PERSIA GRANT OF AN OIL CONCESSION IN NORTHERN PERSIA TO THE SINCLAIR EXPLORATION COMPANY, SUBJECT TO CONFIRMATION BY THE PERSIAN MEJLISS 891.51/295 Memorandum by the Chief of the Division of Near Eastern Affairs, Department of State (Dulles) [Extract] 1 [WASHINGTON,] March 26, 1923. Supplementing my memorandum of March 13th regarding the North Persian oil concession and the Persian loan matter, I have had recent talks with Mr. Shuster 2 (March 20) and Mr. Wellman 3 (March 21) ... Mr. Shuster informed me that his negotiations for a loan to be taken by Morgan and Company in case the North Persian oil concession was given to the Standard Oil Company were progressing satisfactorily. He intimated that, while the Morgan firm themselves did not have a particular interest in this as a business proposition, they were willing to oblige their important client, the Standard Oil Company, and would probably take a five million dollar loan to be issued at about 96 bearing 7 per cent, this loan to be secured by the AngloPersian Oil Royalties. The Morgan firm desired, however, to place the balance of the ten million dollar loan desired by the Persian Government in London. Mr. Shuster said that Mr. Lamont had frankly explained to him the reason for this, namely, that the British Government had a settled and firm policy in Persia and were in a position to give their interests adequate support, whereas the American Government had never had a very definite policy in Persia, had relatively small interests in that country and that any policy which might be adopted would be influenced by changing administrations. Mr. Shuster intimated that he appreciated the force of Mr. Lamont's views, and I gathered that he did not object to British participation in the loan. 1 'Morgan Shuster, fiscal agent in the United States for the Persian Government. 8 Guy Wellman, of the Standard Oil Co. of New Jersey. 'T. W. Lamont, of J. P. Morgan & Co. In this connection, I remarked to Mr. Shuster that he undoubtedly appreciated the Department's attitude of absolute impartiality between the two competing companies, which applied to the question of the loan as well as to that of the oil concession; adding that I felt there was one point to be thoroughly safeguarded, namely, if the Persian Government desired a loan from Morgan and Company and that loan were partially placed in England, the Persians should be fully informed in this regard and not be led into a deal which they might consider to be wholly American and then find that they had unwillingly [unwittingly?] been facilitating the floating of a Persian loan in England. I added that if the Persians desired to take an English loan they of course had full liberty to do so. The next day (March 21st) I had a short talk with Mr. Wellman. He substantially confirmed Mr. Shuster's remarks about the satisfactory progress of the loan negotiation with the Morgan Company and also reiterated the desire of the Morgan Group to divide their loan between England and the United States. I remarked to Mr. Wellman that in my personal opinion it was important to deal with the utmost frankness with the Persians in this matter so that in case that Government should decide to ask Morgan and Company for a loan and if British capital were to participate in the loan, the Persian Government should fully understand this and not be led into making an offer in the belief that an American bank and American capital was solely interested. A[LLEN] W. D[ULLES] 891.6363 Standard Oil/276: Telegram The Secretary of State to the Minister in Persia (Kornfeld) [Paraphrase] WASHINGTON, March 30, 1923—11 a.m. 7. Advices from Sinclair Company that they are informed that Millspaugh, Administrator of Persian Finances, is urging upon Persian Prime Minister the concession of North Persian oils to Standard. View of Sinclair is that such advocacy may be taken by Persians as expression of policy of United States Government, and they ask that intimations be sent to the Government of Persia that the attitude which the Administrator General may take in respect to concessions is not to be regarded as indicating the position of the Department. Sinclair Company have been told that Department has received no corroboration of statements regarding position of Millspaugh. They have been further informed that when Millspaugh took service in Persia he dissociated himself completely from this Department, and that he has now no official status in the United States. Since this fact was plainly indicated in note of June 22 from the Department to the Persian Minister, no misunderstanding now seems possible. If you should judge, nevertheless, that there may be some misapprehension on this point, advise Department by telegram and the matter will be fully explained to the Persian Minister in Washington. The complete impartiality of the Department in this affair should be observed and should not be in doubt. HUGHES 891.6363 Standard Oil/293 The Consul at Teheran (Gotlieb) to the Secretary of State TEHERAN, June 27, 1923. I have the honor to enclose herewith a complete text of the bill which passed the Persian Medjliss on June 14th [13th] whereby the Government is empowered to offer the North Persian oil concession to an American company conditional upon the latter's arranging for a $10,000,000 loan to the Persian Government. The project was approved with 50 affirmative votes out of a total of 68 in spite of the most vigorous efforts on the part of British interests locally to delay its passage. Undoubtedly, as it stands, it will prove inacceptable to American companies of whom only two (the Standard Oil Company and the Sinclair Exploration Company) are serious competitors. This was the contention of Dr. A. C. Millspaugh, the Financial Adviser, who urged, without success, the rejection of the measure by the Persian Medjliss. Under normal circumstances, one might be in accord with his desire to have the completed bill in as reasonable and acceptable a form as possible before allowing its submission to American bidders, but in view of the fact that the term of the Medjliss was to expire within a few days and that there was obviously no time to arrange even for the least radical of amendments much less for the complete redrafting of the measure in question, his opposition is not easily explained. It should be borne in mind that the preliminary negotiations required to secure the submission of the bill extended over a period of one and half years. Its rejection meant the entire abandonment of the project until the convening of the next Medjliss. There was a gap of four years between the present parliament and its predecessor, and with conditions as they are at present, there is no absolute certainty that a similar period may not elapse before a new Medjliss is convened. "Not printed. 145231-vol. II-38-53 Article XIV: This is the most significant clause in the project and one which well illustrates the spirit which pervaded the Medjliss and Persian public opinion in general: according to this, the concessionaire can under no circumstances assign or transfer his rights to any foreign Government or to one or more foreign citizens. This, of course, is meant to definitely and finally exclude British participation and if, as is understood in some quarters, the Standard Oil Company is committed to an understanding with the Anglo-Persian Oil interests, it will be difficult for it to consistently accept a project containing this reservation. Note however that the Sinclair project contains a similar restriction upon the transfer of any interests to foreign companies. The importance which is attached to Article XIV may be gauged by the wording of Article XXXI which authorizes the Government to "change the wording and phrasing of this contract in so far as clearness and legal effectiveness may require with the exception of the provisions of Article XIV". The Government is evidently determined to take no chances in this connection. This article also specifies that the Persian Government or Persian subjects shall have the right to purchase 30% of the entire capital necessary for the operation of the concession. While Article XIV preventing British participation in the project served as a tangible expression of the prevailing anti-British spirit in Persia, nevertheless, it is also, in my opinion, the official recognition of a generally accepted political fact: namely that the final decision as to what interests may exploit the Caspian oil fields lies with the Russians, who are firmly opposed to British capital entering the Russian sphere of influence either directly or indirectly. The successful concessionaire will have to come to terms with the Bolsheviks before he can sink a well or export a barrel of oil. Even could he start actual exploitation of the provinces, nevertheless in the face of Russian opposition he would be absolutely helpless when it [he] came to market his product abroad. The sole practicable outlet for the production of the Caspian fields is by way of the Caucasus (the Persian consumption is but a drop in the bucket) and if the Russians placed their veto on the construction of a pipe line to the Black Sea operations would have to be suspended since, aside from the tremendous natural difficulties which would be incurred in piping the oil southwards, it would be impracticable because in direct contravention of the D'Arcy concession and the present project (Article 21). It is already definitely known that the Sinclair Company has come to an agreement in this regard, with the Bolsheviks; the local Sinclair representative anticipates no trouble in this connection should his Company secure the concession. The Standard, however, appears to be differently situated. So far as is known, it has made no attempt to come to terms with the Bolsheviks and if, as commonly reported, it is associated with the Anglo-Persian, it probably could not obtain the assent of the Bolsheviks to its starting active operations, even did it succeed in obtaining the concession. It would be most gratifying if the two American companies could combine on this project, but if the Standard is already committed as reported there is not a very favorable prospect of this happening. In conclusion I may mention the terms of Article I as of special interest, particularly in the restriction of the oil concession territory to four out of the five Caspian provinces mentioned. This was in anticipation of a subsequent bit of legislation by the Medjliss, granting the Government the right to offer the excepted province, for exploitation, to a reputable Persian company Respectfully submitted ... BERNARD GOTLIEB 891.6363 Standard Oil/294 The Consul at Teheran (Gotlieb) to the Secretary of State TEHERAN, June 29, 1923. The Persian Medjliss in its session of June 20th passed the following bill: "ARTICLE I. The national consultative assembly authorizes the Government to grant a reputable company of Persian subjects the exclusive concession to prospect and exploit the petroleum, natural gas, asphalt and mineral wax of one of the two provinces, Guilan or Mazanderan, in addition to Tonekabon. ARTICLE II. The terms of this concession should not be less favorable to the government than those of the law of the petroleum concession passed by the Medjliss on June 13, 1923. (Jowza 23, 1302). ARTICLE III. The said concession should be approved by the national consultative assembly." I respectfully refer in this connection to my report of June 27 ("Project for grant of North Persian Oil concession to American company passed by Persian Medjliss") and specifically to Article I of the draft concession enclosed therein reading as follows: 8 "The Parliament of Persia approves the granting of a concession . for Khorassan, Azerbaijan and two of the three Northern provinces bordering the Caspian Sea, Guilan, Mazanderan and Astarabad." 'Draft concession not printed. |