Indecent Proposals : 1951

Oil, Iran & the Anglo-American Art of Non-Negotiation

Ebrahim Norouzi, MD & Arash Norouzi

The Mossadegh Project | August 3, 2011                      

U.S. envoy Averell Harriman and Premier Mohammad Mossadegh discuss the matter of oil nationalization

As soon as Iran’s nine-point Oil Nationalization Law passed in the Senate in May 1951, the government had another challenge to overcome: the settlement of all outstanding financial issues with the former company. The main issues to resolve were compensation payments for the takeover of the Abadan oil installations, settlement of previous accounts, and the question of oil sales to former buyers, of which Britain was by far the largest.

Yet the Iranians would soon discover that their hopes for a negotiated settlement were doomed from the start. Internal documents and other available information prove that the British never had any intention of accepting nationalization as a reality. And despite its alleged observer role, America’s position soon aligned with that of its closest ally. Together, they reached not for compromise, but, in the words of U.S. Assistant Secretary of State George McGhee, to merely “do lip service to nationalization”.

Basil R. Jackson (AIOC) The charade began in the summer of 1951, after Prime Minister Mohammad Mossadegh’s administration and representatives from both houses of Parliament invited the British to Tehran for talks.

On June 11th, the first British negotiating team arrived, headed by Basil R. Jackson, the deputy chairman of the Anglo-Iranian Oil Company (AIOC). On the 13th, Jackson had an hour long discussion with Premier Mossadegh, and upon his suggestion, visited the vast, overpopulated slums of Southern Iran. The experience would have little effect on AIOC’s negotiating terms. After several meetings with Iranian officials, the British team submitted an astonishing offer:

All the assets and installations of the former AIOC were to be transferred to a new National Persian Oil Company which would then be transferred to a ‘third company’ formed and operated by the former AIOC managers!

The proposal, in absolute contradiction to the hard-fought Oil Nationalization Law, was merely a way for AIOC to revive the former company in a new form. Mossadegh, quoted in Western media, described it as “childish and designed to deceive children”. Negotiations broke off immediately, and, on June 22, the Jackson delegation returned to London, empty-handed and exasperated. “There is no hope of oil negotiations reopening while the present Persian government is in power”, Jackson told the press upon his arrival.

Shortly after Jackson’s failed mission, U.S. President Harry S. Truman, concerned about the gravity of the matter and its potential harm to American interests, offered to send one of his closest advisers, W. Averell Harriman, to Iran as a mediator. Dr. Mossadegh accepted the offer provided that Iran’s precise nine-point Oil Nationalization law of May 1, 1951 was recognized as the basis for further talks, repeatedly emphasizing its sacredness in his reply to Truman on July 11th.

“...No proposal or suggestion has been made, up to the present, by the former oil company denoting their acceptance of the principle of nationalization...”, Mossadegh explained. “Provided, of course, that our indisputable national rights are respected in accordance with the laws concerning the nationalization of the oil industry, the government and the people of Iran are ready to enter into immediate discussions with the aim to remove all the disputes...”

Requiring Britain’s recognition of nationalization as the condition for talks, Mossadegh believed, would in effect nullify the 1933 oil concession originally set to expire 40 years later, while invalidating any legal claims over financial losses from the installations.

The following is a summary of subsequent events as they unfolded:

July 15
W. Averell Harriman arrives in Tehran W. Averell Harriman, Dr. Mossadegh and Iranian officials

Averell Harriman arrives in Tehran along with a team that includes William Rountree, the State Department petroleum adviser and Walter Levy, the noted American oil expert. Several meetings take place between Mr. Harriman and the Iranian representatives and a ‘four-point’ proposal is formulated by the parties. As a condition for resumption of negotiations with Britain, the proposal requires that the nationalization of the oil industry in Iran be formally recognized by the British government. This is then forwarded to the British by Mr. Harriman.

July 31

The Charge d’affairs of Tehran’s British Embassy, George H. Middleton, accepts the principle of Oil Nationalization in a letter on behalf of his government.

August 4
Sir Richard Stokes, a British cabinet member and Lord Privy Seal, arrives in Tehran as head of a new negotiating team composed of nine members from his government and the former Anglo-Iranian Oil Company. Prior to departure, Stokes told reporters gathered at London’s Heathrow airport “...I feel quite sure that the discussions will be carried out with the utmost goodwill on both sides, and that being so, I’m quite sure there’s no difficulty which can’t be solved”.

August 6

Talks between Stokes’ team and the seven-member Iranian negotiating team begin with Harriman’s intermittent participation.

August 7

Sir Richard Stokes, Averell Harriman and Vernon Walters tour the Abadan oil refinery. Speaking to British workers in an Abadan club about the threat of Communism taking over as Iran’s economy plummeted, Stokes tells them, “It is frightfully important that we should hold on here and rescue these people from their folly”.

August 13
Sir Richard Stokes and Dr. Mossadegh After several meetings, Stokes submits an eight-point proposal which is essentially an updated version of the Jackson proposal from June. Stokes’ proposal includes the creation of an organization which would have a monopoly on the purchase of oil on behalf of the former Anglo-Iranian Oil Company, creation of an operating agency to act on behalf of the AIOC composed of British staff with Persian representation on its board,1 and a 50/50 profit sharing arrangement. Not only is this new proposal contrary to Iran’s “four-point” formula, it also violates the Nationalization Law, despite Britain’s supposed acceptance of it prior to the arrival of Stokes.

New York Times headline, August 16, 1951: IRAN REJECTS PLAN OF BRITISH ON OIL The Iranian government rejects Stokes’ proposal, but counters it by offering to hire the British technicians on an individual basis with the same salary as they were receiving under AIOC. In addition, Mossadegh agrees to have the majority of the newly formed NIOC managers be comprised of first rate experts from neutral countries. Stokes responds by insisting that the British experts remain in control of all aspects of production and operations.

Niagara Falls Gazette, August 21, 1951: Britain Withdraws Proposal, Asks Iran to Alter Attitude August 21

In a letter to Mossadegh, Stokes retracts the eight-point proposal and threatens to discontinue negotiating if Iran does not accept a British general manager by the following day. He tells the press: “Iran must decide whether it wants to dabble in politics and become a helpless bankrupt—or wishes to base its affairs according to correct principles as laid down in the eight-point proposals.” Accepting British terms, he adds, would mean “a period of security and comfort for Iran and a long period of friendship between Iran and Britain.”

August 22

Mossadegh gives his updated report on the oil talks to both houses of the Majles and Senate, reading Iran’s reply to the British offer which had been submitted to them previously but not made public at the insistence of Harriman. “Should the honorable British delegation take the objections and protests of the Iranian delegation into account”, it read, “this delegation, as it has repeatedly stated and as it has proved in practice, welcomes a continuation of the talks with great enthusiasm.” They offer him their overwhelming support and full vote of confidence.

Mossadegh later hands Stokes the Iranian reply to his ultimatum, containing three key points on the arrangement of sales and operations of Persian oil. Stokes rejects them.

August 23

Stokes and his team leave Tehran for London.

New York Times headline, August 23, 1951: BRITISH – IRAN TALKS ON OIL BREAK DOWN; DOOR IS LEFT OPEN
August 24

Harriman departs Iran for America after sending a letter to Mossadegh expressing his regret in not having reached an agreement.

Arriving home in England after 19 days in Iran, Richard Stokes blames the diplomatic failure on nationalist extremists “whipping up hate” who “dreamed up nationalization as described by Lenin and Marx without having any solid plan for carrying it out”. He then drives directly to Prime Minister Clement Attlee’s country home to deliver a full report on his mission. Alarmed, Attlee orders an emergency meeting with his ministers.

September 5

Speaking before the Senate, Mossadegh announces that if negotiations are not resumed, the resident permits of all British technicians will be cancelled.

New York Times headline, September 6, 1951: Britain Breaks Off Negotiations With Mossadegh Regime in Iran

September 6

Britain responds to the ultimatum by breaking off all negotiations with the government of Prime Minister Mossadegh.

September 12

In a memorandum to Mr. Harriman, the Iranian government says that in the absence of a satisfactory conclusion to the recent negotiations, and with British technicians not permitted by their government to accept employment by the Iranians, the government of Iran would be compelled to withdraw the resident permits of the British oil workers. Harriman, however, refuses to pass on the Iranian communication to the British. A new memorandum is then prepared by the Iranians which includes additional concessions and is sent directly to the British ambassador to Iran.

September 15

In a letter to Mossadegh, Harriman says that Iran’s recent proposals are impractical and represent, largely, a “retrogression”. He also states firmly that the U.S. considers the takeover of Abadan, “regardless of the intent, confiscation rather than nationalization.”

September 22
Harriman, in response to Mossadegh’s inquiry about why he had refused to pass along his proposal to the British, says that there is nothing new in the Iranian government’s suggestion and that the British representatives would not have accepted it.

Utica Observer-Dispatch headline, August 23, 1951 — Failure of Talks Leaves Iran Ripe For Reds: Britain Threatens Force Rather Than Quit Refinery

September 27

As British army, navy and air force units linger in the Persian Gulf, awaiting word of possible orders to invade Iran, Iranian troops seize the Abadan refinery.2

October 4

The last of the British are evacuated from Abadan and shipped home to England.

As the timeline demonstrates, from the beginning of negotiations, the British engaged in a deliberate strategy of “non-negotiation”. Using the process as a stalling tactic, they hoped the economic sanctions they themselves had imposed would bring about a financial collapse in the country, leading to the fall of Mossadegh’s democratic government. As British scholar (and former AIOC staff member) L. P. Elwell-Sutton later expressed it,

“...the British attitude was that, in return for their recognizing the principle of nationalization, the Persian government should forego its insistence on that principle.”3

Britain’s animus towards Mossadegh preceded everything, with all maneuvering rooted in the conviction that Mossadegh should be removed from power by any means possible and replaced by a figure more amenable to their demands. Stokes knew, for example, that his offer was in essence the exact same ploy that Basil Jackson had brought to Tehran six weeks earlier, but, acording to Foreign Office records, had been instructed to “dress it up and present its main points in a different order, together with trimmings or sweetenings as might be required.”

Stokes, in fact, “was later to acknowledge much of the validity of Mossadegh’s claims”, according to the 1978 memoirs of Vernon Walters, who accompanied Harriman in Tehran as a translator.3 Anthony Eden, the British Foreign Secretary in Winston Churchill’s government, had decided that under no circumstances should there be any compromise with Mossadegh, since it would only strengthen his position.

Subsequent attempts to settle the dispute, including the Churchill-Truman scheme and the World Bank proposal, also attempted to circumvent Iran’s prerequisite for negotiations. As Mossadegh’s office chief Nosratollah Khazeni explained many years later, “Every one of the four proposals was incompatible with the Oil Nationalization Law”.

Allahyar Saleh, Averell Harriman, Premier Mossadegh and Amir Homayoon Boushehri in Tehran, July 1951

Much has been made of the supposed “inflexibility” of Dr. Mossadegh during Iran’s dispute with Britain. Yet Mossadegh was actually willing to make concessions on just about everything — including the price and production levels of oil — but not on the operational control of the refinery, which had to remain in Iranian hands. For him, Iran’s independence from foreign exploitation and interference was of far greater importance than increased oil revenues.

The notion that America was an impartial intermediary acting in good faith is also not supported by their actions. Before leaving the U.S. for Iran, Harriman met with the representatives of leading U.S. oil companies who advised him to stick with equal division of profits, something that Iranians had long rejected.4 Besides, the international oil cartel had no intention of allowing Iran to become an independent player.2 Averell Harriman and Dr. Mossadegh Harriman himself had also ruled out the use of Iran’s nine-point nationalization law as a basis for settlement — in part because it might encourage other oil producing countries to do the same. He went as far as promising the British that U.S. officials would not push them to go beyond the Jackson proposal. The composition of Harriman’s mediation team, too, involved clear conflicts of interest. According to Truman’s Assistant Secretary of State George McGhee, both William Rountree and Walter Levy played favoritism towards the five largest American oil companies, and Levy was even on the payroll of some of these companies.6

In an essay, The United States and Great Britain Navigate the Anglo-Iranian Oil Crisis, Mary Ann Heiss, a specialist in the history of U.S. foreign relations, explored the shifting Anglo-American relationship regarding Iran’s oil nationalization. She identifies three phases in the American position: benevolent neutrality through mid-1951, followed by Anglo-American partnership as the Truman administration decided to back up the British against Iran. Heiss writes that the third phase—the era of U.S. domination—began with Eisenhower’s inauguration, resulting in the creation of the international oil consortium that replaced the AIOC in Iran.

It is highly questionable, however, that a period of “benevolent neutrality” ever existed in the American attitude towards the oil dispute. Aside from scattered rhetoric either encouraging Iran or declaring neutrality, in practical terms, the Americans were always antagonistic towards nationalization. Harriman’s own views on Iran’s oil nationalization prior to going to Iran, and his efforts to pressure Iran to accept the British line also do not support the “benevolent neutrality” theory.

New York Times headline, August 21, 1951: Harriman Pushes Oil Plan of British on Iran’s Leaders

Even before Mossadegh’s premiership, the American government looked upon the notion of Iranian Oil Nationalization with disfavor. In March of 1951, Assistant Secretary of State George McGhee, himself a prosperous oil man and a millionaire by age thirty, had been sent to Iran to appraise “the threat by the National Front to nationalize the [AIOC’s] oil concession.”6 McGhee then met with the Prime Minister Hossein Ala and Shah Mohammad Reza Pahlavi, both of whom told him that “...they could not [openly] oppose nationalization”. Unphased, McGhee told the Shah that “we would support him in standing up to the National Front and their Nationalization program.”

“I then went over various alternative arrangements with the Shah”, recalled McGhee, “that might do lip service to nationalization, but cut it so thin that it would be workable for the AIOC and Iran and not upset concessionary arrangements elsewhere”.

On March 20th, 1951, as McGhee was leaving Iran, he learned that in a unanimous decision, the Majles enacted into law the principle of Oil Nationalization. As soon as he returned to Washington, he began preparing for talks with the British in an attempt to develop a “common policy toward Iran.” New York Times headline — November 1, 1954: IRAN’S OIL MOVING TO WORLD MARKET — Mossadegh Era at an End as British Tanker Sails— Flow To Be Stepped Up McGhee assured the British that his government found nationalization “as distasteful as the British...”, yet suggested neutralizing it through “negotiation conducted to assure continuing AIOC operational control and a suitable share of the profits”.6

By late 1954, following the violent overthrow of Dr. Mossadegh’s legal government in a CIA/MI6 plot, the Anglo-American “common policy” resulted in the establishment of an international oil consortium with full control on the exploration, production and refining of Iranian oil. Thus, the fulfillment of an American aim that dated back to the early 1940’s: a major ownership in the strategic and highly lucrative trade of Iranian oil...with the additional bonus of a pliable client state in the heart of the Middle East.


1 Persian Oil: A Study in Power Politics (1955), Laurence Paul Elwell-Sutton
2 The Anglo-Iranian Oil Dispute of 1951-1952 (1954), Alan W. Ford
3 Silent Missions (1978), Vernon A. Walters
4 Oil, Power, and Principle: Iran’s Oil Nationalization And Its Aftermath (1992), Mostafa Elm
5 50 Years of Iranian Oil (2005), Mostafa Fateh
6 Envoy to the Middle World (1983), George C. McGhee

Mossadegh & Arbenz & Lumumba & Sukarno & Allende... shirts

Mossadegh & Arbenz & Lumumba & Sukarno & Allende... t-shirts

Divvying Up the Loot: The Iran Oil Consortium Agreement of 1954
Divvying Up the Loot: The Iran Oil Consortium Agreement of 1954


Related links:

Operation Ajax Was Always An Open Secret | A Timeline

Installing A Dictatorship: Secret U.S. Memo Grooms Mossadegh’s Successor (1953)

Abadan: The First Oil Crisis (BBC Timewatch Video)

MOSSADEGH t-shirts — “If I sit silently, I have sinned”

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