Coll 28/67 ‘Persia. Annual Reports, 1932–’ [‎239v] (478/644)

125. 1938 was a disappointing year for France in her relations with Iran.
The French believe that Iran is fertile ground for their co-operation, not least
because events, past but not forgotten, have partially queered the pitches of certain
other Great Powers. The French Minister, M. Bodard, was very hopeful of
achieving fruitful work. Half-way through the year, however, it had become
fairly certain that the already much reduced military mission would peter out
early in 1939 through the non-replacement of the officers whose contracts had
expired or were shortly expiring. The head of the mission was given the comfort
of an assurance that no other Power would be invited to replace his mission.
126. In July two of the more competent Iranian Ministers, for Foreign
Affairs and of Education, were summarily dismissed for sending a formal
telegram of greeting to the French Minister of Public Instruction on the opening
of an exhibition of ancient art which the Shah viewed with disfavour in view
of the antiquity of the exhibits.
127. The crowning blow came in December. Shortly after M. Bodard had
had a seemingly auspicious interview with the Shah, it was suddenly announced
that the Iranian Government had broken off diplomatic relations with France,
to the accompaniment of a violent anti-French campaign in the press. The Shah
had taken offence at a time-honoured joke in the French press about cats and
Shahs; and was more incensed because the French Government had recently
introduced a decree dealing with insults to foreign Governments, which they not
unnaturally felt unable to apply in the present case. At the end of the year the
French Foreign Office were trying to smooth things over and M. Bodard was
remaining at his post with this object.
Germany.
128. As a result of the operation of the Clearing Agreement the commercial
interests of Germany continued to develop in Iran, and this, as mentioned in
paragraph 146, was a constant source of irritation to the Government of the
U.S.S.R.
129. The Clearing Agreement, however, accumulated such a heavy adverse
balance in favour of Germany, amounting to about 27 million reichsmarks, that
negotiations were opened in the summer to liquidate this balance and to introduce
suitable modifications into the agreement. The greatest secrecy was observed, and
numerous stories were current in October that a new agreement had been signed
and a substantial payment in sterling made to Germany, with a view to further
credits in Iran’s favour. Actually, as was ascertained subsequently from an
official source, no new agreement was signed, but modifications were introduced
into the existing one. The Shah decided in the autumn that the heavy adverse
balance should be liquidated. A substantial payment was made forthwith and
it was anticipated that the total amount would bo paid off before the end of March
of the following year. No confirmation was obtainable of the report that the
reichsmark rate adopted was that of 30 to the pound sterling.
130. The Shah apparently insisted also that a further adverse balance must
not be allowed to accumulate, and the revised agreement, to operate as from the
following March, was expected to take a form resembling that of a barter agree
ment with balances adjusted at regular intervals.
131. During the spring a regular weekly passenger air-service from Berlin
to Kabul via Tehran was established by the Lufthansa. This service is also
referred to in paragraph 149 of this report. A German bombing plane gave a
series of demonstrations in October, at one of which the Shah was present, and
it was subsequently reported that the Iranian Government intended to order
twelve machines of this type and to send twenty officers and men to Germany
for training in the type. The order did not, however, so far as is known, mature.
Hungary.
132. In the spring the text was published of the Treaty of Friendship and
Arbitration between Iran and Hungary, signed in December 1937. The treat)
was ratified by the Majlis on the 16th March. The Trade Agreement, which had
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