One of the most important factors shaping America’s post World War II interest in Iran was oil.

As early as the autumn of 1944, it was rumored that a southern oil concession had been secretly offered to American and British companies.

It was also rumored that a northern concession would be offered as soon as Iran was free of Soviet troops.

The Soviets reacted by demanding the northern concession for themselves.

This action launched the Cold War in Iran and further consolidated the position of the shah by sharpening foreign policy differences among his parliamentary opponents.

As the British consul in Mashhad explained:

It was the vigorous American intervention, the financial, military, and gendarmerie missions, the apparent drive by the US to capture the Persian market, and, above all, the efforts of Standard Vacuum and Shell to secure oil-prospecting rights that changed the Russians in Persia from hot-war allies into cold-war rivals.

At the same time that foreign powers were vying for access to Iran’s oil, the country’s development initiatives assured that dependence on oil and, therefore, on the world market would spiral.

Oil provided one-third of Iran’s overall budget and financed 60 percent of all visible imports between 1946 and 1950.

Iran’s first development plan (1949-1956) was to have received more than 37 percent of its budget from oil revenues.

The flow of oil provided some camouflage for the real depression of the urban sector. The sector had been affected by:

• a lack of state investment expenditure
• a loss of private investment due to increased risk and uncertainty
• low demand
• high unemployment
• widespread poverty.

State policy had negatively affected bazaaris and domestic industries.

Although Allied troops spent large sums of money in Iran temporarily increasing the number (and profits) of bazaaris, at war’s end, cheap Western goods flooded the market causing bankrupties among artisans and bazaar shopkeepers.

Importation of goods led to the closure of many factories, including a number of textile and weaving factories in Isfahan.

This situation was exacerbated by a conflict between Iran and Britain over the Anglo-Iranian Oil Company which generated massive political confrontation by the early 1950s.

Since the history of the Anglo-Iranian Oil Company provides the key to America’s first covert intervention in Iran — and in the less developed world — posts in days to come will concentrate on laying the groundwork for the important  events to follow. Stay tuned!

As World War II ended, Iran’s problems intensified. While the last American troops left the country on January 1, 1946, and Britain announced that it would meet a March 1 deadline, Moscow refused to withdraw its forces. Instead, the Soviets vowed continued support for a separatist movement in the northern province of Azerbaijan, establishing a “puppet Kurdish state” as well. These activities (along with on-going concern over Tudeh operations in other parts of the country) convinced the United States that the Soviets were scheming to take over part or even all of Iran.

Moscow’s perceived objective was to create a buffer zone in northern Iran while it established the conditions for permanent direct access to the Persian Gulf.

According to Barry Rubin in his book Paved With Good Intentions:

This involved the establishment in power of a puppet Tehran government ‘led by men under Soviet influence amenable to Russian demands and hostile to other foreign nations.’ Soviet propaganda seemed to further indicate that the Russians might be paving the way for a coup d’etat.

The Soviets were also demanding an oil concession in the north.

With American support, Iran complained to the United Nations Security Council about Moscow’s behavior. Soviet activity in the north violated the Russian-Iranian Treaty of 1921 which promised noninterference by the Soviets in the internal affairs of Iran. It also violated the Allied troop withdrawal agreement of 1943.

The Security Council agreed to observe the situation over time, but urged Iran and the Soviets to negotiate a settlement.

Persuaded that Soviet leverage was dominant, the US became convinced that military supplies and financial credits were the only means by which Iran could regain its independence.

Truman’s administration had previously been reluctant to increase aid to Iran, now both the military and the State Department felt there was no other choice.

The Joint Chiefs of Staff asserted that the protection of Iran was in the American national interest. Iran was of strategic importance to the US, both as a source of oil and as a defensive position to protect American-controlled oil wells in Saudi Arabia. It might also serve as a territorial “cushion” by preventing any Soviet attack from overrunning the Middle East.

The US committed to an Export-Import Bank loan, some military aid for defensive weapons, an enlarged American military advisory mission, and increased cultural exchanges. A 1948 military-aid program gave Iran $60 million in military equipment.

Still, a complete understanding with Iran’s leaders proved elusive.

The shah believed that the US would provide massive economic and military assistance.

The American intention, on the other hand, was to do only as much as necessary to prevent a Soviet takeover.

In other words, US officials believed that only token amounts of aid were required even though the shah was demanding large tanks, jet planes, and a 150,000 man army.

As mentioned in a previous post, a US-Iran Military Mission Agreement (ARMISH) was formally established in October 1947. The mission was a response to global stimuli as well as to the shah’s perceived requirements.

Importantly, the State Department recommended against any assistance that would contribute to an expansion of Iran’s military or police budget. Instead, the pressure was for social and economic reform.

State’s opposition was based on a July 1947 report — Report on Programs for the Development of Iran — prepared by the American consulting firm Morrison-Knudsen. Their analysis encouraged investment in agriculture and transportation as well as in a private Persian oil company. While they acknowledged the probability that Iran would receive both economic and military assistance from the US, the consultants preferred a focus based on the provision of technical advisers in agriculture, public health, education, and industrial training.

The US agreed to support an Iranian Seven Year Plan (funded by the World Bank and based on oil revenue) which was designed to expand capital-intensive development and commit to a preservation of the monarchy.

The Americans made clear that they would not support the shah’s extensive aid demands, particularly his vision of an expanded state-of-the-art military. As the US ambassador to Iran stated in a letter to Secretary of State Acheson in August 1949:

No one imagines that now or in future Iranian army could prevent Soviet invasion. As we understand it, object of MAP from military point of view is to insure internal security and to increase cost of invasion in terms of personnel and time required . . . .

It was now clear that (regardless of the shah’s expectations) Iran would have to depend on its own oil revenue for most development funding. Subsequently, the issue of the Anglo-Iranian Oil Company gained critical importance.

Soon the politics of oil and the American strategy for dealing with the Soviet threat combined to create long-term tensions between the two countries.

Meanwhile, even limited military support proved a provocation. As one Iranian nationalist noted:

Why should a poor nation such as ours that has gone through years of poverty be armed to defend the selfish interests of the millionaires of America and England? This is the story of the wolf and the lamb? Why doesn’t the United States give us aid to help us improve our education, agriculture, and health . . . .

At the same time, the Soviet threat that had spurred the postwar security dialogue between the US and Iran receded when, in 1947, the Fifteenth Majles rejected the Soviet-Iranian oil proposal.

In the early 1940s a crisis erupted into revolt in Isfahan.

Problems In Isfahan emerged when local mill owners decided to counter the demands of radical labor groups which were supported by the Tudeh party.

The British consul described the Isfahan situation “as a classic example of ‘class conflict'” and reported that “the Tudeh successfully recruited many of the 10,500 mill workers.”

The laborers clashed with mill owners who were demanding less radical unions and bribing military commanders to institute martial law.

Violence erupted when the mill owners initiated a lockout which threatened wages and, more importantly, access to food supplies.

Worker’s strikes were organized, clashes ensued, and company granaries were stormed.

The crisis in Isfahan generated a variety of reaction.

Locally, leaders of rival tribes signed secret pacts of friendship “directed against ‘Tudeh subversion'” which were supported by “southern property owners.”

Fearing the urban poor, they, “like ‘all men of property,’ hoped to prevent social revolution by creating some semblance of stability in their ‘feudal south.'”

Nationally, anti-Tudeh newspapers and journals were formed. One editorial titled “The Revolt in Isfahan” stated:

The Tudeh party, with its satanical doctrine of class struggles, has incited ignorant workers to violate the sacred right of private property and inflict social anarchy upon the industrial center of the country. The uprising proves that the Tudeh is an enemy of private property, of Iran, and of Islam. If the government does not stamp out the Tudeh, the local revolt will inevitably spread into a general revolution.

Regarding the Majles, the events in Isfahan assumed greater importance than the constitution issued we discussed in out previous post Cold War Iran: The Democratic Interlude.

A loyal anticommunist royalist was appointed governor-general of Isfahan province with orders to reestablish law and order at any cost, even if it meant distributing arms to formerly disloyal tribesmen.

Drastic cuts in the army were postponed since it was believed that “unless we immediately finance and effective army, such uprisings as occurred in Isfahan will spread and destroy the whole foundation of private property.”

The United States was also influenced by the chain of events in Iran, conducting five types of covert operations in the period just following the unrest.

The 14th Majles was the first Majles elected during the era often referred to as Iran’s democratic interlude. This label refers to the period from 1941 to 1953 before Mohammad Reza was able to consolidate his authority.

During this period, the constitution concentrated power in the legislative branch at the expense of the executive. While the shah was given command of the armed forces, the legislature was to annually approve all military expenses. Moreover, his sovereignty was derived not from God, but from the people.

The young shah’s powers were hotly and bluntly contested.

The opening session of the 1944 Majles turned into a sharp attack on royalty and its relationship with the military, a chief pillar of both Pahlavi regimes.

Historically, the creation of Iran’s modern army and Reza Shah’s political power had become tightly interwoven with the first shah relying on the modern army to be the backbone of his rule.

Reza Shah . . . systematically linked the military elite to his regime. He wore military uniforms for all public occasions, gave career officers a standard of living above that  of other salaried employees, sold them state lands at discount prices, built for them an impressive club in Tehran, and sent the top graduates of the military academies to St. Cyr in France. He promoted loyal colleagues from the old Cossack Division to head the new army divisions, dealt harshly with any signs of disloyalty, and built an efficient chain of command from his military office within the royal court through the chiefs of staff to the field commanders. Finally, he raised his sons, especially the Crown Prince Reza, to be first and foremost active officers in the armed forces.

The young shah had inherited the relationship between the crown and the military, a connection which he continued to support and strengthen.

Thus, when members of the new Majles called for reform, they were, in fact, mounting a direct attack on the shah, arguing:

For twenty years we have wasted scarce resources on an inefficient . . . and despotic army. This army has terrorized the public, persecuted innocent citizens, and betrayed the nation. It is high time we reduced the defense budget, placed the military under parliamentary supervision and, most important of all, cut the ties between the field commanders and the shah.

The attempt to restructure and downsize the armed forces soon turned into a full-scale attack on the army.

Outside the Majles, the position of antiroyalist deputies was bolstered by support received from the American financial mission.

Millspaugh, the mission’s head, wanted to balance the budget by increasing state revenues. (For more information on Millspaugh see our previous post on Pre Cold War Iran: The 1940s.) His plan was to take over all of  Reza Shah’s wealth, end armed campaigns against the tribes, and reduce the period of military service, changes which would end the effectiveness of the military.

Just as reform forces were coalescing and a constitutional crisis seemed inevitable, a workers’ disturbance in Isfahan shifted attention away from anti-shah sentiment.

With over 600 rumored casualties, disorder in Isfahan necessarily overshadowed constitutional issues.

Photograph by Lisa Reynolds Wolfe.

Heard on the news this morning that “Big Business is Betting on Iran.” I was surprised to hear it, and to hear that CNBC has been reporting on the country and its business potential.  And watch for their special report called The Forbidden Zone. I’ll keep you updated on their findings. Meanwhile, today seems like a good day for Cold War Studies to talk about the history of industrial development in Isfahan.

Industrial development in Isfahan dates from the onset of Reza Shah’s regime (1925-1941) as does the emergence of a modern working class.

In 1920, there was no up-to-date manufacturing.

By 1935 there were five large textile factories with new German equipment and German managers.  These mills, for the first time, used imported wool from Australia, and artificial fibers from Germany, Italy, and Russia as well as cotton from Khorrasan and the Caspian for production of fabrics. Soon there were nine large textile mills, employing 11,000 workers.

Textiles were predominant and Isfahan was known as the Manchester of Iran.

There were also other industries such as flour milling, cement and brick-making, paper, vegetable oil, and matches. Consequently, the city’s population increased from 120,000 inhabitants in 1930 to 180,000 in 1940.

Both Isfahan’s socioeconomic differences and its activist work force contributed to the city’s dynamic political life.

The campaign for the Fourteenth Majles elections which took place in 1943-1944 provides a good example of the city’s dynamic political environoment since it represents the interaction of domestic and external forces as well as the organization of rival political factions and parties.

The voting brought internal divisions and competitive political groupings to the fore just as the US was gaining a voice in Iran’s affairs.

The Iranian Majles (parliament) had been an important element of Iranian politics since the Constitutional Revolution of 1906. While under Reza Shah its power was often limited, it served symbolically as a reminder of the country’s nationalistic and democratic constituencies.

When political activity increased beginning in 1941, Majles elections aroused great interest. Several factors were contributory.

As Keddie relates, the war period saw a growth of economic problems in Iran’s cities, widening

the already yawning gulf between the staggering poverty of the long-suffering masses and the wealth of the privileged few.

Concurrently, the relative weakness of the young shah provided an opportunity for various groups and classes to mobilize.

As urbanization increased, tribal factions and religious leaders gained in importance, and both nationalist and communist movements experienced unprecedented growth. In Isfahan, for example, the Tudeh (communist) party was particularly strong, contributing to a political situation which the British consul in Isfahan described as follows:

Under Reza Shah, the land and mill owners–who are mostly ignorant, believing that money can do everything, reactionary to a degree, and solely interested in making as much money as possible–reigned supreme…with the help of the central Government. But with the change of regime in 1941 and removal of the ban on communist propaganda, the Russian-backed Tudeh…began to develop by taking advantage of this struggle between labour and capital. At present Isfahan is the center of this struggle because of the existence of an easily organized body of uneducated opinion among the millhands.

The strongest candidate in Isfahan’s elections was a young lawyer from the Tudeh party named Taqi Fedakar.

The leader of the Union of Workers of Isfahan (UWI), Fedakar garnered his support from recently unionized mill workers and, to a lesser extent, from bazaar wage earners. His chief opponent was a local politician, Sayyid Hashem al-din Dawlatabadi, the son of a prominent religious leader.

Dawlatabadi represented the traditional middle class in Isfahan and was supported by guild elders and bazaar merchants who feared both “Bakhtiari ‘vengeance’ and…the workers’ delegates who were flocking to their villages to agitate among the peasants.”

Dawlatabadi was also supported by the National Union party which was willing to forget the shah’s antireligious policies and cooperate with the royalists to assure order.

A third major candidate was a wealthy merchant turned industrialist, Haydar ‘Ali Emami. He was supported by fellow millowners, by old landed families, by police officers (“who, according to the British consul, were receiving generous bribes”), and by the Fatherland party “which was trying to organize conservative trade unions to counter the Tudeh labor movement.”

There were two other strong candidates but both withdrew before the election.

One of these, a major landowner who was also legal advisor to the Bakhtiari chiefs, was considered by many to be a ‘British candidate’ even though the British consul gave him little support.

The final candidate was the patriarch of the Bakhtiari family who had persuaded the military, including the gendarmerie, to withdraw from Bakhtiari regions.

In the end, the Tudeh candidate placed first “to provide a necessary ‘safety valve’ for working-class discontent.” Since the city had three seats, however, all three of the top contenders won election, traveling to Tehran to deliberate in a lively debate over the role of the executive in postwar Iran.

During World War II, Isfahan was a small city of less than two hundred thousand residents largely overshadowed by Iran’s capital, Tehran, to the north.

A primate city seven times the size of Isfahan, the capital possessed most of Iran’s industrial capacity, serving also as the country’s economic, educational, and cultural center.

Despite societal differences, the two cities shared some characteristics in common. Both were dealing with social conflict in the form of class antagonisms as well as with ethnic rivalry exacerbated by the Allied wartime presence.

Neither Isfahan nor Tehran were occupied during wartime. Still, according to Nikki Keddie, real hardship ensued.

Allied troops spent large sums, which contributed to inflation. The disruption of supply was serious, and famine broke out in some areas. Speculation, hoarding, and black-market operations multiplied, often causing great suffering. The cost-of-living index issued by the Iranian National Bank rose from 100 in 1939 to 269 in 1942, 650 in 1943, and 757 in 1944. In some parts of the country the rise was even greater.

Urban dwellers suffered more than those living in rural areas. Moreover, the cities were divided between the haves and have-nots.

Abrahamian describes an explosive situation whereby

intense distress among the masses, combined with the steady enrichment of merchants and landowners, threatened the whole fabric of society.

Both American and British observers reported that

the discontent of the lower classes caused by the appalling lack of food, clothing, medicine, and education, could lead to a ‘violent revolution’ against the present ruling class.

Social class was difficult to pinpoint, however, as traditional classifications had been in flux over the course of the twentieth century. As Abrahamian notes — reporting on class conflicts, some members of the press

argued that there was a ruling feudal class of feudal landowners, influential courtiers, army officers, and high-ranking government officials. Others claimed that the toiling masses were exploited economically by an upper class formed of large landlords, comprador capitalists, wealthy civil servants, and nouveaux riches industrialists. Yet others saw a small hard-working middle class wedged between a rapacious upper class and a backward illiterate lower class. Some saw their society polarized into, on one side, the old and new aristocracy, the industrial and comprador bourgeoisie, the urban working class, the nomadic tribesmen, and the landless peasantry.

Aside from rampant class antagonism, the provinces were faced with the further problem of ethnic rivalry, especially relating to the tribes.

In Isfahan, the Bakhtiari tribe had long been powerful in economics and in politics. The tribe’s summer quarters were located nearby, and Bakhtiaris who chose permanent settlement frequently made their home in the city.

Linguistic minorities like the Turkic speaking Qasqai tribe also had a presence.

In addition, the city was home to many non-Muslims — Jews, Armenians, Zoroastrians, and Bahai’s.

All participated in the many parties, professional associations, and workers organizations which had become active in the years after Reza Shah’s abdication in 1941. Isfahan, especially, was known for the dynamism of its labor unions.

Iran had long distrusted the British and the Russians. However, it had confidence in the United States and looked to the Americans as a force that would help maintain the country’s independence.

The conviction seemed validated when President Roosevelt pressured the USSR, Britain, and Iran to sign a Tripartite Treaty of Alliance consisting of nine articles and three annexes, all conforming with the principles of the Atlantic Charter and supporting America’s long-range goals in the Middle East.

The agreement, signed in Tehran on January 24, 1942, acknowledged the presence of foreign troops. but declared that signatories would respect the territorial integrity, sovereignty, and political independence of Iran. It also assured that Allied forces would withdraw from Iranian territory not later than six months after an armistice or peace.

Not surprisingly, Iran’s prior experience with Britain and Russia led the Iranian government to express its skepticism regarding the guarantees of the treaty. Bruce Kuniholm says:

As early as October 1941, uncooperative Soviet behavior was reported to the Department of State. Besides demonstrating a general unwillingness to cooperate, the Soviets sealed off their area of occupation and pursued a course that included administrative disruption, sympathy for separatists, political intrigue, and propaganda. In October 1942, the Soviets made grain purchases which worked to the detriment of the local population. While the State Department assumed such purchases were based on dire need, later Soviet actions indicated that their intent was to use the grain as a political tool. British Contravention of the Atlantic Charter’s principles in Iran is less obvious. While it seems unquestionable that the British were involved in political intrigue, much of what they did, so far as American sources reveal, appears to have been a product of the American ambassador’s unfounded suspicions rather than fact. The reason for this seems to be that in Iran, unlike Greece, the principles of the Atlantic Charter suited British (and of course American) purposes.

The principles of the Atlantic Charter called for, among other things, the access of all states, on equal terms, to the trade and raw materials of the world. It also respected the right of all peoples to choose the form of government  under which they would live, with sovereign rights and self-government restored to all those who had been forcibly deprived of them. Stalin observed that the Atlantic Charter seemed to be directed against the Soviet Union and accepted it only on condition that its principles not deny the frontiers occupied by the Soviets when Germany attacked in 1941.

The Iranians continued to pressure the US to counterbalance British and Soviet interference in their affairs.

American missions essentially took control of the Iranian army and gendarmerie.

Along with the wartime arrival of an eventual 30,000 American troops, cooperation between the two countries increased, culminating in a US Army Mission (ARMISH). The purpose of this mission was “to enhance the efficiency of the Iranian Army through cooperation with the Ministry of War and the Iranian Army command.”

At the same time (as will later become clear), the close relationship with Iran conveniently allowed the US to expand its interest in the country’s oil.

By the conclusion of World War II, conditions were in place that ensured America’s continued influence in Iran.

The Nazis invaded the Soviet Union in June 1941, placing Iran in a squeeze. The Germans wanted to use the country as a base against the Soviet Union, while the Allies needed Iran as a supply route to the Soviets.

On August 25, 1941, after Reza Shah refused to dislodge the Germans, 40,000 Russian troops entered Iran from the north while 19,000 British troops “entered from the south to protect the oil fields of Ahwaz and the refinery at Abadan, the largest in the world.”

In September, under Allied pressure, Reza Shah abdicated in favor of his son, Mohammad Reza. By this time, Iran was once again divided into three zones with Soviet troops occupying the north and the British holding firm in the south.

In January 1942, in the wake of a Kurdish rebellion, the Iranian government turned to the US for assistance, requesting that an American specialist take charge of Iran’s 20,000 strong rural police/paramilitary force, the gendarmerie.

According to Thomas M. Ricks, a formal agreement in November 1943 established a Gendarmerie Military Mission (GENMISH)

to advise and assist the Ministry of the Interior in the reorganization of the Imperial Iranian Gendarmerie with the U.S. officers maintaining precedence over all Iranian Gendarmerie officers of the same rank.

In 1942, also, the Iranian government asked for an American financial team to assist with the uncertain economic situation. The group was headed by Dr. A. C. Millspaugh who had previously served as a financial adviser in Iran from 1922-1927.

Millspaugh’s extensive control over Iran’s economy was

clarified by the so-called Full Powers Law. His purview included finances, banking, government industry, commerce, and emergency wartime controls.

Efforts at reform centered on the black market, the need for a progressive income tax, and the elimination of Majles control over public works programs. Millspaugh’s attempts elicited strong disapproval from those who would suffer financially or who believed that he was an agent of the United States. Moreover, he failed to cope with high prices or industrial inefficiency.

The staffing of the two advisory teams required a continuing influx of American specialists. Their involvement meant that, although the Soviet Union and Great Britain had initially penetrated Iran, American influence would soon be dominant. Moreover, American officials believed that military missions, in particular, were critical to postwar US foreign policy.

Secretary of State Byrnes wrote:

Continuance of the military missions to Iran, at the request of the Iranian government, is considered to be in the national interest of the United States. Strengthening of Iran’s internal security forces by the American Missions contributes to the stabilization of Iran and, thereby, to its reconstruction as a sound member of the international community. By increasing the ability of the Iranian Government to maintain order and security, it is hoped to remove any pretext for British or Soviet intervention in Iran’s internal affairs….The stabilization of Iran, moreover, will serve to lay a sound foundation for the development of American commercial, petroleum, and aviation interests in the Middle East.

There is also evidence that

Roosevelt thought of Iran as something of a clinic for his postwar policies, one aspect of which was to develop and stabilize backward areas. If the American pattern of self-government and free enterprise could prevail in Iran . . . . it could serve as a model for the relations of the United States with all nations suffering from monopolies, aggression, and imperialism.

Photograph by Lisa Reynolds Wolfe.