As the 1940s progressed, the Anglo-Iranian Oil Company (AIOC) continued to be a lightening rod for Iran’s nationalist discontent.
(For background see my previous post Pre Cold War Oil: The Anglo Iranian Oil Company.)
In 1948, the Iranian government presented the AIOC with a document listing 25 areas of concern.
In January 1949, when a second round of oil talks proved unsuccessful, several Majles deputies presented a bill to cancel the AIOC concession outright.
As a compromise, a commission was established to formalize Iran’s complaints, and foreign legal experts were hired to present their views.
The spirit of the complaints is summed up in the widely quoted observation that the company paid more in taxes to the British government for importing Iranian oil than it paid in royalties to Iran.
As resentment and enmity toward the British increased, support for the nationalist movement intensified.
The Iranian government demanded that the British accept a 50-50 profit sharing arrangement, similar to the terms Venezuela and Saudi Arabia had arranged with American firms. The British refused this demand.
On March 15, 1951, the Iranian Majles passed a bill to nationalize the oil industry. The Senate ratified the action five days later.
In April 1951, amidst public protests and general strikes, Mohammad Mossadegh, leader of the nationalist opposition was appointed prime minister.
Mossadegh’s acceptance of the post was contingent on the nationalization of Iran’s oil.
Importantly, financial considerations were no longer the chief consideration. Nationalists who supported the new prime minister were concerned predominantly with questions of national sovereignty.
Mossadegh was pragmatic, warning his supporters in the workers’ movement that their actions could invite a British invasion. Still , pro-Tudeh unions waged an aggressive campaign, holding large demonstrations to demand collective bargaining and the removal of military personnel from factories.
The impasse between Britain and Iran continued throughout the remainder of 1951. In October 1952, Iran ended diplomatic relations between the two countries.
Meanwhile, the AIOC had imposed an international boycott on Iranian oil with exports dropping from more than $400 million in 1950 to less than $2 million in the two-year period from July 1951 to August 1953. American companies supported the boycott.
In spite of an opinion favorable to Mosaddegh in the International Court of Justice, England continued to bring lawsuits against companies that purchased Iranian oil, causing Iran great hardship.
Iran’s only external form of income, US assistance, had grown from $500,000 in fiscal 1950 to $23.4 million in 1952. However, this was not enough to handle Iran’s economic crisis.
At first, the Truman administration was rather sympathetic to the Iranian cause, with a US negotiating team admitting the legitimacy of Iranian labor grievances. Almost as soon as Eisenhower came to power, however, he sided with Britain.
In June 1953, the Eisenhower administration advised Mossadegh that an Iranian request for increased aid would not be approved. Assistance would be frozen at an annual rate of $22.1 million, an amount that would prevent the country’s total collapse by assuring that military and bureaucratic salaries could be paid.
The onset of the Korean War contributed to American’s growing perception that communism posed a direct threat to the US. In this context, Eisenhower’s refusal to support Iran is puzzling, if, indeed, the country’s location and its oil were thought to be strategically important.
Meanwhile, the oil crisis had undermined Iran’s domestic political stability.
The labor movement became more significant when Mosaddegh and the National Front were forced to admit that the war for the working class had been won by the Tudeh Party.
A ranking member noted:
Our country is being torn apart by strikes, demonstrations, and labor disputes. What can we do about it? . . . . In most factories, there are three distinct groups: first the communists who hammer away with the propaganda that the rich in our country are corrupt and own everything while the workers own nothing; second, the patriots who support the National Front; third, the neutrals who follow the lead of any organization that will represent their economic interests vis-a-vis the managers and the factory owners . . . . We must admit that at present the initiative lies with the first group. The communists lead the neutrals, and, consequently, control the vast majority of the urban working class.
Therefore, in the end, domestic factionalization and outside powers were equally to blame for Iran’s predicament.