2120. Noforn. [no foreign dissemination] Limited distribution.

1. This morning Hoover and I had [an] informal and friendly audience [with the] Shah lasting one and [a] half hours. [Under Sec. of State Herbert Hoover, Jr.] He [is] primarily interested in various aspects [of the] impending negotiations with [the] consortium but also asked many questions regarding [the] coming compensation negotiations with [the] British. Regarding [the] latter we assured him [that] it [is] our understanding [that the] discussions [are] limited solely to [the] determination [of a] lump sum for loss and damages arising out [of] nationalization, after consideration [of] Iranian counterclaims. Compensation for [the] value [of] assets and for future profits would be included as part [of the] consortium agreement if [a] satisfactory solution to other problems [are] achieved.

2. [The] Shah expressed concern regarding currency negotiations with [the] British, that Iran would not have sufficient dollars if operations [are] conducted in sterling. We explained [that the] matter [is] one of extreme complexity and endeavored [to] assure him we believed [the] British would be sympathetic and fair in working out [a] solution satisfactory [to] both sides. We stated it [was] our understanding [that] Saudi Arabia, Kuwait and Iraq also operate on [a] sterling basis, which he had not appreciated as had believed they still paid in gold. He appeared satisfied [with] our explanation.

3. Hoover told [the] Shah [that] he had not had [the] opportunity [to] discuss currency matters with Ebtehaj in Washington for several months and did not know [the] latter’s latest thinking, for which he had great respect. [Abolhassan Ebtehaj, who developed Iran’s banking system, then Chief of the Plan Organization and a recent International Monetary Fund advisor] I asked directly if Ebtehaj [was] coming [to] Iran soon, but [the] Shah appeared not to know. (We [are] considerably concerned that Iran may not have competent negotiating advice on [the] currency question, and hoped [to] plant [the] idea of getting Ebtehaj here [at the] soonest as [the] British [are] obviously playing [their] cards very close to [the] chest and have refused [to] consult with us regarding their full intentions. We do not feel [it would be] appropriate [if] we attempt [to] advise [the] Iranians regarding these matters under [the] present circumstances.)

4. As on former occasions [the] Shah again asked regarding [the] sincerity and good will of [the] British. Hoover assured him he [was] convinced that His Majesty’s Government sincerely wished [to] arrive at [a] fair settlement [of the] oil problem and [was] cooperating fully [to] bring it about. [The] Shah then stated [that] he had some doubts regarding [the] sincere desire [of the] AIOC [to] see [a] solution effected and asked Hoover’s opinion. [Anglo-Iranian Oil Company] Hoover replied [that] he believed [the] AIOC [is a] fine organization, many of whose personnel [are] friends and admirers [of] Iran. But occasionally there were difficult personalities to contend with in industry just as there were sometimes in governments but that time usually took care [of such] such matters. I stated I [was] sure His Majesty’s Government would not allow such [a] factor [to] interfere with reaching [an] equitable settlement.

5. [The] Shah asked further questions regarding management and refining as well as plans envisaged [to] conduct negotiations. We answered in general terms and repeatedly endeavored [to] assure him of [the] good will and sincerity [of] all concerned.

6. [The] Negotiating group has since [its] arrival been reviewing plans for negotiations with ourselves and [the] British Embassy in anticipation [of the] first formal meeting with [the] Iranians [on] April 14. [The group representing Western oil companies arrived April 11th]

HENDERSON