TEHRAN, YJC. March 20 is the day Iran's oil was nationalized with the efforts of Mosadeq despite all hardships.
In late 1951, Iran's Parliament in a near unanimous vote
approved the oil nationalization agreement. The bill was widely popular among
most Iranians, and generated a huge wave of nationalism, and immediately put
Iran at loggerheads with Britain (the handful of MP's that disagreed with it
voted for it as well in the face of overwhelming popular support, and the
Fadaiyan's wrath). The nationalization made Mossadegh instantly popular among
millions of Iranians, cementing him as a national hero, and placing him and
Iran at the center of worldwide attention. Many Iranians felt that for the
first time in centuries, they were taking control of the affairs of their
country. Many also expected that nationalization would result in a massive
increase of wealth for Iranians.
Britain now faced the newly elected nationalist government
in Iran where Mossadegh, with strong backing of the Iranian parliament and
people, demanded more favorable concessionary arrangements, which Britain
vigorously opposed.
The U.S. State Department not only rejected Britain's demand
that it continue to be the primary beneficiary of Iranian oil reserves but
"U.S. international oil interests were among the beneficiaries of the
concessionary arrangements that followed nationalization."
Iran sought to rid itself of British political influence and
the exploitation by AIOC. Negotiations between Anglo-Iranian Oil Company and
the government failed and in 1951 the oil industry was nationalized. As a
result of Britain's boycott and the Abadan Crisis, Iranian production dropped
to virtually zero. On British initiative the CIA overthrew Prime Minister of
Iran Mosaddegh in Operation Ajax. Formally the nationalization remained
effective, but in practice a consortium of oil companies was allowed in under a
by then standard 50/50 profit-sharing deal.
The whole process had left the British a major share in what
had been their single most valuable foreign asset. It had stopped the
democratic transition in Iran however, leaving its mark for decades to come.
The coup is widely believed to have significantly contributed to the 1979
Iranian Revolution after which the oil industry would be nationalized again.
The confrontation between the monarchy and the legislature
in Iran in the period 1949 to 1953 reminds one of a similar confrontation
between the English kings and Parliament in the seventeenth century. The
circumstance were quite different and the outcome the opposite, but it is
useful to see past the personalities involved to understand the underlying
issues.
One major issue for the Iranians was the division of the
revenues from the petroleum industry. The Anglo-Persian Oil Company made early
and important oil strikes in Iran. The company paid a royalty to the Government
of Iran on the oil extracted. The profits of the company were taxed by the
British Government and it was an annoying, exasperating reality that the tax
collected by the British Government on the Iranian oil was greater than the
royalties the Iranian Government received from the company.
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Vendor distributing kerosene produced at Abadan refinery
Governments usually consider the nationalization of a
foreign-owned or locally-owned enterprise a moral right. Although morality is
not the real issue, there is no moral right to the confiscation of a property
that someone else developed. But such a morality stance is just a guise for a
government doing what it has the naked power to do. Although a government can
so confiscate others' property it does this at a cost. The cost is the
tampering with the institution of property rights. Once the sanctity of
property rights is deprecated, foreign and local enterprises are less willing
to make investments in the country and the long run cost of the diminished
investment may be greater than the gains from the naked use of power to
confiscate property. Mexico paid a high price in reduced economic development
in the 1940's and beyond for the confiscation of petroleum properties in the
1930's.
In addition to the future investment consequences of
tampering with property rights there is the immediate matter of those whose
property has been confiscated using every tactic in their power to harm those
who did the confiscating. This is the nature of the episode of Mossadeq's rise
and fall in Iran. Mohammad Mossadeq was a member of ruling elite of Tehran. In
fact, Mossadeq's mother was related to the Qajar line of shahs.
Mossadeq had distinguished career in public office long
before he rose to prominence during the period of World War II. He was educated
in law in Switzerland and returned to Iran in 1914 with a doctorate in law from
Laussane University. He was first appointed to be the chief administrator in
Fars Province. Later he was the Minister of Finance and briefly the Minister of
Foreign Affairs in the national government. He opposed the assumption of the
title of shah by Reza Khan in 1925 and withdrew from government office. He
returned to public life only after Reza Shah was forced to abdicate in 1941 by
the Allied Powers during World War II. Because of the war Mossadeq's second
public career did not commence until 1944 when he was elected to the Majlis. He
led the opposition to granting the Soviet Union special concessions for oil
exploration and development in norther Iran.
In the early 1950's the struggle for power in Iran between
the Shah and the Majlis focused on the control of the armed forces.
In the 1949 election of the Majlis the one major issue was
gaining more revenue from the petroleum companies operating in Iran, primarily
the Anglo-Iranian Oil Company (AIOC). The members of the Majlis elected in 1949
sought to renogiate the agreement with the AIOC. Another company, Persian Gulf
Oil, had an agreeement that called for equally sharing of profit with the
government and the Majlis wanted the same arrangement with the AIOC. In 1950
AIOC offered an increased share of profits to the Iranian government but not
the 50-50 sharing that the Majlis wanted. Mohammad Mossadeq gained the
chairmanship of the committee of the Majlis that dealt with government-company
agreements. This committee, under Mossadeq's leadership, rejected the AIOC
offer. Later, in 1951, when the AIOC was willing to grant a 50-50 profit
sharing Mossadeq's committee rejected that offer and opted for full
nationalization of AIOC's properties. When the Prime Minister recommended
against nationalization he was assassinated. The Majlis in March of 1951
enacted the legislation nationalizing the petroleum industry. Mossadeq and his
National Front Party were politically dominant. The Shah was reluctant to
appoint Mossadeq as the new Prime Minister but after public demonstrations he
did so.
Mohammad Mossadeq
After Mohammad Mossadeq gained the office of Prime Minister
of the Majlis he demanded to be also made Minister of War. As Minister of War
he would have direct control over the army. When the Shah demurred on granting
Mossadeq's demand again public demonstration persuaded him to do so.
When Mossadeq was made Minister of War he immediately
started replacing the officers of the high command who were loyal to the Shah
with ones who were loyal to him. The dismissed officers became the nucleus of a
coup d'etat which deposed Mossadeq.
The British oil companies retaliated against the
nationalization of their petroleum assets by withdrawing their technical
personnel. Petroleum production fell to near-zero levels. The British
government froze Iranian government financial assets around the world and
instituted an embargo on the purchase of Iranian oil.
In 1953 after considerable economic turmoil for Iran Shah
Reza Pahlavi tried to dismiss Mossadeq as Prime Minister. There was violent
public protest and the Shah left Iran, apparently having been deposed. But the
U.S. and British governments, acting in collaboration with the military
officers Mossadeq had dismissed, organized a coup d'etat. Street mobs were
hired to demonstrate against Mossadeq and then the military took control in the
name of maintaining public order. The Shah returned to Iran and took control of
the government. Mossadeq was tried and convicted of treason and sentenced to
three years in prison and house arrest for the rest of his life.
The involvement of the U.S. government in the downfall of
Mossadeq stemmed in part from the support that Mossadeq was receiving from the
Iranian Communist Party, the Tudeh Party. Reza Shah had banned the Tudeh Party
but it still functioned on a clandestine basis. The U.S. government feared that
a victory for Mossadeq would lead to a strong influence of communists in the
government of Iran and an eventual drawing of Iran into the Soviet sphere of
influence. The Soviet intelligence agency OGPU (later the KGB) had recruited
some high level officials and had penetrated separatist movements of the Kurds
and the Azerbaijanis as well as the trade unions of Iran. When Qavam
es-Saltanah became prime minister of Iran in the period after World War II when
British and Soviet military occupation of Iran ended three representatives of
the Tudeh Party were made members of Qavam's cabinet.
Discovery of oil
Meanwhile, D'Arcy was getting anxious at the speed that his
capital was getting depleted and yet no oil was found in commercial quantities.
He began negotiations with Burma Oil Company and the British Government in
addition to private investors in order to sustain his operations. Reynold's
perseverance paid off. On the 16th of May 1908, drillers working at
Masjid-I-Sulleiman detected a "strong smell of gas" in the well. At 4
o'clock in the morning of May 26th, oil was struck and it was in commercial
quantities. This, without question was the tip of a vast reservoir that lay
beneath that barren land deep in the winter grazing grounds of the Bakhtiaris.
Between the start of D'Arcy's exploration and striking oil, 7 agonizing years
of patience and impatience; hopes raised and dashed; thirst, hunger,
dehydration and heat strokes had passed. Reynolds wrote in his telegraph to
London: "I have the honour to report, that this morning at 4 a.m. oil was
struck in the No. 1 hole at a depth of 1180 feet…." The discovery of oil
in commercial quantity was a milestone and a turning point in the history of
Persia. It also brought the Bakhtiaris and the British close together out of
necessity and mutual goals, an association that the central government in
Tehran eyed with great suspicion.
Formation of Anglo-Persian Oil Company
On the 14th of April 1909 the Anglo-Persian Oil Company was
formed with an initial capital of 2 Million Pounds. At the Admiralty's
suggestion, a highly respected public figure, the eighty-nine year-old Lord
Strathcona, accepted the post of Chairman with D'Arcy as a director until his
death in 1917. The new company created tremendous public interest in Britain.
Burmah Oil provided all its initial capital except a small amount subscribed by
Lord Strathcona. D'Arcy however did not go un-rewarded. He was reimbursed in
cash for all he had spent, and was given shares in Burmah Oil valued at that
time at 900,000 Pounds Sterling11. The Admiralty had seen the importance of oil
as fuel for the Navy and to investigate the fields and the reserves they held,
the British Government dispatched professor John Cadman the greatest oil expert
at that time, to Persia to investigate. Upon receiving Cadman's report, Lord
Fisher of the Admiralty with the help from Winston Churchill, a Member of
Parliament, persuaded the British Parliament to permit the Government to
purchase 51% of the Anglo-Persian Oil Company in 1912. Whitehall then put a
director on the Board with veto powers. The British fleet was shortly
afterwards converted to oil from coal.
From 1949 on, sentiment for nationalization of Iran's oil
industry grew. In 1949 the Majlis approved the First Development Plan
(1948-55), which called for comprehensive agricultural and industrial
development of the country. The Plan Organization was established to administer
the program, which was to be financed in large part from oil revenues.
Politically conscious Iranians were aware, however, that the British government
derived more revenue from taxing the concessionaire, the Anglo-Iranian Oil
Company (AIOC--formerly the Anglo-Persian Oil Company), than the Iranian
government derived from royalties. The oil issue figured prominently in
elections for the Majlis in 1949, and nationalists in the new Majlis were
determined to renegotiate the AIOC agreement. In November 1950, the Majlis
committee concerned with oil matters, headed by Mosaddeq, rejected a draft
agreement in which the AIOC had offered the government slightly improved terms.
These terms did not include the fifty-fifty profit-sharing provision that was
part of other new Persian Gulf oil concessions.
Mossadegh was well aware that his radical move to
nationalise the U.K.-controlled oil industry would have dangerous portents.
Initially, the steps he undertook evoked widespread support. He was hailed as a
hero in the region and beyond. For a short period, one of Mossadegh’s main
allies was the influential cleric Ayatollah Abol-Ghasem Kashani, who said that
those opposing nationalisation of the Iranian oil industry were "enemies of
Iran”.
Subsequent negotiations with the AIOC were unsuccessful,
partly because General Ali Razmara, who became prime minister in June 1950, failed
to persuade the oil company of the strength of nationalist feeling in the
country and in the Majlis. When the AIOC finally offered fifty-fifty
profit-sharing in February 1951, sentiment for nationalization of the oil
industry had become widespread. Razmara advised against nationalization on
technical grounds and was assassinated in March 1951 by Khalil Tahmasebi, a
member of the militant Fadayan-e Islam. On March 15, the Majlis voted to
nationalize the oil industry. In April the shah yielded to Majlis pressure and
demonstrations in the streets by naming Mosaddeq prime minister.
Oil production came to a virtual standstill as British
technicians left the country, and Britain imposed a worldwide embargo on the
purchase of Iranian oil. In September 1951, Britain froze Iran's sterling
assets and banned export of goods to Iran. It challenged the legality of the
oil nationalization and took its case against Iran to the International Court
of Justice at The Hague. The court found in Iran's favour, but the dispute
between Iran and the AIOC remained unsettled. Under United States pressure, the
AIOC improved its offer to Iran. The excitement generated by the
nationalization issue, anti-British feeling, agitation by radical elements, and
the conviction among Mosaddeq's advisers that Iran's maximum demands would, in
the end, be met, however, led the government to reject all offers. The economy
began to suffer from the loss of foreign exchange and oil revenues.
Meanwhile, Mosaddeq's growing popularity and power led to
political chaos and eventual United States intervention. Mosaddeq had come to
office on the strength of support from the National Front and other parties in
the Majlis and as a result of his great popularity. His popularity, growing
power, and intransigence on the oil issue were creating friction between the
prime minister and the shah. In the summer of 1952, the shah refused the prime
minister's demand for the power to appoint the minister of war (and, by
implication, to control the armed forces). Mosaddeq resigned, three days of
pro-Mosaddeq rioting followed, and the shah was forced to reappoint Mosaddeq to
head the government.
As domestic conditions deteriorated, however, Mosaddeq's
populist style grew more autocratic. In August 1952, the Majlis acceded to his
demand for full powers in all affairs of government for a six-month period.
These special powers were subsequently extended for a further six-month term.
He also obtained approval for a law to reduce, from six years to two years, the
term of the Senate (established in 1950 as the upper house of the Majlis), and
thus brought about the dissolution of that body. Mosaddeq's support in the
lower house of the Majlis (also called the Majlis) was dwindling, however, so
on August 3, 1953, the prime minister organized a plebiscite for the
dissolution of the Majlis, claimed a massive vote in favour of the proposal,
and dissolved the legislative body.
The administration of President Harry Truman initially had
been sympathetic to Iran's nationalist aspirations. Under the administration of
President Dwight D. Eisenhower, however, the United States came to accept the
view of the British government that no reasonable compromise with Mosaddeq was
possible and that, by working with the Toudeh, Mosaddeq was making probable a
communist-inspired takeover. Mosaddeq's intransigence and inclination to accept
Toudeh support, the Cold War atmosphere, and the fear of Soviet influence in
Iran also shaped United States thinking. In June 1953, the Eisenhower
administration approved a British proposal for a joint Anglo-American
operation, code-named Operation Ajax, to overthrow Mosaddeq. Kermit Roosevelt
of the United States Central Intelligence Agency (CIA) traveled secretly to
Iran to coordinate plans with the shah and the Iranian military, which was led
by General Fazlollah Zahedi.
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In accord with the plan, on August 13 the shah appointed
Zahedi prime minister to replace Mosaddeq. Mosaddeq refused to step down and
arrested the shah's emissary. This triggered the second stage of Operation
Ajax, which called for a military coup. The plan initially seemed to have
failed, the shah fled the country, and Zahedi went into hiding. After four days
of rioting, however, the tide turned. On August 19, pro-shah army units and
street crowds defeated Mosaddeq's forces. The shah returned to the country.
Mosaddeq was sentenced to three years' imprisonment for trying to overthrow the
monarchy, but he was subsequently allowed to remain under house arrest in his
village (Ahmad Abad) outside Tehran until his death in 1967. His minister of
foreign affairs, Hosein Fatemi, was sentenced to death and executed. Hundreds
of National Front leaders, Toudeh Party officers, and political activists were
arrested; several Toudeh army officers were also sentenced to death.
Sources:
Department of Economics, San José State University
Iran Chamber Society
"Bakhtiari Family”
"Frontline”
Wikipedia