nationalization Law. If this formula met his approval, I could then take it to the British. This I declined to do, but emphasized the need for an immediate modus vivendi. I explained the disastrous results that would follow a shut-down of the refinery, not only in the immediate effect on the Iranian economy but in the problem of getting the business going again. I explained the difficulty of bringing an operating organization together again and of selling oil after the market had been taken over by other sources. Mosadeg took the position that then Iran wld fall into Communist con- trol. This he considered was the obligation of the British and ourselves REPRODUCTION OF TIIS ESSAGE IS PROMIBITED