Report to I. V. Stalin, Soviet-Iranian Financial Negotiations

Copy

Top Secret Copy Nº 2

to Cde. I. V. STALIN

The following results have been achieved up to the present time in the negotiations which began on 10 December 1950 with representatives of the Iranian Government about settlement of mutual financial claims:

the Iranian claims

Of the total amount of the Iranian claims - 8,435,000,000 rials ($261,500,000) the Iranians withdrew completely or partially 6,650,000,000 ($206,200,000) of their claims, including 5,748,000,000 rials for road and port fees from freight in transit and 254,000,000 rials for the use of telegraph lines.

In accordance with instructions the Soviet delegation allowed a total amount of 835,000,000 rials ($25,900,000) of the remaining amount of the Iranian claims - 1,785,000,000 rials, including 685,200,000 rials ($21,200,000), the remainder of the USSR State Bank's debt to the National Bank of Iran under the 18 March 1943 Payments Agreement, representing the value of 11.2 tons of gold and $8,600,000.

However, the issue of the procedure for the payment of this debt of the State Bank remained unresolved. The Iranians insist on the gold being sent to them in kind and do not agree to compensation for its value in deliveries of goods, pointing out that under the 1943 Agreement the gold is the property of the Iranian state, is only in storage at the USSR State Bank, and comprises part of the gold backing of the Iranian currency.

The Soviet delegation rejected the following Iranian claims totaling 950,000,000 rials ($29,400,000) as unfounded, but the Iranians continue to insist on them being allowed:

a) claims for compensation for alleged damage to telegraph lines by Soviet troops totaling 40,000,000rials ($1,240,000).

[Stamp at the

bottom of the first page:

"Secretariat of V. M. Molotov

14 September 1951

Incoming Nº M-12921s"]

b) claims for compensation for the value of equipment and materials sent from Germany to Iran for the Karaj metallurgical plant in transit across the USSR not long before the war and not delivered to Iran, totaling 32,500,000 rials ($1,000,000).

c) claims for the compensation of damages allegedly caused the Iranian army by Soviet troops totaling 523,500,000 rials ($16,200,000). The Iranians have unofficially expressed readiness to abandon this claim if the Soviet Government agrees to consider the aforementioned losses to the Iranian army as Iran's contribution to the overall military efforts of the Allies.

Diplomatic correspondence occurred between the USSR and Iran in 1941 and 1942, and the Soviet Government rejected this claim, even rejecting a consideration of its merits.

d) Claims for payment for the amortization and loss of profit for the Tabriz Railroad during its use by Soviet organizations totaling 354,000,000 rials ($11,000,000).

The demand for payment for the amortization (199,000,000 rials) could be at least partially allowed, in the amount of 10,000,000 rials, for example.

the Soviet claims

The Iranian side accepted 138,000,000 rials ($4,200,000) of the total amount of Soviet claims - 783,100,000 rials - as allowable claims.

The Iranians refused to meet our demands for compensation for the expenses in the amount of 316,100,000 rials ($9,760,000) associated with the Iranians' breach of the 4 April 1946 Agreement to establishment of a Soviet-Iranian Oil Company, stating that the obligation of the Iranian government to organize a Soviet-Iranian Oil Company was made dependent on agreement of the Majlis. Therefore the Soviet side allegedly had no grounds for incurring any expenses whatsoever for the company being established before Majlis approval of the agreement to create the company.

The Iranians accepted only 86,700,000 rials of the amount of claims for Soviet capital investments in Iran made in 1941-1945, specifically 414,100,000 rials ($12,800,000), including claims totaling 40,900,000 rials for reimbursement for the construction of telephone and telegraph lines.

The Iranians refuse to accept the full amount of our demand for compensation for capital investment expenses, referring to point 2 of the Soviet Ambassador's note attached to the 29 January 1942 Treaty of Alliance with Iran, and insist that the majority of these capital investments were not due to Iran's needs.

It ought to be borne in mind that our demands for compensation regarding individual claims concerning capital investments are not uniform in the sense of the degree of their justification.

The claim for dredging work in Iranian ports totaling 24,100,000 rials might be withdrawn and lowered by approximately the 20% amount of the claim for the Qazvin-Astara highway.

All the amounts for the mutual claims accepted by the sides in the negotiations were accepted only conditionally and made dependent on an overall settlement of all claims.

When comparing the amount of the Soviet claims calculated with allowance for its possible changes cited above, specifically 712,400,000 rials, with the total amount of the Iranian claims which can be accepted of 845,000,000 rials, the balance in favor of the Iranians would be 132,600,000 rials ($4,100,000). The balance in favor of the Iranians in the guidelines for the negotiations with the Iranians about settling the mutual claims meant an amount of about 69,000,000 rials ($2,200,000).

In view of the position taken by the Iranians on the issue of transferring the gold in kind and their refusal to accept our claim about the breach of the obligation concerning the organization of an oil company it is difficult to expect that possible concessions from us would lead to an agreement at the present time.

Therefore we consider it inadvisable at the present time to tell the Iranians about any concessions from our side. The possible balance calculated above in favor of Iran might, in our opinion, serve as a basis for determining a lump sum if this issue arises at the Iranians' initiative.

The Iranians have proposed starting to draw up a final protocol with a description of the results of the work of the sides' delegations and then sending this protocol to both governments to continue the negotiations diplomatically.

The USSR MFA, MF [Ministry of Finance], and MVT think that the Soviet commission ought not accept the Iranians' proposal to discontinue the work of the commissions, but ought to agree to halt the meetings to report the results of the first stage of the negotiations to their governments.

At the same time it appears advisable for the Soviet commission to agree to draw up a protocol about the results of the first stage of the negotiations in which there would be described the claims stated by the sides; the claims consequently withdrawn by the Iranians; the claims for which agreement was reached, and the positions of the sides regarding unsettled claims would be recorded.

The drafting of this protocol will strengthen the settlement of a number of claims to our advantage achieved in the negotiations and record the claims for very large amounts presented and then withdrawn by the Iranians.

A draft of the instructions to Cdes. Sadchikov, Chechulin, and Kuznetsov and also a memo about the claims are attached.

Please consider [them].

                                                              A. Vyshinsky

                                                              A. Zverev.

                                                              M. Men'shikov

14 September 1951

Nº 504-VK

Authenticated: [illegible signature]

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             Malenkov

             Beria

             Mikoyan

             Kaganovich

             Bulganin

             Khrushchev

             Suslov

13 copies were sent fz.

14 September 1951