Second Thoughts on Iranian Oil
Richard Stokes’ Frank Letter to Clement Attlee

Arash Norouzi
The Mossadegh Project | May 21, 2021                    

“...I cannot help but feel that we are being rushed into insisting on an arrangement which is ungenerous to Iran...”

Richard Stokes and Premier Mohammad Mossadegh in Iran

In August 1951, Richard Stokes (1897-1957) and U.S. envoy Averell Harriman were deep in negotiations with Premier Mohammad Mossadegh over the nationalized Anglo-Iranian oil properties. At the time Stokes held the positions of Minister of Materials and Lord Privy Seal in the British Labour government, which was greatly consumed by the conflict.

Shortly after the failure of these talks to reach a settlement, Stokes wrote a frank and personal letter to Prime Minister Clement Attlee. Apparently agitated by newfound realizations and feeling misled by the Anglo-Iranian Oil Company, Stokes had some important concerns that he wished to discuss with Attlee.

Stokes also attached a contemporaneous letter he received from Aga Khan III, aka Sir Sultan Muhammad Shah (1877-1957), even though they didn’t know each other. Himself of Iranian Qajar descent, the Aga Khan had visited Tehran in February to attend the wedding of the Shah, Mohammad Reza Pahlavi, and came away with insights on local perspectives and advice for achieving a more equitable settlement.

September 14, 1951

My dear Clem,

British Lord Privy Seal Richard Stokes (1897-1957) Ever since I began to learn some of the facts concerning the oil business whilst I was in Teheran I have been very uneasy in my mind. This was brought to a head the day before I came away for my holiday by Sir William Fraser refusing to give me a copy of the A.I.O.C. 1950 balance sheet because it “had not been submitted to his Directors”. [Fraser was AIOC Chairman] I am told the fact is that in 1950 they made some £170 million profit, 60 per cent profit from Iranian oil.

For many years I have known that Iranian oil is the cheapest to produce in the world. Twenty years ago I was told that it could be delivered and sold at a profit in America at a less price than the cost of production in Texas, this for geological reasons into which I need not go now. The Iranians no doubt know it.

The 1949 balance sheet of A.I.O.C. showed £53 million written off £81 million cost, leaving the refinery etc. in at £27 million. The consolidated balance sheet shows more — £72 million written off £110 million — and £40 million written off £50 million in the Tanker Section of the business.

Whilst I am not condoning the Iranian action in their unilateral revocation of a contract, this does all lend point to their feeling that in our asking for compensation they are being asked to pay twice.

From all this I cannot help but feel that we are being rushed into insisting on an arrangement which is ungenerous to Iran having regard to all the facts, in order to maintain a 50-50 arrangement which may well be vital to America but is not vital to us where the cost of production is so much less — i.e. if as indicated in para 2 of this letter. If we do succeed in a 50-50 settlement how are we going to justify £68 million profit (3-5ths of £170 m.) on the sale of 30 million tons of Iranian oil last year?

On the 50-50 proposal and compensation I think therefore we should think again.

The next point that worries me is the insistence by our Embassy in Teheran that we cannot deal with Mossadeq. I think we could if some of the undesirable elements were silenced or removed — e.g. Fatemi, Hassibi and Makki. [Hossein Fatemi, Kazem Hassibi and Hossein Makki] It is important for us all to realise that the Shah and most competent Iranians I have spoken to consider the best settlement can be made with Mossadeq and that it is in the best interest of their country that we should attempt it. I don’t believe myself that the old gang Zia - Jaram are any use, or could survive without martial law, which the Shah is loth to introduce. Although Zia has come out unto the open, the Shah does not yet seem to be supporting him. [Seyed Zia Tabatabai, pro-British politician. Who is “Jaram”?] Now comes the news of Mossadeq’s message to Harriman. [On Aug. 24th Mossadegh handed Averell Harriman a letter rejecting British proposals] We shall be in a fix if Harriman comes out publicly saying we should resume negotiations when we have said we won’t deal with Mossadeq. The sum total of all this is that I have no respect for Shepherd’s judgement. [Sir Francis Shepherd, Ambassador to Iran] His reactions so far as I have observed them are usually ungenerous.

Finally I don’t like what we’ve done with regard to shipments almost at point of arrival. Stopping further shipments from this end I do not disagree with, but to stop deliveries from ships already in the Gulf and at Basra seems to me very mean and I fear it will be so regarded whatever the money-collectors say.

May I have a talk with you as soon as I get back next Friday?

Yours sincerely,
Dick Stokes

P.S. Half an hour after writing this the enclosed arrived from the Aga Khan. I think you ought to see at once. Much of what he writes would seem to endorse what I have said above.

September 10, 1951
Hotel Ritz, Place Vendome, Paris

My dear Lord Privy Seal,

Aga Khan III (1877–1957) Although I am not personally known to you, I feel it my duty to write to you frankly what I feel about the negotiations between A.I. Company, Great Britain and Iran. [Anglo-Iranian Oil Company]

I have not stated my views to anybody and have no intention of doing so except to yourself and to Mr. Harriman, with whose father and mother I had personal friendly relations for many years.

You are probably aware that I have both British and Iranian nationalities, and I am one of the cases in which a man may have three nationalities; British, Iranian and Pakistanian. [sic]

My Ismailia followers are numerous in Iran as well as in most parts of the British Colonies, such as Africa and Malaya.

For these reasons, I naturally would like to see Great Britain and Iran relations friendly and, better still, intimate. Strained relations between England and Iran will undoubtedly be a cause of pain and worry in Moslem countries like Pakistan and the Middle East and in fact amongst Moslems all over the world.

I was also in Teheran and saw everybody worth seeing, including the religious leaders, just before the assassination of Razmara. [Premier Ali Razmara, killed March 7, 1951] Naturally in that country people talk oil. What I feel is that, while a lot of other matters like management are being given great importance, the surest, shortest and most certain way or an understanding is not being frankly faced; all your proposals ultimately boil down to 50/50 participation between the Company and Iran. Other Near Eastern oil countries like Saudi Arabia are being quoted as an example. Even without nationalisation under the Razmara arrangement, Iran would have received practically anything between 40 to 50, so at 50/50 there is no great temptation for them to swallow questions like management etc. . . . etc. The Times has had several leaders, but there was a very great and fundamental difference between one of its early leaders and the last one. The first one said that 50/50 would have no attraction for Iranians; the second one says that they will never get more than 50/50 and that they must be treated like any other Middle East countries. [Meaning The Times of London newspaper??]

One thing I did find in Iran, even amongst my peasant followers in villages from north to south who came to see me, and the ordinary Iranian has a strong horse sense: they realise that Saudi Arabia from the very first got something like 30 to 40 per cent and, only after about comparatively few years of that rate, its 50/50. The Anglo-Iranian, whether through the fault of the Iranians or the power of the British — the cause is immaterial, the fact counts — for a generation never gave a regular and reasonable percentage like Saudi Arabia had, and they built up hundreds of millions of pounds of capital through Iranian oil at a ridiculously low percentage of payment.

Whatever the legal aspect of the matter, the moral question is that they are not on all fours with a country like Saudi Arabia which, from the very first and in a short time, got vast sums and now starts with 50/50. Countries like Iraq, Bahrein, Kuwait cannot be quoted as examples. Bahrein and Kuwait are not independent international sovereign States and Iraq, when the oil transaction took place, was mandated territory and was in fact, if not in name, a British colony. [Bahrain] Even now to the Iranians, their independence, which has gone on for several thousand years, is a totally different thing to that of a newborn state like Iraq, which is a British creation. Nothing more insults countries like Egypt and Iran than being compared to places like Jordan and Iraq which had no independence of their own for hundreds of years and are in fact (as I stated above), if not in name, protectorates.

I cannot help feeling that the Anglo-Iranian should make a difference and give something for all the benefits they have had for over a generation at a very low cost and price. If 50/50 is to be the rate of the future, then all they have built in Iran, like refineries etc. (which they would never have built up and put so much money aside for had they from the very first been paying 30 to 40 per cent like the Americans did to Saudi Arabia) should in common equity be handed over without exception freely to the Iranians and then only stick to 50/50. If not, then certainly they should suggest something like 60/40 and be satisfied with small profit in future and thank their stars for having had a good run for more than a generation.

From what I was told by the man in the street, whether a high priest or one of my followers in Ispahan or Kashan, there has been such a sense of injustice for over a generation that unless something right and proper in equity and obviously so is done on the British side, they would rather have no bread than half a loaf. [Esfahan] Do not forget that Samson was an Oriental. The only people I met in Teheran who would be ready to come to terms on a practically 50/50 basis are the corrupt hated gangs of the sort that have taken their orders in the past, either from the British or the Russian Embassy, according to which way the wind blew. In London they seem to be waiting for that crew to come back but they forget that that is playing into the hands of the Communist Party, for these people are discredited. The poor Shah, for whom I have the greatest admiration and regard, and Prince Aly Reza and the Minister Ala, are the only honest persons in the Court circle. [Ali Reza Pahlavi and Court Minister Hossein Ala] Arrangements made with the old gang above mentioned may look all right for the time being, but if there is a time of stress, you will see what propaganda value that will have for their northern neighbours and will leave with the nation feelings of despair and injustice.

Now finally what I say is that if Anglo-Iranian honestly, and even generously, takes into all consideration the principle of unearned increment since the beginning, and this fact gets known to all Iran, then you will certainly get a satisfactory arrangement approved by Parliament, whether by the present Cabinet or a respected Ala or similar Cabinet without intriguing for the hated and corrupt old gang.

Yours sincerely,
Aga Khan

[Annotations by Arash Norouzi]

Source: A Prime-Minister Remembers: the War and Post-War Memoirs of the Rt. Hon. Earl Attlee, K.O., P.C., O.M., C.H., Based on his Private Papers and a Series of Recorded Conversations (1961) by Francis Williams

What Went Wrong in Iran? | Amb. Henry Grady Tells All (1952)
What Went Wrong in Iran? | Saturday Evening Post, Jan. 5, 1952


Related links:

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

Pres. Truman and Dr. Mossadegh’s First Messages on Iran Oil Dispute (June-July 1951)

Persian Oil Nationalisation (British Recognition) | November 25, 1953

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

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