Telegram from Ambassador Henry Grady to Secretary of State Dean Acheson, Number 737

INCOMING TELEGRAM Department of State copy / OFF TELEGRAPH BRANCH 18 1 X TOP OEORET 901 A Action Control: 11240 Rec'd: August 22, 1951 NEA FROM: Tehran 6:25 a.m Info TROMAR s. TO: SS Secretary of State DECLASSIFIED RECORDS E. O. 11652, Sec. 3(E) and (D) G NO: 737, August 22, Noon. SERVICE" EUR to D of State letter, Ano 4-11-2 NLT 74.2 E By NLT. He NARS 9.21.7 DCR NIACT. SENT LONDON 163, EYES ONLY AMBASSADOR, RPTD DEPT 737. FROM HARRIMAN FOR PRESIDENT AND SECRETARY. NO DISTRIBUTION EXCEPT AS DIRECTED BY SECRETARY'S OFFICE. Stokes negotiations with Mosadeg are approaching an impasse with imminent danger negotiations may be broken off. He appears to be fully resigned this possibility and has taken very firm line with Mosadeg. Ultimatum which he handed Mosadeq yesterday to effect he must have indication by noon today (Wednesday) that Iranian Govt prepared negotiate on realistic basic or else he will leave is reported to have created bad impression and is source of concern Ala and other moderate elements who feel ultimatum to Iranians are serious tactical error and sound too much like AIOC tactics. I believe stokes attitude at least some extent influenced by messages from Brit Govt indicating perhaps he has gone too far in concessions. While there appears to be little chance that satisfactory arrangements can be worked out with Mosadeq it is in my judgment of very great importance that every effort be made to do so. The 3 principal points to be settled are (1) purchase of most of oil by Brit interests, (2) arrangements for operation within Iran which wld enable retention Brit staff and (3) financial arrangements. Mosadeg has already yielded on first point and present difficulty centers largely around second. If Mosadeq shld yield on this point only third major problem wld remain. If break in negotiations is inevitable manner in which this occurs is of great importance. Stokes shld avoid attitudes and actions which wld permit Mosadeq to place onus of responsibility upon him. Moreover departure of mission from Tehran shld if possible be under circumstances that wld permit resumption of negotiations at some future time without necessity leveloping new formula or statement new conditions under which this cld be done. If a more reasonable govt shld evolve, it wld be much easier for a new PRIMIN to resume talks where Mosadeg left off POR OLCRET REPRODUCTION OF THIS MESSAGE ES PROHIBITED