Subject: Iranian Oil Settlement

It is likely that this week the views of the United States Government and the American oil companies will be presented to the British Government on an Iranian oil settlement. We consider that the question of percentage participation of the companies should be worked out on the government level and reject most firmly the British position that the Anglo-Iranian Oil Company should have 50 per cent participation. We feel this would place in the hands of the opposition in Iran a powerful weapon against reaching agreement, and we could not urge American Companies’ participation under arrangements which would give the AIOC such a dominant role. We do not wish to control or dominate. We would not object to a total British interest of over 50 per cent, accomplished by an association in venture of the Shell Company. We believe this is an important point to sell to Eden. [Foreign Secretary Anthony Eden] Our main concern is that if AIOC were to have as much as 50 per cent participation in the consortium, this would be regarded in Iran as a cloak for the return of AIOC to Persia, a fact the Communists would play up.

The Department suggests you talk to Eden on the above matter indicating that the US Government backs up the position of the American companies that percentage must be worked out on a government level. The companies are reluctant to participate and are doing so solely in the interest of contributing to a sound solution. They feel that they themselves are in no position to evaluate such a solution, especially from the Iranian standpoint. We support their position and accept responsibility for determining percentage participation. We consider this no ordinary commercial negotiation.²

LTM [Livingston T. Merchant]