Coll 30/59 'Persian Gulf. Creation of Persian Navy, etc' [‎210r] (420/624)

10. The Admiralty would be prepared to assist in finding British personnel,
provided that the Persian Government offer suitable terms.
11. 1 he second question is whether it is possible to overcome the financial
difficulties arising from the fact that a free gift of these vessels to Persia is out of
the question. But Sir R. Clive has suggested that this might be done by linking
^^his question on to that of the possible remission of part of the Persian debt to this
country.
12. The total capital debt of Persia to this country and India amounts
approximately to £3^ million; and, with accumulated interest, the amount would be
in the neighbourhood of £5 million. As a result of negotiations with a former
Persian Prime Minister, however, we offered in the year 1925 to reduce the total
of the debt to the round sum of £2 million, to be paid off by means of a twenty-five
years’ annuity, to start in 1926. This offer was accepted by the Persian Government
subject to approval by the Majlis, but in fact has never been submitted to that body
for ratification. Of the total £2 million a sum of £490,000 represents the Persian
pre-war debt, on which interest has always been paid, and the remainder represents \
debt contracted during and since the war. As regards this latter part of the debt,
the Persians are understood to contend that no obligation rests on them to repay
any part of the debt contracted during and after the war at a time when British
troops were occupying their country. They argue that the debts were illegally
incurred without the sanction of the Persian Parliament, and that the money was
spent primarily for the benefit of the Allies, and ought to be regarded as British
war expenditure. This is a point of view which could not possibly be accepted by
His Majesty’s Government; but as a matter of practical politics it is probable that
no treatv settlement with this country would be accepted or ratified by Persia which
provided for the repayment of the war or post-war debt. It was accordingly agreed
in December 1928 that His Majesty’s Government would, if necessary, be prepared
to waive this part of the debt in return for a satisfactory general settlement of other
outstanding questions, and on the understanding that suitable arrangements would
be made for the repayment of the capital of the pre-war debt, on which interest only
has been paid till now. Nothing has as yet been said to the Persians on the subject.
13. The cost of the ships indicated by Teymourtache (four of 1,000 and six
of 200 tons) would differ widely according to'the type selected, but may provisionally
be put in the neighbourhood of £500.000. With a view to giving effect to the wish
of the Government of India that the Persian naval forces should be on the smallest
possible scale, the senior naval officer in the Persian Gulf The historical term used to describe the body of water between the Arabian Peninsula and Iran. has submitted that two
sloops of 600-700 tons and four motor-launches of 150-200 tons would be sufficient,
with the existing customs motor dhows, to deal with the contraband trade. The
capital cost of this proposal he estimates at roughly £140,000.
14. It has been suggested that Sir R. Clive should begin by offering the
Persians the remission of £1 million only of the war and post-war debt, insisting on
the repayment of the balance of £510,000. In the last resort, however, and in order
to meet the difficulty, alluded to above, of obtaining Persian ratifications of any
settlement providing for the repayment of any part of this debt, Sir R. Clive might
be authorised to waive the last £510,000 of the war and post-war debt, on condition
that Persia undertakes to purchase her naval requirements in British shipyards, and
to sign an agreement for the supply of the ships which she desires from this country.
This is, however, only a tentative suggestion which may prove impracticable, and
some other means of overcoming the financial difficulty may have to be devised.
15. To sum up, it seems clearly desirable on general political grounds that
His Majesty’s Government should make an effort to meet the request which has
recently been put forward by the Persian Minister of Court for British assistance
in the formation of a small fleet of Persian patrol vessels. It is realised, however,
that there can be no question of making any further financial concessions to Persia;
that the pre-requisite of any arrangement regarding the ships must be the settlement
of the pre-war debt; and that it can therefore only be by some such arrangement
as that suggested in the preceding paragraph, by which the ships should be actually
paid for by Persia, that the Persian proposal could be met. It is therefore proposed
to send to Sir R Clive general instructions on these lines, and to authorise him to
oroceed as suggested in the preceding paragraph.