Mandarins, Paladins, and Pahlavis: the International Energy System, the United States, and the Dual Integration of Oil in Iran, 1925-1964

Home , Ann Lambton, Darioush Bayandor, Everette Lee DeGolyer, Karkheh Dam, Mark Seddon, Pahlavi Iran

MANDARINS, PALADINS, AND PAHLAVIS: THE INTERNATIONAL ENERGY SYSTEM, THE UNITED STATES, AND THE DUAL INTEGRATION OF OIL IN IRAN, 1925-1964

A Dissertation Submitted to the Faculty of the Graduate School of Arts and Sciences of Georgetown University in partial fulfillment of the requirements of the degree of Doctor of Philosophy in History

Gregory Brew, M.A.

Washington D.C. May 10, 2018

MANDARINS, PALADINS, AND PAHLAVIS: THE INTERNATIONAL ENERGY SYSTEM, THE UNITED STATES, AND THE DUAL INTEGRATION OF OIL IN IRAN, 1925-1964

Gregory Brew, M.A.

Thesis Advisor: David S. Painter, Ph.D.

ABSTRACT

This dissertation examines the integration of Iranian oil into a global oil system and the simultaneous use of oil revenues to fund internal economic development under the Pahlavi dynasty (1925-1979). It unites the local and global narratives of oil into a single synthesis through the interpretive tool of dual integration, which illustrates the evolution of Iran into a

“petro-state” through an examination of the myriad relationships tying Iran’s government to the international energy system, the global development movement, and the Cold War policies of the

United States. From 1925 to 1964, an oligopoly of oil companies sought to balance Iranian output with the rest of the world, managing price and production in order to avoid destructive competition and maximize profitability. To ensure the cooperation of the Pahlavi regime, the companies attempted to negotiate agreements based on “equitability,” satisfying the government’s ambitions through oil revenues. The Pahlavi shahs could translate this money into

“oil power,” fund modernization projects, and expand the power of the central state. After World

War II, the United States government became concerned that Iran’s political instability was a threat to national security. American policy-makers identified Iran’s socio-economic

“backwardness” as the cause for this instability, and encouraged economic development through the use of non-government organizations (NGOs) working with the oil-based Plan Organization

(Sāzmān-i Barnāmeh). The nationalization movement led by Mohammed Moṣaddeq threatened both the “local” integration of oil through U.S.-assisted development and the “global” integration engineered by the companies. Re-integrating Iranian oil by removing Moṣaddeq from power was

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a key reason for the Anglo-American coup d’etat of August 1953. Between 1954 and 1964, a central planning effort assisted by U.S. NGOs was eventually replaced by the shah’s White

Revolution, while the shah worked with the oligopoly to mitigate the danger posed by the

Organization of the Petroleum Exporting Countries (OPEC) to the oil status quo. Iran’s oil was integrated locally and globally, but on terms that kept the Pahlavi shah firmly in power and encouraged his regime to become more dependent on the oligopoly’s oil sales, even as it failed to achieve lasting legitimacy or real socio-economic equality.

For Megan

“What you seek is seeking you”

ACKNOWLEDGEMENTS

Through the process of researching, writing and revising this doctoral dissertation, I have accumulated substantial personal and professional debts. This project would not have been possible without institutional support. Georgetown University, my academic home, provided me with not one but two research grants: the Edwin J. Beinecke, Jr. Scholarship in International

Affairs and the Evan Armstrong North Graduate Research Award. Additional funds were provided by the Cosmos Club Foundation, the Rockefeller Archive Center and the Franklin D.

Roosevelt Presidential Library. While visiting archives throughout the United States and Great

Britain, I received excellent assistance from archival staff. I would particularly like to thank

Peter Housego of the BP Archive and Patricia Rosenfield of the Rockefeller Archive Center.

One imagines the work of a doctoral student to be solitary, and in many ways it is, but no dissertation is completed without help and those hours spent hunched over the archive reading room table, in the library or the coffee shop mulling syntax over espressos would have been wasted were it not for the assistance, encouragement and companionship provided by the people listed here. My first, most substantial debt is to my academic advisor and friend David S. Painter, whose cheerful encouragement and astute advice guided me through seven years of graduate school. It was David who first introduced me to the world of oil, a realm from which I have yet to escape, and it is thanks to his guidance that this project was possible. I was aided in my work by an excellent dissertation committee of Profs. Aviel Roshwald, Joseph Sassoon and Nathan J.

Citino. The faculty of the history department of Georgetown University created a collegial environment in which to work.

I was fortunate enough to present my work at the conference for the Society of Historians of American Foreign Relations (SHAFR) and the Association of Iranian Studies (AIS), where I

received helpful comments and suggestions. Chats with Christopher Dietrich shaped my understanding of global oil, while Roham Alvandi offered advice on Iranian political history.

Two chapters from this dissertation were published in the journals Iranian Studies and

International History Review, and in both instances were immeasurably improved by peer review comments and editorial assistance. My friends in Washington D.C. offered companionship, support and the occasional beer. Chad Frazier, Alex Finn Macartney, Ben Feldman and Abby

Holekamp kept me sane amidst the ups and down of academic life. During my travels, my path regularly crossed Mattin Biglari, whose willingness to chat about oil, Iran and catalytic crackers always made life on the road more enjoyable.

My most important support came from my family. My parents were a constant source of love and encouragement. My siblings were always quick to pick up the phone, from as far away as Seoul, South Korea. Finally, everything I am and everything I have done or will do, I owe entirely to Megan, my best friend and shining star.

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TABLE OF CONTENTS INTRODUCTION ...... 1

CHAPTER ONE: THE SEARCH FOR A ‘PERSIAN PARTNERSHIP,’ 1925-1941 ...... 37

1.1 Revolution and the Rise of Rezā Shah...... 39

1.2 “Rationalization” and Sir John Cadman ...... 49

1.3 The “Partnership Principle” and the New Royalty, 1927-1929 ...... 61

1.4 Coping with Crisis ...... 72

1.5 Cancellation and a New Concession: Equitability Achieved? ...... 80

CHAPTER TWO: ‘WE HAVE DONE NOTHING:’ THE UNITED STATES, THE ANGLO-

IRANIAN OIL COMPANY, AND THE FAILURE OF DUAL INTEGRATION, 1941-1950...99

2.1 Open Doors and Bidding Wars: the U.S. Arrives in Iran ...... 101

2.2 The Invention of Price and the Rise of Development ...... 116

2.3 Ebtehaj, Barnameh Rizi, and the U.S. Attitude in Iran ...... 127

2.4 The Anglo-Iranian Oil Company and Iran: The Fight for Fifty-Fifty ...... 143

2.5 Too Little, Too Late ...... 160

CHAPTER THREE: ‘NATIONALIZATION’ AND THE DE-INTEGRATION OF IRANIAN

OIL 1951-1952...... 168

3.1 Mosaddeq and the National Front ...... 169

3.2 Defining “Nationalization” ...... 180

3.3 Isolating Iran: The Embargo ...... 207

3.4 Oil Responds: the Petroleum Administration for Defense ...... 220

CHAPTER FOUR: ‘OIL-LESS; ECONOMICS, THE MORDAD COUP, AND THE RE-

INTEGRATION OF IRANIAN OIL, 1952-1954 ...... 231

4.1 The July Uprising and Iqtisad-i Bidun-i Naft ...... 235

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4.2 Progress Without Petroleum? Point Four in Iran ...... 249

4.3 Judging Collapse: the American View of the Oil-Less Economy and the National

Front ...... 257

4.4 The Final Attempt: November 1952-March 1953 ...... 268

4.5 Considering a Coup...... 277

4.6 The Consortium Approach and the Façade of Nationalization ...... 287

CHAPTER FIVE: PETROLEUM, PROGRESS, AND THE SECOND PLAN: U.S.-LED

DEVELOPMENT IN IRAN, 1954-1964 ...... 301

5.1 Plan Redux: the Pahlavi Return to Oil-Based Development ...... 303

5.2 “What They Need is Management:” American NGOs in Iran ...... 322

5.3 The Amīnī Experiment ...... 341

5.4 The White Revolution and the End of Development ...... 352

CHAPTER SIX: PRESERVING THE ‘FAÇADE OF NATIONALIZATION:’ THE SHAH,

THE CONSORTIUM, AND THE RISE OF OPEC, 1954-1964...... 367

6.1 Iran and the Consortium, 1954-1960 ...... 369

6.2 “The Horrors of Peace:” Changes in Oil, 1954-1960 ...... 385

6.3 “Wild Men” Arrive: The Birth of OPEC ...... 394

6.4 Coming to Terms: The OPEC Negotiations, 1962-1963 ...... 409

6.5 The Inside-Man: Reza Fallah to the Rescue ...... 423

EPILOGUE ...... 432

BIBLIOGRAPHY ...... 442

LIST OF TABLES

Table 1.1 APOC Production vs. Royalties Paid to Iran, 1915-1931...... 62

Table 1.2 AIOC Production and Payments to Iran, 1931-1941 ...... 91

Table 2.1 Iran Oil Production, British Taxes and Royalty Payments 1932-1950 ...... 150

Table 4.1 AIOC Foreign Exchange Contributions (Millions of Rials) 1948-1951 ...... 237

Table 4.2 AIOC Contribution, 1330 (Estimated, April 1951) ...... 239

Table 4.3 Middle East Production, 1945-1955 ...... 290

Table 6.1 The APQ in Action: Consortium Nominations (Thousands bpd) 1957-1966 ...... 374

Table 6.2 Middle East Oil Production, 1951-1961 ...... 375

Table 6.3 Revenues from Oil (Millions of US$) 1948-1960 ...... 375

Table 6.4 Posted Prices, 1951-1961 ...... 378

Table 6.5 Eastern Hemisphere Profits and Payments (Millions of US$) ...... 388

Table 6.6 Royalty Crediting vs. Royalty Expensing (US$ per barrel, 1960) ...... 405

Table 6.7 Royalty Expense Compromise, 1964...... 426

ABBREVIATIONS

AIOC/APOC Anglo-Iranian Oil Company/ Anglo-Persian Oil Company BP British Petroleum (BP Archives) DRC Development & Resources Collection FRUS Foreign Relations of the United States HAG Harvard Advisory Group HIOHP Harvard Iranian Oral History Project FDRPL Franklin D. Roosevelt Presidential Library FIS Foundation for Iranian Studies FISKS Foundation for Iranian Studies, Khuzestan Series FO Records of the Foreign Office FPSC Foreign Petroleum Supply Committee JFKPL John F. Kennedy Presidential Library KDS Khuzestan Development Services NEF Near East Foundation NGO Non-Government Organization MKI Morrison-Knudsen Incorporated NIOC National Iranian Oil Company OCI Overseas Consultants Incorporated OPEC Organization of the Petroleum Exporting Countries PAD Petroleum Administration for Defense PDL Papers of David E. Lilienthal RAC Rockefeller Archive Center RG Record Group (National Archives and Records Administration) RUSFAA Records of US Foreign Assistance Agencies USLETCGR U.S. Legation & Embassy, Tehran, Classified General Records WBGA World Bank Group Archives

NOTE ON TRANSLITERATION AND DATES

Persian names are transliterated into English according to the system used by the Harvard Iran

Oral History Project (HIOHP), which is derived from Farideh Tehrani in Negligence and Chaos:

Bibliographical Access to Persian-Language Materials in the United States (Metuchen, NJ:

Scarecrow Press, 1991). Where spelling is widely used in English (chiefly for place names:

Tehran, Khuzestan, etc.), spelling is how it would normally appear. Otherwise, an attempt has been made to transilerate Persian names as accurately as possible. While the Gregorian calendar is used throughout, when discussing the Iranian budget or associated financial questions it is necessary to use the solar hijri (SH), where the first day of the year falls on March 21 or 20. Use of SH is particularly prevalent in Chapter 4.

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INTRODUCTION

Oil occupies a prominent position in the history of modern Iran. Under the Pahlavi dynasty (1925-1979), the oil industry became the single largest source of revenue and served as the foundation for state expansion and the modernization of society. For the regime of

Mohammed Rezā Pahlavi (r. 1941-1979), “neither political consolidation nor economic rehabilitation could be envisaged” without the financial resources accrued from oil, “the backbone of the Iranian economy.”1 The rapid industrialization and Westernization of Iranian society was carried out through top-down processes, engineered by a powerful state with grand ambitions and a high level of autonomy, thanks to the ever-expanding rents it collected from the production and sale of Iranian oil on the international market.2 Oil was a symbol of the country’s swift progress and the power of the Pahlavi state, providing funds for a series of large-scale economic development plans that were meant to vault Iran into the class of “developed” nations.3

1 Ruhollah K. Ramazani, The United States and Iran: the Patterns of Influence (New York, 1982), 22. 2 Homa Katouzian, The Political Economy of Modern Iran: Despotism and Pseudo- Modernism, 1926-1979 (London: Macmillan Press, 1981), 234-274, Ervand Abrahamian, Iran Between Two Revolutions (Princeton NJ: Princeton University Press, 1982), 427-428, Nikki Keddie, Modern Iran: Roots and Results of Revolution (New Haven, CT: Yale University Press, 2006), 162-163, Ali M. Ansari, Modern Iran: the Pahlavis and After, 2nd Edition (New York: Pearson Education, 2007), 231-232, Fred Halliday, Iran: Dictatorship and Development (New York: Penguin Books, 1979), 40-41, 139-171, Amin Saikal, The Rise and Fall of the Shah: Iran From Autocracy to Religious Rule (Princeton, NJ: Princeton University Press, 1980), 97-134; see Theda Skocpol, “Rentier State and Shi’a Islam in the Iranian Revolution,” Theory and Society 11:3 (May, 1982): 265-283, Afsaneh Najmabadi, “Depoliticisation of a Rentier State: The Case of Pahlavi Iran,” Hazem Beblawi and Giacomo Luciani, eds., The Rentier State (New York: Croon Helm, 1987), 211-227, and Benjamin Smith, Hard Times in the Lands of Plenty: Oil Politics in Iran and Indonesia (Ithaca, NY: Cornell University Press, 2007), 17-21, 67-71. 3 For economic development under the Pahlavi regime, see Julian Bharier, Economic Development in Iran, 1900-1970 (New York: Oxford University Press, 1971), Kamran Mofid, Development Planning in Iran: from Monarchy to Islamic Republic (Outwell UK: Middle East & North African Studies Press, 1987), Massoud Karshenas, Oil, State and Industrialization in Iran (New York: Cambridge University Press, 1990), Jahangir Amuzegar and M. Ali Fekrat, Iran: Economic Development Under Dualistic Conditions (Chicago, IL: University of Chicago Press, 1

For critics of the Pahlavi regime, oil represents Iran’s age-long exploitation at the hands of foreigners. The legacy of oil in Iran stretches back further than any other Middle East state.

Forerunners to the Anglo-Persian Oil Company (APOC, later AIOC and then British Petroleum, or BP) acquired the concession to search for oil in 1901 and made their first discovery in 1908.

By 1951 the company had constructed a sprawling oil complex in southern Iran, based around the refinery town of Abadan.4 This foreign enclave, a physical representation of Britain’s domination over Iranian oil and the inequities inherent within the international energy system of which Iran was a part, inspired considerable resistance from the Iranian people. Mounting anger culminated in the nationalization of Iran’s oil industry in May 1951 under the government of

Prime Minister Mohammed Moṣaddeq. The Anglo-American coup d’etat of August 1953 (the 28

Mordad Coup) that removed Moṣaddeq represented the moment when nascent democracy was squashed in favor of a return to the authoritarian rule of the Pahlavi shah. A subsequent oil agreement, negotiated under the watchful eye of the shah’s benefactor the United States government, cemented the companies’ control over oil and permitted the subsequent flood of oil

1971), Hossein Razavi and Firouz Vakil, The Political Environment of Economic Planning in Iran, 1971-1983: from Monarchy to Islamic Republic (London: Westview Press, 1984), Cyrus Vakili-Zad, “Collision of Consciousness: Modernization and Development in Iran,” Middle Eastern Studies 32, no. 3 (1996): 139-160; see also Frances Bostock and Geoffrey Jones, Planning and Power in Iran: Ebtehāj and Economic Development Under the Shah (London: F. Cass, 1989), 92-144. 4 The most complete histories of Iran’s oil industry are those published by the company: see Ronald Ferrier, The History of the British Petroleum Company, Vol. I (Cambridge, UK: Cambridge University Press, 1982), J.H. Bamberg, The History of the British Petroleum Company, Vol. II (Cambridge, UK: Cambridge University Press, 1982), and Bamberg, British Petroleum and Global Oil, 1950-1975, Vol. III (Cambridge, UK: Cambridge University Press, 2000). In Persian, the company’s former employee Mostafā Fāteh wrote a comprehensive history; see Mostafā Fāteh, Panjāh sāl naft-i Iran [Fifty Years of Iranian Oil] (Tehran: Enteshārāt-e Payām, 1956).

wealth to flow into the hands of the shah and his supporters.5 Husayn Mahdavī’s original definition of the “rentier state” was built around a critique of Pahlavi Iran’s dependence on oil in the years following the Mordad Coup.6 Mahdavī argued that most oil revenues were wasted on imports and non-productive sectors such as defense, doing little to expand the domestic economy.7 Criticisms of Iran’s oil policy appeared alongside more general condemnations of the shah’s modernization agenda, including influential works by Jalal Al-e Ahmad and ‘Ali

Shariati.8 Abū al-Ḥasan Banī Ṣadr’s Naft va Solteh (Oil and Domination) argued that the shah had stripped away Iran’s independence by increasing its reliance on oil, subordinating the country to an exploitative economic system for the purpose of maintaining his own position.

“The regime,” concluded Banī Ṣadr, “has distilled the factors for its survival and existence into the export of the nation’s wealth.”9 In 1967’s Iran: the New Imperialism in Action, Bahman

Nirumand wrote that the shah’s vast armaments, purchased with oil money from the U.S. and

5 For the nationalization crisis, see James F. Goode, The United States and Iran: In the Shadow of Mosaddeq (New York: St. Martin’s Press, 1997), Mary Ann Heiss, Empire and Nationhood: the United States, Great Britain and Iranian Oil, 1950-1954 (New York: Columbia University Press, 1997), Mostafa Elm, Oil, Power and Principle: Iran’s Nationalization and its Aftermath (Syracuse, NY: Syracuse University Press, 1992), W. Roger Louis and James Bill, eds., Mosaddeq, Iranian Nationalism and Oil (London: Tauris, 1988), Malcolm Byrne and Mark J. Gasiorowski, eds., Mohammed Mosaddeq and the 1953 Coup in Iran (Syracuse, NY: Syracuse University Press, 2004); Fu’ād Ruhāni, Tārīkh-i millī shudan-i ṣanʻat-i naft-i Irān [The History of the Nationalization of the Iranian Oil Industry] (Tehran: Kitabhaye Jibi, 1973). 6 Hossein Mahdavy, “The Patterns and Problems of Economic Development in Rentier States: the Case of Iran,’’ in M.A. Cook, ed., Studies in the Economic History of the Middle East: From the Rise of Islam to the Present Day (London: U.P., 1970), 443-467. 7 Mahdavy, “The Patterns and Problems of Economic Development in Rentier States,” 443-467. 8 Abū al-Ḥasan Banī Ṣadr, Naft va Solteh [Oil and Domination] (Tehran: Intishārāt Moṣṣadiq, 1977), published in English in Near East//North Africa Report No. 2113 (May 8, 1980), Jalal Al-e Ahmed, Gharbzadegi (Costa Mesa, CA: Mazda Publishers, 1982). Al-e Ahmed denounced the Western industry that “plunders us, rules us, and determines our destiny. See Al-e Ahmed, Gharbzadegi, 38. 9 Banī Ṣadr, Naft va Solteh, 13, 21.

Soviet Union, “is intended to intimidate an adversary who has not even been formed as yet: the

Iranian peasant.”10 Oil wealth allowed the shah to stifle unrest, extend the state’s control over

Iran’s agrarian population, and permit a massive experiment in social engineering, one that came crashing down amidst the Islamic Revolution of 1979. Revolution erupted in large part because of the instability present within the Iranian economy and the weaknesses resulting from a decades’ long dependence on oil exports. Fiscal autonomy, meanwhile, had allowed the shah to press on with disruptive, unpopular modernization without first cultivating a broad based of support: for all the pomp, pageantry, prestige, and power surrounding his reign, he was perhaps most associated with the indelible image of a Westernizing monarch flying above the streets of

Tehran in a helicopter, oblivious to the discontent swelling below.11

Oil provided the central pillar of the shah’s regime, but nearly as important was the support of his major ally, the United States of America. Mark J. Gasiorowski and Richard

Cottam argue that before the late 1960s, when economic take-off and increasing oil revenues permitted self-sufficiency, the Pahlavi state depended on aid from the U.S. to maintain itself.12

Since World War II, the United States viewed Iran as a strategically important country and a crucial ally in the Cold War. Successive U.S. administrations furnished the Pahlavi regime with weapons and aid, technical and diplomatic support. Concerned that the country was slowly falling to communism, the Eisenhower Administration used covert action to remove the

10 Bahman Nirumand, Iran: The New Imperialism in Action (New York: Monthly Review Press, 1969), translated from Modell eines Entwicklungslandes oder Die Diktatur der Freien Welt [Persia, a Model of a Developing Nation or the Dictatorship of the Free World] (Hamburg: Rowohlt Taschenbuch Verlag Gmbh, 1967), 187 11 Katouzian, Political Economy, 255-269, Ansari, Modern Iran, 229-232, Keddie, Modern Iran: the Pahlavis and After, 231-232, Halliday, Iran, 40-41. 12 Mark J. Gasiorowski, U.S. Foreign Policy and the Shah: Building a Client State in Iran (Ithaca: Cornell University Press, 1991); xii-xiii, 134-35; Richard Cottam, Nationalism in Iran (Pittsburg PA: University of Pittsburgh Press, 1964), 322-323.

nationalist Moṣaddeq government in August 1953, replacing him with the shah. Oil played a role in the U.S. decision, as Moṣaddeq had risen to power through his nationalization of Iran’s

British-owned oil industry. This act, which the British and major oil companies contended was illegal, threatened the fabric of the international energy system, what some historians have dubbed the “postwar petroleum order.”13 The shah owed the U.S. his throne, and though they pressed him to undertake political, social and economic reforms, U.S. policy-makers came to see the shah as a crucial ally and the best guarantor of Iran’s stability and pro-Western strategic alignment.14 Recent scholarship has emphasized Iran’s agency within the superpower contest of the Cold War. The shah was able to practice an independent foreign policy, often using his status as a key Cold War ally to the U.S. to pursue his own goals.15 This degree of independence was frequently obscured, however, by the common perception of his government as an American

“puppet,” a view that extended to his complicity in permitting Western oil companies to re-assert their control over Iran’s oil in the aftermath of the Mordad Coup. The narrative of “oil

13 For an explanation of this term, see Nathan J. Citino, “Defending the ‘Postwar Petroleum Order:’ The U.S., Britain and the 1954 Saudi-Onassis Tanker Deal,” Diplomacy and Statecraft 11:2 (2000): 137-160. See also Daniel Yergin, The Prize: the Epic Quest for Oil, Money and Power (New York: Simon and Schuster, 1991), 391-544. 14 The best survey of the U.S.-Iranian relationships remains James A. Bill, The Eagle and the Lion: The Tragedy of American-Iranian Relations (New Haven: Yale University Press, 1988); see also Richard Cottam, Iran and the United States: A Cold War Case Study (Pittsburgh: University of Pittsburgh Press, 1989); Barry Rubin, Paved with Good Intentions: The American Experience and Iran (New York: Oxford University Press, 1980); Kenneth M. Pollack, The Persian Puzzle: The Conflict Between Iran and America (New York: Random House, 2005). For U.S. policy towards Iran in the context of the Cold War, see Stephen L. McFarland, “A Peripheral View of the Origins of the Cold War: the Crises in Iran, 1941-1947,” Diplomatic History 4:4 (October 1980): 333-351, James F. Goode, The United States and Iran, 1946-51: the Diplomacy of Neglect (New York: St. Martin’s Press, 1989), and The United States and Iran: in the Shadow of Mosaddeq (New York: St. Martin’s Press, 1997), Gasiorowski, U.S. Foreign Policy and the Shah. 15 Roham Alvandi, Nixon, Kissinger and the Shah: the United States and Iran in the Cold War (New York: Oxford University Press, 2014), 1-7.

imperialism,” whereby Iran’s resources are the subject of intense competition among foreign actors, emphasizes the intervention of foreigners to secure Iranian oil for their own ends, with the shah acting as a willing accomplice.16 The nationalization crisis, the Mordad Coup and the shah’s close connection to the West and Westernization fused political mobilization and economic grievance in a way that continued to influence Iranian politics after 1979.17

Discussion of oil in the history of modern Iran is broken into dueling narratives. One is concerned with oil’s “local” character, as the foundation of Pahlavi finances and the basis for the shah’s modernization agenda. The other is focused on the global sphere and treats oil as a factor in international relations, emphasizing the machinations of Western capital and the acquisitive designs of the Anglo-American (and, in the context of 1944-1947, Soviet) powers. The concept of a postwar petroleum order, where the U.S. and British governments worked with major oil companies to ensure a steady supply of oil for Western consumption, is separated from how oil was used within Iran itself.18 Outside the sprawling literature concerning the nationalization crisis, historians have largely neglected Iran’s place in the global oil order, with pride of place

16 L.P. Elwell-Sutton, Persian Oil: A Study in Power Politics (London: Lawrence and Wishart, 1955), Nasrollah Fatemi, Oil Diplomacy: Powderkeg in Iran (New York: Whittier Books, 1954), Mostafa Elm, Oil, Power and Principle: Iran’s Nationalization and its Aftermath (Syracuse, NY: Syracuse University Press, 1992), Ervand Abrahamian, The Coup: 1953, the CIA and the Roots of Modern U.S.-Iranian Relations (New York: The New Press, 2013); see also Joyce and Gabriel Kolko, The Limits of Power: the World and United States Foreign Policy, 1945-1954 (New York: Harper and Row, 1972), 412-420. 17 Suzanne Maloney, Iran’s Political Economy Since the Revolution (New York: Cambridge University Press, 2015), 48. 18 David S. Painter, Oil and the American Century: the Political Economy of U.S. Foreign Oil Policy, 1941-1954 (Baltimore MD: Johns Hopkins University Press, 1986), Brandon Wolfe-Hunnicutt, “The End of the Concessionary Regime: Oil and American Power in Iraq, 1958-1972,” PhD Dissertation, Stanford University, 2011), Mark Seddon, ”British and U.S. Interventions in the Venezuelan Oil Industry: A Case Study of Anglo-U.S. Relations, 1941- 1948,” PhD Thesis, University of Sheffield (2014), Victor McFarland, “The United States, Saudi Arabia and Oil in the 1970s,” PhD Dissertation, Yale University (2013).

reserved for Saudi Arabia.19 In the “local” sphere, oil is barred by partitions in scholarship, despite the recent interest in modernization as an aspect of the global Cold War and the study of development as history: there is much talk of dams and plans, but very little of petroleum, which frequently provided the financial basis for such projects.20 The importance of non-state actors in fostering a development ethos and the work of non-governmental organizations (NGOs) in complementing U.S. Cold War policy is emphasized, both in terms of large-scale programs and the “grassroots” work of rural improvement organizations: “development as conceived by economic theory,” according to Nick Cullather, “was a cure for the condition of rurality,” and emerged as a “new style of diplomacy” typified not by direct, state-to-state relations but rather through “the panoply of private and multilateral funding networks,” which “pitted transnational coalitions of experts against one another.”21 Whether the companies counted as participants in

19 Aaron David Miller, Search for Security: Saudi Arabian Oil and American Foreign Policy, 1939-1949 (Chapel Hill, NC: University of North Carolina Press, 1980), Irvine Anderson, Aramco, the United States and Saudi Arabia: A Study of the Dynamics of Foreign Oil Policy, 1933-1950 (Princeton NJ: Princeton University Press, 1981), Nathan J. Citino, From Arab Nationalism to OPEC: Eisenhower, King Saud and the Making of U.S.-Saudi Relations, 2nd Edition (Bloomington, IN: Indiana University Press, 2005), Stephen J. Randall, United States Foreign Oil Policy Since World War I: For Profits and Security (Ithaca, NY: McGill-Queen’s University Press, 2005). 20 David C. Engerman et al, eds., Staging Growth: Modernization, Development and the Global Cold War (Amherst MA: University of Massachusetts Press, 2003), Nils Gilman, Mandarins of the Future: Modernization Theory in Cold War America (Baltimore MD: Johns Hopkins University Press, 2003), Irene Gendzier, Managing Political Change: Social Scientists and the Third World (Boulder CO: Westview Press, 1985), David Ekbladh, The Great American Mission: Modernization and the Construction of an American World Order (Princeton, NJ: Princeton University Press, 2010), Michael E. Latham, The Right Kind of Revolution: Modernization, Development and US Foreign Policy from the Cold War to the Present (Ithaca NY: Cornell University Press, 2011). 21 Nick Cullather, The Hungry World: America’s Cold War Battle Against Poverty in Asia (Cambridge MA: Harvard University Press, 2011): 5, 6-7. See also Michael Latham, Modernization as Ideology: American Social Science and ‘Nation Building’ in the Kennedy Era (Chapel Hill NC: University of North Carolina Press, 2000), Amy L.S. Staples, The Birth of Development: How the World Bank, Food and Agriculture Organization and World Health Organization Changed the World, 1945-1965 (Kent OH: Kent State University Press, 2006), 7

this network is left unexplored. Beyond the groundbreaking work of Robert Vitalis and Nathan

Citino on Saudi Arabia, little has been done to explore how the oil industry and oil companies figured into the grand Western experiment to modernize the Third World.22

Within the postwar modernization movement, Iran was unique, “a major test case for modernization theory” according to Harvard anthropologist Michael Fischer, where a rapid transformation “was expected to be most feasible.”23 The argument was easy for contemporaries to grasp: Iran was a large, independent country with ample resources, natural and human, a constitutional government generally felt to be legitimate, and a pro-Western alignment. Iran was unique, even among the oil producers. Unlike barren Kuwait and Saudi Arabia, Iran possessed a diverse geography and economy beyond the fracturing towers and storage containers of Abadan.

It had a long history as an independent state, and was therefore insulated from the fractured politics of Iraq and Indonesia. Its population was larger than Venezuela, and its oil production

(unlike Mexico) was large and rising. It was in Iran that oil-based development assumed its most potent form. The transformation of oil into “oil power,” a force by which the state could expand

Matthew Connelly, Fatal Misconception: The Struggle to Control World Population (Cambridge MA: Belknap Press of Harvard University Press, 2008); for grassroots development, see Daniel Immerwahr, Thinking Small: the United States and the Lure of Community Development (Cambridge, MA: Harvard University Press, 2015). 22 Robert Vitalis, America’s Kingdom: Mythmaking on the Saudi Oil Frontier (New York: Verso, 2009), 1-27, Nathan J. Citino, Envisioning the Arab Future: Modernization in U.S.- Arab Relations, 1945-1967 (New York: Cambridge University Press, 2017), 1-15, 56-96; see also Bradley R. Simpson, Economists with Guns: Authoritarian Development and U.S.- Indonesian Relations, 1960-1968 (Stanford, CA: Stanford University Press, 2008), 99-109, and Toby Jones, Desert Kingdom: How Oil and Water Forged Modern Saudi Arabia (Cambridge, MA: Harvard University Press, 2010). 23 Michael M.J. Fischer, Religion and Progress in Iran: Briefing Paper, Department of State Colloquium on Iran, May 25, 1979, in Asnad-I Laah-yi Jasusi [Documents from the U.S. Espionage Den], xv (1985): 29-39, quoted in Roland Popp, “An Application of Modernization Theory during the Cold War? The Case of Pahlavi Iran,” International History Review 30:1 (March 2008): 76-98.

its prerogatives, extend its reach into society and begin to shape the very fabric of Iranian life, made grandiose visions of modernization appear attainable and facilitated the shah’s consolidation of power, even if his reforms had little apparent connection to the sale of Iranian oil abroad. A succession of development plans, the White Revolution land reform campaign, and a colossal build-up of Iran’s military were only possible thanks to Iran’s status as a major oil producer.24

The oil-based development bonanza of the Pahlavi regime blossomed amidst the geopolitical environment of the global Cold War. The United States viewed Iran as a strategically important country; its fall to communism would have disastrous consequences on regional security and affect Western access to Middle Eastern oil. Recent work has explored new elements of the U.S.-Iranian relationship, including educational exchange and arms agreements.25 Yet oil remains obscured, with much of the focus instead going to issues of high diplomacy.26 The archives of the Anglo-Iranian Oil Company are open and have been utilized by

24 Karshenas, Oil, State and Industrialization, 166-205, Mofid, Development Planning in Iran, 39, 79, Eric Hooglund, Land and Revolution in Iran, 1960-1980 (Austin, TX: University of Texas, Austin Press, 1982), Afsaneh Najmabadi, Land Reform and Social Change in Iran (Salt Lake City, UT: University of Utah Press, 1987), George Baldwin, Planning and Development in Iran (Baltimore, MD: Johns Hopkins Press, 1967). 25 Stephen McGlinchey, US Arms Policies Towards the Shah’s Iran (New York: Routledge, 2014), Matthew K. Shannon, “American-Iranian Alliances: International Education, Modernization and Human Rights During the Pahlavi Era,” Diplomatic History 39:4 (2015): 661-689 and Losing Hearts and Minds: American-Iranian Relations and International Education During the Cold War (Ithaca, NY: Cornell University Press, 2017). 26 Oil is scarcely mentioned in Roham Alvandi’s excellent study of U.S.-Iranian relations; see Alvandi, Nixon, Kissinger and the Shah. An exception is Andrew Scott Cooper, “Showdown at Doha: the Secret Oil Deal That Helped Sink the Shah of Iran,” Middle East Journal 62, no. 4 (Autumn, 2008): 567-591.

scholars studying the role of oil in Iranian history, yet have not been used extensively outside of the nationalization crisis to explore oil’s significance to the U.S.-Iranian relationship.27

Similarly, development as a component of the U.S.-Iranian relationship has been under examined. The dominant narrative neglects the critical contribution of private groups, development firms, and non-government organizations (NGOs) to Iran’s oil-based development program, despite the legacy of Americans serving as advisors to the Iranian government.28 While scholars have examined U.S. attempts to encourage reform inside Iran, particularly during the

Kennedy era (1961-1963), the focus has remained on the bilateral relationship between

Washington and Tehran, with particular emphasis placed on personal relations between key U.S. policy-makers and Mohammed Rezā Pahlavi.29 Recent scholarship has begun to expand the role

27 Steve Marsh, Anglo-American Relations and Cold War Oil: Crisis in Iran (New York: Palgrave Macmillan, 2003), Katayoun Shafiee, “Cracking Petroleum with Politics: Anglo- Persian Oil and the Socio-Technical Transformation of Iran, 1901-54,” (PhD diss., New York University, 2010), Alexander Nicholas Shaw, ‘“Strong, United and Independent:’ the British Foreign Office, Anglo-Iranian Oil Company and the Internationalization of Iranian Politics at the Dawn of the Cold War, 1945-46,” Middle Eastern Studies 52, no. 3 (2016): 505-524. The official histories of the company depend heavily on documents from the BP Archive; see Ronald Ferrier, The History of the British Petroleum Company, Vol. I (Cambridge, UK: Cambridge University Press, 1982), J.H. Bamberg, The History of the British Petroleum Company, Vol. II (Cambridge, UK: Cambridge University Press, 1982), and Bamberg, British Petroleum and Global Oil, 1950- 1975, Vol. III (Cambridge, UK: Cambridge University Press, 2000). 28 Arthur C. Millspaugh, Americans in Persia (Washington DC: Brookings Institute, 1948), Morgan W. Shuster, The Strangling of Persia: A Record of European Diplomacy and Oriental Intrigue (London: TF Unwin, 1912). James Bill briefly covers post-1953 assistance to the shah’s regime by American development groups, see Bill, The Eagle and the Lion, 120-127. 29 For the encouragement of democracy and support for modernization, see David Collier, Democracy and the Nature of American Influence in Iran, 1941-1979 (Syracuse, NY: Syracuse University Press, 2017) and Ben Offiler, US Foreign Policy and the Modernization of Iran: Kennedy, Johnson, Nixon and the Shah (Basingstoke, UK: Palgrave MacMillan, 2015); for the push to reform during the Kennedy Administration, James F. Goode, “Reforming Iran during the Kennedy Years,” Diplomatic History, 15 (Winter 1991): 13-29, Victor V. Nemchenok, “In Search of Stability Amid Chaos: US Policy Toward Iran 1961–63,” Cold War History 10 (2010): 341–369, Roland Popp, “Benign Intervention? The Kennedy Administration’s Push for Reform in Iran,” in Manfred Berg and Andreas Etges, eds., John F. Kennedy and the ‘Thousand Days:’ 10

of private groups in the U.S.-Iranian relationship, but the realms of oil and development remain largely unexplored.30

The world of international development existed at a remove from that of global oil, but in the case of the oil-producing states, one could not exist without the other. Oil and development were bound together through financial ties and the common element of the producer government, which navigated both worlds simultaneously. The individuals at work in international development usually came from private industry; oil-men, with their years of experience crisscrossing the region, hunting for concessions, and negotiating with local leaders, made natural envoys for NGOs and private development firms in the postwar period.31 The same men

(for it was a male-dominated environment) served as officials for the United States, which unlike the British did not have a legacy of diplomatic service in the region.32 Oil-men became entangled in debates surrounding the region’s future, and discussed theories and models of modernization with scholars and philanthropists.33 Shared experience of the foreign, interest in issues of

New Perspectives on the Foreign and Domestic Policies of the Kennedy Administration (Heidelberg: Universitatsverlag Winter Heidelberg, 2007), 197–219 30 Victor Nemchenok, “‘That So Fair a Thing Should Be So Frail’: The Ford Foundation and the Failure of Rural Development in Iran, 1953-1964,” Middle East Journal 63, no. 2 (Spring 2009): 261–84, Christopher T. Fisher, “Moral Purpose is the Important Thing:’ David Lilienthal, Iran and the Meaning of Development in the US, 1956-63,” The International History Review 33, no. 3 (2011): 431-451, and Shannon, Losing Hearts and Minds. Part of Chapter 5 of this dissertation was adapted into an article exploring the work of American NGOs and the Iranian development program; see Gregory Brew, ‘“What They Need is Management:’ American NGOs, the Second Seven Year Plan and Economic Development in Iran, 1954-1963,” International History Review (On-Line, December 2017): 1-22. 31 Perhaps the best example is that of Max W. Thornburg, who plays an important role in encouraging development planning in Iran after the war. See Linda W. Qaimmaqami, “The Catalyst of Nationalization: Max Thornburg and the Failure of Private Sector Developmentalism in Iran, 1946-1951,” Diplomatic History 19, no. 1 (Jan., 1995): 1-31. 32 See Nathan J. Citino, “International Oil Men, the Middle East and the Remaking of American Liberalism, 1945-1953,” Business History Review 84:2 (Summer 2010): 227-251. 33 Citino, Envisioning the Arab Future, 56-59.

economics, aid, development and diplomacy bound together the separate spheres of public service, commerce and philanthropy.

Grappling with the intricate, intertwined relationships bringing oil, development, Cold

War diplomacy, and Pahlavi politics together requires a new approach, one that recognizes the global and local significance of oil and bridges the gap between oil’s dueling narratives. Before

Mohammed Rezā Shah was able to dominate Iranian state and society, Iranian oil underwent a process of dual integration. The product of Iran’s oil fields was integrated into the international system dominated by an oligopoly of major oil companies. Simultaneously, the revenues generated from oil were integrated into the national development effort administered by the

Pahlavi regime, overseen by the United States government and facilitated through the technical

“know-how” of American developmentalists. Through the methodology of dual integration, oil and development are connected to illustrate the intricacies of the U.S.-Iranian relationship, particularly the importance of non-state actors: the “mandarins” of modernization and the

“paladins” of private enterprise in the oil industry. An understanding of how Pahlavi Iran became an authoritarian rentier state, a U.S. ally in the global Cold War,, and a major oil producer is only possible through a close examination of how Iranian oil was harnessed, transported, and transformed between 1925 and 1964 by a diverse set of actors: members of the Pahlavi court, nationalist opponents of the monarchy, policy-makers in Washington and London, executives at the BP headquarters in Britannic House, agrarian experts at the Ford Foundation, and hydroelectric engineers from New York City. Tying the process together was the U.S. commitment to stabilizing Iran by turning petroleum into progress through centrally-planned state-driven development efforts, pushing projects that would improve conditions in the Iranian countryside; the companies’ efforts to utilize Iranian oil in their quest to bring balance and profitability to the

international energy system; and the Pahlavi shah’s desire to use oil and foreign assistance to assume hegemony over Iran’s state and society.

Since the early twentieth century, oil has been a vital ingredient in the global economy. It is produced, transported, and marketed on a scale unmatched by any other traded good, moved in tremendous quantities from a small number of oil-rich regions to every nation on earth. From the first production in commercial quantities in the 19th century, crude oil and its many derivatives expanded into the world’s largest and most profitable industry. Managing this expansion were a small number of corporations, known as the “Seven Sisters,” primarily Anglo-American in nationality.34 These companies controlled the flow of oil through vertically-integrated operations, and grew from humble beginnings to become some of the largest, wealthiest and most complex non-state organizations in human history.35

34 The companies were the Standard Oil Company of New Jersey (Jersey Standard or SONJ), Standard Oil of New York (Socony, or Socony-Mobil), Standard Oil of California (Socal), the Texas Oil Company (Texaco), the Gulf Oil Company, Royal Dutch/Shell and the Anglo-Iranian Oil Company (AIOC, later British Petroleum or BP). Shell was Anglo-Dutch; the French national firm CFP (Compagnie française des pétroles) owned shares in the Iraqi and Iranian concession and was considered a major in its own right. 35 Peter F. Cowhey, The Problems of Plenty: Energy Policy and International Politics (Berkeley, CA: University of California Press, 1985), Michael Tanzer, The Political Economy of International Oil and the Underdeveloped Countries (Boston, MA: Beacon Press, 1970) Edith Penrose, The Large International Firm in Developing Countries: the International Petroleum Industry (London: Allen and Unwin, 1968), John Blair, The Control of Oil (New York: Pantheon Books, 1976), Robert Engler, The Politics of Oil: A Study of Private Power and Democratic Directions (New York: MacMillan, 1961), Neil H. Jacoby, Multinational Oil: A Study in Industrial Dynamics (New York: Macmillan, 1974), Anthony Sampson, The Seven Sisters: The Great Oil Companies and the World They Shaped (New York: Hodder and Stoughton, 1975); for Latin America, see George Philip, Oil and Politics in Latin America: Nationalist Movements and State Companies (London: Cambridge University Press, 1982); for Middle East oil, see Wayne A. Leeman, The Price of Middle East Oil: An Essay in Political Economy (Ithaca, NY: Cornell University Press, 1962), Benjamin Schwadran, The Middle East, Oil and the Great Powers (New York: Wiley, 1974), George W. Stocking, Middle East Oil: A Study in Political and Economic Controversy (Nashville, TN: Vanderbilt University Press, 1970), Steven A. Schneider, The Oil 13

As its importance to the international economy grew, oil’s fate appeared more and more precarious. Concerns developed over the dangers of “peak oil,” fears that soon demand would outstrip supply and production would begin a precipitous decline.36 Yet this warning proved false: far from running out, crude oil was found in immense quantities, placing so much pressure on the market that prices collapsed from their “peak oil” heights to a disastrous low of less than

$30 per barrel in January 2016. Historically, the chief problem facing private (Western, and predominantly Anglo-American) international oil companies was not a shortage of oil, but rather oil’s abundance relative to demand at any given time. Despite a consistent belief that oil, a non- renewable resource, is at or near depletion, in reality it is not scarcity that companies manage, but the intense volatility of price and the shifting supply/demand balance.37

Before 1973, when the first “oil shock” upset the existing balance in international energy, a small number of companies (the “majors”) controlled most of the world’s oil. To combat the frequent volatility in the oil market, the companies cooperated through joint agreements to apportion market share and limit growth in production. Their critics, seeing through the

Price Revolution (Baltimore, MD: Johns Hopkins University Press, 1983), Stephen H. Longrigg, Oil in the Middle East: Its Discovery and Development (New York: Oxford University Press, 1954); for accounts which are friendly to the companies, see Daniel Yergin, The Prize: the Epic Quest for Oil, Money and Power (New York: Simon and Schuster, 1991), Leonard Mosley, Power Play: Oil in the Middle East (New York: Random House, 1973). 36 Stephen A. Yetiv, Crude Awakenings: Global Oil Security and American Foreign Policy (Ithaca, NY: Cornell University Press, 2004), Michael T. Klare, Resource Wars: the New Landscape of Global Conflict (New York: Henry Holt, 2002), and The Race for What’s Left: The Global Scramble for the World’s Last Resources (New York: Metropolitan Books, 2012). “Peak oil” stems from the famous work of geologist M. King Hubbert, who predicted in the mid-1950s that American conventional oil production would peak in 1970. While Hubbert’s Peak was accurate, unconventional oil remained abundant and slowed the rate of American production decline in the 1980s. 37 A similar argument is made in Robert McNally, Crude Volatility: the History and Future of Boom-Bust Oil Prices (New York: Columbia University Press, 2017). See also Roger Stern, “Oil Scarcity Ideology in U.S. Foreign Policy, 1908-97,” Security Studies 25, no. 2 (May 2016): 214-257, Mitchell, Carbon Democracy, 43-45.

companies’ frequent defense that oil was “competitive” and subject to market forces, labeled the companies a cartel: a conspiratorial organization determined to maintain artificially-high prices in order to maximize profit.38 Yet to classify the companies as a cartel is somewhat misleading, for a very simple reason: they were in constant, at times bitter competition for market share, consumers and independent refiners.39 Rather than a cartel, the companies functioned as an oligopoly: a loose association of producers that maintained a limited supply in order to keep prices from falling below an acceptable floor. They formed compacts, what Theodore Moran has called “supra-sovereign constraints,” designed to produce discipline and instill a shared interest in controlling output.40

The goal of the majors was profit maximization, yet they were distinct from other oil companies in two very important ways: their vertical integration, which made them multinational enterprises; and their “collective domination” of the world’s most abundant deposits of oil, in areas where production costs were very low.41 Once it had achieved effective control over global prices in the 1930s, the oligopoly “slowed the advance of competition” in order to maintain the stable, profitable status quo.42 To balance the large capital investment and risk

38 Burton I. Kaufman, The Oil Cartel Case: A Documentary Study of Antitrust Activity in the Cold War Era (Westport, CT: Greenwood Press, 1978), 5, Federal Trade Commission (FTC), The International Petroleum Cartel: Staff Report Submitted to the Subcommittee on Monopoly of the Select Committee on Small Business, United States Senate (Washington DC: U.S. Government Printing Office, 1952), 37-46, 109-113. 39 Cowhey, Problems of Plenty, 6. 40 Theodore H. Moran, “Managing an Oligopoly of Would-Be Sovereigns: The Dynamics of Joint Control and Self-Control in the International Oil Industry Past, Present and Future,” International Organization, 41, no. 4 (Autumn 1987): 576-607; Cowhey, Problem of Plenty, 112; Leeman, Price of Middle East Oil, 57; M.A. Adelman, “Oil Prices in the Long Run (1963- 75),” The Journal of Business 37, no. 2 (April 1964): 155. 41 Tanzer, The Political Economy of International Oil, 21. 42 Cowhey, Problem of Plenty, 111.

involved in developing large oil fields, profits had to be high and security assured for the full life of the field. The goal of the oligopoly was to ensure profitability by deterring destructive competition, which would result from drops in the price. Together, the members of the oligopoly controlled the world oil trade and fashioned it into a mechanism for managing production and competition: what some historians have dubbed the “postwar petroleum order,” and what is here referred to as the international energy system.

During the period where the major companies dominated international trade, roughly

1912-1973, oil was simultaneously a capitalist enterprise and an aspect of international relations.

World War I proved the importance of oil in modern mechanized warfare. In the interwar period, oil-starved nations such as Great Britain, Germany, Italy, Japan, and France scrambled for access to strategic petroleum reserves that could be relied upon to provide energy security.43 The major

U.S. firms competed with the British and others for access to the massive oil deposits of the

Middle East.44 After World War II, oil became a critical component of the U.S.-sponsored postwar economic order. Nations were encouraged to transition from coal to oil as their main source of energy, in part because immense oil resources in the Middle East were tied to postwar

43 B.S. McBeth, British Oil Policy, 1919-1939 (London: F. Cass, 1985), Marian Kent, Moguls and Mandarins: Oil, Imperialism and the Middle East in British Foreign Policy, 1900- 1940 (London: Frank Cass, 1993), Anand Toprani, “Oil and Grand Strategy: Great Britain and Germany, 1918-1941,” PhD Dissertation, Georgetown University (2012). 44 Michael Hogan, “Informal Entente: Public Policy and Private Management in Anglo- American Petroleum Affairs, 1918-1924,” The Business History Review 48, no. 2 (Summer, 1974): 187-205, William Stivers, “International Politics and Iraqi Oil, 1918-1928,” Business History Review 55, no. 4 (Winter, 1981): 517-540; George Gibb and Evelyn H. Knowlton, History of the Standard Oil Company: The Resurgent Years, 1911-1927 (New York: Harper, 1956), Henrietta M. Larson, History of the Standard Oil Company: New Horizons, 1927-1950 (New York: Harper and Row, 1971), John A. Denovo, American Interests and Policies in the Middle East, 1900-1939 (Minneapolis MN: University of Minnesota Press, 1963).

reconstruction through the Marshall Plan.45 The companies and U.S. government formed a

“corporatist” partnership: cheap oil was provided to Western Europe and Japan, the companies were permitted to set prices and organize production in a way that ensured security and profits, while the U.S. was assured the strategically important oil would be kept out of the hands of the

Soviet Union. 46 As the most important U.S. Cold War ally, Britain developed a close economic and fiscal dependence on oil through the importance of “sterling oil” in the British balance of payments and the maintenance of the national currency.47 The postwar petroleum order was an

Anglo-American creation, and functioned through a complex network of connections between the two governments, the oligopoly members and the producer states.

The companies operated through concessions, legal constructions that permitted companies to produce, refine and export a nation’s oil in exchange for a royalty payment.48 Most oil agreements reached between 1900 and 1945 granted companies nearly-total control over the production, refining, transportation and marketing of oil. In exchange, the companies paid local

45 David S. Painter, “The Marshall Plan and Oil,” Cold War History 9, no. 2 (May 2009): 159-175. 46 Michael J. Hogan, “Corporatism: From the New Era to the Age of Development,” in Explaining the History of American Foreign Relations, 3rd Edition, Frank Costigliola and Michael J. Hogan, eds. (New York: Cambridge University Press, 2016), 42-57. The importance of commercial interests in U.S. foreign policy is tied closely to the concept of the “open door,” and the desire of the U.S. to expand economically in order to ensure its security. See William Appleman Williams, The Tragedy of American Diplomacy (New York: W.W. Norton, 2009). 47 Stephen S. Galpern, Money, Oil and Empire in the Middle East: Sterling and Postwar Imperialism, 1944-1971 (Cambridge: Cambridge University Press, 2013), Wm. Roger Louis, The British Empire in the Middle East, 1945-1951: Arab Nationalism, the United States and Postwar Imperialism (Oxford, UK: Oxford University Press, 1984), Peter L. Hahn, The United States, Great Britain, and Egypt, 1945-1956: Strategy and Diplomacy in the Early Cold War (Chapel Hill, NC: University of North Carolina Press, 1991). 48 For a review of Middle East concessions, see Zuhayr M. Mikdashi, A Financial Analysis of Middle Eastern Oil Concessions, 1901-65 (New York: Praeger, 1966). For Latin America, see Philip, Oil and Politics in Latin America, 7-43.

governments a royalty or taxes on profits. Producing states, under pressure from more powerful neighbors and frequently in urgent need of funds, were often in no position to refuse the terms offered them. The imbalance in returns enjoyed by companies and governments and the companies’ role in exporting and expanding Western capitalism marked oil as a tool of imperialism, later incorporated into theories of economic dependence linking the Third World economies to the industrial West.49 While corporatism implied cooperation between companies and governments, anti-imperialist arguments were based on the notion that such balance could only survive through the forced exploitation of the Third World. In the postwar period, oil was closely connected to U.S. interventions in the Middle East: both in reality and in the collective imagination of global opinion, American involvement in the region was closely linked to the production and transportation of petroleum.50

Yet this narrative of exploitation obscures the “never-ending” process of negotiation that characterized company-producer relations.51 Concession terms were constantly changing, and with them the definition of what was “fair and equitable.” George Philip notes that, in Latin

America, “company profitability…was generally governed by contemporary expectations of what was reasonable rather than by the shameless use of monopoly power.”52 While the

49 Andre Gunder Frank, Capitalism and the Underdevelopment of Latin America: Historical Studies of Chile and Brazil (New York: Monthly Review Press, 1969). 50 Toby Jones, “America, Oil and War in the Middle East,” Journal of American History 99, no. 1 (June 2012): 208-218; Irene Gendzier, Dying to Forget: Oil, Power, Palestine and the Foundations of U.S. Policy in the Middle East (New York: Columbia University Press, 2015); Andrew Bacevich, America’s War for the Greater Middle East: A Military History (New York: Random House, 2016); Michael T. Klare, “Oil, Iraq and American Foreign Policy: the Continuing Salience of the Carter Doctrine,” International Journal 62, no. 1 (March 2007): 31- 42. 51 Schwadran, The Middle East, Oil and the Great Powers, 7. 52 Philip, Oil and Politics in Latin America, 41.

companies were wealthy and powerful, they could not always count on direct support from their parent governments: their relationship with host governments depended on the use of bargaining power.53 Confrontation between oil-producing states and the oligopoly was bound to occur, due to oil’s phenomenal potential as a source of rents.54 Nationalizations and expropriations could happen when popular political opinion turned against the companies, or when local governments came to see the companies as more of a burden than a benefit: as Neil Jacoby notes, “implicit threats of expropriation stood behind many less extreme forms of regulation,” and the vast investment required to produce oil in commercial quantities was under constant threat from host governments who could use sovereign power to effectively blackmail the companies.55 As

Robert Vitalis notes, this danger grew over time as national governments took the place of

“colonial consuls.”56 Along with the ever-present specter of destructive competition, resource nationalism in producing states was the greatest single threat to the oligopoly’s operations and control of oil.

The structure of the oligopoly helped to mitigate these two dangers. Cooperative arrangements, reduced competition over production and prevented “newcomers” from obtaining cheap reserves and challenging the oligopoly; despite constant attempts to work around this restriction, oil producing states usually had no choice but to work with one of the oligopoly members.57 The abundance of oil gave the companies the option to withdraw from areas where

53 Nathan Fagre and Louis T. Wells, Jr., “Bargaining Power of Multinationals and Host Governments,” Journal of International Business Studies 13, no. 2 (Autumn, 1982): 9-23. 54 Tanzer, Political Economy of International Oil, 3. 55 Jacoby, Multinational Oil, 97. 56 Vitalis, America’s Kingdom, 13. Philip details the Latin American expropriations in Argentina, Uruguay, Peru, Bolivia and Mexico in Oil and Politics in Latin America, 157-312. 57 Blair, Control of Oil, 33, 36.

nationalist challenges emerged.58 Yet withdrawal was slow and costly, and the companies preferred to retain their security by forging better relationships with local states, particularly those ruled by non-democratic regimes. Authoritarian states permitted the companies greater leeway; they were free to arrange racial hierarchies around the site of production, maintaining the enclave of oil and preventing a substantive challenge to the oligopoly’s dominance of the system.59

The companies used a variety of methods to maintain their position. They trumpeted their contributions to industrialization and modernization in their concessions, producing films and launching public relations campaigns to illustrate the positive impacts of concession-based oil exploitation for local peoples. In the Middle East and Latin America, landscapes were re-shaped according to the industrial processes of oil production, refining, and transportation: “oil cities” like Abadan in Iran, Dharan in Saudi Arabia and Kirkuk in Iraq functioned as company towns and collision spaces for the dueling narratives of a Western “civilizing mission” on the one hand and brutal, neo-colonial resource exploitation on the other.60 In reality, oil created few backward

58 Cowhey, Problem of Plenty, 91-92, Tanzer, Political Economy of International Oil, 23- 24. Withdrawal in the face of resource nationalism and a pivot towards cheaper alternatives is precisely what happened in Mexico between 1928 and 1938; see Philip, Oil and Politics in Latin America, 18-19; Myrna Santiago, The Ecology of Oil: Environment, Labor and the Mexican Revolution, 1900-1938 (New York: Cambridge University Press, 2006). The companies succeeded in leveraging support from an unwilling U.S. government and received considerable compensation; see Noel Maurer, “The Empire Struck Back: Sanctions and Compensation in the Mexican Oil Expropriation of 1938,” Journal of Economic History 71, no. 3 (Sept., 2011): 590- 615. 59 Philip, Oil and Politics in Latin America, 32; Vitalis, America’s Kingdom, 24-25. The oil industry was not alone in its affinity for authoritarian governments; see Marcelo Bucheli, “Multinational Corporations, Totalitarian Regimes and Economic Nationalism: United Fruit Company in Central America, 1899-1975,” Business History 50, no. 4 (July 2008): 433-54. 60 Kaveh Ehsani, "Social Engineering and the Contradictions of Modernization in Khuzestan's Company Towns: A Look at Abadan and Masjed-Soleyman," International Review of Social History 48, no. 3 (2003): 361-399, Arbella Bet-Shlimon, “The Politics and Ideology of Urban Development in Iraq’s Oil City: Kirkuk, 1946-1958,” and Mona Damluji, “The Cinematic 20

linkages and generally operated as an economic enclave, which the companies preserved for as long as they could. Labor was tightly controlled, often with the help of the producer government.61 Coercion was important in the maintenance of the international energy system.

The companies were backed by the power and global prestige of Great Britain and, after 1945, the United States. The failed Iranian nationalization of 1951 proved the futility of challenging the oligopoly, while divisions within OPEC and a global supply glut rendered it powerless for most of the 1960-1970 period.62

Yet the main reason the oligopoly succeeded in maintaining its position lay in its success at reaching arrangements with the producer states through negotiation. The threat of resource nationalism was reduced through the payment of oil revenues, in the form of royalties and later in taxes. Producer states, rather than challenge the order, sought instead “to secure the best possible terms possible within that order,” and negotiating endlessly for a bigger “take.”63

Despite a popular narrative that implies a quick transfer of power from companies to the

Organization of the Petroleum Exporting Countries (OPEC) during the 1970s, the end of the oligopoly came gradually: most oil-producing states pushed for higher revenues and a larger share of the profits but did so through discussion and participation, rather than violent, revolutionary expropriation. Through constant negotiation, the oligopoly was able to maintain its

Spaces of Abadan in the Anglo-Iranian Oil Company’s Persian Story,” Comparative Studies of South Asia, Africa and the Middle East 33, no. 1 (2013): 26-40 and 75-88 61 Vitalis, America’s Kingdom, 121-125; Touraj Atabaki, Elisabetta Bini, Kaveh Ehsani, eds., Working for Oil: Comparative Social Histories of Labor in the Global Oil Industry (Palgrave Macmillan, 2018). 62 Christopher Dietrich, “Mossadegh Madness: Oil and Anti-Colonialism, 1951 to 1970,” Humanity: An International Journal of Human Rights, Humanitarianism, and Development 6, no. 1 (Spring 2015): 63-78. 63 Citino, From Arab Nationalism to OPEC, Preface to the Second Edition, xi.

favorable position astride the global oil industry until the late 1960s, when a combination of political and economic factors conspired to weaken their position, permitting OPEC to seize control over price and nationalize most of the world’s oil industries during the 1970s.64

If mastery of oil was the “prize” for the companies and their Great Power sponsors, the revenue derived from oil was an even greater prize for the producer governments. Revenues derived from the exploitation of oil, a non-renewable resource, could be saved and invested in productive enterprise. Oil-producing states, once they began to earn large revenues from the activities of the oligopoly, were expected to achieve much higher levels of economic growth thanks to their access to oil rents.65 Most of these expectations were not met. Oil-producing states have historically under-performed, suffering from internal imbalances, inflated currencies

(“Dutch Disease”) and vulnerability to shocks from the booms and busts of the international oil market.66 A corollary to this is the noted tendency of oil producing states to embrace authoritarianism.67 Rather than direct revenues from oil into productive enterprise, oil producers expand the central state, particularly its repressive apparatus. Oil-states embrace a dependence upon oil revenues, and thus become “arbitrary, irrational, and volatile when making economic policy”—which in turn made such states incapable of managing the inevitable crash of prices, a

64 Elisabetta Bini, Giuliano Garavini and Frederico Romero, eds., Oil Shock: the 1973 Crisis and its Economic Legacy (New York: IB Tauris, 2016); Schneider, Oil Price Revolution, 221-244, 300-322. 65 Amuzegar, Managing the Oil Wealth, ix-x. 66 Hossein Askari notes that by 2000, the Middle East had been the worst economic performing region in the world for the previous twenty-five to thirty years. See Askari, Middle East Oil Exporters: What Happened to Economic Development? (Cheltenham, UK: Edward Elgar Publishing, 2006), 5. 67 The political scientist Samuel Huntington famously deployed this argument while explaining the failure of democracy to spread in the Middle East. See Huntington, The Third Wave: Democratisation in the Late Twentieth Century (Norman OK: University of Oklahoma Press, 1991), 65.

boom in production, or a fall in petro-dollar income. That companies preferred to work with authoritarian states complemented this trend.68 The concept of the rentier state has acted as a foundation for broader studies of modern state development and comparative political economy.69

Drawing historical conclusions from the rentier state thesis illustrates the deterministic tendency in “oil curse” literature. There are states which developed large indigenous oil industries—Norway, Great Britain, Mexico—yet did not devolve into authoritarian dictatorships.

Political or social instability emerged from different factors, in some cases preceding an oil- based regime.70 More important than the presence of oil revenues are the precise ways those revenues are spent, particularly in the early period of the international energy system before the energy shocks of the 1970s: in some cases undermining ruling regimes, in others helping to bolster them, at least for a time, against internal and external challenges.71 The failure of oil- driven development has parallels with the wider narrative of modernization in the twentieth century: central planning and public investment schemes, launched by authoritarian governments looking for popular support and backed by foreign sponsors, frequently failed to produce the

68 Quote from Terry Lynn Karl, Paradox of Plenty: Oil Booms and Petro States (Berkeley CA: University of California Press, 1997), 190, 241; Val Moghadam, “Oil, the State and Limits to Autonomy: the Iranian Case,” Arab Studies Quarterly 10, no. 2 (Spring 1988): 225-238; See Alan Gelb, Oil Windfalls: Blessing or Curse? (New York: Oxford University Press, 1988):, 88-89, Michael Ross, The Oil Curse: How Petroleum Shapes the Development of Nations (Princeton, NJ: Princeton University Press, 2012), Michael Watts and Ed Kashi, Curse of the Black Gold (New York: PowerHouse Books, 2008). 69 Daron Acemoglu and James A. Robinson, Why Nations Fail: the Origins of Power, Prosperity and Poverty (New York: Crown Publishers, 2012), Kiren Aziz Chaudhry, “Economic Liberalization and the Lineages of the Rentier State,” Comparative Politics 27, no. 1 (Oct. 1994): 1-25. 70 Miriam Lowi, “Oil Rents and Political Breakdown in Patrimonial States: Algeria in Comparative Perspective,” Journal of North African Studies 9, no. 3 (Autumn 2004): 83-102. 71 Smith, Hard Times, 42-44.

desired results. A legacy of failure did not prevent modernization, re-branded as “nation- building,” to reemerge in the post-Cold War moment, dominated now by neoliberal visions of market-driven utopia.72 The lure of achieving progress through petroleum has not dissipated, though the costs of pursuing such a strategy have grown greater over time.73

Oil revenue is produced through the operations of the international energy system, itself a construction of vertically-integrated oil companies and Anglo-American Cold War policy. How the revenues are used, how oil is transformed into a resource for development projects, and petroleum turned to progress depends upon methods and goals conditioned by political, social, and cultural contexts. Condemning oil as a “curse” reduces to an inevitability what was, in reality, a historical, contingent process. As Timothy Mitchell notes in Carbon Democracy, discussion of oil’s connection to authoritarianism is detached from the technical operations of the oil industry: “the ways in which oil is extracted, processed, shipped and consumed, the powers of oil as a concentrated source of energy, or the apparatus that turns this fuel into forms of affluence and power.” His recommendation to scholars to “follow the oil,” linking the consumption in the

West to productive processes in the Middle East, speaks to the greater need of connecting how oil was managed internationally and integrated locally. George Philip argues that a historical approach is required, one that focuses “on international linkages as well as on internal socio- economic structures.”74

72 Latham, Right Kind of Revolution, 192-216. 73 Michael T. Klare, “As the Oil Industry Collapses, What Will Happen to the Countries that Depend on It?” The Nation, May 26, 2016 https://www.thenation.com/article/as-the-oil- industry-collapses-what-will-happen-to-the-countries-that-depend-on-it/ 74 Timothy Mitchell, Carbon Democracy: Political Power in the Age of Oil (New York: Verso, 2011), 1-2, 5-6, 7; Philip, Political Economy of International Oil, 16. See also Fernando Coronil, The Magical State: Nature, Money and Modernity in Venezuela (Chicago: University of Chicago Press, 1997), 1-20.

Viewed through a broader lens, oil loses its simplicity as a “prize” and instead emerges, argues Toby Jones, as the foundation for “a set of relations among politics, big business, global capital, labor and scientific expertise.”75 The oil industry was the site of disputes between indigenous labor and foreign capital, where definitions of citizenship, racial and national identity were forged.76 The power of oil altered urban space, giving rise to “oil-cities” shaped by oil’s extraction, refinement and transformation.77 Modern capitalism and consumer societies were founded upon the mass production of oil-based technologies, while the “oil shocks” had a transformative effect on politics and the global financial system.78 Oil has fashioned culture through its impact on political economy, society and interactions with the environment.79 Oil emerged in the Third World as the center of a new ideology of post-colonial national

75 Jones, Desert Kingdom, 13. 76 Santiago, The Ecology of Oil; Nelida Fuccaro, “Structural and Physical Violence in Saudi Arabian Oil Towns, 1953-1956,” Urban Violence in the Middle East: Changing Cityscapes in the Transformation from Empire to Nation-State, Ulrike Freitag, Nelida Fuccaro, Claudia Ghrawi and Nora Lafi, eds. (New York: Berghahn Books, 2015), 243-266. 77 Martin Melosi and Joseph A. Pratt, Energy Metropolis: An Environmental History of Houston and the Gulf Coast (Pittsburgh PA: University of Pittsburgh Press, 2007), Laurie E. Adkin, ed., First World Petro-Politics: the Political Ecology and Governance of Alberta (Toronto: University of Toronto Press, 2016). 78 Matthew Huber, Lifeblood: Oil, Freedom and the Forces of Capital (Minneapolis, MN: Minnesota University Press, 2013), Stephanie LeManager, Living Oil: Petroleum Culture in the American Century (New York: Oxford University Press, 2014); Meg Jacobs, Panic at the Pump: the Energy Crisis and the Transformation of American Politics in the 1970s (New York: Hill and Wang, 2016), Judith Stein, Pivotal Decade: How the United States Traded Factories for Finance in the Seventies (New Haven, CT: Yale University Press, 2010), 74-100. 79 Bryan Lovell, Challenged by Carbon: the Oil Industry and Climate Change (Cambridge: Cambridge University Press, 2010), Miguel Tinker Salas, The Enduring Legacy: Oil, Culture and Society in Venezuela (Durham: Duke University Press, 2009), Alison Fleig Frank, Oil Empire: Visions of Prosperity in Austrian Galicia (Cambridge, MA: Harvard University Press, 2005), David E. Nye, Consuming Power: A Social History of American Energy (Cambridge, MA: Harvard University Press, 1998).

sovereignty.80 Grasping how oil was fused to the modernization movement requires an understanding of how oil was simultaneously integrated globally into the oligopoly’s international energy system. Bridging the global and local, “following the oil,” as Mitchell recommends, requires a new methodology, the dual integration of oil, which examines the process of oil’s simultaneous international movement and its impact as an agent of economic, social and political transformation. Nowhere was this process more evident than in Pahlavi Iran.

From the dawn of the Pahlavi monarchy to the consolidation of Mohammed Rezā

Pahlavi’s rule after the White Revolution of 1963, numerous negotiations were conducted between the Pahlavi state and the oil oligopoly. Two goals were squarely in view: smoothly integrating Iranian oil into the global oil order, thus permitting the oligopoly’s steady management of price and production; and satisfying the Pahlavi regime’s desire for both oil revenues and an equitable deal that would preserve the regime’s legitimacy and bolster its place in power. At all times, the oligopoly was conscious of balancing Iran with production elsewhere.

Company executives, paladins of the business world and professional “oil men,” constructed a system where price was an artificial construct, production and profit carefully calibrated to ensure balance and combat aggressive abundance. To ensure smooth integration, the companies crafted mechanisms that would deliver adequate returns to producing states while retaining control for themselves. This search for “equitability,” the substance of a fair agreement that would satisfy both sides, served as the basis for the dual integration of Iranian oil: though broken

80 Christopher Dietrich, Oil Revolution: Anticolonial Elites, Sovereign Rights and the Economic Culture of Decolonization (New York: Cambridge University Press, 2017).

by the “de-integration” of the nationalization crisis, the alliance between the Pahlavi shah and the oil oligopoly was repaired and endured for years after.81

While an equitable agreement was the intended goal of these negotiations, in a more concrete sense dual integration functioned as a foreign policy objective of the United States and a feature in Cold War international relations. As an interpretative tool, dual integration breaks through the lingering view of the Cold War as a bilateral conflict and complements the re- definition of the conflict as a “complex fabric of disparate interactions…with multiple actors…and assorted interpretative paradigms.”82 Though it encouraged Iran’s indigenous development effort and hoped for an equitable agreement to be reached at the negotiating table, the United States was committed to maintaining Iran’s pro-Western strategic alignment, which encouraged a close relationship with the Pahlavi shah. Strengthening the Iranian state could be accomplished through a program of economic and military assistance, and oil would play a huge role in stabilizing the rickety Pahlavi finances and modernizing the antiquated Iranian economy.

The U.S. commitment to dual integration was forcefully illustrated by its participation in the

Mordad Coup and the removal, by covert action, of Iran’s nationalist government. This pivotal event, which Banī Ṣadr denounced as the moment America began its “plunder of Iranian oil,” looms large over the history of U.S.-Iranian relations.83 The drama of the coup obscures the complex motivations of both the U.S. government and the oil companies, who neither needed nor wanted Iranian oil. Iran was a large producer, but its oil could be replaced, a reality proven by

81 Mikdashi, Financial Analysis of Middle Eastern Oil Concessions, 9-60, 73-78, 107- 111, 153-157, 220-223, Schwadran, The Middle East, 13-186. 82 Federico Romero, “Cold War Historiography at the Crossroads,” Cold War History 14:4 (2014): 687. 83 Banī Ṣadr, Naft va Soleh, 7; Bill, Eagle and the Lion, 94-97, Collier, Democracy and the Nature of American Influence in Iran, 116-144, Cottam, Iran and the United States, 108-109.

the events of the 1951-1954 nationalization crisis.84 By the early 1970s Iran was a major U.S. ally and a pillar of Middle Eastern security, but this enabling relationship, “Pahlavism” as James

Bill calls it,85 came after several failed attempts by American development groups to foster socio-economic reform in Iran. The U.S. wanted Iranian oil to flow, both to satisfy the internationals market and, crucially, as a way to supply the unstable Pahlavi government with revenues that could then be used for economic development. The needs of the international energy system were thus balanced, or made “equitable,” with the needs of the Pahlavi regime.

While the U.S. government focused on strategic issues, carrying out the policy of modernization were private agents and actors from non-government organizations (NGOs).

Modernization theory dominated the development ideology of the 1950s and early 1960s and illustrated how “traditional societies” could be transformed through Western know-how.86 The presumed technological and economic supremacy of the developmentalists was matched by a fear of revolution and views of the Third World conditioned by assumptions of racial hierarchy.87 Advocates of modernization theory, who historian Nils Gilman dubbed the

“mandarins of the future,” journeyed to Iran between 1947 and 1964 and sought to tie the

84 Mary Ann Heiss, “The International Boycott of Iranian Oil and the Anti-Mosadeq Coup of 1953,” in Gasiorowski and Byrne, eds, Mohammed Mosaddeq, 178-200. 85 Bill, The Eagle and the Lion, 319-379. 86 Daniel Lerner, The Passing of Traditional Society: Modernizing the Middle East (New York: Free Press, 1958), W.W. Rostow, The Stages of Economic Growth: a Non-Communist Manifesto (New York: Cambridge University Press, 1960); for an exploration of modernization theory, see Latham, Right Kind of Revolution, 44-53. 87 This conception of the U.S. ideology borrows from the formula proposed by Michael H. Hunt. See Hunt, Ideology and U.S. Foreign Policy (New Haven CT: Yale University Press, 1987), 1-19. Also see Odd Arne Westad, The Global Cold War: Third World Interventions and the Making of Our Times (New York: Cambridge University Press, 2005), 8-38

nation’s vast oil wealth into schemes of economic and social improvement.88 From the point of view of the mandarins, Iran was “sick” with the disease of socio-economic backwardness and the application of “oil power” through central development seemed the only viable cure. This view was a version of American “orientalism” frequently on display whenever the U.S. found itself in context with the peoples, cultures and nation-states of the Middle East.89 In Iran, U.S. thinking frequently centered on a “controlled revolution,” that could overcome the country’s apparent weaknesses. Parallel to this idea was the notion that Iran, despite its oil wealth, could not achieve its revolution without foreign assistance. The universalism of modernization theory clashed with the experiences of American developmentalists, who cited Iranian incapacity and administrative incompetence as barriers to successful development programs. The view of Iranian inadequacy was mirrored by the emergence of close relationships between members of the shah’s court and

U.S. policy-makers, politicians and businessmen. “Pahlavism” encouraged an acceptance of what after 1963 became U.S. policy: only the shah and his immediate supporters could cure Iran of its socio-economic sickness, a view reflecting the shift from modernization theory towards “military modernization” in the Third World.90 Though American opinion rallied around the shah,

88 Gilman, Mandarins of the Future, 1-15. For U.S. development work in Iran, see Jahangir Amuzegar, Technical Assistance in Theory and Practice: the Case of Iran (Praeger: New York, 1966), William E. Warne, Mission for Peace: Point 4 in Iran (New York: Bobbs- Merrill company, Inc., 1956). 89 See Douglas Little, American Orientalism: the United States and the Middle East Since 1945, 3rd Edition (Chapel Hill, NC: University of North Carolina, 2008), 9-42, Melani McAlister, Epic Encounters: Culture, Media, & U.S. Interests in the Middle East, 2nd Edition (Berkeley, CA: University of California Press, 2005), 1-39, Matthew Jacobs, Imagining the Middle East: the Building of an American Foreign Policy, 1918-1967 (Chapel Hill, NC: University of North Carolina Press, 2011), 12-27; Zachary Lockman, Contending Visions of the Middle East: the History and Politics of Orientalism (New York: Cambridge University Press, 2004), 136. 90 Bill, Eagle and the Lion, 349-355. Military modernization was most closely associated with Manfred Halpern and Samuel P. Huntington. See Halpern, The Politics of Social Change in the Middle East and North Africa (Princeton, NJ: Princeton University Press, 1963), Samuel P. 29

dissidents continue to raise the alarm, pointing out the regime’s reliance on repression and disconnect from Iran’s traditional society and the emerging middle-class.91 The mandarins thus took to their task with mixed feelings, unsure of whether local integration and oil-based development could carry out their transformative vision.

For the Pahlavi regime, modernization of Iranian society was the ultimate goal, one that could best be accomplished by a rapid expansion of state power.92 Under Rezā Shah (r. 1925-

1941), oil represented an important “capitulation” to foreign interests, one that would have to be revised if the new regime’s aspirations for modernization and self-sufficiency were to be realized. Achieving a better deal would burnish the regime’s prestige and sense of legitimacy, as well as providing a new and reliable source of revenue for the state’s expansion. Under his son,

Mohammed Rezā Pahlavi (r. 1941-1979), oil became the building block for programs of economic development, executed by the semi-autonomous Plan Organization (Sāzmān-i

Barnāmeh). The intentions of Iran’s original developmentalists were to steer the country towards general socio-economic reform, but the project was subordinated to the interests of the Pahlavi shah. The regime gradually assumed a “petrolic” nature, where the production and sale of oil permitted the expansion of state power, the militarization of Iranian politics, and the elimination

Huntington, Political Order in Changing Societies (New Haven, CT: Yale University Press, 1968); for military modernization, see Simpson, Economists with Guns, 67-73. 91 Richard Cottam, Nationalism in Iran (Pittsburg PA: University of Pittsburgh Press, 1964), Hossein Mahdavy, “The Coming Crisis in Iran,” Foreign Affairs 44:1 (October 1965): 134-146; see Matthew Shannon, “Reading Iran: American Academics and the Last Shah,” Iranian Studies 51, no. 2 (2018): 289-316. 92 For the Pahlavi modernization project, see Ali Mirsepassi, Intellectual Discourse and the Politics of Modernization: Negotiating Modernity in Iran (New York: Cambridge University Press, 2000): 54-64, Kamran Matin, Recasting Iranian Modernity: International Relations and Social Change (New York: Routledge, 2013), 99-121, Cyrus Schayegh, “‘Seeing Like a State:’ An Essay on the Historiography of Modern Iran,” International Journal of Middle Eastern Studies 42, no. 1 (Feb., 2010): 37-61.

of all challenges to the legitimacy of the Pahlavi shah. While the second Pahlavi displayed an earnest desire to modernize his country and improve the plight of his people, ultimately the preservation of his position and the expansion of his prerogatives emerged as the larger goal; progress could be achieved through petroleum, but only on terms set by the Pahlavi ruler himself.93

The monarchy’s effort to dominate the state is a constant theme in this narrative, but it would be a mistake to single out either Pahlavi shah as the most important character in the story of dual integration. Both the search for equitability at the oil negotiating table and the fight to achieve progress through petroleum in the Iranian countryside were defined by constant debate, discussion, collusion and compromise. While the two Pahlavi shahs were ultimately the arbiters of their country’s fate, men like ‘Abd al-Hosayn Teymūrtāsh, Sayyed Ḥasan Taqīzādeh, Aḥmad

Qavām, ‘Abbās-Qulī Gulshāʾīyān, Ḥusayn Makkī, Khudādād Farmānfarmāʾiyān, ‘Ali Amīnī,

Fuād Ruhāni, Rezā Fallāḥ, Abu’l-Hạsan Ebtehāj and Mohammed Moṣaddeq affected the ways in which Iran’s oil was globally and locally integrated.94 The final result, the oil-based

93 Katouzian, Political Economy, 234-273; Keddie, Modern Iran, 135-169. For considerations of the shah based on archival research, see Abbas Milani, The Shah (New York: Palgrave Macmillan, 2011), 233-253 Gholam R. Afkhami, The Life and Times of the Shah (Berkeley, CA: University of California Press, 2009), 317-334. For the shah’s vision for Iran, see Mohammed Reza Pahlavi, Shah of Iran, Mission for My Country (New York: McGraw Hill, 1960) and The White Revolution of Iran (Tehran: Imperial Pahlavi Library, 1967). 94 Biographies of most major Pahlavi regime figures can be found in Abbas Milani, Eminent Persians: the Men and Women Who Made Modern Iran, 1941-1979, Vol. I and II (Syracuse, NY: Syracuse University Press, 2008). Interviews with many former regime officials are available through the Foundation for Iranian Studies (FIS), particularly the accounts within the Khuzestan Series (FISKS) and the Harvard Iranian Oral History Project (HIOHP). Use has been made of available memoirs: see Mohammad Mossadeq, Musaddiq’s Memoirs, ed. Homa Katouzian, trans. S.H. Amin and Katouzian (London: National Movement of Iran, 1988), Iraj Afshār, ed. Zendegi-ye tufāni: khāṭerāt-e Sayyed Ḥasan Taqizādeh [A Stormy Life: The Memoires of Sayyed Hasan Taqīzādeh]. 2nd ed. (Tehran: ‘Elmi, 1993), Abu’l-Hạsan Ebtehāj, Khātirāt-i Abu’l-Hasan Ebtehāj [Recollections of Abu’l-Hạ san Ebtehāj] Vol. -I II (London: Alirezā Arouzi, 1991).

authoritarianism of Mohammed Rezā Pahlavi, was by no mean inevitable; it was the result of constant struggle, made all the more contentious by Rezā Shah’s paranoia and his son’s early weakness, characteristic indecision and complicated relationship with his supporters in the U.S. government.

Chapter one examines the early days of Iranian oil, and the original attempt of Rezā

Shah’s Minister of Court ‘Abd al-Hosayn Teymūrtāsh and Sir John Cadman, chairman of the

Anglo-Iranian Oil Company (AIOC), to reach an equitable agreement that could facilitate dual integration. Rezā Shah hoped to transform Iran and erect a powerful state that could accomplish the modernization of the country. Key to his agenda was a public victory over AIOC, one that strengthen his legitimacy and increase revenues for his cash-strapped government.95 Cadman and

AIOC were focused on achieving “rationalization,” as the international energy system first came together in order to control price and production; any deal with Iran had to be compatible with the company’s global commitments. Negotiations ultimately led to confrontation, compounded by instability in the global oil market, and ended in an agreement that both sides could describe as equitable, yet in reality served the interests of the company.96 The events of the concession

95 Ali M. Ansari, The Politics of Nationalism in Modern Iran (New York: Cambridge University Press, 2012), 36-97 and Modern Iran: the Pahlavis and After (New York: Pearson Education, 2007), 16-20, 33-71; Amin Banani, The Modernization of Iran: 1921-1941 (Stanford, CA: Stanford University Press, 1961), Katouzian, The Political Economy of Modern Iran, 81- 122, Stephanie Cronin, ed. The Making of Modern Iran: State and Society Under Riza Shah, 1921-1941 (New York: Routledge, 2003), Touraj Atabaki and Eric J. Zurcher, eds., Men of Order: Authoritarian Modernization Under Ataturk and Rezā Shah (New York: Palgrave Macmillan, 2004). 96 Gregory Brew, “In Search of ‘Equitability:’ Sir John Cadman, Rezā Shah and the Cancellation of the D’Arcy Concession, 1928-33,” Iranian Studies 50, no. 1 (Jan., 2017): 115- 148, Peter J. Beck, “The Anglo-Persian Oil Dispute 1932-33,” Journal of Contemporary History 9, no. 4 (Oct., 1974): 123-151; Maysam Behravesh, “The Formative Years of Anglo-Iranian Relations (1907-1953): Colonial Scramble for Iran and Its Political Legacy,” Digest of Middle East Studies 21, no. 2 (2012): 386-400.

cancellation crisis and the attempt by Cadman and Teymūrtāsh to forge a “Persian Partnership” had deep significance: while illustrating the danger posed to global integration by Iranian resources nationalism, the events of 1925-1941 proved the mutual dependence tying the Pahlavi regime to the oil company and showed how interest in revenue and prestige would ultimately trump the broader desires of Iranian nationalists to seize control over oil from the companies.

Chapter Two introduces the United States and focuses on the U.S. attempt to preserve

Iran’s “territorial integrity” from the perceived threat of communist takeover by encouraging dual integration.97 The First Seven Year Plan designed by American developmentalist Max W.

Thornburg and Iranian technocrats led by Abu’l-Hạsan Ebtehāj laid out a blueprint for how Iran would be stabilized through oil, yet its success hinged on the successful global integration of

Iranian oil through a new oil agreement with the British company. Neither local nor global integration was achieved. Rising anti-company sentiment weakened the Pahlavi regime and sabotaged the negotiations with the British, while the Seven Year Plan struggled to find its footing amidst bureaucratic in-fighting and political instability. Despite a last-minute attempt by the U.S. to salvage the situation through the authoritarian dictatorship of General ‘Ali Razmārā, a campaign led by nationalist leader Mohammed Moṣaddeq succeeded in nationalizing the nation’s oil industry in Spring 1951.

97 On the U.S. and Iran in the Cold War, see Bruce R. Kuniholm, The Origins of the Cold War in the Near East: Great Power Conflict and Diplomacy in Iran, Turkey and Greece (Princeton, NJ: Princeton University Press, 1980), Mark H. Lytle, The Origins of the Iranian- American Alliance, 1941-1953 (New York: Holmes & Meier, 1987), Fernand Scheid Raine, “The Iranian Crisis of 1946 and the Origins of the Cold War,” The Origins of the Cold War: an International History, 2nd Edition, Melvyn P. Leffler and David S. Painter, eds. (New York: Routledge, 2005), 93-111, Habib Ladjevardi, “The Origins of US Support for an Autocratic Iran,” International Journal of Middle Eastern Studies 15 (1983): 225-239, Stephen L. McFarland, “A Peripheral View of the Origins of the Cold War: the Crises in Iran, 1941-47,” Diplomatic History 4, no. 4 (1980): 333-351.

Chapter Three illustrates the consequences of the nationalization and the response of the international energy system and the U.S. government. Moṣaddeq and his supporters in the

National Front believed “nationalization” was the culmination of a policy of “negative equilibrium” (Siyāsat-i muvāzanah-i manfī) which would allow the country to profit from its oil without surrendering its independence to foreign influence. While the British maintained that the

Iranian action was illegal, the United States sought to broker a compromise around a more flexible definition of “nationalization.” The oligopoly, working with the British government which worked to defend the interests of AIOC, placed an embargo on Iranian oil, depriving the country of oil revenues, while the U.S. re-directed the flow of oil and made the international energy system “Iran-less” through an alliance of public and private interest within the Petroleum

Administration for Defense (PAD). Rather than resolve the nationalization crisis, the oligopoly and the Anglo-American powers de-integrated Iran, ejecting it from the system and isolating it from the wider world of oil.98

Chapter Four describes the “oil-less” economy that Moṣaddeq instituted in response to the embargo. Having failed in his attempt to introduce Iran as an independent oil producer,

Moṣaddeq fashioned an oil-less economy and launched Iran on a new development scheme, assisted in part by the U.S. Point Four technical assistance mission. U.S. policy-makers, despite the presence of Point Four, were convinced that such a program would end in disaster: they believed that progress without petroleum was impossible in Iran, and in time Moṣaddeq’s

98 Heiss, “The International Boycott of Iranian Oil and the Anti-Mosadeq Coup of 1953,” in Gasiorowski and Byrne, eds., 178-200, Homa Katouzian, “Oil Boycott and the Political Economy: Mosaddeq and the Strategy of Non-Oil Economics,” in Bill and Louis, Mosaddeq, Iranian Nationalism and Oil (London: IB Tauris, 1988): 203-227; Patrick Clawson and Cyrus Sassanpour, “Adjustment to a Foreign Exchange Shock: Iran, 1951-1953,” International Journal of Middle Eastern Studies 19:1 (Feb., 1987): 1-22.

policies would increase the chances of Iran falling to communism. After a final attempt to negotiate an oil settlement failed in early 1953, the U.S. decided to remove Moṣaddeq through covert action, setting the stage for a new oil agreement that would re-integrate Iranian oil and launch a new national development effort while preserving the international energy system from additional nationalizations.99 The 1953 coup d’etat was thus motivated by the U.S. desire to engineer dual integration, returning the flow of Iranian oil to the world oil market and the flow of oil revenues to the coffers of the Pahlavi state, and a reaction to the danger posed by Moṣaddeq’s oil-less economy. There could be no progress without petroleum in Iran.

Chapters Five and Six cover the same period (1954 to 1964) from different perspectives.

Chapter Five examines local integration in the aftermath of the Consortium Agreement. The

Pahlavi regime, back in power and flush with U.S. aid and oil revenues, undertook an ambitious economic development campaign designed by Ebtehāj. The Second Seven Year Plan was aided by American non-government organizations (NGOs) which provided technical expertise and

“know-how” to the Iranian effort. Divisions within the U.S. aid effort, inconsistent political support from the shah, and the encroaching wave of economic and political crisis caused the effort to nearly collapse in the early 1960s, before the shah re-directed the focus to his White

Revolution land reform campaign, forcing out U.S. advisors and de-emphasizing central oil-

99 Literature on the coup is extensive. See Mark J. Gasiorowski, “The 1953 Coup D’etat in Iran,” International Journal of Middle East Studies 19, no. 3 (Aug. 1987): 261-286, and “The 1953 Coup d’Etat Against Mossadeq,” in Gasiorowski and Byrne, Mohammed Mossadeq, 227- 260, Fakhreddin Azimi, “The Overthrow of the Government of Mosaddeq Reconsidered,” Iranian Studies 45, no. 5 (2012): 693-712; Steve Marsh, “The United States, Iran and Operation ‘Ajax’: Inverting Interpretative Orthodoxy,” Middle Eastern Studies 39, no. 3 (2003): 1-38, Siavush Randjbar-Daemi, ‘“Down with the Monarchy’: Iran’s Republican Moment of August 1953,” Iranian Studies (2016): 1-21, Ali Rahnema, Behind the 1953 Coup in Iran: Thugs, Turncoats, Soldiers, Spooks (New York: Cambridge University Press, 2015), and Abrahamian, The Coup, 149-205.

based development planning.100 Henceforth, oil revenues would be controlled tightly by the

Pahlavi shah and his immediate supporters, while foreign agencies and independently-minded developmentalists such as Ebtehaj lost influence over how Iran’s oil wealth was distributed.

Chapter Six explores global integration after the Mordad Coup, Iran’s relationship with the oligopoly and the changing conditions within the international energy system. Faced with the growing threat of nationalist opposition in the oil-producing countries, the companies were divided over how best to handle the challenges facing them. The shah used Iran’s position in

OPEC to squeeze further concessions, relying on the advice of OPEC Secretary General Fuād

Ruhāni. But eventually, the shah was convinced to side with the companies against OPEC, accepting more money and prestige from the oligopoly in return for helping them manage the

OPEC threat. Iran’s support of the companies helped them slow the pace of resource nationalism, though the oligopoly was gradually forced to give a larger and larger share of profits to the producing states, presaging the wholesale surrender over price and production in the 1970s. A weaker form of dual integration endured, feeding the shah’s need for more and more revenues and preserving the companies in their position for the rest of the decade.101

100 Leonard Binder, Iran: Political Development in a Changing Society (Berkeley, CA: University of California Press, 1962); Ali M. Ansari, “The Myth of the White Revolution: Mohammed Rezā Shah, ‘Modernization’ and the Consolidation of Power,” Middle Eastern Studies 37 (2001): 1-24; Vali Nasr, “Politics within the Late-Pahlavi State: The Ministry of Economy and Industrial Policy, 1963-69,” International Journal of Middle East Studies 32 (2000): 97-122. 101 Francisco Parra, Oil Politics: A Modern History of Petroleum (London: IB Tauris, 2004), Bennett H. Wall, Growth in a Changing Environment: A History of Standard Oil Company (New Jersey), Exxon Corporation, 1950-1975 (New York: McGraw-Hill, 1988), Fuad Ruhāni, A History of OPEC (New York: Praeger, 1971), J.E. Hartshorn, Politics and World Oil Economics: An Account of the International Oil Industry in its Political Environment (New York: Praeger, 1967), Ian Seymour, OPEC: An Instrument of Change (New York: St. Martin’s Press, 1981), Frank R. Wyant, The United States, OPEC and Multinational Oil (Lexington, MA: Lexington Books, 1977).

CHAPTER ONE: THE SEARCH FOR A ‘PERSIAN PARTNERSHIP,’ 1925-1941

On November 28, 1932, the Iranian Minister of Finance, Sayyed Ḥasan Taqīzādeh, sent a letter to the director of the Anglo-Persian Oil Company in Tehran. The letter was brief, just over a page in length, but its contents were explosive. The Anglo-Persian Oil Company, “in the face of the patience displayed by the Imperial Persian Government,” had not properly compensated the people of Iran. The company had wantonly spent money, “increased its expansion and development” without providing an appropriate share of the profits to its partner, the government of Iran. Moreover, it had negotiated in bad faith, lying to Iran and withholding badly-needed royalties at a time of economic depression. Iran could not legally consider itself bound to an agreement “granted prior to the establishment of the Constitutional regime,” and therefore had no choice but to declare the D'Arcy Concession, “with all its defects and shortcomings…cancelled.”1 With a single stroke of the pen, Rezā Shah Pahlavi, the authoritarian ruler of Iran, removed the legal basis for the nation’s British-owned oil industry.

Sir John Cadman, the chairman of Anglo-Persian (APOC) received the news “with the utmost astonishment.” He believed negotiations for a new concession were still ongoing, that new proposals based “on a full sense of realities and of equity as between Government and

Company” would soon appear on his desk.2 Cadman had suspected that a crisis was brewing between the Company and Iran. He warned the British government that Rezā Shah might take drastic action.3 That he expected the D’Arcy Concession to be unilaterally cancelled, however, is

1 British Petroleum (BP) 96487 Hasan Taqīzādeh to Jacks, November 27, 1932. 2 BP 96487 Telegram Cadman to Jacks, November 29, 1932. 3 Foreign Office (FO) Confidential Print No. 14325/66, Cadman to Foreign Office, October 19, 1932, in Kenneth Bourne, and Donald Cameron Watt, British Documents on Foreign Affairs (BDFA)—Reports and Papers from the Foreign Office Confidential Print. Part II, Series B, Vol.26 (Frederick, Md.: University Publications of America, 1994).

difficult to imagine. No foreign government had ever issued so brazen a challenge to the forces of global oil. After four years of negotiations, Rezā Shah had brought APOC to the edge of the precipice.

Between 1925 and 1941, Iran and APOC formed a relationship around the exploitation of

Iranian oil and the provision of oil royalties for strengthening the Pahlavi state: the first attempt at dual integration. The oil oligopoly worked to bring stability to chaotic global oil market.

Rather than continue competing amidst a supply glut and falling prices, the companies opted to cooperate around restricting production, stabilizing price and limiting destructive competition.

Meanwhile, a potent form of nationalism emerged within Iran, where rising oil production coincided with the formation of a new regime led by Rezā Shah. The shah and his supporters saw a revision of the D’Arcy Concession as a key component of the state’s project, which focused on modernization, Westernization, and the centralization of power. Iranian resource nationalism was acknowledged by APOC’s chairman Sir John Cadman, who together with the shah’s minister

‘Abd al-Hosayn Teymūrtāsh concocted the notion of “Persian partnership” to redefine the unequal relationship between company and monarchy. An agreement based on “equitability” would allow for dual integration: the company would have total freedom to produce Iranian oil and market it abroad, while the Pahlavi regime would be supplied with revenues to fund its modernization project.

Negotiations failed, for a number of reasons. Disagreements over what was equitable prevented an early resolution in 1929. Following the global depression of the early 1930s, over- production caused prices and profits to plummet, placing pressure on both APOC and the Pahlavi state. The shah’s cancellation of the concession in November 1932 came as a complete shock to

Cadman and APOC, but the chairman was able to use it to his advantage, outmaneuvering the

Iranians in April 1933 and securing a concession that protected the company’s long-term interests while providing reliable royalties for the Pahlavi state. In the aftermath of the new concession, the company outwardly placated Iranian nationalism through limited campaigns of

“Iranianization,” yet the shah’s remained interested chiefly in securing additional revenues. It was dual integration, after a fashion, thought it rested primarily on the personal diplomacy of

Cadman. The experiment in forming a “Persian Partnership” failed, and relations between the international energy system and Iran remained precarious, poised to explode once again in the wake of Rezā Shah’s fall from power in 1941.4

1.1 Revolution and the Rise of Rezā Shah

Uncomfortably wedged between the Russian and British empires, Iran struggled throughout the nineteenth century to maintain its independence. Efforts at institutional reform were undermined by a host of competing factors: the weak leadership of the Qājār monarchs, the competing interests of social groups including the Shi’a hierarchy and Iran’s “thousand families,” as well as Iran’s vassalage to international capital and the pervasive internal influence of Russia and Britain. This left the central government in a feeble position, though the Qājār rulers were adroit enough to maintain both Iran’s independence and their own position through diplomacy.5

4 This chapter was adapted from Gregory Brew, “In Search of ‘Equitability:’ Sir John Cadman, Rezā Shah and the Cancellation of the D’Arcy Concession, 1928-33,” Iranian Studies 50, no. 1 (2017): 115-148. 5 Shaul Bakhash, Iran: Monarchy, Bureaucracy and Reform Under the Qajars (London: Ithaca Press for the Middle East Centre, St. Anthony’s College, 1978), and “The Failure of Reform: the Prime Ministership of Amin al-Dawla, 1897-8,” in Edmund Bosworth and Carole Hillenbrand, eds., Qajar Iran: Political, Social and Cultural Change, 1800-1925 (Costa Mesa, CA: Mazda Publishers, 1992), 14-33; Monica Ringer, Education, Religion and the Discourse of Cultural Reform in Qajar Iran (Costa Mesa, CA: Mazda Publishers, 2001), 6-10; Afshin 39

The Qājār shahs attempted to bolster the stability and fiscal strength of the central state in the late nineteenth century by granting concessions to foreigners. In 1872 Nasser ad-Din Shah offered an economic concession to Baron Julius de Reuter, in exchange for cash advances: the

British politician Lord Curzon pronounced the lop-sided contract “the most complete and extraordinary surrender of the entire industrial resources of a kingdom into foreign hands” ever witnessed in history.6 The concession triggered an intense backlash from Iranian society. Even more pronounced was the reaction to the Tobacco Concession of 1890, which saw similarly sweeping rights granted to another foreign concern. The bazaar merchants, along with the country’s Shi’a clerical class or ‘ulema, represented Iran’s traditional middle-class, who resented the expanding influence of foreigners within the country and the apparent weakness of the Qājār state.7 They led mass protests, shutting down the bazaars and bringing commerce to a standstill, until the shah agreed to cancel the tobacco concession.8 A small but growing contingent of western-influenced elites, drawn from the professional classes and Iran’s aristocracy, joined the popular uprisings associated with the anti-concession movements and opposed to the arbitrary nature of Qājār rule. This group of intellectuals (rowshanfekr, or “enlightened”) were not united behind a single vision: disagreement abounded over how a new Iranian state and society could be

Marashi, Nationalizing Iran: Culture, Power and the State, 1870-1940 (Seattle, WA: University of Washington Press, 2008), 1-6, Vanessa Martin, The Qajar Pact: Bargaining, Protest and the State in Nineteenth-Century Persia (New York: IB Tauris, 2005), 1-3. 6 George Nathaniel Curzon, Persia and the Persian Question, Vol. I (London: Frank Cass, 1966, originally published 1892), 480. 7 This “traditional middle-class” is distinct from a bourgeoisie that was slowly emerging in the urban centers, and which would eventually include army officers, state bureaucrats and members of the professions. See Abrahamian, Iran Between Two Revolutions, 58-61. 8 Nikki Keddie, Religion and Rebellion in Iran: the Tobacco Protest, 1891-1892 (London: Cass, 1966), 49-51.

forged, whether it would mirror the West and follow the Enlightenment model, or whether it would draw from Islamic law.9

Resistance to Qājār rule led to the Constitutional Revolution of 1906-1911, which limited the power of the shah and created an elected assembly, the Majlis. At the forefront of the revolution were the bourgeois modernists, though they co-existed with other groups advocating alternate reforms, including a new government based upon Shi’a Islam.10 The momentum of reform was halted by counter-revolution, foreign intervention, and war. Iran, though technically neutral, was repeatedly invaded by British, Ottoman and Russian armies between 1914 and 1918.

The British government attempted to incorporate Iran into its own sphere of influence, though the Anglo-Iranian Agreement of 1919 was ultimately rejected by the Majlis. In 1920 there were separatist movements in the north provinces, as the Jangali rebels carved out a new socialist republic in Gilan. In the south, the pro-British Bakhtiyāri tribes and Shaikh Ḵhazʿal of

Mohemmareh (later Khorramshahr) turned a blind eye to official state policy in Tehran. The

9 The dialectic that formed between secular nationalism, Islamic nationalism, and many permutations of each lay at the heart of the constitutionalist movement. While older historiography emphasized the significance of 1906-1911 to modern secular Iranian nationalism, Vanessa Martin notes that few within Iran understood secularism, “outside a small number of mainly senior bureaucrats and a few radical activists in Tehran and Tabriz.” See Vanessa Martin, Iran Between Islamic Nationalism and Secularism: the Constitutional Revolution of 1906 (London: IB Tauris, 2013), 36-37. See also Ali M. Ansari, ed., Iran’s Constitutional Revolution of 1906: Narratives of the Enlightenment (London: Gingko Library, 2016). 10 Pejman Abdolmohammadi, “History, National Identity and Myths in the Iranian Contemporary Political Thought: Mirza Fathali Akhundzadeh, Mirza Aqa Khan Kermani, and Ḥasan Taqīzādeh,” Perceptions of Iran: History, Myths and Nationalism From Medieval Persia to the Islamic Republic, ed. Ali M. Ansari (London: IB Tauris, 2014), 25-26. See Janet Afary, The Iranian Constitutional Revolution, 1906-1911: Grassroots Democracy, Social Democracy and the Origins of Feminism (New York: Columbia University Press, 1996), Nader Sohrabi, Revolution and Constitutionalism in the Ottoman Empire and Iran (New York: Cambridge University Press, 2011), Keddi, Religion and Rebellion, 1-10.

authority of the Qājār government no longer had any sway in most of the country.11 In February

1921, the Cossack Brigade, Iran’s only modern military force, marched into the capital and toppled the Qājār regime, sending the last Qājār shah into exile. Rezā Khan, the brigade’s commander, demanded that the Majlis name him Minister for War and his co-conspirator, the journalist Sayyed Ziā Tabatābāī, as the new prime minister. Within a few months, Rezā Khan marginalized the divisive Ziā and took over the reins of government. The British, dominant in the south and exercising considerable political influence through proxy groups, permitted the establishment of a new government; it was felt a strong leader in Tehran could arrest Iran’s slide towards anarchy.12

Rezā Khan emerged from the 1921 coup d’etat the de facto ruler of the country. His power rested on the military, which he sought to re-make along modern lines, as well as the bazaar merchants and aristocracy, both of whom viewed his ascension as necessary for returning the country to order. Passionate support came from a section of the Western-influenced intellectual bourgeoisie disappointed by the results of the Constitutional Revolution. Sayyed

Ḥasan Taqīzādeh, a member of the First Majlis, argued for a strong centralized government, one which could bring the reforms and “modernization” necessary to prevent further catastrophe. In

January 1920, Taqīzādeh published his famous manifesto in the pages of Kaveh, a list of twenty-

11 Homa Katouzian, “The Campaign Against the Anglo-Iranian Agreement of 1919,” British Journal of Middle Eastern Studies 25:1 (1998), 5-46. A defense of the 1919 negotiations is offered by Oliver Bast, “Putting the Record Straight: Vosuq al-Dowleh’s Foreign Policy in 1918/19,” in Men of Order: Authoritarian Modernization Under Ataturk and Reza Shah, Touraj Atabaki and Erik Zürcher, eds. (London: IB Tauris, 2004), 260-281. For the Jangali movement, see Abrahamian, Iran Between Two Revolutions, 111-119. 12 Cyrus Ghani, Iran and the Rise of Rezā Shah: From Qajar Collapse to Pahlavi Rule (London: IB Tauris, 2000) 190-192; Michael Zirinsky, “Imperial Power and Dictatorship: Britain and the Rise of Rezā Shah, 1921-1926,” International Journal of Middle East Studies 24, no. 4 (Nov. 1992): 639-663.

three changes which would have to be made to “modernize” the country. Taqīzādeh did not attempt to camouflage his language: there must be a “complete surrender” to European civilization, and Iran must “outwardly and inwardly, physically and spiritually, become

European.”13 In most respects, “modernize” meant “Westernize,” and supporters of Rezā Khan envisaged a complete transformation of the Iranian mind and body, carried out through education, improvements to public health and sanitation, changes in architecture (Tehran itself was to be radically re-designed), and other reforms overseen by a powerful central state.14

Taqīzādeh, along with other “intellectual statesmen” like Moḥammad ʿAlī Forūḡī and ʻAlī-Akbar

Dāvār, supported Rezā Khan as the “man on horseback,” a savior figure who would deliver on the promises of the Constitutional Revolution.15

Iran’s religious leadership was ambivalent to Rezā Khan’s new regime, viewing its outward secularism as a threat to their position.16 Some Majlis deputies, including the jurist and legal reformer Dāvār, argued that the new shah’s powers would be limited by the constitution.

Taqīzādeh, though still a strong supporter, felt a coronation should be delayed on procedural

13 Kaveh, January 22, 1920, 2; see also Gholamreza Vatandoust, Sayyid Hasan Taqīzādeh and Kaveh: Modernism in Post-Constitutional Iran (1916-1921) (Ph.D Dissertation, University of Washington 1977): 194-5. 14 See Āyandeh, Vol. 1, No. 1, “Preparations for a Bright Future: Four Pillars and Four Bases,” (Tehran: 1925), 17-25. Also prominent were Iranshahr published by Hosayn Kāzemzādeh from 1922 to 1927, and Farangestān, a journal operated by Sayyed Mortazā Moshfeq Kāzemi. See Atabaki and Zürcher, Men of Order, 3-7 and Abrahamian, Iran Between Two Revolutions, 122-123. See also Cyrus Schayegh, Who is Knowledgeable is Strong: Science, Class and the Formation of Modern Iranian Society, 1900-1950 (Berkeley, CA: University of California Press, 2009). 15 Ansari, The Politics of Nationalism in Modern Iran, 58-67, 83-84. 16 Homa Katouzian, “Riza Shah’s Political Legitimacy and Social Base, 1921-1941,” The Making of Modern Iran: State and Society Under Riza Shah, 1921‒1941, Stephanie Cronin ed. (New York: Routledge, 2003): 15-17; Mohammed Faghfoory, “The Ulama–State Relations in Iran: 1921–1941,” International Journal of Middle East Studies 19, no. 4 (1987), 413–432, and Abrahamian, Iran Between Two Revolutions, 120-135.

grounds; it would better for Rezā Khan to rule as a dictator, rather than assume the throne. Yet it was Mohammed Moṣaddeq, a provincial aristocrat and relative to the Qājār family, who delivered the strongest argument against a coronation. As prime minister, Rezā Khan could act as a conduit for the revolution, but once he became shah he would possess the prerogatives of the monarch. The link between constitutional parliamentarianism and the modernization of the country would be severed. Power would be concentrated in the hands of the shah, whom

Moṣaddeq believed should keep out of politics. His reservations were not enough to prevent the

Majlis from voting to dissolve the Qājār dynasty. In 1925, Rezā Khan became Rezā Shah

Pahlavi. His coronation was planned for April of the following year.17

The early Pahlavi period witnessed some of the most profound transformations of Iranian society. Cities were re-built in modern architectural styles, education expanded and a military raised through mass conscription. The trans-Iranian railroad, a national bank (the Bank Melli), and state-sponsored factories increased government involvement in economic management. A new legal code, regulations of dress, and the forced un-veiling of women transformed social life for most Iranians, as the Pahlavi state interfered in ways the aloof Qājārs had never attempted.18

Rezā Khan led a series of campaigns against Iran’s tribes and other sources of provincial authority, including the powerful Shaikh Ḵhazʿal of Mohemmerah, who was forcefully removed

17 Husayn Makkī, Tarikh-e Bist Saleh-e Iran, Vol. III (Tehran: Bongah Tarjomeh va Nashr-e-Ketab, 1945), 485-90; Ansari, Politics of Nationalism, 80-81, Katouzian, “Riza Shah’s Political Legitimacy and Social Base,” 16-18. 18 Houchang Chehabi, "Staging the Emperor's New Clothes: Dress Codes and Nation- Building Under Reza Shah,” Iranian Studies 26, no. 3 (1993): 209-233; Cronin, "Conscription and Popular Resistance in Iran, 1925-1941," 451-471; Patrick Clawson, “Knitting Iran Together: the Land Transport Revolution, 1920–1940,” Iranian Studies 26, no. 3 (1993): 235–250, Stephanie Cronin, “Riza Shah and the Paradoxes of Military Modernization in Iran, 1921-1941,” and Mehrzad Boroujerdi, “Triumphs and Travails of Authoritarian Modernisation in Iran,” Making of Modern Iran, 37-64, 146-154.

from his position in 1926 and placed under house arrest.19 By the late 1920s state power extended throughout the country, though the shah’s new administration (represented in most areas by a military garrison) was often corrupt, inept, or incapable of doing more than maintaining order. The government availed itself of assistance from international experts. An

American, Arthur C. Millspaugh, was employed from 1921 to 1926 to oversee the country’s financial reforms, carrying on the work begun by Morgan Schuster, another American, nearly two decades before.20 Other advisors, mostly Europeans from neutral states, were hired to bolster the country’s central administration.

Rezā Shah, who focused most of his energies on military affairs (forty-percent of his budget went to the Ministry of War21) relied heavily on the support of key ministers. For the first half of his reign, the shah shared power with the triad of ‘Abd al-Hosayn Teymūrtāsh, ʻAlī-

Akbar Dāvār and Mirza Nuṣrat al-Dawlah Firūz. While Dāvār left the most lasting impact in the form of a modern legal code, it was Teymūrtāsh who emerged as the “outstanding statesmen of his country” and the second most-powerful figure in the new regime.22 Fluent in French and

19 Cronin, “Riza Shah and the Disintegration of Bakhtiyari Power in Iran,” Iranian Studies 33, no. 3 (2000): 349–376. The shaikh of Mohemmerah had been a British ally for years. During a visit in 1924, John Cadman reported that the shaikh, “somewhat nervous and very frail,” was prepared “to do what the British Government told him.” Despite his eager entreaties for assistance, the British ultimately determined that it was better for Reza Shah to consolidate power and remove the hitherto-autonomous sheikh, in order to stabilize conditions within the country and preserve the security of the company’s operations. See BP 70210 Cadman Secret Diary of Visit to Persia, October 8 to December 10, 1924. 20 Millspaugh, Americans in Persia, 22-35. Schuster came to Iran in the midst of the revolution, but was forced to leave by Russian pressure. See Schuster, Strangling of Persia, 1-12. 21 Mofid, Development Planning in Iran, 11. This would change after 1934, when road/railroad construction and state-run mines and factories together consumed more than half of the budget. 22 FO 13932/19, Clive to Chamberlain, January 9, 1930, BDFA Part II, Series B, Vol. 24 (1994), 207-210. See ʻĀqili,Teymūrtāsh dar ṣaḥneh-e siyāsat-e Irān [Teymūrtāsh in the Political Arena of Iran] (Tehran: Jāvidān, 1992) and Sheikholeslāmi, Ṣoʻud va soquṭ-i Teymurtāsh: be revāyat-i asnād-i maḥramāneh-ye Vezārat-i Khārejeh-ye Engilis [The Rise and 45

English, Teymūrtāsh acted as the shah’s Minister of Court, though in truth he was de facto prime minister and handled much of Iran’s foreign policy and internal propaganda.23 He was fully committed to the regime’s Westernization program. Iran was at least “two hundred years behind the times,” and to survive would need to treat with other nations “on equal footing.” It needed a robust administration, public education, a strong military, and an advanced economy.24 For the first years of his reign the shah relied upon the Minister of Court, who enjoyed his full confidence. 25

Upon seizing power Rezā Khan declared his intention to the British minister “to build with Persian hands what you have tried to build with British hands.”26 Iran’s modernist bourgeoisie, like that of Turkey, believed that a strong state was the surest means of securing national independence, and were determined to avenge Iran’s decades of embarrassment and

Fall of Teymūrtāsh: Based on the Documents of the British Foreign Office] (Tehran: Enteshārāt- e Tus, 2000). Many of Teymūrtāsh’s personal and professional letters to diplomats and other ministers can be found in Naft dar Dowreh-ye Rezā Shah: Tajdid Nazar dar Emtiyaznāmeh-ye Dārsi [Oil in the Reign of Reza Shah: Documents from the Revision of the D’Arcy Concession] (Tehran: Sāzmān-e Chāp va Enteshārāt, Vezārat-e Farhang va Ershād-e Eslāmi, 1999) and Asnād va mokātabāt-i Teymūrtāsh, vazir-i darbār-i Rezā Shah [The Documents and Correspondence of Teymūrtāsh, Minister of Court to Reza Shah] (Tehran: Sāzmān-i Chāp va Enteshārāt-i Vezārat-i Farhang va Ershād-i Eslāmi, 2005). 23 Miron See Rezun, “Rezā Shah's Court Minister: Teymourtash,” International Journal of Middle East Studies 12, no. 2 (1980): 119-137. For his role in managing the press, see Karim Soleimani, ”Press Censorship in the Rezā Shah Era, 1925-41,” Culture and Cultural Politics Under Rezā Shah: the Pahlavi State, New Bourgeoisie and the Creation of a Modern Society in Iran, Bianca Devos and Christoph Werner eds. (New York: Routledge, 2014), 181-198. 24 FO 13479/308, Clive to Chamberlain, May 18, 1928, BDFA, Part II, Series B, Vol. 23 (1994), 28-30. 25 Sayyed Hasan Taqīzādeh, Zendegi-ye tufāni: khāṭerāt-e Sayyed Ḥasan Taqīzādeh [The Tempestuous Life: Recollections of Sayyed Hasan Taqīzādeh] 2nd Edition Iraj Afshār ed. (Tehran: 1993): 224-225, 231-232; Chelsi Mueller, “Anglo-Iranian Treaty Negotiations: Rezā Shah, Teymūrtāsh and the British Government, 1927-32,” Iranian Studies 49, no. 4 (2016): 577- 592. 26 Foreign Office (FO) Confidential Print No. 12004/180(i), Loraine to Curzon, January 31, 1922, BDFA, Part II, Series B, Vol. 17 (1994), 285-286.

exploitation at the hands of foreign powers. 27 Rezā Shah himself did not belong to this class, but he was allied to them for the first half of his reign, and they gave purpose and clarity to his regime’s modernizing project. By being seen to work against such foreign concerns, the government of Rezā Shah could claim its legitimacy as governing on behalf of the Iranian people, thereby erasing the monarch’s identity as a usurper and distracting from his use of arbitrary authority (istibdād).28

The opening salvo in the shah’s years-long campaign to rid Iran of foreign influence was a speech delivered to the Majlis in April 1927. In what was henceforth known as the “Abrogation of Capitulations,” Rezā Shah abolished consular jurisdiction along with “the privileges enjoyed by foreign subjects in Persia” as part of Dāvār’s new legal program. There would be an immediate end to any further economic or political concessions to foreign nations. This would include the concessions to foreign governments, notably the British-owned Imperial Bank of

Persia, which Rezā Shah sought to replace with the new state-supported Bank-i Melli.29 Yet the principal target of Pahlavi economic policy and nationalist rhetoric was the Anglo-Persian Oil

Company. Rezā Shah himself declared, while on a visit to the oil fields of Khuzestan, that the people and government of Iran “cannot agree with the D’Arcy Concession…Iran can no longer

27 Stephanie Cronin, "Modernity, change and dictatorship in Iran: The new order and its opponents, 1927-29," Middle Eastern Studies 39, no. 2 (2003): 14; Atabaki and Zürcher, “Introduction,” Men of Order, 2, Katouzian, Political Economy, 81-101. 28 On the subject of arbitrary power, see Homa Katouzian, "Arbitrary rule: A Comparative Theory of State, Politics and Society in Iran," British Journal of Middle Eastern Studies, 24, no. 1 (1997): 49-73 and Iranian History and Politics: the Dialectic of State and Society (New York: Routledge Curzon, 2003). 29 FO 13288/163(i), Pakravan to Clive, 12 May 1927, British Documents on Foreign Affairs, Part II, Series B, Vol. 22 (1994), 11, Michael Zirinsky. "Riza Shah's Abrogation of Capitulations, 1927-1928" The Making of Modern Iran: State and Society Under Riza Shah 1921-1941, Stephanie Cronin, ed. (New York: Routledge Curzon, 2003), 81-98.

tolerate the profits of its oil going into foreigners’ pockets, while at the same time being dispossessed of its oil wealth.”30

In April 1926 Rezā Khan crowned himself Rezā Shah Pahlavi I. Days later, Sir John

Cadman, a director of the Anglo-Persian Oil Company in attendance at the coronation, was invited to an audience with the new monarch. It was, according to Cadman, an amicable encounter: “I was struck with his sympathetic interest in the Company’s operations and his personal pride in its progress as a Persian industry.” Cadman expressed the company’s interest in assisting the Pahlavi modernization project, “our readiness to offer our services and experience in the construction of roads and other public works.” He felt confident that the time had come for renewed discussions regarding the future of Iranian oil: “there can be but one option as to the need for direct negotiations in the future between the Persian Government and the Company.”31

The relationship between Iran and the British oil company had reached a turning point. Oil revenues provided about 10% of the state budget and constituted 50% of total exports by 1923.32

But the shah was after more than just cash, as oil symbolized Iran’s former subjugation and its new, supposed independence under his rule. Politics, economics and the legitimacy of Iran’s new government were closely tied around the oil issue. No one knew this better than Sir John

Cadman.

30 Fāteḥ, Panjāh sāl naft-i Iran, 286 31BP 70210 Secret Diary of Visit to Persia, February 25 to May 26, 1926; BP 68386, Report to the APOC Board, John Cadman, August 1926. Throughout the meeting, Cadman’s assistant and Iran’s Minister of Public Works acted as interpreters. Cadman noted the “amusing” nature of the shah’s treatment of his minister: “he remained standing while were given seats; we were given tea and cigarettes while was given none and treated like a dog.” 32 Ferrier, History of British Petroleum, Vol. I, Table 13.3, 617 and Table 13.4, 629.

1.2 “Rationalization” and Sir John Cadman

The history of oil in the Middle East began with Iran. On April 16, 1901, Mozaffar al-Din

Shah Qājār signed an agreement with William Knox D’Arcy, an Australian industrialist. The document, scarcely two pages long, provided D’Arcy with “the exclusive privilege to search for, obtain, exploit, develop, render suitable for trade, carry away and sell” any oil found within a

500,000 square mile area, in exchange for 16 percent “of the annual net profits of any company or companies that may be formed.”33 The shah received a lump-sum payment of £20,000 as a sweetener. D’Arcy explored for seven years before striking oil at Masjed-I Suleiman in the southern province of Khuzestan. Having exhausted his capital, D’Arcy sold his enterprise to

Burmah Oil. The company worked the concession for five more years before the British government purchased a majority stake the venture, now known as the Anglo-Persian Oil

Company (APOC).34

Desperate for capital, the venture was saved in a timely fashion by the British Treasury.

In 1912 the Royal Navy had switched from coal-fired boilers to oil-fired ones. Since Britain herself had no oil reserves, it was in the national interest to acquire control over oil resources elsewhere.35 The Admiralty was able to purchase oil from APOC at a significant discount, freeing it from dependence on the “oil trusts” of Royal Dutch/Shell and Jersey Standard, the two largest oil companies.36 The government acquired two board seats in APOC and the power to

33 “D’Arcy Concession,” 1901, from Appendix 1.0 of Ferrier, Vol. I. 34 Marian Kent, Oil and Empire: British Policy and Mesopotamian Oil, 1900-1920 (London: Macmillan, 1976), 38-49. 35 See McBeth, British Oil Policy, 1-10; Hooshang Sabahi, British Policy in Persia 1918- 1925 (London: Frank Cass, 1990). 36 Gareth G. Jones, "The British Government and the Oil Companies 1912–1924: the Search for an Oil Policy," The Historical Journal 20, no. 3 (1977): 647-672. During the 1920s the Admiralty bought oil from APOC at prices between $.20 and $.40 a barrel, compared to the market price which fluctuated between $.90 and $2.43 per barrel. See Mikdashi, A Financial 49

veto any company policy that might threaten national security.37 These measures preserved oil for British strategic needs from the booms and busts of the international oil market.

APOC’s concession lay within the British sphere of influence and could be controlled in times of war. Iranian oil from Masjed-I Suleiman, while heavy and sulfurous, was only one- hundred miles from the sea where it could be safely loaded onto ocean-going oil tankers and moved to markets in large quantities. Geographically, Iranian oil was far from the best outlets in the United States and Western Europe, but the low cost of Iranian labor and convenience of transportation made it cheap, and therefore competitive in most Eastern Hemisphere markets.38

The area around Masjed-I Suleiman lay largely outside the influence of Tehran or the Qājār state, with local power residing with Shaykh Ḵhazʿal of Mohammerah and the Bakhtiyāri tribes. Both were on good terms with the British and granted APOC the freedom to establish a refinery and tanker port on Abadan Island, a flat mud-plain dotted with palm trees near where the Shatt al-

Arab drained into the Persian Gulf. Much of the local labor was supplied by Arabs, who made up a large minority of Khuzestan’s population, and by the Bakhtiyāri who were offered shares in the venture as compensation for their assistance.39

With security in place, APOC expanded rapidly. By 1927 it possessed fixed assets of £48 million, while production of oil increased from 970,000 tons in 1921 to 3,161,000 tons in 1927.

The Company’s operations transformed Iran into a major oil producer, the fifth-largest in the

Analysis of Middle Eastern Oil Concessions, 32. The British majority stake in APOC also saved the company from acquisition by Shell; see Kent, Oil and Empire, 48-49. 37 BP 88373 “His Majesty’s Government’s Powers of Veto,” Undated. 38 Ferrier, Vol. I, 15-86. 39 Stephanie Cronin, Tribal Politics in Iran: Rural Conflict and the New State, 1921-1941 (London: Routledge, 2007): 51-67, and “The Politics of Debt: the Anglo-Persian Oil Company and the Bakhtiyāri Khans,” Middle Eastern Studies 40:4 (July, 2004): 1-31.

world, and yearly production increased from 1.1 million tons in 1918 to 5.3 million in 1927.40

APOC earned more profit through marketing refined products, such as benzene, kerosene, gasoline and fuel oil. It was cheaper to have a large refinery near the site of production rather to disperse refinery operations elsewhere, due to the high cost of transporting crude.41 The Abadan refinery grew rapidly for that reason: the labor force was 3,379 in 1919, yet exceeded 14,000 by

1925.42

The refinery town of Abadan operated according to rigid divisions based on class and race: a colonial enclave of the British Empire carved out of southwestern Iran, the town was built by indigenous labor and funded from the capital generated by Iranian oil.43 Constructing a city in the desert was expensive: along with £11 million in royalties to the Iranian government, APOC spent £13.1 million “for the benefit of the Persian people” between 1924 and 1932, including

£553,000 on medical services and £106,000 on education.44 Despite these expenses, conditions in Abadan throughout the 1920s were exceedingly poor: slums extended around “Abadan Town” to the east of the refinery, where residents, mostly Iranian laborers, paid exorbitant rents. Staff housing provided by the company was primarily reserved for British management and senior staff, while Indian clerks and technicians were imported for most mid-level positions: in 1927 there were just over 10,000 Iranians, nearly all of whom were un-classed laborers, compared to

40 Ferrier, Vol. I, 638-639: Appendix 0.1, “World crude oil production, 1900-1932.” Tons converts to barrels according to the ratio of 1:7.45. 41 In 1923, APOC refined 63% of Iranian crude into products in Abadan; by 1932, this figure had increased to 78%. See BP 88373 Persian Production and Refining, January 6, 1933. 42 Ferrier, Vol. I, 659: Appendix 10.1. 43 Ehsani, "Social Engineering and the Contradictions of Modernization in Khuzestan's Company Towns,” 361-399. 44 BP 88373 Note on Royalties (Untitled), December 16, 1932.

nearly 4,000 Indians, Europeans and other non-Iranians working for APOC.45 The company paid little attention to the central government in Tehran: for the first decade of its existence, the local politics of the Persian Gulf were more important to day-to-day operations than the intrigues of the Iranian capital.46

Along with Royal Dutch/Shell, Standard Oil of New Jersey (Jersey Standard) and

Standard Oil of New York (Socony), APOC dominated the global oil trade.47 Fears in 1920-21 of a shortage spurred an expansion of the international energy supply. The United States government, keen to expand the scope of American capital abroad, pushed for an “open door” in the Middle East: free competition between rival firms of different nationalities for concessionary opportunities. Though the British initially attempted to keep the Middle East closed, eventually they agreed to permit the Americans entry.48 When concerns over a shortage subsided after 1921, the issue quickly became what to do with abundance. Discoveries in Venezuela, where a government dominated by military dictator Juan Vicente Gomez cooperated with the international companies, turned that country into a major oil producer almost overnight. Russian production, in decline after 1917, rose to 8.6 million tons in 1927. In the United States, unchecked production was encouraged by the law of capture: oil belonged to whomever drilled it out of the ground first. Oil men often described this problem in the context of “conservation” and

45 Ferrier, Vol. I, 659: Appendix 10.1. 46 Kaveh Ehsani, “The Social History of Labor in the Iranian Oil Industry: The Built Environment and the Making of the Industrial Working Class (1908-1941)” (PhD Thesis, Leiden University 2014), 141-151, 157-174, 226-256. 47 Cowhey, Problem of Plenty, Table 1, 81, Ferrier, Appendix 0.1, “World Crude Oil Production 1900-32.” 48 Michael J. Hogan, “Informal Entente: Public Policy and Private Management in Anglo- American Petroleum Affairs, 1918-1924,” The Business History Review 48, no. 2 (Summer, 1974): 187-205; William Stivers, “International Politics and Iraqi Oil, 1918-1928: A Study in Anglo-American Diplomacy,” The Business History Review 55, no.4 (Winter, 1981): 517-540.

“waste:” over-production represented the unnecessary squandering of an important natural resource. Efforts to limit over-production by “wildcatters” and independent oil companies were launched in the U.S., where production was unregulated and waste most rampant: interest groups including the American Petroleum Institute preached restraint and conservation in order to keep prices high. Despite the fierce competition over markets, leaders in the industry “came to the conclusion that, in attempting to solve the problem of too much oil, they had to choose between a competitive fight and cooperation.”49

For the international companies, however, oil moving to markets outside the U.S. represented a separate realm, one which they could control with relative impunity. Here, the problem was “rationalization,” how to measure market growth with production, prices with profitability, in a way that would deter destructive competition and a “race to the bottom.”

Cooperation was symbolized by an agreement reached between Jersey, Shell and APOC in 1928 at Achnacarry Castle in Scotland. “Excessive competition has resulted in the tremendous overproduction of today,” the agreement stated. “Each large unit has tried to take care of its own overproduction and tried to increase its sales at the expense of someone else. The effect has been destructive rather than constructive competition, resulting in much higher operating costs.”50

49 Quote from H.M. Larson, E.H. Knowlton and C.S. Popple, History of the Standard Oil Company (New Jersey), Vol. 3: New Horizons, 1927-1950 (New York: Harper & Row, Publishers, 1971), 307. Ferrier, Vol. I, 500-514, 638: Appendix 0.1; Sampson, The Seven Sisters, 69-71. Yergin, The Prize, 243, Blair, Control of Oil, 54-55, Cowhey, Problem of Plenty, 81-104, Painter, Oil and the American Century, 5, Sampson, The Seven Sisters, 74-77. Such conclusions were not universally shared: rationalization through the cooperation of oligopolists could result in artificially high prices and stifle competition. Everette Lee DeGolyer, noted American geologist, argued that controlling production, either through government action (which most oil- men opposed) or through an oligopoly, would “absolutely eliminate the small operator.” Houston Faust Mount, Oilfield Revolutionary: the Career of Everette Lee DeGolyer (College Station, TX: Texas A&M University Press, 2014), 180. 50 Pool Association Agreement, September 17, 1928, from FTC, The International Petroleum Cartel, 200.

Recognizing the “fundamental oversupply” which had affected the industry, the three largest internationals agreed to leave market share “as is,” while holding down production to allow the price to recover.51 Middle East production would be controlled through a “self-denying” clause included in the new Iraqi concession approved in 1928 known as the Red-Line Agreement: a self-denying clause kept members from pursuing new concessions without the unanimous support of the entire group.52 The Achnacarry or “As-Is” Agreement also set a common global price for oil tied to the prevailing price in the Gulf of Mexico, facilitated through the companies’ control of transportation. An agreement separating European markets was reached in 1930.53

From 1928 to 1930, a large surplus of crude oil was artificially suppressed by the members of an oil oligopoly, operating for all intents and purposes as a cartel.54

A related problem facing international oil was the challenge of resource nationalism. In

1917, Mexico voted on a new constitution that declared public ownership of subsoil rights: the

51 Shell and Jersey could facilitate this quite easily, as they controlled 92% of Venezuelan production. See Philip, Oil and Politics in Latin America, 45. 52 After seven years of discussion, the British, French and American companies decided upon a division of the Iraqi oil concession: APOC, Shell, Francais Compagnie Petrole, and Jersey Standard together with Socony each received a 23.75% interest in the Iraqi Petroleum Company (IPC), with the remaining 5% going to Calouste Gulbenkian, the Armenian businessman and architect of the original oil agreement before World War I. The agreement was intended to prevent cheap, abundant Iraqi crude from flooding the market. See William Stivers, "A Note on the Red Line Agreement." Diplomatic History 7, no. 1 (1983): 23-34 and Walter Adams, James W. Brock, and John M. Blair, "Retarding the Development of Iraq's Oil Resources: An Episode in Oleaginous Diplomacy, 1927-1939," Journal of Economic Issues 27, no. 1 (1993): 69-93. 53 Cowhey, Problem of Plenty, 85. The “Gulf-Plus” system set prices as the fob (free on board) price in the Gulf of Mexico plus the cost of transportation. This made oil from the Middle East and Venezuela (where production costs were much lower than in the U.S.) artificially overvalued. 54Cowhey, The Problems of Plenty, 81-104, FTC, International Petroleum Cartel, 199- 205; Penrose, International Petroleum Industry, 178-183; Leeman, Price of Middle East Oil, 89- 90, 154-156; Neil H. Jacoby, Multinational Oil: A Study in Industrial Dynamics (New York: Macmillan, 1974): 27-31; Blair, Control of Oil, 54-56; Yergin, The Prize, 168-227, 246-248.

companies could not exploit what rightfully belonged to the Mexican state. An indigenous labor movement coalesced around the oil industry, one that saw foreign ownership of the country’s oil industry as an affront to Mexican independence. A similar movement was underway in Bolivia by the end of the 1920s, while Argentina pushed out the foreign companies entirely and established its own national oil company.55 Latin American governments, particularly those of

Bolivia, Peru, Ecuador and Argentina, sought to limit the expansion of the companies, but

Venezuela was more accommodating. President Gomez, more eager for bribes than for nationalist acclaim, adopted a “tactical position” of nationalism, utilizing it as a “bargaining position,” to reach a compromise with the companies.56 In time he proved a reliable partner, using the payments he won from the companies to enrich himself and his supporters while keeping taxes on oil operations as low as possible. He allowed the companies to build refineries in Curacao and Aruba, fearing that a large refinery could encourage labor unrest and potentially encourage oil-producing regions to declare independence from Caracas.57

The Venezuelan example was illustrative. To satisfy resource nationalism, companies would have to create a stronger “identity of interest” with their host government. As one APOC draft memo stated, concession-holding companies “can regard their future as safeguarded against the rising tide of economic nationalism in proportion to the extent to which the national interests

55 Santiago, The Ecology of Oil, Linda B. Hall, Oil, Banks and Politics: The United States and Postrevolutionary Mexico, 1917-1924 (Austin TX: University of Texas Press, 1995), Jonathan Brown and Alan Knight, ed., The Mexican Petroleum Industry in the Twentieth Century (Austin TX: University of Texas Pres, 1992); for Argentina, see Philip Oil and Politics in Latin America, 30-31. 56 Philip, Oil and Politics in Latin America, 34. 57 Stephen G. Rabe, The Road to OPEC: United States Relations with Venezuela, 1919- 1976 (Austin, TX: University of Texas Press, 1982), 86, Luis Vallenilla, Oil: the Making of a New Economic Order: Venezuelan Oil and OPEC (New York: Mcgraw Hill, 1975), 25-29.

and their own approach identity.”58 It was considerably easier to build an identity of interest with a local state dominated by a single authoritarian ruler. The fall in prices, as well as rapid exhaustion of fields through intense competition, was making Mexican oil less competitive while political changes rendered the environment less comfortable for foreign oil companies. They began to divest from Mexico, shifting attention to the more attractive oil fields in Venezuela which was the third-largest crude producer in the world by 1928.59

No oil man understood the need for “rationalization” or the challenge of resource nationalism more than Sir John Cadman, who became APOC’s chairman in March 1927.

Formerly a chemistry professor, Cadman served as the Director of the Petroleum Executive and

Chairman of the Allied Petroleum Council before joining APOC in 1923. Uniting a thorough knowledge of oil’s technical aspects with a shrewd sense for international commerce, Cadman was a diplomat for oil, “the first figure of real magnitude in the British oil industry.”60 He was a key figure in negotiations, acting as a counter to the rivalry between Jersey and Shell.

Accustomed to thinking in broad, global terms, Cadman considered oil “irreplaceable:” it had to be used “in the most economical and scientific manner” so as to ensure its “continued abundance for the greatest possible number of generations to come.”61 Oil was not merely a commodity but rather a “store of energy to be conserved, released and applied…yielding its tribute to more than

58 BP 71074 Draft Memo, “Our Line of Future Policy with the Persian Government,” 1928. 59 Rabe, Road to OPEC, 196-197, Jonathan C. Brown, “Why Foreign Companies Shifted Their Production from Mexico to Venezuela During the 1920s,” The American Historical Review 90, no. 2 (Apr., 1985): 362-385. 60 Sampson, Seven Sisters, 71. For a laudatory and incomplete account of Cadman’s life and term as APOC chairman, see J. Cadman and J. Rowland, Ambassador for Oil: the Life of John, First Baron Cadman (London: 1960). 61 BP 67896 John Cadman, “Petroleum: A record of Achievement in Applied Sciences,” before the Royal Institution of Great Britain, February 12, 1932.

one treasury.”62 In that context, over-production represented a significant cause for concern.

“The abnormal situation created by excessive competitive production in the United States and the growing exports from Russia” he warned shareholders, would inevitably lead to “the dissipation of one of the world’s most precious assets” if it was not managed correctly through cooperative action. Though an ardent nationalist, Cadman felt that APOC “had a right to be safeguarded against perpetual interference by the Government,” despite Britain’s majority stake.63 The proper arrangement was the “open door” favored at the time by American industrialists, “because it gives unfettered opportunity of knowledge, capital, and enterprise in the development of oil fields.”64

Though it was an international company, nearly all of APOC’s investments were in Iran.

The chairman was conscious that APOC’s position in Iran would come under threat from the nationalism of the Pahlavi regime. Conditions in Abadan had attracted considerable criticism from the Iranian press: workers lived “in dark hovels made of packing materials,” abandoned in the crowded slums of Abadan “[in] the utmost imaginable poverty and destitution.”65 Visiting

Iran in 1924, Cadman declared the living quarters for laborers “unsatisfactory” and the level of sanitation “disgraceful,” Cadman recommended the company’s board approve a new program to tear down the existing village and erect hundreds of new, modern housing units at a cost of

£750,000.66 Returning in 1926 for Rezā Shah’s coronation, Cadman learned that Abadan’s three

62 BP 071000 Cadman’s Address to the American Petroleum Institute, December 6, 1928. 63 Ferrier, Vol. I, 513, 355. 64 BP 071000 Cadman, “Great Britain and Petroleum” December 20, 1921. 65 Shafaq-i surkh, September 6, 1928, quoted in Kaveh Bayat, “With or Without Workers?” in The State and the Subaltern: Modernization, Society and the State in Turkey and Iran, Touraj Atabaki, ed. (New York: Palgrave Macmillan, 2007), 117. 66 BP 70211 Cadman Report on Abadan, November 1924.

hospitals could supply only 450 beds for 25,000 workers and 44,000 dependents in the city and oil fields. Cadman recommended enhanced housing policies, better education, and assistance for

Persian road construction; he pushed for compulsory Persian classes for all European staff. It was in the interest of the company, wrote Cadman, “to get Persia to realize that we were responsible directors of a great Persian industry.”67 Publicly Cadman went out of his way to characterize Iran’s oil industry as a “great Persian industry…which is being developed in the heart of Persia, and largely by Persians.” Anglo-Persian had turned Khuzestan into a “flourishing area of industrial activity.” The Company had built-up an enterprise which employed “150,000

Persians,” and was committed to preserving the oil wealth of the country “in harmony with and for the benefit of the Persian people, as well as of the British Empire.”68 Through its efforts in

Abadan, the company could assist in the larger project of the Pahlavi regime: “it is hardly necessary to emphasize the advantages which would accrue to all concerned from the advance of economic development in Persia.”69

The company had hitherto relied on British imperial power and the support of local agents for security, but this was no longer the case. Rezā Shah had overthrown Shaikh Ḵhazʿal,

APOC’s closest ally, reducing him to a “pitiful” existence in Tehran, while his new army had subjugated the Bakhtiyāri tribes.70 The shah seemed very agreeable in person, but it was clear that “very strong feelings” had grown against the company, “due to the impression that [APOC]

67 BP 70210 Secret Diary of Visit to Persia, February 25 to May 26, 1926. 68 BP 071000 Speech to Young Persian Society, May 6, 1926, “The Oil Era and the British Empire,” Cadman to the American Petroleum Institute, January 19, 1927. 69 BP 68386 Report to the APOC Board, John Cadman, April 1926. 70 While in Tehran, Cadman met with the exiled Shaikh Ḵhazʿal several times. The sheikh begged for a loan, which Cadman refused, “since anything we did would only serve to aggravate his position.” See BP 70210 Secret Diary of Visit to Persia, February 25 to May 26, 1926.

was taking huge profits out of the country and doing very little for its inhabitants.” Close association with the British government had given APOC “too much of an ‘official’ colour, obscuring its true character as a great Persian undertaking developed by private enterprise with the acquiescence, benevolent but detached, of the British government.” The company seemed

“steeped up to its eyes in politics…doing all the dirty work the Legation would not stoop to do.”

Cadman publicly praised the government of Rezā Shah, describing the new monarch to an

English newspaper in 1926 as possessing “a remarkable blend of the highest qualities of mind and character,” and praising the efforts of Iran’s army, “practically unaided,” in defeating regional insurrections. Yet he recognized that the nationalist, pro-active regime of Rezā Shah was not a reliable ally; like Mexico or Argentina, Iran could become a country where foreign capital was resented and, eventually, rejected. It was clear that the prevailing attitude “was one of unfriendliness,” which Cadman believed stemmed from “a real ignorance of the company’s activities,” along with the general anti-foreign (and particularly anti-British) stance Rezā Shah’s government.71

Part of this, Cadman noted, was down to Iranian incapacity: “Persian understanding is scarcely equal to the task of comprehending, much less imagining, the complexities that obscure what is in essence a simple conception.”72 During his tours of Khuzestan, Cadman had spoken to ordinary Iranians, tribal leaders and village elders: he had found far more anger and discontent

71 BP 70210 Secret Diary of Visit to Persia, February 25 to May 26, 1926; BP 68386 Report to the APOC Board, John Cadman, August 1926; BP 071000 Shield News, June 3, 1926. 72 Mostafā Fāteḥ, a former employee of APOC, wrote that most of the company’s senior management were “old British capitalists,” heavily influenced by the India Office, who typically regarded Iran as a de facto British colony and the Iranians as subject peoples. Cadman, on the other hand, “possess a great interest in Iran and sincerely liked the country.” Mostafa Elm also regarded Cadman as different from other British oil industrialists. See Fāteḥ, Panjāh sāl naft- i Iran, 284, and Elm, Oil, Power, and Principle, 29.

directed at the army, and the rampant corruption in government, than towards the company.73 For

Cadman, as well as others in the company and the British government, the new Pahlavi state was a ramshackle affair: a rickety attempt at modern state-building that suffered from traditional

Persian (and Eastern) weakness. Cadman’s more understanding view of Iranian nationalism coexisted with the sense of cultural superiority that he, and every other official of APOC, continued to feel towards Iran. Cadman did not envision surrendering anything to Rezā Shah:

APOC, he explained to justice minister Dāvār, had built up the industry after “enormous difficulty,” while the risks of oil exploitation, “hugely speculative” had been born by the company entirely “without any responsibility therefore attaching to the Persian government.”74

Nevertheless, “a better understanding between the Government and the Company,” would suit the company in the long-run.75 The greatest obstacle facing the Company’s future in Iran remained “the misconception that the Company had done little or nothing for the people of

Persia, in return for the natural wealth which it had won and carried away.”76 The company would not be secure in its position until it had improved its relationship with Rezā Shah’s government. The best way to accomplish this was through a revision of the D’Arcy concession and its replacement by a new oil agreement that reflected the new principle of “partnership” between international oil and the Pahlavi regime.

73 BP 70210 Secret Diary of Visit to Persia, February 25 to May 26, 1926. When discussing local politics with Khuzestan locals, “The consensus of opinion appeared to be that some form of education which could instill honesty and character was necessary…the corruption of the government services was lamentable.” 74 BP 71183/013, Conference with Persian Ministers, Forūḡī’s residence, May 4, 1926. 75 BP 70210 Diary of Trip to Persia, May 4, 1926. 76 BP 68386 Report to the APOC Board, John Cadman, April 1926.

1.3 The “Partnership Principle” and the New Royalty, 1927-1929

By far the biggest issue facing the Company and Iran was the calculation of the annual royalty. The original D’Arcy Concession awarded Iran sixteen percent “of the annual net profits of any company or companies that may be formed.”77 This sweeping formula included APOC’s entire enterprise, which by 1920 had expanded beyond Iran’s borders to include operations in other countries, as well as tankers, marketing networks, and refineries. Iran could claim a percentage of profits derived from all these activities.78 In 1920, a dispute over the precise definition of “profits” prompted Iran to hire a British accountant, Sir Sydney Armitage-Smith, to reach a new agreement that defined royalty as “sixteen percent of all the annual net profits arising from the winning, refining, and marketing of Persian oil” excepting subsidiaries. Yet the

Pahlavi government was dissatisfied and continued to dispute the royalty.79 While APOC’s production increased dramatically during the 1920s, the amount paid to Iran did not rise in a concomitant fashion. Rather, it oscillated year by year, reflecting the changes in the market.80

77 “D’Arcy Concession,” 1901, from Appendix 1.0 of Ferrier. 78 BP 701074, Draft Memo #1, 1928. 79 Ferrier, Vol. I, 365-371, Appendix 9.1, “Armitage-Smith Agreement.” In May 1928 the Iranian oil commissioner Īsa Khan formerly repudiated the 1920 agreement, arguing that Sydney Armitage-Smith had exceeded his authority. See BP 87292, Eissa Khan to APOC Office in London, May 9, 1928. An analysis of the declaration is in FO 14325/66(i), Memorandum on the Armitage-Smith Agreement, October 19, 1932, BDFA, Part II, Series B, Vol. 22 (1994), 209- 211. 80 BP 5193 Memoranda No. 66203, "Total Royalty Paid to the Persian Government Under the D'Arcy Concession," June 10, 1933. The figures in this document match roughly with those in the official history of the company, though there are discrepancies for earlier years, where figures are less reliable. See also Schwadran, The Middle East, Oil and the Great Powers, 132-33.

Table 1.1 APOC Production vs. Royalties Paid to Iran, 1915-193181

Royalty (£) Thousand tons 1600000 7000

1400000 6000 1200000 5000 1000000 4000 800000 3000 600000 2000 400000 200000 1000 0 0

Royalty Production

Cadman could see that Iranian dissatisfaction with the royalty mounted with each passing year. When the royalty was ultimately paid, the Iranians regarded it “as a mark of triumph over an adversary [rather] than as the issue of friendly discussion with an honorable associate… incalculable harm has been done to the Company’s interests by perennial strife over this bone of contention.”82 In financial terms, oil had grown in importance to the Pahlavi regime’s stability.

In 1925 it accounted for 51% of the country’s total export value. The royalty contributed only

10% to total state revenue, yet the earnings were vital to the regime’s modernization plans, particularly in supplying foreign exchange to finance imports.83 It is important to note that the

81 BP 88373 Royalty to Persian Government, Actual and Per Ton Production; Ferrier, Vol. I, 370, 601. *Indicates the March-December '1928 period; after this point, royalty covered calendar year Jan-Dec. 82 BP 68386, Report to the APOC Board, John Cadman, April 1926, Tehran Conference, 24 April 1926. 83 Philip, Political Economy, 56.

Pahlavi regime’s plans did not specifically call on oil money to pay for major projects: the Trans-

Iranian Railroad, perhaps the largest single modernization endeavor, was to be financed through a tax on sugar and tea. Yet it was obvious that the fledgling Pahlavi state would benefit from more stable revenue, as throughout the interwar period it was beset by frequent balance-of- payments crisis and an unstable, silver-based currency.84

In 1926, Millspaugh suggested to Cadman that calculating the royalty according to a tonnage basis, rather than according to “profits,” offered a potential solution to the problem.

Significantly, it would attach greater importance to the production of oil, rather than its refining, transportation, or marketing in determining how a concessionary nation was compensated; the thorny question of “profits” would become moot. Along with a more “explicit computation” of the royalty, the company would expect “some definite understanding as to the life of the concession” as a preliminary to any increase in revenue for the Iranian state. A sixty-year extension of the concession to 1991 would be suitable to secure the company’s investment.

Cadman himself indicated to Millspaugh that a quid pro quo would be needed for the company to solidify its relationship with the new shah: “an extension of the concession” would guarantee a smoother relationship, as far as Cadman was concerned.85

Cadman also toyed with an idea of even greater significance than a per-ton royalty: participation for Iran in the company’s general shares. It was partly a tactical consideration: there were dangerous loopholes within the wording of the D’Arcy Concession. “In as much as the world-wide position of the Company has its origins in Persian oil, she is justified in demanding participation in the entire ramifications of the Company,” according to one company lawyer.

84 Fāteḥ, Panjāh sāl naft-i Iran, 282-5. 85 BP 71074 Draft Memo, “Our Line of Future Policy with the Persian Government,” 1928; BP 70210 Secret Diary of Visit to Persia, February 25 to May 26, 1926

Offering it to Rezā Shah before he made such demands would allow APOC to dictate the extent of Persian participation.86 APOC’s accountants argued that paying Iran royalties through a participation share was “an impracticable proposition,” as it would require offering Rezā Shah up to a third of the company’s ordinary shares. However, providing participation “as a sop to obtain the settlement of all other questions” appeared both feasible and, from the point of view of satisfying the Iranians, very appealing. A partnership between APOC and the Pahlavi regime would create the necessary identity of interest, and a limited share in the company could be matched with a per-ton royalty: “no alternative…however well calculated mathematically, would achieve the same purpose to the same extent.”87 The “partnership principle” would form the basis of the Company’s terms to Persia, and in terms of concessionaire relations was decades ahead of its time.88

Minister of Court Teymūrtāsh would manage the government’s negotiations with the company. Jacks regarded him as “the mouthpiece of the Shah” whose “very great ability would make him an extremely difficult man to replace.”89 Teymūrtāsh had transformed the Ministry of

Court, traditionally a ceremonial office, into the most powerful in the land: he had presented the shah with his crown in 1926, managed the regime’s propaganda and foreign policy.90

Teymūrtāsh believed the root of the problem was that Iran lacked a real share in the business, an

86BP 68326 Jacks to Cadman, January 9, 1928, BP 701074, Draft Memo #1, 1928. 87 BP 71074 Memo, J.B. Lloyd, Meeting with Teymourtache, July 31, 1928, Draft Memo, “Our Line of Future Policy with the Persian Government,” and Draft Memo #2, August 1928. 88 Schneider, Oil Price Revolution, 175-188. Participation in domestic oil industries would not become standard until the 1970s. 89 Ferrier, Vol. I, 597. 90 Rezun, “Rezā Shah's Court Minister: Teymourtash,” 119-137; for a description of his role in the coronation, see BP 70210 Secret Diary of Visit to Persia, February 25 to May 26, 1926; Mueller, “Anglo-Iranian Treaty Negotiations,” 577-592.

issue which he felt, “no purely financial reward would dispel.” In light of the “moral decay” of the D’Arcy Concession, Teymūrtāsh suggested an entirely new agreement, “on the basis of an effective participation by the Persian government.”91 During a meeting in August 1928, the

Minister of Court freely shared with Cadman his views on Iran’s modernization, his distaste for

Bolshevism, and his belief that Islam had been “forced upon” the people of Iran: there was little chance Iran would follow Mexico’s example and use labor unrest to force concessions from the company. He was keenly interested in expanding the education system and sending more

Iranians to European schools, a project he felt APOC could assist with. “Give the Persian

Government a share in the business,” he said, “and [our] whole attitude would change.” Iran, he explained, “possessed neither pipe lines, nor refineries, nor a commercial organization of any kind.” Control of the industry did not interest him. What he wanted was a stable oil income,

“with prospects of further increases from their shareholding.” To safeguard the company’s interest, he offered to include a clause “whereby the Persian government would undertake not to interfere in commercial activities of the Company.”92 Cadman thought the minister’s royalty and participation terms “excessive” and he warned Teymūrtāsh against comparing current operations to previous years: 1927 had been “an abnormal year” of high prices and profits, “which they may not see again for a long time in view of over-production.” Teymūrtāsh registered no objection to this, nor did he dispute an extension of thirty more years. The two would maintain a lengthy correspondence between September and December of 1928.93

91 BP 68326 Cadman to Jacks, March 6, 1928; BP 71074 Cadman to Jacks, July 24, 1928; BP 87291 Teymurtash to Cadman, August 12, 1928; Asnād va mukātibāt-i Taymūrtāsh, vazīr-i darbār-i Riz̤ ā Shāh, No. 41, No. 43 and No. 45. 92 BP 71074, Notes from Lausanne Meeting, August 25, 1928; Ferrier, Vol. I, 601: Table 13.1, “Anglo-Persian Oil Company crude production and royalty statistics 1925 to 1931.” 93 BP 71074, Notes from Lausanne Meeting, August 23 and 26, 1928, Memo by Dr. Young, “Views Expressed by Teymūrtāsh on visit to Lausanne,” September 11, 1928.; see 65

Cadman now had to sell the APOC board and Whitehall on the “revolutionary” idea of

Persian participation. Offering a stake to a government would create “a precedent with potential dangers of an extreme nature to the whole industry:” other governments would demand similar terms.94 Yet Cadman and his supporters succeeded in winning over the board and upper management. The D’Arcy Concession had become “inadequate,” and was “a dangerous position on points of principle,” regarding APOC’s non-Iranian assets. Iran’s government, motivated by

“national pride,” could be persuaded to accept a minority share: “there is nothing unreasonable in a sovereign power like Persia insisting on having a shareholding in a Company operating on its soil.” The fact that Iran’s only great industry was owned by the British government, encompassed a half-million square mile territorial concession, and earned comparatively little for the Iranian treasury, “are all features which render the concession open to attack by nationalist critics.” The lasting security from a participation agreement was “well worth the cost of some sacrifices by the Company.”95 “There is a new Persia today,” wrote Cadman, “and the old method of dealing with her is out of date.” It was foolish to view the matter “through the old spectacles.” Without meaningful concessions to Persian nationalism, the company’s investment would be at risk: “we are out to save our own skin.”96 The British Government had no objection that Persian participation be permitted, “so long as the Government’s majority share was not

Ferrier, Vol. I, 600-602. Letters exchanged between Cadman and Teymūrtāsh in French are in BP 71074. 94 BP 87291 Memo, “The APOC Royalty and Concession Extension Question,” October 25, 1929; BP 71074 Memo on August Concession Negotiations, October 11, 1928. 95 BP 71074 Note to Cabinet, September 1928, Memorandum by the Government Directors, September 1928, Watson to Cadman, January 1, 1929. 96 BP 87291 Cadman to Barstow, October 14, 1928.

endangered,” or the Admiralty contract impaired.”97 Cadman wrote to Teymūrtāsh, with whom he had been maintaining a fairly steady correspondence: “it would not take long to reach an agreement” that would suit both sides.98

While Cadman worked out his proposal, the government of Rezā Shah faced a series of internal and external challenges. For much of 1927, key members of the ulama protested Pahlavi autocracy.99 By 1928 this resistance had spread to the cities and major nomadic tribes, as resentment of the strict conscription laws and regulations of dress, which banished the abas and turban in favor of the “Pahlavi hat” and Western-style frock coat, became widespread. Bazaar merchants opposed to new laws reducing the autonomy of trade guilds organized massive protests in Tabriz.100 Further destabilization came from the global status of silver, upon which

Iran’s currency, the kran, was based: from a high of $9.09 in February 1925, silver had declined to $7.69 in December 1928, leading to increased deviation in the value of the kran to the pound and a gradual devaluing of Iran’s currency reserves.101

The state’s response to this instability was to direct more attention towards its dispute with APOC. Iranian newspapers were filled with attacks on the Company’s practices.102 Rezā

Shah publicly denounced the yearly royalty (£502,000) as much too small; the present

97 BP 71074 Memo from Government Directors, September 1928, Note on Meeting, Whitehall, October 18, 1928, Greig to Barstow, November 23, 1928 98 Cadman to Teymūrtāsh, November 15, 1928; Naft dar Dowreh-ye Rezā Shah, No. 15. 99 FO 13479/13, Clive to Sir Austen Chamberlain, December 17, 1927, FO 1347935, Clive to Chamberlain, 29 December 1927, BDFA, Part II, Series B, Vol. 22 (1994), 274, 289. 100 Cronin, “Modernity, Change and Dictatorship,” 10-12. 101 “Gold and Silver Prices—100 Year Historical Chart,” London Bullion Market Association http://www.macrotrends.net/1333/gold-and-silver-prices-100-year-historical-chart; Ferrier, Vol. I, 611: Table 13.2, “Persian annual average exchange rates and parity 1900-31.” 102 FO 13568/119, Clive to Chamberlain, December 7, 1928, BDFA, Part II, Series B, Vol. 22 (1994), 207-20; Shafagh-i Sorkh, December 5, 1928.

arrangement was “an old one and out of date,” and must be changed “to suit the interests of

Persia.”103 Concessions previously offered to foreigners “were no longer in accordance with the modern spirit of progress in Persia,” yet the government had no intention “of disregarding its legal obligations” and would continue to respect existing contracts.104 Both the behavior of

Teymūrtāsh nda the tenor of the press attacks were likely ploys to put more pressure on APOC before the negotiations in February. Sir Robert Clive, the British minister in Tehran, didn’t hesitate to express his disgust and frustration with a racial prejudice that was characteristic: “the whole incident was indicative of Persian, I might say, oriental mentality.”105

Though privately congenial in his letters to Cadman, publicly Teymūrtāsh was confrontational. He emphasized the government’s intention to reach an arrangement

“whereby…it has a definite interest in the company, to the extent that every shilling of gain is shared equally by them and [APOC].”106 Teymūrtāsh insisted he was no revolutionary, and would not upset “what is established in perfect order.” The Iranian people, however, felt under current circumstances that APOC’s success, “instead of affording a proper satisfaction only accentuates the bitter feelings…whether they be imaginary or real.”107 APOC’s contribution to

Iran’s state budget grew from 10% to nearly 19% between 1923 and 1928, and Rezā Shah had come to rely on oil revenues to fund his expansion of Iran’s military.108

103 BP 71398 Memo on Shah’s audience with Mostafā Fāteh, November 19, 1928. 104 FO 13568/113, Clive to London, November 23, 1928. BDFA, Part II, Series B, Vol. 23 (1994), 197. 105 FO 13568/119, Clive to Chamberlain, December 7, 1928. BDFA, Part II, Series B, Vol. 22 (1994), 207-208. 106 BP 70714 Jacks to Cadman, November 15, 1928; FO 13568/119, Clive to Chamberlain, December 7, 1928. BDFA, Part II, Series B, Vol. 22 (1994), 207-208. 107 BP 70714 Cadman to Teymūrtāsh, December 10, 1928 and January 3, 1929, Teymūrtāsh to Cadman, December 12, 1928 108 Ferrier, Vol. I, Table 13.3, 616.

Cadman arrived in Tehran in February 1929. He was determined to leave with a deal, and went so far as to write to the British Prime Minister Ramsay MacDonald: “I am firmly convinced that [the] present time is favorable for urging [the] general settlement of all outstanding questions.”109 APOC was prepared to offer participation in the company’s general reserve fund and dividends through ordinary shares, a flat per-ton royalty, a reduction in the concession area, and an end to the company’s monopoly on pipeline construction. In return, APOC would receive a sixty-year extension, complete exemption from Iranian taxes, and the retention of the HMG majority share. In lieu of taxes, APOC would consider contributing funds for projects concerning

“sanitation and public health services in areas adjoining the Company’s properties.”110

When discussions began, Teymūrtāsh (joined by ministers Dāvar and Firūz) immediately challenged the partnership principle. Under such an arrangement, would Iran earn less or more in royalty year to year? Cadman responded that he could not know, “as no-one could foretell the extent to which profits might be made.” Teymūrtāsh produced figures taken from previous years which indicated that a per-tonnage basis would earn less than a percentage of net annual profit.111

Cadman dismissed such figures as “fallacious,” on the grounds that “they could not compare the past with the future.” Cadman dodged the question of whether Iran would profit more by the new arrangement than it had under the D’Arcy Concession: the partnership he envisioned “went much deeper” than a relationship of “mere sale and purchase…it was to the establishment of a community of interest that [Cadman] attached the greatest importance.” Teymūrtāsh did not

109 BP 70290 Cadman Diary of Trip to Persia, February-March 1929 110 BP 70714 Cadman Note to Board, January 8, 1929. Terms were discussed and agreed upon on February 28 by Cadman and his team in Tehran. See BP 70290 Cadman Diary of Trip to Persia, February-March 1929. 111 This was true: APOC had calculated the figures some months before, and found that in 1924-1927 the new terms were less favorable than those of the original D’Arcy Concession. BP 71074 Memorandum by the Government Directors, September 1928.

object to an extension of sixty years, provided that Iran retain its shares in APOC after the concession’s termination; this Cadman could not concede.112

Disagreements mounted. Cadman demanded that APOC receive exemption from all taxation, which Firūz and Teymūrtāsh found difficult to accept. Teymūrtāsh was not convinced by the benefits of participation: “one would have thought that by taking a partnership the Persian

Government might…be better off.” Cadman reiterated his previous point: “There was really no saying to what extent they would gain…since under the new arrangement they would receive benefits in common with other shareholders from all the resources of the Company.” It all depended on the market, which Cadman and the other oil companies were, at that time, actively working to control through cartelization. But the Iranians were not aware of this. Teymūrtāsh suggested that Iran might wish to “conserve” its oil resources: he suggested having the royalty increase on a sliding scale.113 Cadman stated that such a practice would “interfere with the normal supply and demand of the world.” Teymūrtāsh then suggested a guaranteed annual minimum, so that Iran could be sure of a reliable royalty regardless of market conditions; but

Cadman found it “absolutely impossible to give any such guarantee.” If the government did not believe in the Company’s ability to develop its industry in Iran “so as to produce greater revenue,” than there was no point in continuing discussions: “on becoming a partner in the concern [Iran] should take its chance in common with its other partners.”114

112 BP 70290 Cadman Diary of Trip to Persia, February-March 1929. 113 Under this scheme, Iran would receive 2/s per ton when production was under 6 million tons; this would then increase to 2/6s per ton when production exceeded 8 million tons, 3/s at 10 million tons and so on. BP 70290 Cadman Diary of Trip to Persia, February-March 1929. 114 BP 70290, Notes from Meeting, March 20, 1929, Naft dar dawreh-e Riza Shah, No. 24.

Teymūrtāsh could not accept these terms. The crux of the matter “was the price of the extension:” Teymūrtāsh pointed out that an agreement that allowed the company an additional sixty years of operation would be wide open to criticism. An equitable arrangement would ensure a stable source of revenue and protect Iran from changes in the global market. The door to further discussion was kept open, and Cadman asked Teymūrtāsh to avoid taking any action

“that would prejudice these negotiations in the eyes of the public.”115

Relations between the government and the company did not sour immediately. Cadman and Teymūrtāsh continued to correspond, and drafts of a new agreement were sent back and forth between Tehran and London throughout the year. A major strike broke out at Abadan in

May 1929, which required cooperation between Company officials and the military governor; while workers protested the poor conditions prevalent in the company town, both the Pahlavi government and the company blamed “Bolshevist” subversion.116 The talks in March constituted a missed opportunity, but neither side viewed it in quite that light: a great deal was at stake, and neither APOC nor Iran could afford to get sell itself short. Teymūrtāsh perhaps felt the pressure of Rezā Shah to demand more stringent terms; the presence of Dāvar and Firūz prevented the talks from taking on the friendly atmosphere of their earlier discussions. Yet his demands sought a level of security for Iran which Cadman was unwilling to provide. Furthermore, there was some debate in 1929 inside the Pahlavi regime regarding the wisdom of permitting a lengthy extension of the concession: such an offer could only be made if Iran was sure of receiving a

115 BP 70290, Cadman to Teymūrtāsh, March 31, 1929; See Ferrier, Vol. I, 608-610. 116 Bayat, “With or Without Workers?” 110-125, Stephanie Cronin, “Popular Politics, the New State and the Birth of the Iranian Working Class: the 1929 Abadan Oil Refinery Strike,” Middle Eastern Studies 46, No. 5 (2010): 699-732.

high annual royalty.117 The two sides had differing views on what was equitable and there was no bridging the gap. Unfortunately, Cadman and Teymūrtāsh ran out out of time before they could reach an accord.

1.4 Coping with Crisis

Six months after Cadman left Tehran, the New York stock exchange crashed and global demand for goods collapsed. The impact of the Great Depression on Iran was profound and sudden. The price of silver, which had declined over the last eight years, dropped precipitously in early 1930 to less than $5 an ounce. 118 The kran was subsequently debased, parity with the pound sterling oscillated wildly and the true value of Iran’s currency fell sharply in 1931. A switch to the gold standard and the introduction of a new currency (Pahlavi) had little effect as the balance of trade remained extremely unfavorable. In March 1930 a decree was made that government employees could wear cloths made only of Iranian fabric, to combat the “craze of importation” affecting the domestic economy. A new income tax law was introduced, as well as new government monopolies on trade. By October 1930 the state was struggling to pay most civil servant salaries or cover the army’s growing budget. Both in the bazaar and within the government itself, Teymūrtāsh was blamed for the depression.119

117 For this discussion between Firūz, Teymūrtāsh, Iran’s ambassador in Paris Husayn ‘Ala and Taqīzādeh, see Naft dar Dowreh-ye Rezā Shah, Nos. 41, 46 and 52. 118Gold and Silver Prices—100 Year Historical Chart,” London Bullion Market Association http://www.macrotrends.net/1333/gold-and-silver-prices-100-year-historical-chart 119 Ferrier, Vol. I, 629: Table 13.2; Philip, Political Economy, 56; RG 59 891.6363/678, Hart to Hull, July 21, 1931; FO 13932/148, Clive to Chamberlain, May 1, 1930, FO 13984/98, Clive to Chamberlain, April 22, 1931, FO 13984/102, Clive to Chamberlain, May 5, 1931, FO 13962/82(i), Memorandum by Lingeman., Undated, FO 13962/137(i), Memorandum by Lingeman, October 5, 1930, FO 13962/144, Clive to Chamberlain, October 22, 1930, BDFA, Part II, Series B, Vol. 25 (1994), 269, 138-140, 147-148, 32-33, 51-53.

In the midst of economic crisis, the press campaign against APOC re-ignited. Shafaq-i

Sorkh, wrote of the “ignorance, negligence, recklessness and treachery of the government thirty years ago” in signing the concession: “A golden river, which flows from Persia, rolls its precious waters to Europe. Is it just that the owner of this source of wealth is continually struggling with the blackest misery and hunger, while wealth is under the company’s name?”120 One prominent

Tehran paper accused APOC of striving to obtain oil concessions outside of Iran, using the

“colossal capital” collected within Iran.121 The British felt that the press was being manipulated by Teymūrtāsh, an accusation he fiercely denied. “Press censorship in Iran does not exist,” and every newspaper “writes whatever it wishes.” Despite the British insistence that such “grossly libelous” articles were undermining negotiations, the editorials generally stopped short of declaring the talks fruitless. “We do not say that the Persian government should abolish the concession…but we do say that it should be revised…we have been cheated quite badly in this bargain.”122

Teymūrtāsh urged T.L. Jacks, the company’s representative in Tehran, to appreciate the severity of the Iranian financial situation. “Money to Persia is a matter of life and death,” he argued, as he pushed for a guaranteed annual minimum of £2.5 million.123 The previous arrangement suggested in 1929 was “dead,” and what Jacks “was meant to understand,” was that

“the worst of future years must not be less favorable than the best of past years.” Jacks felt these new proposals ignored what had been discussed in previous meetings, “and are of a truly

120 Extract of Shafaq-i Sorkh from Le Messager de Téhéran, March 2, 1931. 121 Iran-i Azad excerpt by RG 59 891.6363/675, Hart to State, No. 429, March 9, 1931. 122 Teymūrtāsh to Greenhouse, June 11, 1931, Asnād va mokātabāt-e Teymūrtāsh, 131; Shafaq-e Sorkh¸ March 6, 1931; Greenhouse to Teymūrtāsh, May 8, 1931, No. 90, Naft dar Dowreh-ye Rezā Shah, 255-265. 123 BP 87291 Greenhouse to Cadman, April 1, 1931.

ridiculous nature.” As one APOC official put it, there seemed “a great deal of bluff in the Persian attitude.”124

The company faced its own challenges. In October 1930 American wildcatters discovered the massive East Texas oil field: vast amounts of cheap, high-quality crude oil entered markets already over-saturated. The over-production problem turned into a major crisis, as international oil endured the worst bust in its history. APOC profits fell by 50% as the price of oil declined from $1.19 to $.65 per barrel in 1931; in East Texas, it was as low as $.02. Production from the

Soviet Union, its economy little affected by the shocks of the global depression, continued to rise, from 11.5 million tons to 22.3 million tons from 1928 to 1931.125 Through price-cutting and aggressive marketing, the Soviet distribution organization captured markets in Great Britain, and by May 1931 all “free” markets in Europe “had been taken away entirely from the [Anglo-

American] companies by the Russians.”126 In the United States, state governors deployed

National Guard troops in oil-producing regions to deter independent drillers from pumping any more oil. The crisis of over-production would eventually bring about a revolution in regulation, as the Texas Railroad Commission (TRC) emerged as the arbiter of a pro-rationing system in the

1930s. Cadman publicly urged other producers to continue close cooperation while the APOC board aggressively reduced costs: staff at Abadan was cut by 50% as 600 Europeans and 11,000

124 Ferrier, Vol. I, 616; BP 72662 Jacks Notes from Teymūrtāsh Meetings, July 1-11, 1931; BP 87291 Jacks to Hearn, July 12, 1931, Greenhouse to Cadman, April 1, 1931, Hearn to Lloyd, August 29, 1931; BP 34884 The Record of the British Petroleum Company Ltd.: Relations with the Persian Government, 1918-1946, 29. 125 Ferrier, 638, Appendix 0.1, “World crude oil production 1900-32.” 126 BP 110645 Jackson to Cadman, May 6, 1931.

Iranian workers were put on leave. It was no longer a matter of producing oil, but rather a company’s “ability to find and maintain markets” that mattered most.127

The onset of a global depression offered Cadman an effective platform on which to negotiate more limited terms. Cadman urged Teymūrtāsh to consider “the deplorable condition of the world’s petroleum trade…the great unchecked production of cheap flowing oil from new fields in the United States,” and the need for APOC to drastically reduce prices. A full revision had to be delayed until “the present chaotic condition of the oil industry has disappeared.”128

Behind closed doors, Cadman had determined a stiff course of resistance to Teymūrtāsh: he would offer participation for Iran but would not budge on guaranteed minimums. Iran “cannot have it both ways;” demands that threatened company profits merely increased the incentive “to seek for alternatives sources of supply.”129 Access to new sources of oil provided APOC the opportunity to turn away from Iran, if the Pahlavi demands proved too extreme. Teymūrtāsh, despite his bluster, probably understood this. While he alleged the Company “had closed the door to concession revision,” he continued to regard the D’Arcy Concession as law, “and therefore binding equally on both parties… It is a law which cannot be altered, amended or repealed other than with the full consent of both parties.” The company itself was prepared to wait: it was possible that the oil crisis and the subsequent impact on royalties “will induce the

127 FO 14108/14(i), P.C.R. Dodd, Intelligence Summary, July 1, 1931, BDFA, Part II, Series B, Vol. 25 (1994), 196-197; BP 87291 Excerpt from Management Meeting, March 31, 1931. 128 BP 87291 “Taxation: Suggested Line of Discussion,” March 1931; BP 69364 Cadman to Teymūrtāsh, August 7, and August 31, 1931. 129 BP 87291 “Negotiations Pending to Revise the D’Arcy Concession,” May 7, 1931.

Persian government to view the whole question in a more practical and reasonable spirit than they have hitherto done.”130

While the question of a new concession was put to one side, discussions over the royalty and tax question continued. A draft agreement was completed in February 1932: the Company would pay 16% according to the original agreement, plus an additional 4% to cover all taxation.

APOC would pay £1 million to settle outstanding issues cited by Teymūrtāsh, who had at one point demanded £3.25 million from an exhausted and frustrated Cadman. The concept of a

“Persian partnership” wasn’t even mentioned.131 In February Rezā Shah approved of the new agreement, though Teymūrtāsh was holding out for “another £50-60,000 more” as a “personal favor.”132 Cadman affixed his signature on May 12, 1932, commenting to Jacks that the final provisions gave up “far more than I really consider equitable in order to facilitate speedy ratification.”133

The agreement over the royalty was doomed by the June 3 announcement of Iran’s royalty: the figure had fallen from £1.4 million to a mere £306,872. Rezā Shah, furious that such a small figure was offered at a time when the Iranian state was practically bankrupt, refused to accept it. Teymūrtāsh echoed this sentiment: the amount was “so small and trifling” that Iran would not acknowledge it, even allowing for the fall in prices.134 Cadman wrote Teymūrtāsh that the poor figure was due to the global depression, “that he and the other members of the Board

130 BP 34884 The Record of the British Petroleum Company Ltd.: Relations with the Persian Government, 1918-1946, 31; BP 87291 “Concession Revision,” Undated (early 1931). 131 FO 14108/10, Clive to Chamberlain, July 5, 1931. BDFA, Part II, Series B, Vol. 25 (1994), 197-199; BP 72663 Cadman to Jacks, February 17, 1932. 132 BP 72663 Jacks to Cadman, February 6, 1932. 133 Quoted in Ferrier, Vol. I, 624. 134 BP 96487 Telegram from H.H. Teymourtache to H.E. Eissa Khan, June 8, 1932.

were as distressed and annoyed at them as the shah himself was.” Other large oil companies, he explained, had suffered much more seriously than APOC.135 Teymūrtāsh requested that a company official come to Iran to explain the royalty, but Cadman refused, claiming his directors

“are overwhelmed with the various important problems upon which our Company’s earning capacity depends,” and were unavailable for discussions.136

The June announcement was the catalyst, “the straw that broke the camel’s back,” and signaled an abrupt shift in the course of negotiations.137 Increasingly nervous and suffering from heart troubles, Teymūrtāsh lost his position as head of the oil negotiations to the Minister of

Finance, Sayed Ḥasan Taqīzādeh.138 Taqīzādeh, a skilled politician slightly out-to-sea in the oil world, suggested that Iran and APOC return to the “Persian partnership” proposals of February

1929: “an offer once made could clearly be made again.” Jacks refused, hewing to Cadman’s argument that a full revision would have to wait until conditions improved. In separate discussions, Teymūrtāsh suggested a royalty of 4/s per ton or a guaranteed minimum of 6 million tons per year, “whichever might be the greater,” as well as a concession extension. “I stated quite emphatically,” wrote Jacks, “that the Company would never consider such a proposal.”139

135 BP 96487 Cadman to Teymūrtāsh, June 9, 1932. Standard Oil of New York suffered a loss of $47 million for 1930-1931 while Jersey reported $42 million loss that year. Gulf and Texaco, two other U.S. major companies, lost $18 million and $30 million, respectively. Royal Dutch/Shell was forced to reduce its dividend from 17% to 6%. See BP 71130 Telegram No. C. 39 London to Tehran, June 3, 1932. The company’s pre-tax profits fell from £6.5 million to £3.6 million, or from $32 million to $17.9 million, indicating a loss of about $14.1 million. See Bamberg, History of British Petroleum, Vol. II, Appendix 1. 136 BP 71130 Telegram No. C. 44 Cadman to Tehran July 1, 193; BP 96487 Cadman to Jacks, June 9, 1932. 137 Katouzian, Political Economy of Iran, 118. 138 Taqīzādeh, Zendegi-ye Tufani, 224-227, Sheikholeslāmi, Ṣoʻud va soquṭ-i Teymurtāsh, 327-329 139 BP 96487 Cadman to Jacks, July 22, 1932, Jacks to Hearn, August 12, 1932, Jacks to Lloyd, August 29, 1932.

Rezā Shah, increasingly suspicious that Teymūrtāsh had grown too powerful, had his court accountant arrested and his prerogatives diminished.140 The press campaign against the company was intensified, as the Tehran papers, which were either entirely controlled or heavily influenced by the government, began calling for the cancellation of the D’Arcy Concession.141

“Fifteen million Persians,” read one editorial, “eagerly await cancellation of this last shameful remnant of the past…When the Concession is cancelled, the Company will have no alternative but to surrender the Concession or renew[sic] it on more equitable terms.”142 Cancelling the concession, argued Iran, would allow for a new agreement “embodying our rights, safeguarding our mutual interests…This is an equitable and wise procedure to the advantage of both parties.”143

One scholar has suggested that the June royalty announcement was used by the company to manufacture a crisis: that the low sum was, in fact, intended to provide a pretext for Rezā

Shah, secretly in collusion with the British, to cancel the D’Arcy Concession and engineer an extension for APOC.144 An examination of company records provides no evidence for collusion, though there was some feeling that the low royalty would work to the company’s advantage in negotiations. The June announcement had caused “a panic” in Tehran, and Jacks believed the shah’s ministers now realized how they had “missed the boat” in 1929.145 Rather than give in to

Iranian demands and revisit the 1929 proposals, APOC’s policy was to do nothing and wait for

140 FO 14325/20, Hoare to Simon, 12 August 1930, BDFA,, Part II, Series B, Vol. 26 (1994): 155-156. 141 FO 14325/24, Hoare to Chamberlain, 24 August 1932, BDFA, Part II, Series B, Vol. 26 (1994), 158-160. 142 Shafagh-i Sorkh, November 17, 1932. 143 Iran, November 16, 1932. 144 Majd, Great Britain and Rezā Shah, 253-259. 145 BP 96487 Jacks to Hearn, July 9, 1932, Hearn to Jacks, July 29, 1932.

the Iranians to view the problem “realistically.” Both Taqīzādeh and Teymūrtāsh appeared ready to submit new proposals, promising drafts as late as November 16. There is no evidence that anyone in the company believed this to be false, though the British minister informed Jacks that

Teymūrtāsh was considered “more drastic action” to bring the company to terms.146 Jacks was hopeful, despite the slow pace of Persian progress on proposals: the June announcement had acted as potent “medicine” for the Iranian leadership, and there was finally “evidence of greater sanity in Government circles.”147 APOC was “groping in the dark” and had little clear idea of what position Iran would take, though there was hope that “financial and economic” difficulties would push them towards “demands more moderate and reasonable than those they made to us three years ago.”148 “I sincerely trust,” Cadman told Jacks in October, “that new proposals…being prepared by Persian Government will be based on a full sense of realities and of equity as between Government and Company.”149 A few days before, Cadman wrote a long letter to the Foreign Secretary, Sir John Simon: should relations between Iran and the company

146 BP 96487 Cadman to Jacks, July 8, 1932, Jacks to Hearn, August 18, 1932, Jacks to Hearn, September 10, 1932, Jacks to Hearn, September 28, 1932; BP 69265 Hearn to Jacks, August 30, 1932; BP 71130 Telegram HJ/25 Hearn to Jacks, October 28, 1932, Jacks to Chairman, September 4, 1932. Further evidence that none in the company expected the cancellation stems from Jacks’ lack of concern over articles in Iran after November 15 calling for the concession to be cancelled. The articles, which were probably inspired by Teymūrtāsh as chief of propaganda on the orders of the shah, gave some clue as to the shah’s intentions, but Jacks did not take them seriously. “I do rather kick myself,” wrote Jacks to Cadman in January 1933, “for not telegraphing you the nature of the press propaganda.” BP 96487 Jacks to Cadman, January 11, 1933. 147 BP 71130 Jacks to Medlicott, September 19, 1932, Hearn to Jacks, October 28, 1932; BP 69265 Jacks to Hearn, September 29, 1932. 148 BP 96487 Hearn to Jacks, October 28, 1932; BP71130 Col. Medlicott to Jacks October 5, 1932 149 BP 96487 Extract from Cadman’s Telegram No. C. 56 to Tehran, October 25, 1932.

deteriorate, APOC may require the “aid and intervention of H.M. Government.”150 While some cautious optimism prevailed among APOC’s leadership, Cadman himself was prepared for further confrontation.

1.5 Cancellation and a New Concession: Equitability Achieved?

A month later, on November 28, 1932, Jacks received Taqīzādeh’s letter announcing the cancellation of the D’Arcy Concession. The case for cancellation was stated by Iran’s foreign minister, Moḥammad ʿAlī Forūḡī, in a letter to the company. APOC, “noted for its prodigality and extravagance,” had wasted huge sums on unnecessary expenses, thereby reducing Iran’s royalty “to a ridiculous amount.” It irresponsibly exploited oil resources elsewhere and built up an enterprise “founded upon the capital resources of Persia,” without providing Iran the appropriate compensation. The fact that APOC had prospered based on its access to Iranian oil gave the Iranian government the right to “supervise” the company’s commercial policy, in order to safeguard Iranian interests. Forūḡī also noted the failure of APOC to make its accounts open to Iran, its refusal to pay income tax, and its general “indifference…to Persian interests.”

Furthermore, the original concession had been signed by a pre-constitutional government, and could not be considered binding.151

Taqīzādeh defended the government’s decision in the Majlis: “there was a great disparity between the Government’s right of ownership and what they got from this country…the government itself is within its rights in cancelling this concession.” The Persian press, under

150 FO 14325/66, Cadman to Foreign Office, October 19, 1932, BDFA, Part II, Series B, Vol. 26 (1994), 206-207. 151 BP 96487 Hasan Taqīzādeh to Jacks, November 27, 1932; BP 88373 Forūḡī Letter to APOC, December 12, 1932.

government direction, praised the decision: “His Imperial Majesty the King of Persia,” wrote

Iran, “presented to the nation a gift from the South [Khuzestan]. This gift involves both the material benefit of the country, national prestige and honor; it is an act significant in the life of our country and adds a new page to Persia’s honor [sic].”152

The cancellation was Rezā Shah’s decision. It was meant to be a challenge to APOC and force them to offer better terms. “I am confident,” Jacks wrote to Cadman, “[the] present action emanate[s] direct from His Majesty the Shah.” 153 According to the accounts of several eye- witnesses, including Taqīzādeh, during a meeting of the Council of Ministers on November 26,

Rezā Shah spent an hour berating his ministers before calling for all the APOC negotiation documents to be thrown in the fire. He then dictated the cancellation letter and ordered it to be sent immediately to the APOC office and the press.154 “I decided to annul,” he said in an interview, “only when hope of settlement seemed ended…we left the door wide open for direct negotiations.”155 Jacks guessed that the economic crisis had pushed the shah towards “extreme measures,” and an action “calculated to revive the spirit of nationalism and focus public attention throughout the country.” No attempt was made to seize APOC property, and the government assured Jacks that oil operations would be allowed to continue. “At the worst,” he concluded,

“the government could open negotiations with the company” and secure a higher royalty.156 By the early 1930s the shah had collected virtually all state power for himself and was determined

152 Muẕākirāt-i Majlis [Proceedings of the Majlis], Vol. VIII, December 1, 1932; Iran, November 29, 1932. 153 BP 96487 Jacks to Cadman, November 28, 1932. 154 Taqīzādeh, Zendegi-ye Tufani, 231-2, Mihdi Quli Khan Hidayat, Khatirat va Khatarat (Tehran: 1950), 500-505. 155 “Interview with Rezā Shah of Persia,” Eugene Lyons, United Press of America, January 7, 1933 from RG 59 891.4611/3. 156 BP 96487 Jacks to Hearn, December 22, 1932.

“to run his Government himself;” no minister had any “independent power” or a “will of his own,” as Iran transitioned from an authoritarian regime to a full autocracy. 157 Jacks and

Millspaugh, acting as advisor to Cadman, also believed the shah’s irritation at his ministers’ failure in negotiations to have prompted his decision.158 Despite rumors and subsequent theories that Rezā Shah acted as a British “puppet,” no one at the company had anticipated the cancellation. Cadman himself called it an “utter bombshell… It is as though we were about to sit down to a game of chess and the first player swept all the pieces off the board.”159

The Iranian government was not united behind the decision. Īsa Khan, the royal oil commissioner, openly criticized the shah’s decision as illegal and “contrary to the interests of

Persia,” and resigned his post in protest.160 ʻAlī Manṣūr, the Minister of the Interior, informed

Mostafā Fāteḥ that cabinet ministers had opposed the decision but were unwilling to say so in public, for fear of reprisals by the shah.161 One official suggested the cancellation was only

“theoretical,” and invited Cadman to resume talks in Tehran, an offer which the chairman refused.162 During a secret interview with Fāteḥ, Taqīzādeh defended the government’s action.

He felt the cancellation would “expedite negotiations” for a new agreement based on “equity and justice compatible with the interests of the Government as well as those of the Company.” Yet

157 Mahdi Qoli Khān Hedāyat, Khātirāt va khaṭarāt[Recollections and Dangers] (Tehran: 1950), 402; Sheikholeslāmi, Ṣoʻud va soquṭ-i Teymurtāsh, 17. 158 BP 69389 Millspaugh to Cadman, December 12, 1932, BP 96487 Jacks to Hearn, December 22, 1932. 159 BP 96487 Cadman to Jacks, December 23, 1932, Cadman to Jacks, December 29, 1932; FO 14325/117(i), Note from Hoare, December 2, 1932, BDFA, Part II, Series B, Vol. 26 (1994), 256. 160 BP 69266 Eissa Khan to Taqīzādeh, November 28, 1932; Naft dar dawreh-e Riza Shah, No. 113 and 114. 161 BP 96487 Jacks to Cadman, January 3, 1933; Fāteḥ, Panjāh sāl naft-i Iran, 305-317. 162 BP 69267 Record of Meeting with FO, December 15, 1932; Note from Cadman on discussion with C. Gulbenkian, January 11, 1933.

Taqīzādeh shrewdly implied that the real reason for the action was the shah’s desire to “wipe the slate clean and start afresh…all important matters in this country are decided by the great man of the time.” Withdrawing the cancellation was impossible: “the prestige of the man is at stake, the prestige of the Government and the country is also at stake,” and the regime’s hard-won power over the tribes and chiefs “scattered about this country” would be undermined if the order was retracted.163 The embattled Minister of Court Teymūrtāsh had opposed the cancellation from the beginning, yet his position inside government had become untenable. In December, he was forced to resign from his position, as Rezā Shah abolished the Ministry of Court. Early in 1933 he was arrested, charged with corruption and bribery and sentenced to three years in prison. He died in his cell in October 1933.164

The Company refused to recognize the validity of the cancellation. The D’Arcy

Concession, they argued, had been signed at a time “when oil was a far less important product in the world than it is now,” and while the terms offer to the Qājār shah appeared meager, they were no less than those offered to other governments. Over twenty years Iran received more than £11 million from 56 million tons of oil produced, an average return of 4/s per ton. The original royalty terms, “16% of net profits,” was arguably a subject “for difference of opinion.” The

“unnecessary expenditure” made by the company outside of Iran was “genuine business expense.” In addition, the company completely rejected Iran’s right to “supervise” company or control its commercial conduct.165 The APOC defense did not mention how the increase in world

163 BP 69266 Eissa Khan to Taqīzādeh, 28 November 1932; BP 96487 Note of an Interview, Taqizadeh and M. Fāteh, December 2, 1932. 164 Sheikholeslāmi, Ṣoʻud va soquṭ-i Teymurtāsh, 54-55; Taqīzādeh, Zendegi-ye tufāni, 224; The American minister believed Teymūrtāsh “had been urging a policy of moderation” for months before November. Letter to the Secretary and No. 33 Report, December 28, 1932 in RG 59, Petroleum Policy Staff Lot File No. 78 D 442, Box 3. 165 BP 88373 Notes by APOC on Points Raised by Persian Government, December 1932.

oil demand, investment from the British government, and rationalization of world oil markets had all assisted APOC in its rise to profitability; in comparing the competitiveness of Iranian oil overseas, it did not note how the low cost of producing Iranian oil aided the company in marketing Iran’s oil overseas. The argument was, in general terms, a defense of APOC’s complete freedom from Iranian interference.

The British government, after consultations with Cadman and APOC’s board, rejected the Iranian cancellation and declared its intention to seek League of Nations arbitration.166

Foreign Secretary Sir John Simon argued before the League assembly on January 26 that the

D’Arcy Concession allowed for international arbitration, which Iran had ignored; the cancellation was thus a breach of the contract and international law. Dāvar, representing Iran, countered that APOC had made no attempt to appeal to Iranian courts, and that Britain’s intervention erroneously made a civil case an issue of international law.167

Cadman hoped to use the pause afforded by the League hearing to prepare the ground for new discussions. Despite the cancellation, a basis for “fair and reasonable” talks could be found;

APOC would meet with the shah’s minister, “and eventually ring down the curtain with honor satisfied on both sides and the re-establishment of good relations all round.”168 When pressed on the particulars of the government’s case, Dāvar pleaded ignorance and claimed he had no authority to negotiate; talks would have to be held in Tehran. Cadman resisted initially, but Jacks urged him to go. Any deal would have to be made with Rezā Shah, “the despotic ruler of this

166 This decision was made after much debate regarding whether the cancellation merited a military response. See FO 14325/89, Hoare to Foreign Office, 29 November 1932; BDFA Part II, Series B, Vol. 26 (1994), 229-230. 167 BP 96487 Jacks to Fraser, December 3, 1932; Naft dar Dowreh-ye Rezā Shah, No. 128; Peter J. Beck, “The Anglo-Persian Oil Dispute 1932-33,” Journal of Contemporary History, 9:4 (Oct. 1974): 138-140, Bamberg, Vol. II, 37-41; Fāteh, Panjāh sāl naft-i Iran, 292. 168 BP 96487 Cadman to Jacks, December 23, 1932

country…there is only one pair of hands controlling this country…to describe anyone as an advisor is a misnomer.”169 Mostafā Fāteḥ, the company’s senior Iranian employee, suggested that

Rezā Shah “never intended, and had not in fact put into effect, the cancellation…he was forced to secure some money and this was his method of trying to get it.” Fāteḥ, who was in contact with numerous officials within the Pahlavi government, assured Cadman that Rezā Shah did not wish to end their relationship. “The shah means well by us and intends to give us an extension of terms which will be agreeable and satisfactory,” but could only do so in a manner that would permit him to save face. If no acceptable proposals were forthcoming, the APOC team could withdraw: “the sooner we face the music, the better.”170

Taqīzādeh led the Iranian team, assisted by a group of American oil experts led by

Frederick G. Clapp.171 William Fraser, deputy chairman, conducted negotiations for the company while Cadman adopted a passive position. The initial Iranian proposal in April included provisions for a guaranteed annual minimum of £1 million and 6 million tons per year, 25% participation and board representation, with the right to veto board decisions. While the concession area was to be reduced by 85%, the concession itself was to be extended by thirty years to 1963. The Iranians also requested that 90% of all crude oil be refined at Abadan. These were roughly in line with what Iran had demanded in 1929, and APOC stubbornly refused to

169 BP 69363 Memo of Meeting, February 9, 1933; BP 96487 Cadman to Jacks, January 29, 1933, Cadman to Jacks, February 10, 1933, Jacks to Cadman, February 18, 1933, Jacks to Hearn, February 21, 1933, Cadman to Jacks, February 23, 1933. 170 BP 96659 Cadman Private Diary, April 4, April 7, April 9, and April 11, 1933. 171 RG 891.6363/744, Hart to Hull, 3 April 1933. Clapp wrote to Cadman several times in 1929 and 1930, offering his assistance to the Iraq Petroleum Company formed in 1928. In one letter, sent to Cadman and the heads of the other international oil companies, Clapp suggested a “central committee, world oil institute or ‘conservation headquarters” be formed for the purpose of regulating the industry worldwide. BP 68926 Clapp to Cadman, et al, August 3, 1929.

accept them. Jacks called the terms “fantastic and impossible of fulfillment.”172 APOC had made

Iran “the second largest export country for oil in the world,” yet in truth Iranian oil had access to only ten percent of the world oil market. It would be quite impossible, Fraser explained, to refine so much Iranian crude without depressing prices and glutting the market.173 “The Persian

Government wants money,” he observed, and this could best be achieved by reaching an agreement which ensured the company’s future prosperity. That prohibited any attempt “to place restrictions on us which will handicap us in meeting world conditions.”174

After a few days of watching Fraser and Taqīzādeh argue, Cadman cabled London: “talks have broken down.” In a meeting with Rezā Shah on April 24, Cadman announced his intention to leave Tehran and let the matter devolve back to the League. He arranged to have the company’s plane begin preparations for take-off, strongly implying that he would leave immediately after the audience. The shah asked him to stay: “he had no intention of letting me go back until he had settled this concession,” Cadman wrote in his diary. The following morning,

Rezā Shah himself came to discussions and within three hours he and Cadman reached a settlement. The shah’s ministers, including Taqīzādeh, said very little and all signed the agreement when it was finished.175

172 RG 59 891.6636-Anglo Persian/2, Memorandum of Wadsworth and Jacks Meeting, May 4, 1933. 173 Fraser did not mention that APOC already refined 78% of the crude they produced in Iran, up from 57% in 1924, and that Abadan had been vastly expanded for that very reason. See BP 88373 Persian Production & Refining Sheet, January 6, 1933. 174 BP 96659 Cadman Private Diary, March-April, 1933. 175 BP 96659 Cadman Private Diary, March-April, 1933; BP 96488 Cadman to London, April 23, 1933.

Cadman’s private audience with the shah, according to the Company’s official history, was a “decisive event” where a “breakthrough” in negotiations was finally reached. 176 What actually happened is difficult to determine, as the only authoritative narrative is based on

Cadman’s own description. An account from Jacks, given to an American during a golf game and later reported in its entirety to the American Legation, implies Cadman maneuvered to have

Rezā Shah intervene. When it was clear talks had broken down Cadman requested an audience

“to say good-bye.” The shah refused to accept the British departure, “they got down to whys and wherefores,” and Cadman delivered the Company’s terms to Rezā Shah. These terms contained

“essentially what the Shah wanted, if not in the form his ministers and experts recommended.”

The shah did not argue any of Cadman’s points, but instead accepted all of them: “it was the shah and only the shah that made settlement possible.”177

The terms seemed very favorable to Iran.178 A new royalty calculation would award Iran

4/s per ton of oil consumed in Iran or exported, along with 20% dividend from ordinary shares in excess of £671,250. The annual guaranteed minimum, a point which the company had resisted, was set at £750,000 and the 1931 royalty re-negotiated to £1,339,132. Total payments to the

Iranian government for 1931-1932, including a £1 million lump sum and the 1932 royalty, came to £4,107,660. Cadman satisfied the shah’s specific demand that a new refinery be built in

Kermanshah in western Iran and surrendered APOC’s exclusive right to build pipelines. It was also agreed that the company would, over a suitable length of time, increase the number of

Iranians working in Abadan and reduce foreign staff, a process the company called

“Iranianization.” APOC received a sixty-year extension of the concession and exemption from

176 Bamberg, Vol. II, 46-50. 177 RG 59 891.6636-Anglo Persian/2, Wadsworth and Jacks Meeting, May 4, 1933. 178 For a description of the final terms of the 1933 Concession, see Bamberg, Vol. II, 50.

Iranian taxes in return for a yearly minimum payment of £225,000 and the reduction in the concession area from 500,000 to 100,000 square miles.179 “I felt we had been pretty well- plucked,” remarked Cadman to the shah, and in a brief speech at a reception at Jacks’ house

Cadman described the company as “a bird which had lost a great deal of plumage in the process of settlement,” but that would in time “regain its feathers.”180 The Western press considered the concession a victory for Iran, and the Company’s shares fell appreciably in value the morning the news broke.181 “The general feeling,” reported the American Legation, “is that the Persian

Government has more or less proven its case during the negotiations with Cadman.”182 For Iran, it seemed an “equitable and fair” agreement.

The reality, however, was that the terms were eminently favorable to the Company and

Cadman knew it. “It was not desirable,” he wrote to the Foreign Office, “to stress the many features of the agreement which were favorable to APOC until the appropriate time,” and he instructed the APOC press office to make no formal announcement. A temporary fall in share price and the jubilant response of the Persian press were positive outcomes “from the point of view of ratification in the Majlis,” which came on May 26. Rezā Shah’s will could not be

179 Settlement of the concession extension took place on April 26. Rezā Shah suggested the company receive a thirty year concession with the option to renew for another thirty years (to 1993). Yet Cadman insisted that a “straight run” of sixty years without interruption was necessary; Rezā Shah agreed once the concession was area was limited from 500,000 square miles to 100,000, which Cadman had included in the 1929 proposals. This second meeting gave rise to the theory that Cadman and Reza Shah had been working together from the beginning to engineer an extension of the concession. BP 96659 Cadman Private Diary, March-April, 1933. 180 BP 96659 Cadman Private Diary, March-April, 1933. It is important to note that these remarks were meant for the shah and his ministers, and did not represent Cadman’s personal feelings regarding the final concession, which were far more positive. 181 Wall Street Journal, 30 May 1933; Oil and Gas Journal, 11 May 1933; Morning Post, 14 May 1933. 182 RG 59 Lot File No. 78 D 442, Box 4, Atherton to Hull, 3 May 1933.

questioned and the concession was ratified with little debate. Cadman was confident the new concession “will work out entirely to Company’s satisfaction...when examined in detail.”183 A report on the new concession by the Company concluded that the new agreement “is much more workable…under present-day conditions,” as the loopholes within the D’Arcy Concession

“which would have given the Persian Government unreasonable opportunities for harassing the

Company in its Persian operations” had been excised. Iran could no longer dispute the calculation of the 16% royalty, nor could it lay claim to profits from APOC’s subsidiaries. It could not claim ownership of any assets remaining in Iran once the concession expired in 1993.

By that point, it was assumed that Persian oil reserves would be depleted. APOC had full exemption from all Iranian taxes, in return for the relatively small sum of £225,000. Potentially troublesome ideas, including Cadman’s original idea for Persian participation on the board, were not included. Iran could not claim royalties from any APOC subsidiaries, as the agreement made clear that only oil produced in Iran was subject to the 4/s per ton royalty. Nor was that figure much of a concession for APOC, which had been paying Iran between 3/s and 5/s per ton under the D’Arcy Concession. Despite the payment of over £4 million, the coffers of APOC seemed little affected: the company declared profits in excess of £2.3 million for 1932 with a 2.5% dividend, “an indication of huge financial reserves,” despite the weakness of the world oil market. As deputy chairman Fraser pointed out, the concession was “a model one in its

183 BP 69267 Note of Interviews at Foreign Office, May 2, 1933, BP 96488 Note to Cargill, May 3, 1933, BP 126428 Cadman to Lloyd, April 30, 1933; FO 14430/94, Hoare to FO, 3 June 1933. BDFA, Part II, Series B, Vol. 26 (1994), 372.

simplicity.” The company’s long-time legal advisor proclaimed it “the best concession he had ever seen and the best that could be devised.”184

The D’Arcy Concession had been replaced by a much more durable contract, one that expressly forbade unilateral cancelation without recourse to arbitration. It would deliver more money to Iran, something that Cadman regarded as crucial: while the per-ton royalty would, in theory, diminish Iran’s royalty in years of good oil trading, “[the shah] would undoubtedly earn more in years of bad trading.” 185 Yet the major innovation of the 1933 Concession was that it effectively separated production from the rest of APOC’s vertically-integrated operations. While

Iran would profit from APOC’s operations through dividend participation and a share from the general reserve, two features of the concession which were meant to partially preserve the original “Persian partnership” concept, most of its royalty would be tied directly to the volume of its production. So long as APOC continued to increase Iran’s oil production, which it could do quite easily, royalties would increase and Rezā Shah satisfied. This represented the security and a version of the identity of interest Cadman had been so eager to provide, in a way that conformed

APOC’s position and allowed it to retain its commercial independence.

Cadman was intent on maintaining the spirit of cooperation achieved by the new agreement. “I know full well the mentality of the Shah,” he explained; it was time to put aside the “old machinery and prejudice,” and focus instead on bringing the country closer into alignment with Great Britain and “sow the seeds” of a “more complete entente” between Britain

184 BP 126428 Notes from Meeting, 20 June 1933, Note on APOC New Persian Concession, 14 June 1933, BP 88373 Board Meeting, May 15, 1933; RG 59, Lot File No. 78 D 442, Box 4, Note from Legation, July 8, 1933; Beck, “Anglo-Persian Oil Dispute,” 125. 185 BP 126428 Notes from Meeting, May 11, 1932.

and Iran.186 APOC enjoyed a strong return to profitability after 1934 and continued to invest in

Iranian production, facilitating an increase from 6 million tons in 1932 to more than 10 million tons (189,000 barrels per day) in 1938. Iraqi production was kept down through the cooperation of the IPC partners. Little action was taken in Kuwait (jointly owned by APOC and Gulf, an

American major), though exploration before 1940 indicated huge deposits; from a production and shipping point of view, Kuwaiti oil “would probably rank as the cheapest in the world.”187

The per-tonnage royalty translated into high royalties for Iran, though the international recovery meant that the country would have earned similar, and in some cases slightly higher amounts had the D’Arcy Concession remained in place.

Table 1.2 AIOC Production and Payments to Iran, 1931-1941188

4500000 12000000

4000000 10000000 3500000

3000000 8000000

2500000 6000000 2000000

1500000 4000000

1000000 2000000 500000

0 0 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941

Royalty Royalty (with make-up payments) Production

186 BP 85909 Cadman to Sir John Simon, December 9, 1933, Cadman to Eden, December 21, 1933, Cadman to Jacks, March 12, 1934. 187 BP 10141 Report on a Visit to Iran, J.A. Jameson, May 1940. 188 BP 4308 Royalty and Production, 1931-1941; Schwadran, Middle East Oil, 132.

Through Article 16 of the 1933 Concession, the company had committed itself to the

“Iranianization” of the industry: over time, it would replace foreign staff with Iranians. A

General Plan for employment and education was signed in July 1936. A new school, the Abadan

Technical Institute (ATI), opened in 1939 and began training Iranians for roles in the operational fields. Select students, such as Manūchehr Farmānfarmāʼiyān, Rezā Fāllah and Fu’ād Rūhānī attended universities in England, in order to be groomed for senior positions in the company’s hierarchy. Fāllah would serve as headmaster of the ATI, while Rūhānī found a role as a translator in AIOC’s central office in Tehran.189 One company manager admitted in confidence that within ten years, “Persians would be able to undertake most of the technical operations of the company…The Persian had now become a real operator,” and there was no question that

Iranians were capable of operating the technical side of the oil industry with only minimal supervision.190 Along with education, AIOC outlined a construction program that would provide company housing for all staff, labor and dependents: an ambition plan designed by architect J.M.

Wilson was approved in 1934 and the company planned to spend £4.6 million by 1940.191

Efforts to make “Iranianize” the industry were pursued on a small scale, and did not fundamentally alter the character of the industry. Wilson’s city-planning resulted in new suburban development for senior British staff, but had little effect on living conditions in the

189 Manūchehr Farmānfarmāʼiyān, Blood and Oil: Memoirs of a Persian Prince (New York: Random House, 1997): 68-70. While touring the Abadan Technical College in 1940, Reza Shah asked the nervous Fallah whether the students were learning anything “useful.” When the headmaster gave a less than adequate response, the shah proceeded to beat him with his cane. BP 71182 Note on Shah’s Visit to Abadan, March 31, 1940. 190 BP 52889 Notes of a Meeting, November 23, 1933. 191 BP 67619 Report on Housing Accommodation Proposals, J.M. Wilson, February 5, 1934; BP 10141 Report on a Visit to Iran, J.A. Jameson, May 1940; Mark Crinson, “Abadan: Planning and Architecture under the Anglo-Iranian Oil Company,” Planning Perspectives 12 (1997): 341-359.

more crowded Iranian districts. This was unfortunate, as Wilson himself had noted “a very great disparity” between accommodations for Iranians versus Europeans, “which is not conducive to good relations.”192 Out of a budget of £4.6 million, only £2.5 million was spent on new housing: a total of 814 staff quarters and 3,067 labor quarters were added. When war broke out, resources were diverted from housing to plant expansion.193 Though the company regularly promised Rezā

Shah that foreign workers would be replaced by trained Iranians, qualified local personnel were in short supply. Neville Gass, a senior AIOC director, noted that poor educational facilities in

Khuzestan were largely the result of cuts in the state educational budget, made deliberately “in the expectation that the Company would foot the bill.”194 Thus, while Iranian staff increased to

45,000 by 1938, Indian staff had increased from 795 to 1,342, while British staff had grown from

775 in 1931 to 1,524 in 1938.195

While there was an acceptance that more would have to be paid in royalties, AIOC’s leadership (including Cadman) were uncomfortable with expanding social welfare to an extent that would either dramatically improve conditions or increase the degree of Iranian identification with the industry. After the 1933 Concession was signed, AIOC was confident that it would remain in Iran indefinitely, and that the industry would remain in British hands. “If Persians were…capable of doing the work of the British staff they would be given jobs,” remarked deputy chairman William Fraser, “but the Company [is] not prepared to undertake the creation of such

192 BP 49675 Wilson, “Abadan Town Planning,” April 27, 1936; Bamberg, Vol. II, 22-26, 99-103. 193 BP 49688 Building in Iran: Report by J.M. Wilson, May 16, 1940; BP 68040 Elkington to Jameson, Bawarda Housing Scheme, April 10, 1935, Elkington to Jameson, November 2, 1935; BP 72350 Food Supply and Housing, August 14, 1938; BP 10141 Report on a Visit to Iran, J.A. Jameson, May 1940. 194 BP 52890 Office Note by Gass, November 15, 1934. 195 Bamberg, Vol. II, Table 3.4, 81.

Persians.” Their goal, he declared, was not to educate Iranians in industrial professions or improve the educational standards of the country, “but to exploit its oil resources.” That it undertook “Iranianization” at all was down to changing expectations of equitability: “people were beginning to recognize the obligation to give employment to the nationals of the country in which they were operating,” and therefore such policies were necessary in order to placate

Iranian opinion.196 Ultimately that is what “Iranianization” was meant to accomplish, and by any measure it was successful: Rezā Shah’s interest in Article 16 eventually waned, subordinated to his overwhelming desire for more oil revenues.197

Increasingly paranoid and distrustful after the crises of the early 1930s, Rezā Shah spent most of the decade collecting additional power around himself. The fall of Teymūrtāsh was reflected in the fates of other, once-prominent members of the shah’s inner circle. Taqīzādeh was exiled to Europe in 1934, and at one point reached out to Cadman personally for help.198 Forūḡī was dismissed from government in 1935. The ambitious but over-worked Dāvar committed suicide in February 1937.199 By 1940 the shah had surrounded himself with a cadre of young yes-men who dared not question his decisions.200 Flush with oil wealth, the shah organized an

Economic Council in 1937 to consider the ways in which royalties could be applied to the whole

196 BP 52889 Notes of a Meeting, November 23, 1933. Laws mandating the hiring of indigenous staff had been passed in Colombia (1931), Peru (1922), Ecuador (1922) and the Dutch East Indies (1928). Article 16 of the 1933 Concession was interpreted by APOC as part of this trend. BP 52889 Petroleum Laws: Employment of Nationals, November 15, 1933. 197 BP 71182 Jameson to Cadman, February 23, 1940. 198 Taqīzādeh’s hand-written notes to Cadman, dated August 16 and 23, 1934, can be found in BP 63983. Cadman, perhaps conscious of the minister’s degree of discomfort, suggested at one point that he be brought into contact with the Iranian Legation in London and should “for a time run the two Legations,” thereby allowing APOC to maintain closer contact with him. See BP 85909 Cadman to Jacks, March 12, 1934. 199 Taqīzādeh, Zendegi-ye tufāni, 200-22. 200 BP 71182 Jameson to Cadman, February 23, 1940.

economy. The Council’s secretary general, the banker Abu’l-Hạsan Ebtehāj, proposed a plan

“for increasing the productive capacity of the country,” but after twenty meetings the shah disbanded the group. Most oil money was spent on military projects and consumed by the ever- growing state budget.201

Personal diplomacy by Cadman was crucial in keeping Rezā Shah satisfied. When the payment in 1938 fell below the sum from the previous year,202 the shah demanded an explanation. Despite suffering from ill health and fatigue, Cadman himself traveled to Iran in

1939. He showed Rezā Shah how Iran’s production had increased by a higher percentage (more than 75%) than any other oil-producing country. Most of the translating during these meetings was done by the Crown Prince, Mohammed Rezā Shah, whom Cadman found “extraordinarily agreeable and pleasant.” Cadman wrote to Prime Minister Neville Chamberlain: “I was able to get [the shah] to change his attitude…He had it in mind to cancel the concession out of hand; the shah will evidently deal with no one but the Chairman.”203 When war broke out in Europe later that year, APOC was faced by an immediate drop in profitability. Rezā Shah took advantage of this weakness and made a series of fresh demands.204 Though little could be done to keep Iranian production high, the ailing Cadman acquiesced: Iran would be paid a guaranteed minimum of £4

201 Bostock and Jones, Planning and Power, 89. 202 Purchases of oil in 1937 had been artificially high, as many industrialized countries began building up crude oil stocks in anticipation of rising tensions in Europe. AIOC production in Iran exceeded 10 million tons for the first time, and the royalty to Iran shot up by more than £1 million. Both production and the royalty fell off appreciably the following year. BP 34884 The Record of the British Petroleum Company Ltd.: Relations with the Persian Government, 1918-1946, 33-34. 203 Bamberg, Vol. II, 58; BP 8488 Reza Shah to Cadman, May 3, 1938, Graph Showing Percentage Increase or Decrease Over 1931 in Production Tonnage, June 1939, Cadman Diary, June 3, 1939, Cadman to Chamberlain, June 10, 1939. 204 BP 71182 Jameson Audience with Reza Shah, February 16, 1940.

million for 1940-1944 regardless of production or profit (see Table 1.2). Half would be paid by the British treasury, which now subjected most AIOC profits to heavy taxation to pay for the war effort.205

The cancellation crisis left a lasting impression on the relationship between Iran and the international energy system. The nationalist rhetoric deployed by the Pahlavi regime and Rezā

Shah’s challenge to APOC’s position were both settled by direct appeals to the monarch’s need for greater revenue. Innovations such as Persian participation or advanced “Iranianization” of the industry could not measure up to the effective utility of paying Iran’s dictator the money he desired. Control of the industry was left in the hands of the company. It is possible that Rezā

Shah felt pressured to accept Cadman’s proposals due to the threat of British action; fear of the

British may have motivated his apparent capitulation.206 But the Pahlavi monarch had not capitulated, at least not from his perspective: the cancellation was allowed to stand, Iran earned a higher royalty and the shah spent the remainder of his reign placing pressure on APOC to guarantee higher revenues.

The company, meanwhile, would preserve the status quo in Iran regardless of changes in the market. Control of oil and its global integration remained the prerogative of AIOC; it was presumed that this would last until the concession expired in 1993. The momentary allure of a

“Persian partnership” faded away and was replaced by a simple, transactional relationship. AIOC officials, particularly Cadman’s deputy Sir William Fraser, were influenced by the course of discussions. It was believed that offering concessions or amenable terms would only stiffen

Iranian resolve, whereas a firm stance would force them to capitulate.

205 Bamberg, Vol. II, 232-234. 206 Elm, Oil, Power and Principle, 36, 38.

Oil played little part in the downfall of the first Pahlavi monarch. In June 1941, Germany invaded the Soviet Union. There was a chance that Germany would conquer the entirety of

Soviet territory, reach the Caucasus and threaten Iran from the north. When it became clear that

Rezā Shah would not cooperate, Anglo-Soviet forces invaded Iran in August 1941. The much- touted Pahlavi army proved no match for Allied forces. The country was occupied, and rather than face Russian captivity, Rezā Shah abdicated the throne and left Iran for South Africa, where he died in 1944. After some consideration, the British placed the Crown Prince, Mohammed

Rezā Pahlavi, twenty-one years old, on the throne.207

One man who did not witness the sudden collapse of the Pahlavi regime was John

Cadman. The erstwhile chairman of AIOC retired in 1940 due to ill-health; in May 1941, he died at his home in Birminghamshire, age sixty-four. While the international energy system that

Cadman had sought to rationalize lay in a chaotic state, AIOC itself was secure. The enclave of

Abadan continued to buzz with activity, churning out precious aviation gasoline and providing much of the fuel for the Allied war effort East of Suez, safeguarded by British arms. The Pahlavi state, now in the hands of a twenty-one year-old neophyte shah, was too weak to offer any serious challenge and desperately needed oil funds to balance its budget. Yet the Persian partnership Cadman had once envisioned had not come to be. In his account of Iran’s oil history,

Jacks’ assistant Fāteh recalled Cadman’s bitterness on the eve of World War II: “My one regret in all this is that ten years ago the Iranian government rejected our proposal which would have allowed it today to be a partner and shareholder in this great international company.”208 The nationalist challenge to AIOC and the question of who would control Iran’s oil would rise once

207 Shaul Bakhash, “Britain and the Abdication of Reza Shah,” Middle Eastern Studies 52:2 (2016): 318-334. 208 Fāteh, Panjāh sāl naft-i Iran, 289-90.

again during the war and dominate Iranian politics soon after, as Iran became entangled in the politics of the Cold War, the development movement and the reconstruction of the international energy system.

CHAPTER TWO: ‘WE HAVE DONE NOTHING:’ THE UNITED STATES, THE ANGLO-

IRANIAN OIL COMPANY, AND THE FAILURE OF DUAL INTEGRATION, 1941-1950

On March 20 1947, Prime Minister Ahmed Qavām delivered a new year’s address to the nation of Iran. The country, said Qavām, had passed through the “dark days” of war and occupation, “revolts and rebellions…famine and hunger…desperation and hopelessness.” Peace had finally returned, and it was the intention of the government to implement “essential economic and social reforms…for the progress and welfare of the people.” A new economic program, the Seven Year Plan, would correct the “imbalance” affecting Iran’s wealth and implement a “fair distribution [among] all people.” The Plan, the brainchild of American Max

W. Thornburg and Iranian Abu’l-Hạsan Ebtehāj, imagined the wholescale transformation of

Iran’s oil wealth into lasting economic growth and societal improvement. Bold and expansive, the Plan would cost roughly £450 million, the equivalent of the Iranian government’s entire seven-year budget. 1

Neither the British nor the United States, now the most powerful ally of the Pahlavi regime, took the speech very seriously, regarding it chiefly as “political propaganda,” but both approved the state’s turn towards a development strategy.2 There was one draw-back, however: oil money would be needed to pay for the Plan, and Iran’s oil remained firmly in the hands of the

Anglo-Iranian Oil Company (AIOC). The local integration envisioned by Ebtehāj and

Thornburg, and desired by the teetering Pahlavi state and its American ally, was contingent upon

1 Printed in Democrat-i Iran, March 22, 1947; FO 371/62001 E 2729, Le Rougetel to Foreign Office (FO) No. 385, March 28, 1947. 2 FO 371/62001 E 3059 Le Rougetel to Bevin, No. 108, April 2, 1947, E 2939 Minutes by Pyman, April 12, 1947, Le Rougetel to FO, No. 428, April 7, 1947; RG 59 891.50 SEVEN YEAR PLAN/4-947, U.S. Embassy No. 354, April, 19, 1947.

a new modus operandi arising at the negotiating table, at a time when the very idea of a foreign- owned and foreign-operated oil industry was becoming harder for many Iranians to accept.

The U.S.-Iranian relationship emerged from war, occupation, and Cold War crisis bound up in the problem of dual integration: how to use oil sold by the oligopoly to cover the economic reconstruction and, eventually, political stabilization of Iran. Upon entering Iran during World

War II, U.S. officials and agents of development (“developmentalists”) found the country in dire need of progressive reform and socio-economic improvement. Unwilling to launch a far-reaching program, the U.S relied upon proxies, particularly Max Thornburg and the World Bank, to assist the Iranians and their fledgling Seven Year Plan. Accomplishing development depended on access to oil revenues. The oligopoly began the rapid exploitation of oil resources from the developing world, particularly the Middle East. New formulas calculating the price of Middle

East oil ensured that the sudden influx of cheap crude would not destabilize existing markets.

The ability to concentrate profit at the production stage encouraged the companies to offer new concessionary terms to producing states as a way to assuage nationalism and guarantee cooperation: the fifty-fifty division of profits became the new standard of equitability.

But this did not work in Iran, where AIOC had built an enclave of British power in the oil province of Khuzestan. A major strike in 1946 illustrated the company’s unpopularity with the

Iranian people, while anti-company rhetoric dominated politics in the capital. Hobbled by a myopic view of the political situation in Iran and the changing nature of international oil, AIOC attempted to forge a more harmonious relationship with the Pahlavi government through public relations and the negotiation of an improved royalty provision. The company failed to recognize

Iranian demands for an equitable agreement based on fifty-fifty, and their offer was rejected by

Iranian nationalists. Despite an intervention by the United States government in 1950, neither the

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new oil agreement nor the Seven Year Plan proved salvageable, while the weakened Pahlavi regime lost power to a rising nationalist movement that used the issue of oil to rally popular support around a new idea: nationalization.

2.1 Open Doors and Bidding Wars: the U.S. Arrives in Iran

The Anglo-Soviet invasion of August 1941 was a calamity for the people of Iran. As

British and Soviet forces occupied the country, central state authority nearly collapsed. A report by the Bank-i Melli indicated mass shortages of food, fuel and labor: riots over the limited bread supply broke out in late 1942.3 Spiraling inflation fed into skyrocketing prices and shortages of nearly every consumable good. The new shah, twenty-one year-old son Mohammed Rezā, proved incapable of re-asserting his father’s control as power shifted to the Majlis. The country enjoyed a return to constitutional government as the “pent-up social grievances” of the Rezā

Shah period were released.4 Election were more representative and there was a dynamic free press in Tehran and other major cities. The regime was weak and struggled against the pervasive influence and interference of the Russians and British, who regularly backed preferred candidates for office.5

New political groups emerged, coalescing around distinct platforms. A movement for constitutional government represented by Mohammed Moṣaddeq, elected as a deputy for Tehran in the Fourteenth Majlis (March 1944-March 1946), was one such group. Moṣaddeq denounced

3 RG 59 891.516/9-2347, Report of the Executive Board for the Year 1325, Bank-i Melli. Stephen L. McFarland, “Anatomy of an Iranian Political Crowd: the Tehran Bread Riot of December 1942,” International Journal of Middle East Studies 17, no. 1 (Feb., 1985): 51-65. 4 Abrahamian, Iran Between Two Revolutions, 169. 5 Ladjevardi, “The Origins of US Support for an Autocratic Iran,” 225-239; Fakhreddin Azimi, Iran: the Crisis of Democracy: from the Exile of Reza Shah to the Fall of Musaddiq (London: IB Tauris, 2009), 1-80; HIOHP, Interview with Karim Sanjabi, Tape No.4, 1-3.

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the arbitrary authority (istibdād) of Rezā Shah and claimed to serve “not for the sake of the shah but for that of the country.” The shah’s place in government was “ceremonial,” and the constitution of 1906 clearly indicated he was to reign, not rule. Moṣaddeq also opposed all foreign interference inside Iran, and he spoke most vehemently against the AOIC oil concession.6 Another important opposition group emerged in the early 1940s around a group of political prisoners released from Rezā Shah’s prisons. Known as the Hizb-i Tudeh, or “Party of the Masses,” the group embraced communism in the mid-1940s and was active in Iran’s working class, particularly the oil workers in Khuzestan.7 The “Warriors of Islam,” associated populist religious leader Ayatollah Seyyed ʻAbū al-Qāsim Kāshānī, the social-democratic Iran Party, and other groups affiliated with left or right-wing ideologies also emerged at this time, yet in terms of parliamentary power were largely peripheral. The British, who dominated the southern provinces, controlled a significant number of Majlis deputies, while the Soviet Union spent the war carving out a sphere of influence in the northern provinces.8

Successive Iranian prime ministers, as well as the new shah, turned to the United States for support as a “third force” to balance the British and Soviets. The U.S. entered Iran in 1942, providing technical support for the transfer of goods to the USSR: some thirty-thousand U.S. troops joined the Anglo-Soviet occupying forces.9 Conscious of the country’s fragile state and

6 Hussein Kay-Ustavan, Siyāsat-i muvāzanah-i manfī dar Majlis-i Chahārdahum [The Policy of Negative Equilibrium in the Fourteenth Majlis) Vol I (Tehran: 1949), 147-148; Azimi, Crisis, 124-125, Homa Katouzian, Musaddiq and the Struggle for Power in Iran (London: Tauris, 1990), 50-52. 7 Abrahamian, Iran Between Two Revolutions, 281-299. 8 Katouzian, Musaddiq’s Memoirs, 26. 9 T.H. Vail Motter, The Persian Corridor and Aid to Russia (Washington, Office of the Chief of Military History, Dept. of the Army, 1952), Bill, The Eagle and the Lion, 15-27 and Lytle, The Origins of the Iranian-American Alliance, 41-46.

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worried that the Anglo-Soviet occupation would lead to conflict, the Roosevelt Administration decided upon a more active involvement to preserve Iranian independence. This included a financial advisory mission led by Arthur C. Millspaugh and two separate military missions to assist Iran’s army and gendarmie. By 1943, there were dozens of U.S. advisors working inside

Iran; there was talk of Iran as a “test case” for a more “enlightened” foreign policy. The

President endorsed the idea of an Iran “trusteeship” and convinced Churchill and Stalin to sign the Declaration on Iran during the Tehran Conference, which promised Allied assistance with

Iranian economic reconstruction. Roosevelt, with his customary off-the-cuff style of policy- making, regularly expressed an interest in Iran, a country struck by “poverty and disease and bareness.”10 The U.S. positioned itself as a “disinterested” power that would support Iran’s independent government from its more powerful neighbors. American prestige during the war was, as a consequence, extremely high.11

Americans knew little about Iran. The U.S. presence in the country before 1942 was largely restricted to the work of missionaries and the advisory missions of Morgan Shuster in

1911 and Arthur Millspaugh in the 1920s. During the war, a growing number of diplomats, advisors and development specialists traveled to Iran, building an image of a country mired in socio-economic “backwardness.” Despite Rezā Shah’s modernization policies, from an

American point of view life in Iran seemed stuck in another century. A small group of policy- makers advocated for a more active, interventionist U.S. policy, one that would prioritize aid,

10 Note of Meeting, November 22, 1944, President’s Official File, Box 1, OF 134, FDRPL. 11 RG 59 711.91/98, Memo by Murray and John H. Jernegan Annex, February 11, 1942, FW 891.00/3037, Memorandum for the Secretary of State, January 12, 1944. “Declaration on Iran,” December 1, 1943, Foreign Relations of the United States 1943: Volume IV, Near East and Africa, hereafter FRUS (U.S Government Printing Office: Washington DC, 1964), 413-414; 891.01A/182, Memo by Murray, August 3, 1942.

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assistance and reform, “to make Iran self-reliant and prosperous, open to the trade of all nations and a threat to none.”12 Reforms were needed, they argued, if Iran was to be preserved from social revolution or internal collapse. 13 The advisory missions were meant to balance internal security with wider, more lasting administrative reforms designed to stabilize Iran in the long- term. There was also a concern running throughout the American mission that to leave Iran at the mercy of the Anglo-Soviet occupiers would be a grave mistake: the British, in particular,

“manifested a complete disregard for Iranian interests and sensibilities,” according to one official, and seemed chiefly motivated by a desire to control Iran’s internal politics or set up a

“puppet government.”14 The expansion of the advisory missions occurred with Iranian support; at one point, the government in Tehran requested a U.S. advisor “take charge” of Iran’s police forces, and other Americans were seconded to oversee food distribution when shortage struck in

1942. The main focus was on assisting with administration through the Millspaugh mission and improving the efficacy of the Iranian gendarmie and armed forces. Two separate missions, under

Colonel H. Norman Schwarzkopf and General Clarence S. Ridley respectively, were established in 1942. The advisory missions provided an impressive edifice for American power and prestige within Iran: “We shall soon be in the position,” quipped one official, “of actually ‘running’

Iran.”15

12 RG 59 711.91/98, Memo by Murray and John H. Jernegan Annex, February 11, 1942. 13 RG 59 891.00/2003, “Increase in Socialistic Proselytism in Iran,” Dreyfus to Hull, March 8, 1943, RG 59 891.00/3037, Gen. Patrick J. Hurley to Roosevelt, December 21, 1943; Simon Davis, Contested Space: Anglo-American Relations in the Persian Gulf, 1939-1947 (Boston, MA: Martinus Nijhoff Publishers, 2009); Collier, Democracy and the Nature of American Influence in Iran, 24-25. 14 FRUS 1942, Vol. IV, 189-191, Memo of Conversation, November 10, 1942, 193-194, Memo by Murray, November 13,1942. 15 FRUS 1942, Vol. IV, 222, Shayesteh to State, January 6, 1942, 242, Memo by Murray, August 3, 1942. See Thomas M. Ricks, “U.S. Military Missions to Iran, 1943-1978: the Political 104

In truth, however, the American commitment to reforming Iran “was more rhetorical than real.” Despite evidence of a “missionary spirit,” the immediate concern was to keep the situation in Iran from disrupting Allied relations.16 Improving internal security was essential to facilitate the “steady transportation of American supplies to Russia.”17 Despite considerable American interest, reforming Iran’s internal administration proved a much greater challenge, one that the combative Millspaugh proved incapable of overcoming: his dictatorial methods soured his

Iranian counterparts, who came to see his presence within the government as a form of foreign tampering. Support for the Millspaugh mission began to flag by 1944, though the army and gendarmie missions were maintained, chiefly out of ongoing concerns with Iran’s internal security. Dean Acheson, Assistant Secretary of State for Economic Affairs, regarded an interventionist plan to supply Iran with advisors as nothing more than “an innocent indulgence in messianic globaloney.” Official U.S. attention remained focused on the war effort. The best way to help Iran was to strengthen its government, “to a point at which she will be able to stand on her own feet.”18 Meddling directly in Iranian politics appeared both counter-productive and highly dangerous.

On the oil matter, the U.S. was in a quandary. During the interwar years, a considerable

American presence had emerged in Middle East oil: U.S. companies owned shares of concessions in Kuwait and Iraq, and were complete owners of concessions in Bahrain and Saudi

Economy of Military Assistance,” Iranian Studies 12, no. 3/4 (Summer-Autumn, 1979): 163- 193. 16 Lytle, Origins of the US-Iranian Alliance, 93-94. For an alternate view, see Collier, Democracy and the Nature of American Influence in Iran, 10-48. 17 FRUS 1942, Vol. IV, 222-224, Murray to Berle, January 10, 1942. 18 RG 59 891.00/2844, Acheson to Stettinius, January 28, 1944, FRUS 1943, Vol. IV, 330-336, Memo by Murray, Annex No. 1, Memo by Jernegan, “American Policy in Iran,” January 23, 1943.

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Arabia. The U.S. should be inclined, “from a more directly selfish point of view,” to prevent the domination of Iran, a country close to the “important American petroleum developments in Saudi

Arabia.”19 Most Americans ascribed to the philosophy of the open door, and felt that free access to Iranian oil for private enterprise was a necessary corollary to the country’s smooth integration into a postwar international system. The issue of who would have access to Iran’s oil came up in

State Department meetings only weeks after the attack on Pearl Harbor.20 Adherence to the open door mandated that the AIOC concession be challenged. However, the British were both a vital war-time ally and the Middle East hegemon. Anglo-American cooperation would be essential for the preservation of a stable post-war order, and Roosevelt and Churchill made it clear to each other that existing oil concessions would not be touched.21

The ambitions of Iran’s leaders added further complications. Leading Iranian politicians and the young shah desired a stronger U.S. commitment to Iran, and throughout the war they maneuvered to bring a greater degree of U.S involvement.22 The idea, regularly espoused by conservative politician Ahmed Qavām, was “positive equilibrium:” using one foreign power to balance another.23 The easiest means of securing a U.S. commitment would be through an oil concession.

American companies had sought concessions in Iran during the 1920s. One had succeeded in securing a concession from Reza Shah in 1936, but it never proved commercially

19 FRUS 1943, Vol. IV, 376-379, Hull to Roosevelt, “American Policy in Iran,” August 16, 1943. 20 RG 59 Lot File No. 78 D 442, Box 4, Folder 9, “Safeguarding of American Interests in Military Pipelines in Iran and Iraq,” January 23, 1942. 21 Kuniholm, Origins of the Cold War, 184. 22 McFarland, “Peripheral View of the Cold War,” 333-351. 23 Abrahamian, Iran Between Two Revolutions, 244-245.

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viable and was abandoned in 1938. For U.S. companies, Iran lay unfairly locked away by the

British monopoly; there was considerable eagerness in opening up the country to U.S. investment.24 In 1944, the American oil company Standard-Vacuum (StanVac) was invited by the Iranian government to place a bid for an oil concession. StanVac was half-owned by two majors, Standard Oil of New Jersey (Jersey Standard) and Standard Oil of New York (Socony).

Despite uncertainty over whether an American concession was in the strategic interest, the State

Department gave the company its blessing to begin negotiations. Shortly thereafter, the British supported a rival bid from Royal-Dutch/Shell, a major with joint Anglo-Dutch ownership.

Things became even more complicated when Sinclair Oil, an independent firm, arrived to place a bid of its own. A drawn-out concession fight appeared likely, and some U.S. officials urged

Secretary Hull to force out Sinclair and concentrate U.S. support on StanVac. Hull, a dedicated advocate of the open door, refused to take sides in a commercial disagreement, and a bidding war ensued.25

In October 1944, a Soviet delegation arrived in Tehran and demanded the right to an oil concession. The move was clearly motivated by the U.S. bid, as well as signs that the companies were interested in Iran’s northern provinces. The pro-U.S. prime minster Muhammed Sāʿed called off the concession negotiations, in order to avoid a confrontation with the Russians.

Mohammed Moṣaddeq took the opportunity to speak out against all foreign concessions. Rather than bring in the U.S. or continue playing the Russians and British off of one another, Iran should adopt a position of “passive balance” (Siyāsat-i muvāzanah-i manfī), also referred to as

24 For the 1936-1938 Amiranian concession, see Kuniholm, Origins of the Cold War, 188-191. 25 RG 59 891.6363/807, Hull to Dreyfus, No. 584, November 23, 1943, 891.6363/808, Berle to Parker, November 17, 1943, 891.6363/846, Ford/Leavall to Hull, 24 April 1944, 891.6363/860, Hull to Ford, June 27, 1944.

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“negative equilibrium.” To offer a new oil concession as a way to “balance” the British position was like “asking a man, who has lost one of his arms, to cut his other arm for the sake of balancing his body.”26 Taking advantage of opinion inside the Majlis, which was strongly against offering a concession to the Soviets, Moṣaddeq managed to pass a bill in 1944 forbidding the government from engaging in any oil concession negotiations for as long as Iran remained occupied.27 With no choice in the matter, the companies dropped their bids.

Before a Cold War mentality came to dominate U.S. foreign policy-making, a confrontational relationship with the USSR began to form in Iran. One U.S. official warned that if Moscow won a northern oil concession, “within a fraction of the life of the concession Iran will become one of the Soviet Republics.”28 This was an over-reaction; the Soviet interest was in a concession to match the AIOC concession in the south. Moṣaddeq, speaking before the Majlis in October 1944, noted that Soviet action had come as a result of secret negotiations between

Anglo-American oil companies and the Pahlavi government: “When companies from the far side of the Earth ask for concessions, why shouldn’t our close neighbor seek similar concessions?”29

Soviet interest in an Iranian oil concession was not unprecedented, and there was a pre-existing oil agreement (the Kavir-Khurian concession) signed in 1926 which Soviet authorities used as a basis for exploration in Iran’s northern provinces during the war. Interest in obtaining a concession peaked in May 1944, in direct response to the active efforts of StanVac and Shell as

26 George C. McGhee, “Recollections of Dr. Muhammed Mussadiq,” Musaddiq, Bill and Louis, eds., 301; Kay-Ustuvan, Siyāsat-i muvāzanah-i manfī, Vol. I, 182-185. 27 Pārsā Yamagāni, Kārnāmah-i Musaddiq [Records of Moṣaddeq] (Tehran: Ravāq, 1978), 15-78; Katouzian, ed. and trans., Musaddiq’s Memoirs, 18-20; RG 59 891.6363/12-544, Morris to State, No. 900, December 5, 1944, 28 RG 84 USLETCGR, 1940-1944, Box 6, Memorandum by Col. John H. Leavall, August 26, 1944. 29 Muẕākirāt-i Majlis, Vol. XIV, October 8, 1944.

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well as the Anglo-American oil talks that took place in August 1944. Soviet policy was driven by a desire to obtain oil concessions “on par with other great powers.”30 The Soviets were prompted by U.S. action to defend their own interests, which included the oil fields and installations in

Baku near the Soviet-Iranian border.

StanVac assured the Department that it was only interested in southern Iran.31 Herbert

Hoover Jr., the son of the former president and an oil advisor to the Iranian government, told the

Department that a Soviet concession in the north made a lot of sense: “oil in the north could only find an outlet in Russia anyway,” for geographic reasons.32 A report from the Office of Strategic

Services (OSS) urged open negotiation with the Soviets. Yet this went unheeded by U.S. officials, who excluded the Soviets both from oil negotiations in Iran and the Anglo-American petroleum talks in Washington.33 According to George F. Kennan, Soviet policy was motivated by fear, “apprehension of potential foreign penetration in that area coupled with the concern for prestige.” Iranian oil was important not as an economic asset, “but as something it might be dangerous to permit anyone else to exploit.” The thrust of US policy, according to ardent anti- communist Loy Henderson who was by 1946 head of the Near East division at State, was to end the occupation of Iran, strengthen Iran’s security and allow it to “stand on its own feet.”34 Few

American officials noted that the Soviet intervention to acquire a concession in northern Iran

30 Natalia Egorova, “Stalin’s Oil Policy and the Iranian Crisis of 1945-1946,” Cold War Energy: A Transnational History of Soviet Oil and Gas, ed. Jeronim Perovic (Cham, Switzerland: Palgrave Macmillan, 2017), 88. 31 RG 59 Lot File No. 78 D 442: Petroleum Policy Staff, Subject File Relating to Iranian Oil and U.S. Middle Eastern Oil Policy, 1921-1951, Box 4, Parker to Draper, April 1, 1944. 32 RG 59 891.6363/10-1144, Statement of Herbert Hoover Jr. on Oil Negotiations in Iran, 11 October 1944. 33 Painter, Oil and the American Century, 78-79. 34 RG 59 891.6363/11-744, Kennan to Stettinius, November 7, 1944, 891.00/8-2345, Loy Henderson, “United States Policy Towards Iran,” August 23, 1945.

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near Baku mirrored the American interest in protecting the extensive U.S. investment in Saudi

Arabia. By U.S. estimations, the Soviet Union anticipated a deficit of at least 5 million barrels per day (bpd) once the war ended. Their pursuit of a concession in northern Iran was motivated by “pragmatic economic interest,” according to the Office of Petroleum Advisor.35 Yet this view was eventually subsumed by mounting fears of Soviet aggression and territorial ambition. The

Soviets fueled this perception by retaliating against the Iranian government: Moscow began lending its active support to the Tudeh Party, funded separatist movements in Iranian Azerbaijan and Kurdistan, and launched a propaganda campaign against Prime Minister Mohammed Sāʿed and Moṣaddeq.36

Crisis struck Iran in early 1946. While the British troops withdrew from southern Iran

(AIOC, of course, remained in place), Russian forces dug in, and Soviet-backed separatist governments in Azerbaijan and Kurdistan declared autonomy from Tehran.37 A Soviet withdrawal was contingent on receiving an oil concession in the north to match that of AIOC in the south. President Harry S. Truman perceived in the Soviet actions a “giant pincers movement

35 RG 59 891.6363/12-1145, “Oil Concessions and the Problems in Iran,” December 11, 1945. 36 Egorova, “Stalin’s Oil Policy,” 90. 37 Jamil Hasanli, At the Dawn of the Cold War: the Soviet-American Crisis over Iranian Azerbaijan, 1941-1946 (Lanham, MD: Rowman and Littlefield Publishers, Inc. 2006), 89-91. Hasanli argues that the USSR intended to annex Iranian Azerbaijan, but Natalia Egorova disagrees, arguing instead that an independent Azeri state in northern Iran would allow the USSR to maintain its influence in the country, making it easier to operate an oil concession. See Egorova, “Stalin’s Oil Policy,” 92-93. Louis Fawcett supports this view, arguing that Azeri nationlists were “temporarily harnessed” by Stalin, and that annexation was not the ultimate Soviet goal. See Fawcett, “Revisiting the Iranian Crisis of 1946: How Much More Do We Know?” Iranian Studies 47, no. 3 (2014): 379-399. See also McFarland, “A Peripheral View of the Origins of the Cold War: the Crises in Iran,” 345-351, Scheid-Raine, “The Iranian Crisis of 1946,” 93-111

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against the oil-rich areas of the Near East and the warm-water ports of the Mediterranean.”38

Ambassador to Iran George Allen warned that Iran could become a “Russian puppet state,” that

“slavish Soviet tools and unscrupulous adventurers” might facilitate a coup d’etat. The Persian

Gulf would become a realm of “intense international rivalry…with control of all Middle East oil” at stake.39 Kennan’s “Long Telegram” in February 1946 outlined the cultural, historical and ideological reasons for Soviet expansionism, while the American consul in Tabriz delivered panicked reports warning of a three-pronged Soviet offensive into Iraq, Turkey, and Iran.40 Loy

Henderson rejected the idea of entertaining Russian demands for a concession, “regardless of how reasonable,” and declared that the U.S. would not deal with the Soviets “behind the back of a small country.”41

The Iranians were still eager to secure an American commitment. Prime Minister Ahmed

Qavām reached an agreement with the Soviets in April, offering an oil concession in return for a

Soviet withdrawal, though in private he promised the U.S. ambassador a Soviet concession would only be granted if the U.S. accepted one as well. The young shah, the Minister of Court

Ḥusayn ‘Alā and Qavām all used the incident to fan the flames of the Cold War and pull the U.S. closer to Tehran: it was positive equilibrium in action.42 Ambassador Allen reported the curious spectacle of a “foreign sovereign begging Americans to take an oil concession.”43 ‘Alā suggested

38 Harry S. Truman, Memoirs, Vol 1: Year of Decisions (London: Hodder and Stoughton, 1955): 523. 39 RG 59 891.00/6-446, Allen to Byrnes, June 4, 1946. 40 FRUS 1946 Vol. VII, 340, Rossow to Byrne, March 5, 1946; McFarland, “Peripheral View of the Cold War,” 347. 41 RG 59 891.6363/12-1145, Memorandum, December 11, 1945. 42 McFarland, “Peripheral View of the Cold War,” 345-351. 43 Setarah, April 15, 1946; RG 59 891.6363/4-1546, US Embassy No. 347, April 15, 1946, 891.6363/7-3146, Allen to State, No. 1050, July 31, 1946.

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a novel approach in August 1946: AIOC’s concession, “the causative factor in the recent sequence of events,” would be terminated and Iran’s oil would be placed in the hands of an

“international corporation…under the aegis of the UN.” The U.S. government rejected the idea.

“Open door competitive bidding, equal opportunity, and ownership of petroleum resources and facilities by private enterprise” would be violated if the U.S. entered the oil business.44 Further bidding by American companies would only antagonize the Soviets. Though there remained considerable interest among U.S. companies, American oil men were kept out of the country in

1946 as Washington grasped for options.45

Like the Iranians, the British were hopeful U.S. support could help them retain their interests: some British officials even suggested allowing the Soviets a concession, effectively re- creating the 1907 Anglo-Russian agreement and breaking Iran into separate spheres of oil- dominated influence. 46 The British hoped to maintain the security of the southern oil concession at all costs, and in the wake of labor unrest and a violent clash between pro-British Arab tribesmen and Tudeh-led striking oil workers in the streets of Abadan in July 1946, additional

British forces were moved into the area. Oil advisors within the State Department came out

44 RG 59 891.6363/8-2346, Acheson to Allen, Aug 23, 1946, 891.6363/8-2946, Acheson to Allen, No. 723, August 29, 1946. ‘Alā would repeatedly suggest this route as a way to “internationalize” Iranian oil; it would provide the basis for the consortium agreement reached in 1954. 45 RG 59 891.6363/4-846, Baruch to State, No. 318, April 8, 1946, 891.6363/11-2146, Allen to State, No. 6991, November 22, 1946. These efforts were not entirely successful, as Max Thornburg succeeded in reaching the country in May, much to the frustration and embarrassment of U.S. officials; RG 59 891.6363/5-2046, Byrnes to Allen, No. 452, May 22, 1946. Shell was also interested in re-opening the concession bidding halted in 1944, though they were deterred by the British government. FO 371/52728 E 1469 Minutes of Discussion with Shell Company, February 25, 1946 46 RG 84 USLETCGR, 1945-1951, Box 14, Folder 8, “Soviet-Iranian Oil Arrangement,” August 20, 1947; RG 59 891.6363.9-547, Allen to Marshall, 5 September 1947. Fawcett has suggested that balancing the British was foremost in Stalin’s thinking. See Fawcett, “Revisiting the Iranian Crisis of 1946,” 383-384.

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against supporting the “imperialistic” British position, which they felt would only undermine

U.S. prestige. “The United States…cannot afford to associate itself or to support the British position in Iran,” as doing so would open up both the U.S. and the company to Soviet propaganda.47

The paradox within U.S. policy was resolved by external developments. In late 1946, the companies settled the question of Iranian oil among themselves. Jersey and Socony, who each owned half-shares of StanVac, agreed to fund a pipeline with AIOC in return for a contract for twenty years of AIOC crude. Shell secured a long-term contract for oil from Gulf, AIOC’s partner in Kuwait. Jersey would use the oil from the Middle East to service its extensive markets in Europe, AIOC would be able to increase production from the fields of cheap, abundant crude recently discovered in Kuwait, and there was no longer any need for a bidding war over an

Iranian concession. Included in the “Great Oil Deals” was an expansion of the U.S.-held oil concession in Saudi Arabia: the two original partners in the Arab-American Oil Company

(Aramco), Standard of California and the Texas Oil Company, invited Jersey and Socony to purchase a hefty share of the concern, connecting Saudi oil with ample markets in the Western and Eastern hemisphere.48 The deals were good news for the U.S., since they would increase

Iran’s oil production, contributing more oil revenues to the state coffers and improve the

“economic stability” of the country, without requiring a new concession, now complicated by the showdown in Azerbaijan.49 Sinclair Oil was left with nothing, and other U.S. independents had

47 RG 59 891.6363/3-2046, “Basis for Suitable Russian Concession in Iran,” and “British Oil Position in Iran,” Memo by Allen, Cohen and Loftus, March 20, 1946. 48 RG 59 891.6363/12-346, Memo of Conversation, December 3, 1946, Daily Telegraph, “British and U.S. Oil Firms’ Agreement,” December 27, 1946. 49 RG 59 891.6363/12-2946, Allen to State, No. 1636, December 30, 1946

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missed the opportunity to gain access to Iranian oil, which was instead divvied out among the oligopoly.

The oil deals clarified the U.S. government’s position. According to the State

Department, Iran “has little to gain by granting us an oil concession,” and would henceforth have to rely on the revenues provided by AIOC: sure to be ample, now that the new oil deals ensured a greater flow of Middle Eastern oil. With American commercial interests satisfied, the U.S. ambassador was able to indicate to the Iranians that the U.S. would support a move to reject

Qavām’s deal with the Soviets. Iran would be left free to develop its own oil resources, “in harmony with the spirit of the Seven Year Plan of economic development,” which Qavām had announced the previous March.50 The conservatives in the Majlis rejected the Qavām-Sadchikov deal in October 1947. The assembly also passed a single-article law sponsored by Moṣaddeq that banned all future oil concessions.51 The bill instructed the assembly and the government to examine Iran’s rights “in regard to the southern oil concession.” Qavām insisted this measure be included to placate the Russians: he assured the British that AIOC was safe and the 1933

Concession inviolable, though some in the Foreign Office worried it might be used as a pretext for some “tiresome” actions against AIOC.52 The company was now much more vulnerable to attack from nationalists like Moṣaddeq, but the United States took a relaxed approach to such questions. Ambassador Allen noted that the company had “improperly meddled in Iranian

50 RG 59 891.6363/8-1847, Lovett to Allen, No. 487, August 18, 1947. 51 RG 84 USLETCGR, 1945-1951, Box 14, “Personal and Confidential,” Minor to Allen, February 14, 1947, Allen to George Lewis Jones, US Embassy London, October 29, 1947; Katouzian, Musaddiq’s Memoirs, 23. 52 RG 59 891.6363/10-2947, US Embassy No. 539, October 29, 1947, 891.6363/10-2747, Douglas to State, No. 5736, October 27, 1947; BP 80924 Seddon to Rice October 29, 1947.

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politics.”53 There was likely to be “some difficulties” over the British concession after the rejection of the Soviet deal and the October single-article bill, “but we shall ride them out as best we can and, I believe, without much damage.”54

The Cold War, together with the deals among the companies, resolved the paradox in

U.S. foreign policy. Sweeping efforts to reform Iran through advisory missions were abandoned.

Though the Millspaugh mission was wrapped up in 1945, the victim of both Iranian political opposition and American disinterest, both the highly successful gendarmie mission under

Schwarzkopf and the mission to the Iran army remained in place. Indeed, the training and reorganization provided by Schwarzkopf and other U.S. advisors had been crucial in returning

Iran’s interior to a state of relative calm; without their U.S. training and improved morale, it was assumed that Iranian troops would not have successfully re-taken the breakaway republics in the north, once Soviet troops had withdrawn.55 After 1947 U.S. policy would support Iran’s

“territorial integrity” without antagonizing the Soviet Union. Rather than pursue economic expansion and secure Iranian oil for U.S. companies through a concession, the U.S. would encourage the Iranians to use the revenues provided by the AIOC concession to “put their own house in order,” through a centrally-funded oil-based development plan. By 1947, the dual integration of oil had become a part of U.S. Cold War foreign policy.

53 Davis, “Projected New Trusteeship,” 59 54 RG 84 USLETCGR, 1945-1951, Box 14, Folder 8, “Personal and Confidential,” Allen to George Lewis Jones, US Embassy London, October 29, 1947. 55 Ricks, “U.S. Military Missions,” 172-173.

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2.2 The Invention of Price and the Rise of Development

International oil underwent a profound transformation between 1946 and 1950. American production, which had increased from 1.7 billion to 1.9 billion barrels per year (4.65 to 5.2 million barrels per day, or bpd), began to decline relative to consumption, and in 1948 the U.S. became a net importer of oil. The war effort “drank oil in huge quantities,” declared oil official

Max Ball. “Our mammoth peacetime economy is drinking even more.”56 Oil would be needed to supply the United States and provide for the reconstruction of Western Europe and Japan. In

April 1944, the U.S. State Department expressed the view that foreign oil deposits would be exploited for foreign markets, while domestic oil would be reserved for American needs. How far the federal government would be involved proved a divisive issue. Smaller U.S. independents were vigorously opposed to the Anglo-American Petroleum Agreement signed in August 1944, which would have set up machinery for the international regulation of oil production. Ultimately, state-sponsored efforts were abandoned in favor of public-private partnerships and “oil diplomacy” conducted by the companies themselves.57

Max Weston Thornburg, a veteran of the Standard Oil Company of California (Socal), worked as the State Department’s petroleum advisor during the war and was preoccupied with

U.S. oil policy.58 The 1930s wave of resource nationalism in Iran, Argentina, Bolivia, Mexico and elsewhere had taught the companies that “backward people” would eventually challenge the

56 Max Ball, “Report on the Oil Situation,” February 15, 1948, “Oil and Our Way of Life,” May 17 1952, “Looking Ahead with the Petroleum Industry,” May 6, 1948, Max Ball Papers, Box 1, Truman Library. 57 Painter, Oil and the American Century, 128. 58 Mark Seddon, “Incorporating Corporations: Anglo-US Oil Diplomacy and Conflict Over Venezuela, 1941-1943,” Journal of Transatlantic Studies 10, no. 2 (June 2012): 134-149, Linda Wills Qaimmaqami, “Max Thornburg and the Quest for a Corporate Foreign Oil Policy: An Experiment in Cooperation,” Phd Dissertation, Texas A & M University (1986).

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position of the companies if their needs were not satisfied. They wanted “schools, hospitals, roads, factories…silly presents for their wives and kids, like we do.” For Thornburg, oil and economic progress were closely linked. Primitive peoples, noted Thornburg, had known for centuries that grain had to be stored and seeds saved for future harvests: “The reason they are backward, in many cases, is that they have not learned how to apply this to their entire economy.” Thornburg alluded to the British tendency to push oil-rich despots in the Persian Gulf into depositing their money in British funds rather than use them to develop alternate industries: money vanished “in the pockets of their ‘abbahs,” and were wasted on frivolities, rather than invested in productive enterprise.59 While increasing foreign production would serve the interests of the U.S., it was necessary to protect the interest of oil producers, “most of which have no other source of revenue,” and through increasing production offer support for “appropriate programs of increasing national development.”60

A chance to apply Thornburg’s ideas appeared in Venezuela, the second-largest oil exporter in the world and a strategically vital source of Western Hemisphere petroleum. For years, the government in Caracas had felt that royalties from its concessions, held by Jersey through its affiliate Creole Petroleum along with Shell and Gulf, were decidedly “inequitable.”61

The country was losing money due to war-time losses and was threatening to unilaterally raise taxes on the companies. A team of negotiators led by Thornburg traveled south and by in 1943 a new concessionary settlement had been arranged that could serve as “an equitable basis” for

59 RG 59 Lot File No. 78 D 442, Box 4, Folder 9, Letter from OPA (Thornburg) to Welles, 23 March 1942. 60 Thornburg Papers, Letter to Charles Raynor, Office of Petroleum Advisor, January 6, 1944. 61 Thornburg Papers, Notes on the Development of Our National Foreign Oil Policy, March 14, 1944.

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future partnership.62 Venezuelan law increased taxes on the company’s to the point that the government would earn as much as the companies from the exploitation of Venezuelan oil: profits would be split “fifty-fifty” through taxes on production, rather than through a per-ton royalty. The companies, like AIOC in 1933, received lengthy extensions to their concessions, which offered them the security they needed to increase investment in Venezuelan reserves, estimated to be some of the largest in the world. 63 Thornburg, according to Petroleum

Administrator for War Harold Ickes, had been “highly successful,” and achieved an agreement both sides could value for years to come.64 The new law facilitated an increase in Venezuelan oil production, from 487,000 barrels per day (bpd) in 1943 to 939,000 bpd in 1945.65 A new oil law in 1948 codified the “fifty-fifty” division, turning the principle into a reality. According to

Minister of Development Juan Pablo Pérez Alfonso, the application of “wise nationalism,” as opposed to irresponsible resource nationalism, would allow the government to realize larger revenues without wasting the nation’s oil needlessly.66 The 1948 law was widely discussed in the press, and triggered an immediate interest in re-negotiations in Saudi Arabia, Iraq and Kuwait, in part because the Venezuelans consciously advertised the terms abroad.67

Changing royalty terms to an income tax rather than a flat per-tonnage payment was an attractive option, since U.S. law allowed tax paid to foreign governments to be deducted from

62 Thornburg Papers, Thornburg to General Medina, February 7, 1943; Seddon, “Incorporating Corporations,” 141-49. 63 Bryce Wood, The Making of the Good Neighbor Policy (New York: WW Norton, 1967), 346. 64 Letter from Ickes, January 1, 1943, Box 1, OF 4435, President’s Official File, FDRPL. 65 Rabe, The Road to OPEC, 88-91, 104, Painter, Oil and the American Century, 128- 135; Philip, International Political Economy of Oil, 100. 66 FRUS 1948, Vol. IX, 761-763, Memo of Conversation, July 4, 1948, and 756-759, Carrigan to State, No. 239, March 18, 1948. 67 Schneider, Oil Price Revolution, 29-30.

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domestic tax liability. The tax made Venezuelan oil more expensive, but this was manageable since the U.S. government and the oil companies were both interested in using Venezuela to meet excess U.S. demand. There was also the terminology of “fifty-fifty,” a division of profits that appeared eminently fair, “because equality implies ‘fairness.’”68 As one oil-man noted,

“from a psychological point of view,” the formula “sounded fair” and would be considered fair outside Venezuela.69 Countries cooperating with the Anglo-American majors should receive

“fair and reasonable compensation for such contribution” to U.S. interests. Energy commitment overseas would be secure if producing governments shared in the “economic benefits resulting from the development of local oil resources.”70

More spent on taxes would be offset by new profits, which the companies could secure through their control of price. During the 1930s, a crash in domestic U.S. oil prices led to the first system of controlled pro-rationing production managed by the Texas Railroad Commission, while the oligopoly had managed the international price by linking it to the price of oil in the

Gulf of Mexico.71 When the U.S. abandoned war-time controls in 1946, surging demand led to an increase in price. Sold in dollars, oil became the single most expensive import item for

Western Europe: the companies, including AIOC, realized immense profits between 1946 and

1948, thanks to the low cost of production in the Middle East.72 The European Cooperation

68 Edith Penrose, “Middle East Oil: The International Distribution of Profits and Income Taxes,” Economica 27, no. 107 (August 1960): 203-213. 69 Quoted in Irvine H. Anderson, “The American Oil Industry and the Fifty-Fifty Agreement of 1950,” in Louis and Bill, eds., 155. 70 FRUS 1946, Vol. VII, 18-22, Memo by Loftus, February 5, 1946, and 22-26, Byrnes to Gallman, March 16, 1946. 71 On the rise of the TRC as an oil-regulating body, see David F. Prindle, Petroleum Politics and the Texas Railroad Commission (Austin, TX: University of Texas Press, 1981). 72In 1950, average cost of maintaining and expanding production was 13c in the Middle East, 30c in Venezuela, 70c in the Far East and $1.18 in the United States. See Charles P. Issawi 119

Administration (ECA) which managed the Marshall Plan wanted to reduce the dollar drain on

Europe, and began pushing the companies towards bringing down the high price.73 Both the companies and the U.S. government hoped to keep the price from falling too low, and devised a new method for measuring oil’s value: the net-back formula. Price for the Persian Gulf was the delivered price of Venezuelan oil to the East Coast minus the freight cost from the Persian Gulf to the East Coast. With this mechanism in place, stable prices were achieved by 1947,

“arbitrarily related to [a market’s] geographical location and not to actual refining economics.”74

This price, known as the “posted price” when the companies began publishing it in the 1950s, was not set by competitive economics, though the companies claimed this to be the case.75 Most oil produced by the oligopoly went to affiliates, but these “sales” were incidents of accounting, not profit, since affiliates were subordinated to the profit maximization of parent companies.76

The companies managed this by matching vertical integration with horizontal integration.

A series of major oil deals in 1947 linked the companies together in a web of obligation, establishing an “equilibrium between the oil-haves/market-have-nots and their opposite numbers,” including deals where large quantities of crude were sold at discount prices far below the rate set by the net-back formula.77 Such a “neat formula” could not be expected to last

and Mohammed Yeganeh, The Economics of Middle East Oil (New York: Praeger, 1963): 54, 64-65, Leeman, Price of Middle East Oil, 89-93. 73 Leeman, The Price of Middle East Oil, 142-144, Issawi and Yeganah, Economics of Middle Eastern Oil, 68. 74 Rifai, The Pricing of Crude Oil, 172; Freeman, Price of Middle East Oil, 116-137, Cowhey, Problem of Plenty, 109-110, Issawi and Yeganah, Economics of Middle Eastern Oil, 66-70 75 Hartshorn, Politics and World, 128-129. 76 It was common in the oil world to remark that “only fools and affiliates” paid the posted price. Tanzer, International Political Economy of Oil, 14-15. 77 Paul Frankel, “A Turning Point,” International Oilman, October 1957, 96, in Paul Frankel: Common Carrier of Common Sense. A Selection of His Writings, 1946-1988, ed. Ian 120

forever, and in fact prices were adjusted in 1953 to take into account changing freight rates. Yet the method for establishing the price of Middle East oil remained more or less consistent throughout the 1950s, while the company’s control over price only began to erode after 1970.

While government officials were aware of what was occurring, “nothing was done to prevent it.”78 After the invention of posted price, return per barrel in the Middle East exceeded $1.50 per barrel while production from the region rose rapidly.79

The arrangement, which historians later dubbed the “postwar petroleum order,” was only sustainable as long as Middle East oil remained cheap, abundant and accessible. That meant securing the cooperation of regional governments. The net-back formula encouraged the companies to realize most profits (around 70%) from the production of oil, rather than its marketing, refining or transportation. Thus, profits that were divided through fifty-fifty agreements based on the 1943 deal in Venezuela were artificially high.80 The companies and producing states would profit by the new standard of equitability. The Anglo-American

Petroleum Agreement included provisions “regarding the rights and interests of native peoples in areas where oil is found.” While the agreement was never ratified by Congress, Secretary of

State George C. Marshall made it plain that its principles would be respected by U.S. oil companies.81 The rise of post-colonial nationalism and the interest in development would push

Skeet (Oxford University Press, 1989), 87. The “newcomers” consisted of Standard of California (Socal) and the Texas Company (Texaco), the owners of the Arab-American Oil Company (Aramco) in Saudi Arabia, and Gulf Oil, which owned half the Kuwait concession. Together with Shell, Jersey, Socony-Vacuum and AIOC, they formed the infamous “Seven Sisters.” 78 Philip, International Political Economy of Oil, 107. 79 Issawi and Yeganah, Economics of Middle Eastern Oil, 114. This compared to returns per barrel in Venezuela of 70c against payments of 85c. 80 Penrose, “Middle East Oil,” 208. 81 RG 59 891.6363 AIOC/2-747, Allen to State, NO. 97, February 7, 1947, 891.6363 AIOC/2-747, Marshall to Allen, No. 67, February 13, 1947.

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the companies, according to oil expert Walter Levy, “to grant more favorable conditions.” It would be “extremely shortsighted,” he thought, for companies to maintain the status quo rather than obtain cooperation from their host country “by following a most enlightened and progressive policy.”82 As oil man James Terry Duce noted in July 1949, the Saudi government was aware that revenues paid as income tax rather than royalty could be deducted from U.S. income taxes, “thus putting no increased burden” on the companies.83

The companies were not altruistic, nor were they prepared to grant governments a greater role in managing local industries which remained enclaves, separate from the rest of the national economy and managed by white technicians and administrators. This was true in the British concessions in Iran and Iraq, the Anglo-American operation in Kuwait and the American Camp in Dharan, Saudi Arabia.84 The oligopoly’s calculation that weak Middle Eastern states would be satisfied by higher revenues and the appearance of equitability through fifty-fifty proved true, at least in the short term. The governments of Saudi Arabia and Kuwait cooperated closely with companies and accepted new fifty-fifty contracts after 1950. While nationalist resistance was higher in Hashemite Iraq, the parliament accepted a concession in 1952 which dramatically increased oil revenues and allowed a new oil-funded scheme, the Iraq Development Board, to be launched with British help. Concessionaire governments, all pro-Western in alignment, assisted the companies’ efforts to manage labor unrest: a major strike among oil workers in Iraq was put

82 Walter J. Levy, “Middle Eastern Oil as an Objective in World Power,” Naval War College, January 22, 1947, in Walter J. Levy, Oil Strategy and Politics, 1941-1981, Melvin A. Conant, ed. (Boulder, CO: Westview Press, 1982), 47-62. 83 Quoted in Parra, Oil Politics, 17. 84 Vitalis, America’s Kingdom, 119. Despite long-standing myths that Americans were forced to construct racial hierarchies in Dharan by a variety of factors, Robert Vitalis argues that such hierarchies were a fundamental part of American resource extraction abroad, “identical to that of every other oil installation Americans had built in three continents across one hundred years.”

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down by the Iraq Petroleum Company with local assistance in 1946. Conscious of their heightened profiles, the oligopoly’s regional affiliates (IPC in Iraq, KOC in Kuwait, Aramco in

Saudi Arabia) engaged in welfare capitalism, touting their achievements as crucial for the economic improvement of the region.85 “Not only will countries in which oil is actually found benefit hugely from royalties,” declared Socony Middle East director C.L. Harding in September

1949, “they will [also] derive extensive advantages from technical training…educational, hospitalization and housing projects,” and extensive “agricultural development” from the undertakings of the companies.86

Oil bound the Middle East to the postwar U.S. international order through a number of intersecting avenues. International aid organizations like the World Bank and Ford Foundation advertised their expertise and assistance, U.S. diplomats expanded their presence in the region’s capitals while oil men offered cash-strapped regional leaders the chance to solidify their hold on power and squash communist insurgencies. Nowhere, including Iran, did such efforts result in substantive changes to the existing socio-economic status quo, but the rhetoric of the companies did fit into the wider realm of American foreign policy, which had come to emphasize economic development in the Third World.

Influenced in part by the attitudes of men like Thornburg, the U.S. government came to regard the protection of producer-state interests as a necessary component of a stable international energy system. The money that was earned through oil could be pumped into

85 Vitalis, America’s Kingdom, 88-120; Paul W.T. Kingston, Britain and the Politics of Modernization in the Middle East, 1945-1958 (New York: Cambridge University Press, 1996): 97-122; Bet-Shlimon, “The Politics of Ideology of Urban Development in Iraq’s Oil City: Kirkuk, 1946-58,” 26-40. 86 “Middle East Oil: Its Development and Importance to Socony-Vacuum,” Based on a Talk by C.L. Harding, September 1949, Exxon-Mobil Collection, Box 2.207/E183.

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programs of economic development, to enrich the producing states and provide stability to their governments. This strategy was referred to as “reconstruction” in the industrial world and

“development” when applied to “backwards” areas, where communism emerged “as an alternative modernity.”87 Though it lacked a strong ideological focus until the emergence of modernization theory in the 1950s, development was expressed in U.S. policy through the

Truman Doctrine, Marshall Plan, and Point Four program.88 Wary of appearing neo-imperialist and conscious of what domestic American opinion would allow, the Truman Administration focused on administering aid through international organizations: the International Monetary

Fund (IMF) and the World Bank (the International Bank of Reconstruction and Development, or

IBRD). Non-profit organizations like the Ford, Rockefeller, and Carnegie Foundations, as well as smaller groups like the Near East Foundation saw the overseas mission as a way to promote

“islands of progress” in under-developed areas, while private companies worked to secure mineral resources abroad in order to increase investment in developing countries and satisfy

American demand.89 Development formed a nexus around which state and private actors could congregate, “a new style of diplomacy” that imagined the forces of technology, finance and

“know-how” applied to the weighty issues affecting the lives of Third World citizens.90 It was

87 Westad, The Global Cold War, 17. 88 Latham, Right Kind of Revolution, 25-32, Melvyn Leffler, A Preponderance of Power: National Security, the Truman Administration and the Cold War (Stanford, CA: Stanford University Press, 1992), 141-181. 89 RAC Near East Foundation Records, Box 126, “Program of Rural Development in the Varamin Plains of Iran, 1946-1959.” Inderjeet Parmar, Foundations of the American Century: the Ford, Carnegie and Rockefeller Foundations in the Rise of American Power (New York: Columbia University Press, 2011), Megan Black, “Interior’s Exterior: The State, Mining Companies, and Resource Ideologies in the Point Four Program,” Diplomatic History 40, no. 1 (January 2016): 81-110. 90 Cullather, The Hungry World, 5, 6-7

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quite explicitly a Cold War project, one that the U.S. was determined to win: a war for hearts and minds and stomachs waged across the non-industrialized, post-colonial world.91

George C. McGhee, Assistant Secretary of State for the Near East, noted that in the major oil-producing regions, local peoples faced “a basic reality—the fact of poverty amid potential plenty.”92 The promise of higher standards of living was bringing about a “revolution in rising expectations,” that could potentially threaten the prevailing status quo, accelerate de-colonization and offer openings to communist groups. Gordon R. Clapp, the director of the Tennessee Valley

Authority (TVA) and a renowned American engineer, examined the issue of Middle East development for the United Nations. “As a source of energy and an export to gain hard currency, oil is the outstanding economic link between the West and the Middle East,” yet on its own it could provide work for only a few thousand. The companies’ public-relations material notwithstanding, investment in oil alone would not be enough to practically raise standards of living throughout the region; Clapp recommended large-scale investment in agricultural development and political provisions like land reform.93 The World Bank noted that, “with the exception of oil in Iran and the Arab lands,” the Middle East possessed little outside of agricultural resources: “it may be said that water, not oil, is the liquid gold of the Middle East.”

The region, however, suffered from serious shortage of capital and skilled personnel, while land was generally held in antiquated tenure-based systems where an entrenched aristocracy

91 Westad, The Global Cold War, 8-38. 92 McGhee Papers, Box 2, “Economic Development and the Near East,” Speech at Harvard University, August 9, 1950. 93 “An Approach to Economic Development: A Summary of the Reports of the United Nations Economic Survey Mission for hate Middle East,” Gordon S. Clapp, May 14, 1950, Gordon S. Clapp Papers, Box 3, Truman Library.

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controlled production and prevented the emergence of a prosperous rural middle-class. These limitations, “rather than physical difficulties,” were likely to hold back development.94

Great Britain, which remained the Middle East hegemon, recognized a change in policy was needed after the war. Foreign Secretary Ernest Bevin advocated an approach that emphasized “peasants, not pashas” and aimed at encouraging bottom-up economic development and socio-economic reform.95 This new approach was tied quite clearly to Britain’s investment in oil. Oil produced by AIOC and Shell was bought and sold within the sterling zone, thanks to a special arrangement reached between the companies and the two governments during the 1948-

1949 sterling convertibility crisis. Preserving the value of “sterling oil” was of paramount importance to the British economy and the national balance of payments. To encourage development in oil producing regions, the British Middle East Office (BEMO) provided direct technical assistance to Middle Eastern governments.96

The U.S. approach, however, was indirect. Depending on the British to keep the peace, it would work through organizations like the World Bank, continuing a war-time approach to the region that relied on third parties and proxies, as well as the efforts of local governments.97

Major assistance was provided to Greece and Turkey in 1947 as part of the Truman Doctrine, but otherwise the U.S. opted to leave the initiative in the hands of the British and private groups. In

Iran, a policy of “private sector developmentalism” would predominate, with individuals and

94 Feliks Bochenski and William Diamond, “TVA’s in the Middle East,” Middle East Journal 4:1 (Jan. 1950): 52-82. 95 Louis, The British Empire in the Middle East, 1945-1951, 1-50, Kingston, Britain and the Politics of Modernization in the Middle East, 1-9. 96 Galpern, Money, Oil and Empire in the Middle East, 1-22. 97 Nathan Godfried, “Economic Development and Regionalism: United States Foreign Relations in the Middle East, 1942-5,” Journal of Contemporary History 22, no. 3 (Jul., 1987): 481-500.

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organizationsm acting as vehicles for state policy. The “chosen instrument” of this detached U.S. approach was none other than Max W. Thornburg.98

2.3 Ebtehāj, Barnameh Rizi, and the U.S. Attitude in Iran

After leaving the State Department, Max Thornburg re-invented himself as an

“international oil consultant” and an expert on economic reconstruction. In May 1946 he visited

Iran on behalf of U.S. oil companies, though his true reasons for appearing in the country at the height of the Soviet oil concession crisis were opaque.99 Out of government service, Thornburg had achieved much: working for the Bahrain Oil Company (BAPCO), Thornburg acquired a private island in the Persian Gulf, where he was highly regarded as a man “who understands the resources and the limitations” of the Middle East economies.100 While passing through Tehran,

Thornburg sat down for a long meeting with the head of Iran’s Bank-i Melli, Abu’l-Hạsan

Ebtehāj. The two men discussed oil, economics and Iran’s plans for the future. Ebtehāj, who had served the Pahlavi government since the late 1930s, described Rezā Shah’s first explorations of a central development plan, which had failed, “due to the shah’s lack of interest.” Thornburg suggested that financial support for a development plan could be found in oil revenues, but that

98 Qaimmaqammi, “The Catalyst of Nationalization,” 1-31. 99 The British were told Thornburg was visiting on behalf of the Bahrain Oil Company (BAPCO) and Shell, though both companies denied this and BAPCO urged the British to organize Thornburg’s removal. U.S. Secretary of State James Byrnes regarded his presence as “embarrassing,” as it would indicate on-going U.S. interest in an oil concession. Under such pressure, Thornburg left Iran after only a few days; it would appear he made the journey in order to make connections with the Pahlavi government and pursue his own interests. FO 371/52728 E 6247 Cypher Telegram, Secretary of State for India to Political Resident, July 2, 1946, E 6248 Petroleum Division to Pyman, July 5, 1946; RG 59 891.6363/5-2046, Byrnes to Allen, No. 452, May 22, 1946. 100 Collado to McCloy, April 21, 1947, Iran—General—Correspondence—Volume 1, Records of the Middle East and North Africa Regional Vice Presidency (RMENARVP), WBGA.

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technical expertise would be needed. Ebtehāj eagerly agreed with Thornburg on most points, revealing that the Bank had “a very large sum…in dollars or sterling,” built up from years of oil revenues. What he required was “a well-conceived program, in which various projects were accorded priority commensurate with their soundness and importance.” The two men agreed to consult one another in the future, but their shared vision for Iran was clear even at that early stage: development could be successful if it was properly managed by an independent organization, separated from Iran’s dysfunctional administration, and steadily supplied with oil revenues.101

Iran, like other nations in the area, appeared ripe for a program of economic development. The distribution of wealth was uneven, with virtually all the economic activity concentrated in the hands of the “Thousand Families,” Iran’s aristocracy. President Roosevelt was struck during his visit in 1943 by the rampant inequality in a country “[where] less than one percent of the population owns practically all the land.”102 Most peasants owned no land of their own and looked to landlords for political representation and protection from severe economic dislocation. Any welfare institutions that existed were managed either by the landlords or by the

Shi’a religious endowments (vaqf).103 The crisis in Azerbaijan and the rise of the Tudeh Party, with its reformist platform and open calls for the end to landed estates, placed new pressure on the government to respond with a program of its own: as one observer noted, the shift in the

Qavām government towards “planning” (barnāmeh rizi) came in response to the challenge of the

101 RG 59 891.50/5-3046, Thornburg to Allen, May 20, 1946; Goode, United States and Iran, 43-44 102 Memo for the President, January 12, 1944, Box 1, OF 134, President’s Official File, FDRPL 103 Hooglund, Land and Revolution, 12-35.

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Iranian left, and was meant to function “as an alternative to the reforms promised by the Tudeh

Party.”104

Ahmed Qavām, appointed by the shah to steer the country through the Azerbaijan crisis, began the push towards a planning strategy and convened a Supreme Economic Council in

March 1946. The Council hastily organized a strategy for “raising the standard of living,” that would cost $1.5 billion, an astronomic sum that Iran had no way of collecting, either independently or with foreign help.105 The Qavām government hired an American engineering firm, Morrison-Knudsen Inc. (MKI), to conduct a survey of Iran and come up with a more reasonable figure. Qavām announced the country’s Seven Year Plan, “for the development of the resources of the country and the general improvement of Iranian education, health and economic conditions,” in March 1947, but did not specify any projects. The announcement was dismissed as “propaganda” by both U.S. and British embassies, regarded chiefly as a component of

Qavām’s design to dominate Iranian politics.106 When the young shah succeeded in ousting

Qavām from power in late 1947, his supporters took over management of the Seven Year Plan, which stilly only existed on paper. The shah placed his half-brother Prince Adborezā at the head of the Sāzmān-i Barnāmeh, or “Plan Organization” that would oversee the project, while technical and financial aspects were supervised by a small cadre of technocrats: Dr. Taqī Naṣr,

Musharraf Nafīsī, and Abu’l-Hạsan Ebtehāj.

104 FO 62001 E 231 Embassy in U.S. to Eastern Department, December 28, 1946; Summary of Conversation with Ebtehāj, December 18, 1948, Iran—General— Correspondence—Volume 3, RMENARVP, WBGA; Goode, United States and Iran, 40-41. 105 Ettela’at, March 30, 1946; Ebtehāj, Khātirāt, 314-321. 106 RG 59 891.50 SEVEN YEAR PLAN/4-947, US Embassy Tehran No. 354, April 19, 1947; ‘Ali Amīnī, Khātirāt-i ʻAlī Amīnī: nukhust vazīr-i Īrān, 1340-42 [Memoir of ‘Ali Amīnī, Prime Minister of Iran 1961-62] Habib Ladjevardi, ed. (Cambridge MA: Center for Middle Eastern Studies of Harvard University and Distributed by Ibex Books, 1995): 47-51; Abrahamian, Iran Between Two Revolutions, 240-245.

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“Honest, outspoken, detail-oriented and demanding,” Ebtehāj entered public service shortly after the ascension of Rezā Shah, advising the government on economic matters in 1937.

Before that he had worked in the British-owned Imperial Bank of Persia, where he earned a reputation for combative behavior. Comfortable in foreign environments, with a good grasp of

English and French, Ebtehāj was a consummate technocrat, obsessed with the minutiae of financial management. His reputation earned him a spot on Rezā Shah’s economic council, which met briefly in 1937-1938. Ebtehāj thought it “impractical” for the government to embark upon a program without a detailed plan indicating “what can be done in a certain time with a certain budget,” and he abandoned the effort, focusing instead on his work at the Bank-i Melli.107

Ebtehāj was from the earliest stage Iran’s principle “idea man” and “energizer” for central planning. His philosophy consisted of three interrelated beliefs. The first was that the country’s oil wealth, its primary means of increasing productivity, could not be wasted on non- productive expenses, particularly military costs. The second belief was that, for development to succeed, it had to be placed in the hands of an independent, non-government agency that could operate free of Iran’s corrupt central administration. The third, and most controversial view, was that Iran could not manage its development effort without foreign assistance. For this reason,

Ebtehāj sought out expert advice from foreign firms: he recommended to Qavām that Morrison

Knudsen be hired in 1946 and he frequently consulted with the World Bank, where he had cultivated good relationships with officials such as Hector Prud’homme and Eugene Black.

107 RG 84 USLETCGR, 1945-51, Box 23, Thorp to McGhee, September 14, 1949; Ebtehāj, Khātirāt, Vol. 1, 399, 403; Bostock and Jones, Planning and Power in Iran, 38-41, Abdolrezā Ansari, The Shah’s Iran, Rise and Fall: Conversations with an Insider, trans. Katayoon Ansari-Biglari (London: IB Tauris, 2017), 107.

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His one-off meeting with American developmentalist and oil-man Max W. Thornburg in

1946 laid the foundation for a working relationship that would last until 1950, and in 1948 the

World Bank recommended that Thornburg’s development firm Overseas Consultants Inc. (OCI) be contracted by Iran to provide a blueprint for the economic development plan. Ebtehāj’s ideas were not radical, but reflected the contemporary consensus that economic growth could over time raise living standards and create social and economic equity; rather than turn industries over to state ownership, public spending could lead the way for private capital. “Some degree of national planning,” he would later remark, “is essential…if underdeveloped countries are to break the vicious cycle of poverty and stagnation.”108

Ebtehāj’s concepts were expressed in lucid form by his protégé, Musharaff Nafīsī, who wrote a report on the Plan in January 1948. Rather than concentrate on advanced industries, development spending would go towards improving the economy’s foundations: private capital would eventually follow public oil-based spending. A seven-year plan would work to enhance

Iran’s economic infrastructure, agricultural and industrial production, education, health services and transportation system. Sophisticated by the standards of the day, it was praised by Thornburg as the most impressive economic plan he had ever seen.109 To supply the twenty-one billion rials

($650 million) needed, Nafīsī proposed financial reforms and a program of private investment. A loan of $250 million would be requested from the World Bank, facilitated through the assistance of Iran’s U.S. ally.110

108 Quoted in Bostock and Jones, Power and Planning in Iran, 93; Ebtehāj, Khātirāt, 399- 402. 109 RG 59 891.50 SEVEN YEAR PLAN/6-2248, Enclosure No. 3, “Memorandum on the Naficy Plan,” March 12, 1948. 110RG 59 891.50 SEVEN YEAR PLAN/2-2048, Forwarding Memoranda Prepared in British and American Embassies, Enclosure No. 1, “Examination of the Naficy Report,” February 20, 1948; Bostock and Jones, Planning and Power, 97-98

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The bulk of the Plan’s long-term funding would come from oil. Nafīsī explained that oil revenues “cannot be regarded as revenues to be earmarked for current expenditure,” and must be applied “to productive and public-utility works in accordance with a fixed program.” As a

“vanishing asset,” oil needed to be invested into capital development projects, so as to prevent the general decline in Iran’s national wealth. “Oil is like the blood which runs in the veins of our country,” wrote Nafīsī, and a nation “which has sold its blood for a fixed payment has no right to spend its blood on non-productive expenditure.”111 Nafīsī recommended that foreign technicians be employed and a special “Plan Organization” (Sāzmān-i Barnāmeh) be created to oversee the entire operation. The Plan Organization would be independent from the central ministers, which

Nafīsī and Ebtehāj both felt were corrupt, mismanaged and susceptible to foreign influence.112

The support of Iran’s young shah was crucial for Ebtehāj’s plans. Educated in

Switzerland, fluent in English and French, Mohammed Rezā Pahlavi was twenty-one when he was placed on the throne in 1941. To many foreign observers, he seemed a contradictory figure.

Described by one contemporary as “young, timid…exacerbated by his own superficiality as well as lack of knowledge and experience,” he generally left a good impression with U.S. officials, who thought him “affable…full of good intentions…[with] little conception of how to put them into action,” influenced by the “poor advice of his official and unofficial entourage,” particularly his mother and twin-sister Princess Ashraf. “Too westernized for an Oriental country,” in

Ambassador John C. Wiley’s blunt language, the shah seemed genuinely committed to helping his country, yet was also determined to defend himself and the monarchy from any apparent threat; the legacy of his father’s coup d’etat, coronation and eventual abdication loomed over his

111 BP 80924 F. Rouhani to London, No. 91269, January 25, 1948. 112 RG 59 891.50 SEVEN YEAR PLAN/3-1948, Somerville to State, No. 296, March 19, 1948, 891.50 SEVEN YEAR PLAN/3-2448, US Embassy No. 88, March 24, 1948.

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reign.113 He sought to increase his power over the Majlis, yet worried doing so would make him appear a “fascist reactionary.”114 Anglo-American officials were wary of indulging the shah’s clear desire to expand his own prerogatives. The shah’s ambition “[showed] the cloven-hoof of the would-be dictator,” and it was believed that strengthening the shah with overt aid would only exacerbate existing political tensions.115 This did not prevent the U.S. from frequently wishing that a “strong government” would come to power. The downfall of Rezā Shah had left Iran with a “weak constitutional regime,” for which the Iranians were unprepared “by tradition or experience.” A conservative strong-man, wrote Ambassador Allen, would be preferable “to the chaotic and corrupt condition we now have.”116 To the U.S. and British, the shah seemed ill- suited for such a role.

While oil would provide much of the early funding, the shah and his ministers expected financial assistance. The first overture, made by Ambassador to the U.S. Ḥusayn ‘Alā in October

1946, emphasized the U.S. war-time commitment to help re-construct the shattered country: an attempt to raise all the capital needed for a development plan (which ‘Alā estimated would cost

$470 million) locally “would tend to lower the standard of living” rather than raise it.117 But the

113RG 788.00/1-3050, Wiley to Acheson, No. 45, January 30, 1950; Dr. Qasim Ghani, quoted in Katouzian, Musaddiq, 48; State Department, “Background Memoranda on Visit,” November 1, 1949, Harry S. Truman Papers, White House Confidential File, Box 40, Truman Library; Azimi, Crisis, 192; Bill, Eagle and the Lion, 192-197. 114 RG 891.00/7-1645, Murray to Byrnes, July 16, 1945. 115 FO 371/68711 E 1040 Minute by Pyman, February 11, 1949, FO 371/68712 E 4086, Inverchapel to FO No. 1529, March 30, 1948, FO 371/68714A E 12782, Minute by Clinton- Thomas, October 4, 1948. 116 RG 891.00/8-2345, Memo by Henderson (Dir. NEA) to Byrnes, “United States Policy Toward Iran,” August 23 ,1945; RG 891.00/12-2647, Allen to Jernegan, December 26, 1947, 891.6363/9-947, Allen to Marshall, September 9, 1947; Bill, Eagle and the Lion, 48-50. 117 Hussein ‘Ala, Memorandum, October 25, 1946, Iran—General—Correspondence— Volume 1, RMENARVP, WBGA.

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U.S. did not extend significant aid to Iran. Such a policy, at a time when billions were spent rebuilding Western Europe through the Marshall Plan while hundreds of millions were given in aid to Greece and Turkey under the Truman Doctrine, was bitterly resented by the Iranian government. This “diplomacy of neglect” practiced with Iran was calculated and, from

Washington’s perspective, entirely justified.118 After the Azerbaijan Crisis, the U.S. was wary of openly antagonizing the Soviets. In the event of a Soviet invasion, Iran would be capable of offering only token resistance. The U.S. mission to Iran’s army (ARMISH) focused on training

Iranian officers to maintain the country’s internal security, and to offer prolonged resistance after a Soviet invasion.119 Rather than offer Iran heavy armaments, U.S. assistance aimed at improving internal security and stability, “a prerequisite to the execution of any economic development program.”120 The collapse of Nationalist China in 1949 demonstrated the inadequacies of military assistance without proper support for real socio-economic reforms. There were also domestic political concerns to consider: a large-scale aid program for Iran would have been hard to sell to a suspicious Congress.

Despite the non-stop pressure from the shah and his ministers and the frequent advice of

U.S. ambassadors, from offices in Washington D.C. Iran did not seem to need economic aid. The country had a positive balance of payments and access to foreign exchange in the form of oil revenues. In the opinion of Truman’s State Department, Iranians “exaggerated” the damage done during the war. Iran’s financial resources “are adequate for her present requirements.” The U.S. could best contribute through providing experts and encouraging “specific measures within the

118 Goode, The United States and Iran, 1946-51, 23-24. 119 Ricks, “U.S. Military Missions,” 176. 120 RG 59 891.51/3-1047, Allen to State, No. 175, March 10, 1947, 840.20/10-1148, Memo by Jernegan to Thurston, October 11, 1949

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exclusive competence” of the Pahlavi government.121 If the government passed fiscal reform to devalue the rial, something Ebtehāj was particularly eager to do, it would have enough foreign exchange to fund a development program for at least two years. Introducing a large loan would increase inflationary pressures on the domestic economy.122 What Iran needed was not money, but planning. Both the U.S. and British praised the Nafīsī Report, but agreed with Ebtehāj that it was unlikely to succeed without foreign assistance.123

“Diplomacy of neglect” co-existed with private-sector developmentalism and another, more subtle but no less apparent feature of American policy: a persistent emphasis on Iranian incapacity. Americans widely saw Iran as a country in desperate need of reform, “sick” with the disease of backwardness; an ailment that descended from the very top of Iranian society. Reform in Iran, as one war-time advisor put it, “boils down to the elimination of thieves in high places.”124 Americans found a country riddled with mismanagement and graft, “a government of the corrupt, by the corrupt, for the corrupt,” on the verge of “economic chaos and possible revolution.”125 Millspaugh himself criticized the “Iranian mentality” for the failure of his advisory mission, and noted at the outset that Iran’s professional bureaucrats “need someone who

121 RG 59 891.51/2-2846, Memo of Conversation, February 28, 1946: Dillon Glendinning and Clyde Dunn (US Embassy); RG 84 USLETCGR, 1945-1951, Box 23, Webb to Wiley, No. 477, May 25, 1949 122 Preliminary Analysis of Proposed Iranian Application for a World Bank Loan, Randall S. Williams, Attaché, Undated, Iran—General—Correspondence—Volume 1, RMENARVP, WBGA. 123 RG 59 891.50 SEVEN YEAR PLAN/2-2048, US Embassy No. 51, February 20, 1948, FO 371/68711 E 763 Minutes by Pyman, January 21, 1948. 124 891.51A/1-645, Lewis to Stettinius, Enclosure No. 1 Letter from Hudson to Allen, December 22, 1944. 125 RG 59 891.51A/1-645, Lewis to Stettinius, Enclosure No. 1 Letter from Hudson to Allen, December 22, 1944.

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can protect them when they do good work and discipline them when they go wrong.”126 One

American felt the early difficulties with development planning in Iran were due to the “cultural rejection” of Western administrative norms, especially the failure to inculcate a habit of

“thinking ahead” among Plan Organization officials.127 The country lacked “the necessary leadership either at the top political level…or at the lower technical and managerial level.” One official advocated for “a complete revolution of the present system of management,” which could only be accomplished “under the temporary control of foreigners.”128 The conflict within the Iranian political system, wrote Ambassador John C. Wiley, “[arises] in large part from ignorance or lack of understanding of basic economic financial factors.” Problems or delays were frequently blamed on foreign intrigues: “the average Iranian…has always placed the blame of his country’s misfortune on the shoulders of one foreigner or another “129 Wiley was a consistent advocate for greater U.S. aid to Iran, yet he consciously characterized it as a way for expanding

U.S. control over the Iranian government: a grant, “properly controlled,” would give the US the ability “to shape course of events; though of course our control should remain imperceptible.”130

126 RG 84 Records of the Embassy, Tehran, Box 2, Folder 4, 801.A-Financial Mission, Enclosure No.2, Paul A. Alling to Dreyfus, 14 October 1942. Millspaugh left Iran in 1944 embittered by his failure, for which he blamed both the U.S. government and the Pahlavi regime. This attitude colored his subsequent account of his adventures: see Millspaugh, Americans in Persia, 1-20. 127 Baldwin, Planning and Development in Iran, 32-33. 128 RG 59 891.50/8-1746, Memo by Dean Acheson, August 17, 1946, 891.50/10-848, Memo of Conversation, October 8, 1948, 891.51/2-2846, Memo of Conversation, February 28, 1946, 891.50 SEVEN YEAR PLAN/6-2248, “Need for Improving the Economic Conditions in Iran,” 91.50 SEVEN YEAR PLAN/6-2248, US Embassy No. 179, June 22, 1948, Enclosure No. 3, “Memorandum on the Naficy Plan,” March 12, 1948, 891.60/6-2847, Allen to State, No. 575, June 28, 1947, 891.50/10-848, Memo of Conversation, October 8, 1948. 129 RG 59 891.50 SEVEN YEAR PLAN/7-849, Wiley to State, No. 895, July 9, 1949, RG 84 USLETCGR 1945-1949, Box 23, Wiley to Waggoner, July 20, 1949. 130 RG 84 USLETCGR 1950-1952, Box 35, Wiley to State, no. 179, February 1, 1950, Richards to Acheson, No. 673, April 13, 1950.

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It was certainly true that Iran’s government was riddled with corruption, that administration was poor and services inefficient. But the American attitudes reflected more than a simple diagnosis: such feelings represented an ideology of racial hierarchy deeply embedded in

American foreign policy and modernization theory, particularly as it was expressed in the Middle

East.131 Just as U.S. policy towards oil concessions in Iran had been riven with contradiction, so too was American support for development affected by conflicting feelings, limited expectations, and paradoxical interests. American developmentalists, mandarins of modernity like Thornburg, and aid organizations like the World Bank hoped to achieve progress and believed that petroleum offered the clearest way forward. Development delivered through a massive centrally-organized disbursement plan could only serve to enrich the ruling class at the expense of the peasants; increasing agricultural productivity, for example, would put more money into the pockets of

Iran’s aristocrats if it was not paired with land reform measures.132 Iran needed economic development, a “controlled revolution.” But this revolution could not disrupt the political status quo in any way that would jeopardize the pro-Western alignment of the Pahlavi regime or threaten the position of the main U.S. ally, the shah.

Lacking U.S. aid, the Pahlavi regime’s development plan stumbled from crisis to crisis.

Immense time was spent compiling surveys and reports: Morrison-Knudsen, Nafīsī and then OCI spent months delivering outlines of the Plan, delaying the beginning of real development

131 Edward Said, Orientalism (New York, NY: Pantheon Books, 1978), 1-4; Hunt, Ideology and U.S. Foreign Policy, 160; Little, American Orientalism, 9-42, McAlister, Epic Encounters, 1–42; Jacobs, Imagining the Middle East, 1–22; Andrew Warne, “Psychoanalyzing Iran: Kennedy’s Iran Task Force and the Modernization of Orientalism, 1961–3,” The International History Review, 35, no. 2 (2013), 396–422. 132 Penton to Hill, October 31, 1947, Iran—General—Correspondence—Volume 1, RMENARVP, WBGA.

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work.133 Authorization from the Majlis for oil revenues to be redirected to the Plan Organization did not come until February 1949, when an assassination attempt on the shah temporarily buoyed his prestige and permitted his supporters to push through both a Plan bill and constitutional reform increasing his prerogatives. The Seven Year Plan was budgeted at 21 billion rials, roughly $650 million at the fixed exchange rate, and all oil revenues would be diverted from the normal budget to pay for development projects.134 Yet months of further debate over the Plan

Organization’s relationship to the government and Majlis delayed progress. The frequent change in cabinet continually altered the focus of Plan operations, “according to the taste of the prime minister.”135 The shah was convinced in July 1949 to re-direct Plan funds to the military by the

Army Chief of Staff, ‘Ali Razmārā.136 The delays proved too much for Nafīsī, who resigned in frustration over the glacial progress of the Plan and the constant denunciation of Plan leadership by the Majlis in early January 1949.137 His replacement, the young and inexperienced Dr. Taqī

Naṣr, made the disastrous decision of using the Plan funds to buy-out all the state-run factories.

This bankrupted the Plan Organization, and a cabal of politicians led by Ebtehāj and

133 FO 371/69713 E 11666, Minute by Clinton-Thomas, September 8, 1948. 134 RG 59 891.50/3-349, Weekly Economic Airgram, March 3, 1949. 135 Jaʻfar Sharīf Imāmī, Khāṭirāt-i Jaʻfar Sharīf Imāmī: nukhust-i vazīr 1339-1340 va 1357 [Memoirs of Jaʻfar Sharīf Imāmī, Prime Minister of Iran 1960-1961] Habib Ladjevardi, ed. (Cambridge MA: Center for Middle Eastern Studies of Harvard University and Distributed by Ibex Books, 1999): 141. 136 RG 59 891.50/6-949, Wiley to Jernegan, June 9, 1949 137 RG 59 RG 59 891.50/9-2448, Weekly Economic Airgram, September 27, 1948, 891.50/1-2149, Weekly Economic Airgram, January 21, 1949, 891.50/1-2849, Weekly Economic Airgram, January 28, 1949, FO 371/75482 E 1171 Le Rougetel to FO No. 68, January 24, 1949; Ebtehāj, Khātirāt, 327-328.

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conservative politician ‘Alī Manṣūr removed Taqī Naṣr and brought back Nafīsī in the late summer of 1949, wasting yet more time in Cabinet-level intrigues.138

Overseas Consultants Inc., under Thornburg’s guidance, was to provide technical assistance to the Plan Organization, something both the U.S. government and the World Bank thought crucial, since the Iranian government appeared too corrupt and inept to manage the effort itself. Thornburg felt the Plan lay “beyond the capacities of the agencies of the Iranian government,” and recommended that foreign experts be given “full managerial responsibility,” with a “gradual transfer” to Iranians once “local managing personnel” had been trained. Ebtehāj,

Nafīsī and the Pahlavi government all responded favorably to his suggestion, and preparations to bring in Thornburg’s consulting firm OCI began in mid-1948.139 The organization was a consortium of engineering and administrative consulting companies, and had been active in the reconstruction of Japan after the war. Thornburg led the OCI advisory mission, which spent 1948 and 1949 preparing a massive outline for the Seven Year Plan: if accepted, the outline would be used by OCI as a blue-print for the Plan. British developmentalists working with OCI were unimpressed with Thornburg’s team: “uneven in quality, inclined to be small-minded, jealous and suspicious as mice,” the OCI mission was filled with Wall Street bankers representing

“American business interests,” who seemed more interested in opening up Iran to investment and

138 RG 59 891.50 SEVEN YEAR PLAN/7-149, US Embassy No. 174, July 1, 1949, Enclosure No. 1, Memo of Conversation, June 29, 891.50 SEVEN YEAR PLAN/7-849, US Embassy No. 179, July 8, 1949, Enclosure No. 1, Discussion with Ebtehāj, July 5, 1949; FO 371/75485 E 6581, Le Rougetel to Bevin, July 4, 1949, FO 371/75486 E 10464, Lawford to FO, August 23, 1949; Ebtehāj, Khātirāt, 327-331. 139 RG 59 891.50 SEVEN YEAR PLAN/6-2248, US Embassy No. 179, June 22, 1948, Enclosure No. 3, “Memorandum on the Naficy Plan,” March 12, 1948, Enclosure No. 4, Thornburg to Naficy, March 16, 1948.

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undercutting traditional British interests than in accomplishing broad economic development.140

Thornburg himself appeared motivated in part by personal ambition, and his team charged high rates for their services, which further irritated the Iranians and opened up OCI to criticism in the

Tehran press.

Political opposition to the Plan was fierce. Major landowners, particularly the religious leadership, perceived development as a threat to their position and opposed it bitterly. Populists like Kāshānī declared it a “godless enterprise.”141 Sayyed Hasan Taqīzādeh, the de facto leader of conservative faction in the Fifteenth Majlis, opposed the Plan on the grounds it would produce budget deficits and weaken the rial, which remained artificially inflated due to Majlis resistance to increases in the note issue. A Majlis committee of five deputies was formed to regulate Plan operations, an extra layer of bureaucracy which slowed down the implementation of projects.142

Moṣaddeq’s nationalist group opposed it as a further attempt by foreigners to subjugate Iran while bolstering the illegitimate power of the shah. Opposition groups saw the Plan as a U.S.- backed scheme to expand the dictatorial powers of the shah. The Tudeh viewed development as a capitalist ploy and a distraction from the real reforms that could come from a change in government; the communist press savaged the sluggish progress of the Plan, regularly pointing out its notable lack of real achievements. The Tudeh, assisted by Soviet propaganda broadcast throughout the northern provinces, denounced the government’s stalled economic reconstruction programs and proposed a comprehensive reform program that included women’s suffrage, wage and labor laws, land reform and democratic government. Sayyed Ziā Tabatābāī, Rezā Shah’s

140 FO 371/75485 E 6932 Ross to Bevin, May 31, 1949, “Interim Report to the Plan Organization,” OCI May 16, 1949, E 7369 Report by Maitland, May 1949. 141 Azimi, Crisis, 192. 142 Imāmī, Khāṭirāt, 140-141.

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former collaborator in 1921 who had returned to the country during the war, formed an alliance with the Tudeh in May 1948, promising to implement a four-point reform platform and the end to royal “dictatorship.” The group enjoyed strong support among the industrial working class and educated bourgeoisie, who amidst the press and political revival was coming to resent the entrenched power of the pro-Pahlavi aristocrats.143

Ebtehāj, a combative and suspicious man, feuded endlessly with other technocrats.

Though the shah and his ministers spent much of 1946-1950 requesting loans and grants from the U.S. and World Bank, Ebtehāj himself was opposed to any loans for “non-productive purposes.” Iran’s financial position was sound, her external debts were negligible, and foreign exchange could be obtained “through the oil royalties.” He was willing, and in fact quite eager, to obtain World Bank technical assistance, despite the political resistance to foreign advisors.144

Ebtehāj continued to see fiscal reform as the necessary precondition for a successful development program: it was “criminal” that he sit on $190 million in gold and foreign exchange, “when eighty percent of the people are naked and hungry and unable to live like human beings.” Ebtehāj also insisted on pushing forward the devaluation of the rial, which would permit the Bank-i Melli to release new banknotes to finance the Plan; the policy was incredibly unpopular in the Majlis, where landowners worried it would bring back war-time inflation, and among the middle-class who already struggled with growing inflation in the

143 Bamberg, Vol. II, 384-385, Bostock and Jones, Planning and Power, 104-105; Abrahamian, Iran Between Two Revolutions, 316-317, 328-371. 144 Statement by Mr. Ebtehāj, June 7, 1948 (Khordad 17, 1327), Summary of Conversation with Ebtehāj, December 18, 1948, Iran—General—Correspondence—Volume 3, RMENARVP, WBGA.

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bazaar.145 While proficient at the particulars of financing development, Ebtehāj had no skill for politics, and made countless enemies in his quest to fund the Plan.

Watching the dysfunction from afar, U.S. policy-makers and the World Bank pushed for a “flash” program that could be implemented quickly, “since Iran has had so many plans and so little actual performance.”146 Small pilot projects could illustrate the utility of U.S.-assisted development, overcoming nationalist antagonism towards foreign expertise and building popular support for the Plan. The final OCI report, delivered in October 1949, advocated gradual changes to the country’s prevailing socio-economic structure, with a long-term heavy reliance on foreign advisors. The Seven Year Plan, “a bold and constructive step” toward improving the lives of all

Iranians, would be successful so long as efforts were focused on improving agricultural production and transportation infrastructure; OCI recommended the sale of state factories to private investors and the use of contractors who could manage projects “with almost complete responsibility,” independently from the Iranian authorities.147

The OCI report clarified little; its merits were fiercely debated in the Majlis, while many deputies protested Thornburg’s steep price tag. A succession of prime ministers had failed to deliver on the promises made by Qavām and Ebtehāj in 1946. Both the 1948 and 1949 harvests had failed and famine conditions were driving thousands into the cities where unemployment and

145 Abrahamian, Iran Between Two Revolutions, 339. 146 RG 59 891.50 SEVEN YEAR PLAN/4-1649, Wiley to State, No. 509, April 17, 1949, 891.50 SEVEN YEAR PLAN/6-2248, US Embassy No. 179, June 22, 1948, 891.50/10-848, Memo of Conversation, October 8, 1948; RG 84 USLETCGR, 1945-51, Box 23, Jernegan to Wiley, April 26, 1949; Van Engert to Iliff, December 22, 1948, Iran—General— Correspondence—Volume 3, RMENARVP, WBGA. 147 OCI, Report on the Seven Year Development Plan for the Plan Organization of the Imperial Government of Iran (New York, 1949), Vol I, 3-7; Vol. V, 239; FO 371/75486 E 10869, Letter from OCI to Alexander Gibb & Partners, FO 371/75486 E 12892, Note by Leavett, October 25, 1949.

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the cost of living grew daily. “This condition, if allowed to exist, will point the Iranian peasant class toward the Soviets,” wrote one U.S. official. “Economic deterioration and political helplessness,” wrote Ambassador Wiley, “have brought this country to a point where it has become ripe fruit for Communist exploitation.” “Iran will far apart” warned Ebtehāj, if immediate aid was not provided.148 With the U.S. still reluctant to offer substantive aid, the only source open to Iran was AIOC. The Seven Year Plan would not succeed without oil revenues and the smooth global integration of Iranian oil. Yet relations between the Anglo-Iranian Oil

Company and the Iranian people, in steady decline since the end of the war, were in free-fall by

1950. To understand why, it is necessary explore the course of the negotiations between AIOC and Iran from 1946 to 1950.

2.4 The Anglo-Iranian Oil Company and Iran: The Fight for Fifty-Fifty

In May 1946, as Thornburg and Ebtehāj first held their meeting in Tehran, oil workers in the refinery city of Abadan and in the oil fields of Khuzestan issued a formal challenge to the

British oil company. They denounced their low wages, inadequate housing, poor amenities, and

“imperialist” attitudes of British overseers. On July 14, in response to AIOC’s foot-dragging in wage negotiations, the Tudeh Party organized a strike. Thousands of workers took to the streets.

In a state of panic, AIOC’s general manager convinced the governor general in Ahwaz to declare martial law. Fighting broke out in the streets of Abadan Town, the city’s densely-packed slum, as pro-British Arab tribesmen clashed with Tudeh street fighters. Twenty died, more than 150 were admitted to the Abadan hospital, and by the following morning the army and police were in

148 RG 84 USLETCGR 1950-1952, Box 24, Presentation by Richards, May 25-31, 1950, Box 35, Wiley to Acheson, No. 416, March 11, 1950, Wiley to Acheson, No. 517, March 23, 1950; FRUS, 1950, Vol. V, “The Present Crisis in Iran,” March 1950, No. 232.

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command of the streets. The strike ended in late July, with the company yielding to most worker demands on pay increases.149

The strike was a wake-up call for AIOC: the shock of July 1946 “jerked the company out of the self-satisfaction and complacency in which it had been wallowing.”150 After the Anglo-

Soviet invasion, the company’s operations had expanded. Refinery through-put increased from 9 million tons to 15 million from 1939 to 1945. After slumping from 1938 to 1941, AIOC’s work- force expanded from twenty-three thousand to sixty thousand. To manage the growth of its operations, AIOC postponed its planned housing expansion. At the Agha Jari field, houses lacked basic features like air conditioning: workers remaining indoors “baked alive” in temperatures that reached 120 Fahrenheit.151 Thousands of Indian and European workers were imported, in direct violation of the “Iranianization” clause in the 1933 Concession, which was allowed to lapse. During the war AIOC found itself responsible for 170,000 people in Abadan. It distributed food and clothing, providing subsidized goods in markets to combat inflation, constructed flour mills, encouraged farmers to cultivate areas outside the city, and paid fisherman to supply Abadan with more than 700 tons of fish. The company took on these responsibilities for the sake of its operations; the city had to be administered “to keep the oil flowing.” To reduce absenteeism, the company introduced methods for recording workers’ time and experimented with punch-cards and group incentives schemes. Such rationalization measures pleased board directors, few of whom visited Abadan or Tehran, yet were immensely

149 BP 41516 Estimates of Wages, July 4, 1946, BP 72354 Baylis to Fraser No. 605, July 13, 1946, BP 130264 Baylis to Fraser, NO. 3181, July 14, 1946, Baylis to Fraser, No. 3182, July 14, 1946, Baylis to Fraser, No. 3183, July 15, 1946; Habib Ladjevardi, Labor Unions and Autocracy in Iran (Syracuse, NY: Syracuse University Press, 1985): 121-136. 150 FO 371/52726 E 12324, Report of Col. Wheeler, December 1, 1946. 151 FO 371/52714 E 5382 Le Rougetel to Bevin, June 5, 1946.

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unpopular among Iranian workers. Most of Abadan’s British technical management were “old hands” from the 1920s and 1930s who maintained a social system in the city reminiscent of the

Raj: “Britons were ‘sahibs,’ their wives ‘memsahibs,’ terms that excluded even those Persians who had the same grade as their British colleagues,” and everyone enjoyed at least one or two

“coolie” servants. British staff lived comfortably west of the refinery in the neighborhood of

Braim or the new Bawarda neighborhood, with full access to amenities including swimming pools, squash and tennis courts, and a cinema.152 To contemporary observers, the company men were living in a by-gone age: “they have continued to celebrate Queen Victoria’s Diamond

Jubilee and time in its flight has passed them by,” according to U.S. Ambassador John C.

Wiley.153

The British government, highly critical of AIOC in the wake of the strike, insisted on a change in policy. The strike was evidence of a “deliberately planned political offensive,” according to Ambassador John le Rougetel, designed not only to weaken the company but to reduce the British presence in Iran, “severing it at its roots.”154 Serious unrest could potentially upset oil production, which would have “disastrous consequences.”155 Iranian oil was sold in sterling, buttressing Britain’s weakening balance of payments: “sterling oil” was a vital ingredient in the British economy and a key reason for maintaining the high value of sterling.

152 BP 41516 “Food and Clothing Supply and Control and Farming and Agricultural Development” March 1946; FO 371/61984 E 4640 Notes on Trip to Persia, May 17, 1947; BP 71538 Jameson to Elkington, June 11, 1945; BP 41516 “Group Incentive Scheme,” January 2, 1944, “Application of Incentive System in Abadan,” January 22, 1944, “Time and Wages System,” February 15, 1944; BP 71004 “Housing and Welfare of Clerical and Artizan Employees in Abadan” August 2, 1942; FO 371/52722 E 7631 Letter to Ellis Smith, June 20 1946; Elwell-Sutton, Persian Oil, 101-102. 153 Personal Letter, May 25, 1951, John C. Wiley Papers, Series 1, Box 5, FDRPL. 154 FO 371/52717 E 6341, Le Rougetel to Bevin No. 228, July 8 1946 155 FO 371/52714 E 5475, Bevin to Le Rougetel, No. 621, June 14 1946.

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AIOC contributed a considerable amount in taxes to the Treasury each year, 19% of its production from Iran served the British market while 19.3% was sold to the Admiralty for a discounted price.156 AIOC held more Middle East oil than any of its competitors, and the expansion of the postwar energy system and the increase in prices allowed the company to realize historic profits between 1946 and 1948.157

Under pressure from the Labour Government of Clement Atlee, AIOC resolved to improve its local image. A public-relations campaign was launched, along with a push to improve housing and accelerate “Iranianization.” Glossy pamphlets extolled the company’s efforts to provide housing, education, and health/sanitation services for its workers in Abadan.158

The company outwardly supported trade unions, which had become legal in Iran thanks to

Qavām’s 1946 Labor Law, but in secret only official unions were sanctioned, with leaders hand- picked by the company and the Pahlavi government. Trade unionist Shāpūr Bakhtiyār recalled that AIOC “could do anything it wished” inside Iran; labor leaders “were forced…to cooperate with the oil company more often than not, to varying degrees,” or risk imprisonment. When

Bakhtiyār grew more militant, representing the oil workers at the Tehran Workers Conference and leaving his position to stand in the October 1949 elections against the pro-government candidate, he was replaced by a more pliable unionist.159 Despite advancements in housing

156 RG 59 891.6363/4-347, US Embassy Cairo No. 2397, Enclosure No. 1, April 3, 1947. For oil’s importance to Britain’s postwar economy, see Galpern, Money, Oil and Empire, 23- 141. 157 See Philip, International Political Economy of Oil, 105; The Economist, July 19, 1947, “Boom in Oil,” Financial Times, July 14, 1949, “Anglo-Iranian Oil: Record Profits.” 158 BP 44242 “The AIOC in Iran,” May 1948, “A Tour Through the Abadan Refinery of the Anglo-Iranian Oil Company Ltd,” April 1948. 159 Shāpūr Bakhtiyār, Khāṭirāt-i Shāpūr Bakhtiyār: nukhust-i vazīr-i Īrān, 1357 [Memoirs of Shapour Bakhtiyār: Prime Minister of Iran, 1979] ed. Habib Ladjevardi (Cambridge MA: Center for Middle Eastern Studies of Harvard University and Distributed by Ibex Books, 1996), 22-23; BP 35234 Lindon to Fāteh, No. 8668, September 28, 1949, AIOC to Minister of 146

construction, in 1950 eighty-percent of Iranian inhabitants of Abadan remained unhoused, according to a report from the International Labour Office.160 The division between British and

Iranian labor, and the lack of Iranians in technical and management role, was a key source of criticism: as one official noted, there was more joy at the hiring of a single chemist or engineer

“than in 100 artisans or 1000 cooks.”161 It was evident that the British managers “do not take enough interest in the land in which they live,” and preferred to live in their bungalow enclaves and frequent their social clubs and whites-only cinemas.162 Despite earnest efforts by AIOC to expand its training programs, “Iranianization” did not translate into tangible results.163

Attempts at improving the company’s public image all failed to strengthen the company’s position or build the “identity of interest” once envisioned by Cadman. If anything, the failures of 1946-1951 only served to emphasize how antiquated AIOC seemed in the postwar world.

Despite the pressure placed on it both by Iranians and the British government, AIOC was unwilling to undertake all necessary measures to satisfy its work force, resource nationalists and the Pahlavi government: in its own words, it would not “usurp the prerogatives and responsibilities of Government.”164 “We were hopeful,” wrote one official, “that the revised wage scale would bring stability and contentment to our workmen. Experience has proved we

Finance, November 29, 1949. Bakhtiyār would serve as the final prime minister of Pahlavi Iran, in office January 4-February 11, 1979. 160 International Labour Office, Labour Conditions in the Oil Industry in Iran (Geneva: ILO, 1950), 67, 76-79. 161 BP 16250 Note from Mylles, October 3, 1947. 162 FO 371/68740 E 3650 Minute by Berthoud, June 12, 1948. 163 Bamberg, Vol. II, 162-63; FISDS, Tahavvul-i san`at-i naft-e Iran: negāhi az darūn [The Evolution of Iran's Oil Industry: An Insider's Assessment], Interview with Parvīz Mīnā, San`at-i petroshimi-i iran: az âghâz tâ âstâne-ye enqelâb [The Evolution of Iran’s Petrochemical Industry: From Origins to the Threshold of Revolution], Interview with Bāqir Mustawfī. 164 BP 71726 “Considerations Relevant to a Review and Continuation of Part II of the General Plan,” November 14, 1947

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were wrong.”165 Mostafā Fāteh wrote several years later that the company’s failure to treat its workers appropriately prevented it from becoming more popular with Iranians; had it done so, “it could have at least enjoyed the support of its own employees and, hence, mitigated the effect of events which were about to occur.”166

The company could achieve greater security and better relations with Iran through a revised concession. An addendum was included in the oil law passed by the Majlis on October

22, 1947 compelling the Iranian government to take “appropriate action towards the reestablishment” of Iran’s rights “in regard to the southern oil concession.”167 Although Qavām assured the British that he had no intention to alter the concession unilaterally, it quickly became clear that animus towards the oil concession and the presence of the British oil company had grown substantially throughout Iran’s educated elite and general population.168 In the Majlis, attacks on AIOC became increasingly frequent in 1947 and 1948.169 Though the government remained open to negotiation, no minister or Majlis deputy “would be prepared to risk his political reputation” defending the concession as it currently existed. AIOC’s chief representative

165 BP 41516 “Food Supply, Food Control and Subsidization, Khuzestan” September 26, 1946 166 Fāteh, Panjāh sāl naft-i Iran, 447 167 RG 59 891.6363/10-2947, US Embassy No. 539, Transmission of Oil Law, October 29, 1947. 168 FO 371/62047 E 5635 Le Rougetel to FO, No. 736, June 27, 1947, E 4401 Le Rougetel to FO, No. 11 May 22, 1947; RG 59 891.6363 AIOC/10-2347, Gallman to State, No. 5686, October 23, 1947. 169 BP 80924 Seddon to Rice, April 28, 1948, Northcroft to Rice, August 30, 1948, Seddon to Rice, May 5, 1948; Ettela’at, April 29, 1948 and August 30, 1948.

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in Tehran Ernest Northcroft believed that the Pahlavi regime “is ready to commence an offensive against us,” if a real effort was not made to set things right.170

Iranian postwar grievances against AIOC stemmed from several distinct sources. The nationalist anti-company rhetoric expressed by Moṣaddeq and his supporters, which emphasized

Iran’s independence from foreign influence and British imperialism, was perhaps the most significant aspect of the growing antipathy towards the company and its concession. Their opposition to foreign influence was matched by the rhetoric of the Tudeh, which denounced

AIOC as a tool of Western imperialism. The Pahlavi regime was chiefly concerned with revising what appeared to be gross imbalance in the distribution of oil profits. During the war, the British government had passed a number of tax laws that both increased AIOC’s domestic liability while reducing its ability to distribute dividends. The result was that after 1941, taxes to the British

Treasury exceeded AIOC’s royalties to Iran: £75 million against £37 million for 1941-46.171 The

British Treasury was not prepared to change tax laws, nor was it prepared to support measures that would increase AIOC’s payments to Iran. Increasing Iran’s royalty fit within the broader

British strategy. Foreign Secretary Ernest Bevin tied the strategic need for a new concession to the Seven Year Plan, which in the summer of 1948 seemed in danger of failing “through inertia or lack of funds.” If the Plan ended in failure, the Iranians would turn to the Tudeh, boosting the

170 BP 71726 Gass to Fraser, December 3, 1947, Gass to Fraser, December 4, 1947, Gass to Ivor Jones, No. 163, January 13, 1948, London to Tehran, NO. 7064, January 14, 1948, Seddon to Rice, No. 116, May 11, 1948, BP 80924 Seddon to Rice October 29, 1947. 171 FO 371/68740 E 2256 Minute of Meeting, Pyman, February 14, 1948. After 1941, Britain earned more than Iran did from AIOC operations: the Treasury collected £156 million between 1941, against £75 million paid by AIOC to Iran. See Galpern, Money Oil and Empire, 88.

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party’s support and potentially setting off another strike. AIOC was making huge profits; it could afford to be more generous.172

Table 2.1 Iran Oil Production, British Taxes and Royalty Payments 1932-1950173

Thousand £ Oil (thousand barrels) 40000 300000

35000 250000 30000 200000 25000

20000 150000

15000 100000 10000 50000 5000

0 0 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950

AIOC Net Profits British Taxes Payments to Iran Oil Production (Thousand Barrels)

The company did not take Iranian demands for a more equitable agreement seriously, however, and ultimately felt that it was better to pressure Iran into agreeing to its terms rather than reach a settlement by negotiation. Throughout the talks of 1948-1951, AIOC’s leadership displayed an incredible stubbornness to Iranian demands. Its largest mistake was in discounting the developments in global oil, particularly the fifty-fifty agreement in Venezuela. This was

172 FO 371/68731 E 11383 Persian Request for Credit, August 25, 1948; Galpern, Money, Oil and Empire, 90. 173 Mikdashi, Middle East Oil Concessions, 109-110, Elm, Oil, Power and Principle, 38, Galpern, Money, Oil and Empire, 88; Bamberg, Vol. II, 515.

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partially due to circumstance: a tax route was less attractive for a British company, as AIOC could not be sure its payments to Iran could be deducted against domestic taxes.174 Neville Gass and AIOC Chairman William J. Fraser, who remembered vividly the events of 1932-33, felt that a tax-based agreement would leave Iran vulnerable to instability in the market. Unwilling to alter an agreement originally reached after considerable duress in 1933, the company was “extremely slow to realize that times had changed.”175

Ironically, as it worked to keep conditions in Iran from changing to reflect global developments, AIOC remained conscious of how events in Iran could affect its concessions elsewhere. Fraser emphasized the “disastrous result” a unilateral abrogation or cancellation would have on both the company and Iran, shaking the confidence of the business community in

“the sanctity of the Persian pledged word,” and ensuring that no other oil company would seek to do business with Iran ever again.176 It was the same argument Cadman had made twenty years before: conditions in the international market determined how generous the company could be, and any Iranian attempt to push for better terms would only weaken Iran’s position internationally.

Neville Gass, AIOC managing director in charge of Iranian affairs, arrived in Tehran in late August 1948 for discussions with the Pahlavi government. The Iranian Minister of Finance presented a list of twenty-five grievances. The Seven Year Plan featured prominently in their argument. All revenue would now be “devoted to the economic plan” and royalties were needed

174 The question of whether AIOC payments to Iran qualified as a corresponding tax was not settled until 1954, when the Finance Bill altered the British tax code and permitted the deduction of royalty payments from fifty-fifty divisions. See BP 142640 “Fifty-Fifty and Tax Relief for UK Oil Companies 1953,” Robert Brown and JA Bowden, 1983. 175 FIS, Interview with Peter Avery, 15. 176 FO 371/62047 E 4401 Berthoud to Pyman, May 30, 1947.

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“to meet the needs of Iran.”177 The delegation insisted that AIOC royalties under the 1933

Concession did not compare favorably to those of Iraq and Venezuela; Iran deserved to be paid as much per-barrel as any other producer. Gass felt comparisons with Venezuela were unsuitable, as the royalty which Venezuela received was derived solely from companies operating inside the country. He rejected Iranian arguments that the price of oil was too low.

“Arriving at an equitable price,” Gass insisted, “is a specialized business which is our whole- time study.” He asked if anyone there could “seriously considered for a moment that we, a commercial company…would sell a ton of oil for one penny less than we could get for it?”

While disputing the existing royalty figures, the Iranian team also suggested that the government obtain greater oversight of AIOC operations, in order to ensure that “its full rights under the

Concession” were being observed. This irritated Gass immensely: “I am unable to appreciate on what grounds the Government claims to have any say in the commercial activities of the

Company.”178

The talks set a poor precedent; the company blamed “lack of preparation” among the

Iranian ministers for the acrimony.179 A new government was formed by the shah in November

1949, led by Mohammed Sāʿed with ʿAbbāsqoli Golshāʾiān as Minister of Finance. Ambitious and intelligent, Golshāʾiān had been mentored by ʻAlī-Akbar Dāvār, the architect of Iran’s financial and judicial system. Pressure was mounting for a new agreement; the Fifteenth Majlis had only six months before it adjourned for elections, and the Foreign Office noted the

“widespread belief” that Iran had “justifiable and unsatisfied grievance.” Bevin himself felt the

177 BP 126420 Notes of Meeting, October 6, 1948, Notes of Meeting, October 10, 1948. 178 BP 126409 Gass to Fraser, No. 8585, September 29, 1948, Fraser to Gass, No. 5368, October 5, 1948, BP 126420 Notes of Meeting, October 7, 1948. 179 FO 371/75495 E 113 AIOC Tehran to AIOC London, December 22, 1948.

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existing royalty arrangement was “very unjust” and required “a more equitable arrangement.” A solution appeared to lie in some “fifty-fifty arrangement…which will ensure a sharing of profits.”180 Neither Gass nor Fraser were prepared to offer such a deal, and instead suggested that talks be delayed until a new government came to power, perhaps led by Sayyed Ziā, a pro-British conservative, who could be elected with British help. Nevertheless, the British government pushed the company to negotiate. When Sāʿed suggested talks in early, Gass accepted the invitation despite his misgivings.181

Golshāʾiān presented Gass with a formula ensuring a fifty-fifty division of “gross profits” made from Iranian oil, which he argued covered all of AIOC’s global operations. The total calculation, “a most complicated formula” according to Gass, would result in per ton royalties of

30/s to 33/s.182 Fraser instructed him to take his time, “emphasizing the impracticability of the proposals and the difficulties they would cause.” Gass obliged, arguing to Golshāʾiān that the

Iranian formula “could have disastrous effects on the economy of Iran.” He demonstrated, with

AIOC figures, how during the 1931-1941 period royalty payments exceeded fifty percent. He pointed out that AIOC was an international company, one which made much of its profits from operations outside of Iran. It would be impossible to divide “gross profits” like in Venezuela.

180 FO 371/68732 E 16285 Le Rougetel to Bevin, December 21, 1948, E 14515,Minute by Berthoud, November 8, 1948, “Royalty Rate,” Clinton-Thomas, November 12, 1948, FO 371/75495 E 1872 Note on Memo, March 24, 1949. 181 FO 371/75495 E 602 Minute of Meeting, Foreign Office to Le Rougetel, NO. 37, January 14, 1949, E 1160 Le Rougetel to FO, January 18, 1949, E 885, Wright to Gass, January 21, 1949, E 1215 Gass to Wright, January 24, 1949, E 1216 Minute by Clinton-Thomas, January 25, 1949, E 1361 Chadwick to Le Rougetel, No. 26, January 29, 1949. 182 FO 371/75496 E 4189 Minute by Clinton-Thomas, March 30, 1949. According to AIOC estimates, Saudi Arabia received 11s/6d-12/s per ton (32c per barrel) while Iraq received 12/s-13/s per ton (23c per barrel). During the negotiations in Iran, the Iraqi government was demanding a revision to the IPC agreement, which would increase payments per ton to 15/s-16/s. BP 126409 Fraser to Gass, No. 5460, March 15, 1949. See Bamberg, Vol. II, 391-393.

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AIOC would not return to a profit-sharing basis, which under the original D’Arcy Concession had produced so many problems, without assurances that “no Majlis will every again question it.” After ten meetings, Golshāʾiān admitted to Gass that the Majlis would only accept a fifty- fifty agreement: fifty-fifty had become “an obsession” out of the belief that it would prove acceptable to public opinion, satisfying the nationalists and bolstering the government’s position.

Gass could see that AIOC’s proposals would get them nowhere: the present offer “will not achieve a settlement,” and the two sides were moving towards a “complete impasse” if a correction was not made. Fraser ignored this and pressed Gass “to stand by the offer you have made.”183

Gass complied with Fraser’s instructions. Iran’s demand for a fifty-fifty concession

“unrealistic and extravagant,” and he suggested an increased per-ton royalty and a greater share of the company’s general reserve, essentially a slight modification of the 1933 Concession. The deal would increase Iran’s annual royalty from £9 million to £14.9 million, with an aggregate rate per ton of 12s/9d.184 The company’s proposal offered “great security” and even in bad years would provide for Iran at least £12 million per year. While it was not a fifty-fifty split of gross profits, Gass’ offer did constitute a rough split of profits from the company’s Iranian operations.

183 BP 126409 Gass to Fraser No. 8356, February 19, 1949, Fraser to Gass, No. 5422, February 17, 1949, Gass to Fraser, No. 8359, February 22, 1949, Gass to Fraser, No. 8364, February 24, 1949, Gass to Fraser, No. 8368, February 27, 1949, Gass to Fraser, No. 8370, March 1, 1949, Fraser to Gass, No. 5443, March 3, 1949, Fraser to Gass, No. 5454, March 11, 1949, Gass to Fraser, No. 8382, March 12, 1949; FO 371/75496 E 4062 Nuttall to Clinton- Thomas, March 24, 1949, E 4189 Minute by Clinton-Thomas, March 30, 1949. 184 An increase from a per ton rate in 1947 of 7s/9d and in 1948 of 7s/10d. FO 371/75496 E 4336 Note on Financial Payments from AIOC to Iran, April 1, 1949; BP 126409 Gass to Fraser, No. 8373, March 3, 1949, Gass to Fraser, No. 8375, March 5, 1949, Gass to Fraser, No. 8378, March 10, 1949, Gass to Fraser, No. 8381, March 11, 1949.

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The British government, despite disagreements over the merits of the company’s offer, felt it would be “unwise” to push AIOC further.185

The shah, unable to obtain financial assistance from the U.S. and desperate to shore up both the state budget and the flagging Plan Organization, was eager to secure a deal. Golshāʾiān hardened his stance, and he sensed, perhaps, that anything less than fifty-fifty would be politically unacceptable. The young shah was not his father: there was no all-powerful monarch to muscle an oil bill through the Majlis, and any oil agreement Golshāʾiān reached with Gass would be subjected to intense public debate. He refused the company offer: if AIOC did not agree to a fifty-fifty deal, Iran would send the issue to arbitration. He was supported by

Taqīzādah, a key conservative figure, who was urged by AIOC’s Mostafā Fāteh to push for better terms than what Gass was offering.186 A confidential source, most likely Thornburg, informed U.S. Ambassador Wiley that Golshāʾiān would agree to nothing that did not recognize the “principle of equal division of profits” in assessing the “equitability of the revised royalty.”

More money would only satisfy Iran if it came with a recognition of the fifty-fifty principle, which Thornburg declared the “standard of equitability.”187

With no alternative, Bevin and the Foreign Office put their hopes in Fraser: perhaps the stubborn, combative chairman could duplicate the “triumph” of Cadman in 1933 and pull off

185 FO 371/75496 E 4337 Note from Chadwick, April 6, 1949, E 1961 Note for Bevin, February 9, 1949, FO 371/75496 E 4336 Note on Financial Payments from AIOC to Iran, April 1, 1949. 186 Fāteh, Panjāh sāl naft-i Iran, 390-392; Elm, Oil, Power and Principle, 54-55. 187 RG 59 891.6363 AIOC/4-2849, Wiley to State, No. 573, April 29, 1949, 891.6363 AIOC/5-2749, Wiley to State, NO. 137, May 27, 1949; FO 371/75496 E 4540, Note by Berthoud, April 4, 1949.

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another “deus ex machina?”188 During his meeting with Prime Minister Sāʿed, Fraser invoked the world market, as Cadman had done: profitability was not “what the Majlis, or the public or the government expected,” but what the market decreed.189 Under immense pressure from the shah, who had decreed that an agreement would be reached before Fraser’s departure, Golshāʾiān withdrew his demand for a fifty-fifty agreement. Fraser departed without an agreement in hand, but felt things turning to his advantage: Iran was only interested in “more money,” and

Golshāʾiān, “just a trader,” had yielded when the sums exceeded £15 million per year.190

After several more weeks of delay, Gass and Golshāʾiān each signed an agreement on

July 17. The Supplemental Agreement, as it was known, would award Iran £18.75 million in

1948 and £22.9 million in 1949.191 Other provisions, including the company’s extension to 1993 and its exemption from taxation, remained in place.192 Details of the deal percolated throughout

Tehran. Development advocates were excited, as the agreement was expected to kick-start the struggling Seven Year Plan. According to the World Bank, once the Supplemental Agreement was signed, Iran’s ability to fund the Plan through its first two years was “relatively assured.”193

The success of the Plan hinged on the successful ratification of the oil agreement.

188 FO 371/75496 E 4335 Chadwick to Burrows, March 30, 1949, Le Rougetel to Wright, March 23, 1949, E 5439 FO to Le Rougetel, April 27, 1949. 189 Quoted in Bamberg, Vol. II, 394-395. 190 FO 371/75497 E 5963 Le Rougetel to FO, May 12, 1949, E 6420 Le Rougetel to Wright, May 16, 1949, E 6421 Record of a Meeting, May 19, 1949; Bamberg, Vol. II, 393-399. 191 Under the 1933 concession, the figures would have been £9.1 million and £13.49 million, respectively. Bamberg, Vol. II, 398. 192 For text of the Supplemental Agreement, see Husayn Makkī, Kitāb-i Siyāh [The Black Book] Vol. I (Tehran: Sāzmān-i Intishārāt-i Naw, 1970): 38-43. 193 Svoboda to Bayne, “Question of Iran’s Capacity to Finance Seven-Year Plan in Initial Phase,” July 18, 1949, Iran—General—Correspondence—Volume 4, RMENARVP, WBGA.

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Unfortunately, ratification was becoming less and less likely. Discontent towards the company and the oil concession had slowly built into something much more significant. An important turning point came in late January 1949. Prompted by continual attacks on the legitimacy of the April 1933 agreement, Taqīzādeh addressed the house on January 27 and absolved himself of any responsibility. Rezā Shah alone had agreed to Cadman’s terms, including an extension of the concession that Taqīzādeh argued had been included at the last minute: “No one…could stand against the will of the Almighty Ruler—there was no alternative.”194 His speech painted the 1933 Concession as illegitimate, shattering any lingering notion of its former equitability. The calls for a new concession became more frequent, as did calls from nationalists that the concession be cancelled altogether.195 Ḥusayn Makkī, a Majlis delegate affiliated with Moṣaddeq, argued that the extension of company’s concession in 1933 had come as the result of a conspiracy between the Rezā Shah, his ministers and the British, rendering it totally unlawful.196

No royalist politician wished to be seen publicly defending either the Gass-Golshāʾiān agreement or the original 1933 Concession. It was hard to defend the company’s offer, except on the grounds that it offered slightly more money, but Fraser and Gass had made it perfectly clear that they could expect no new terms. The timing for ratification seemed favorable, as the

194 Katouzian, Musaddiq, 67-68; Afshār, Zendegi-ye tufāni, 551-53; FO 371/75495 E 1436 Le Rougetel to FO, No. 94, January 31, 1949; BP 126409 Northcroft to London No. 8339, January 28, 1949. As Chapter One indicated, an extension was of immense importance to AIOC and was a major goal from the beginning. See BP 71074, Notes from Lausanne Meeting, 23 August 1928 and BP 96659 Cadman Private Diary, April 9, 1933. 195 BP 126409 Northcroft to London No. 8340, February 3, 1949, Farmānfarmāʼiyān, Blood and Oil, 205-206. 196 Husayn Makkī, Naft va nuṭq-i Makkī: jarayān-i muzākirāt-i naft dar Majlis-i Pānzdahum dar bārah-ʼi qarārdād-i naft-i Īrān va Ingilīs [Oil and the Speeches of Makkī: The Course of Discussions in the Fifteenth Majlis Regarding the Anglo-Iranian Oil Concession] (Tehran: Intishārāt-i Amīr Kabīr, 1978), 213-215.

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Fifteenth Majlis would adjourn in late July and deputies could be cajoled into supporting the agreement, in exchange for government support during forthcoming elections. Despite the presence of Makkī and other anti-AIOC deputies, most of the house were either pro-shah or in the pocket of the British: they could be counted on to vote for the agreement. Golshāʾiān, unwilling to tie his political future to an agreement he was sure lacked popular support, did little to defend it in public.197 While disagreements emerged inside the Sāʿed cabinet, pressure from the shah brought the agreement to the floor of the Majlis on July 23.

The five nationalist deputies led by Makkī were determined to defeat the agreement by any means necessary. Drawing on an understanding of changing concessional conditions elsewhere, Makkī argued that the AIOC offer gave Iran 7 shillings per ton, while Iraq was nearing a deal worth 18 shillings. When these tactics failed to muster sufficient support, Makkī read a letter from Moṣaddeq denouncing the very idea of a foreign oil concession. “The greatest tyranny to the Iranian people would be the conclusion of that Agreement,” which even

Taqīzādeh, its signatory, “has professed to be null and void.” Makkī produced a another letter, written by Taqīzādeh to Teymūrtāsh in December 1929, which mentioned the company’s desire to extend the concession; he argued that this proved duplicity on the part of Iran’s ministers, and proceeded to filibuster the remainder of the session. Makkī resumed his filibuster throughout an extraordinary session called late on July 27. With the clock close to midnight, Makkī attacked

AIOC for conducting the discussions “behind a curtain of secrecy. They have kept the public ignorant of the progress of the negotiations…in order to urge the deputies to pass a bill presented at a critical moment” when only a few days remained. Those who spoke out against the bill were suppressed “at the point of the bayonet…all was done for the sake of oil. On this sacred religious

197 FO 371/75498 E 8885, Letter from Iranian Staff of AIOC, July 18, 1949.

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night I pray God to set all those who have betrayed this country on the flames of oil.”198 The

Majlis adjourned without submitting the Supplemental Agreement to a vote.

The British embassy blamed the failure on internal divisions within the Iranian government and the “irresponsible self-seekers” inside the Majlis. The real problem, they believed, had been publicity: Golshāʾiān and Sāʿed had done nothing to “prepare the ground” or counter the “public bewilderment” created by the opposition.199 Under no circumstances would there be further negotiation or new terms. This was the company’s position for the next sixteen months, supported by the British government despite some misgivings in the Foreign Office that the Supplemental Agreement remained unacceptable to Iranian nationalists without a fifty-fifty profit-sharing agreement. In September the British Treasury devalued sterling, potentially reducing the amount earned by Iran, but AIOC did not feel obliged to offer more, as the royalty was guaranteed against the price of gold, and Iran could still expect high royalties if it confirmed the Supplemental Agreement. Golshāʾiān, his reputation in tatters, complained bitterly that he had been betrayed by the shah and others for the sake of “political expediency.”200

The Americans, watching from the sidelines, had grave doubts over what would come now that ratification of the Supplemental Agreement had failed. Ambassador John C. Wiley, a skeptic of AIOC and oil companies in general, reported that the nationalist deputies, “the entire

Tehran press,” and many conservative politicians were aligned against the Supplemental

198 Muẕākirāt-i Majlis, Vol. XV, July 23-27, 1949; Makkī, Naft va nuṭq-i Makkī, 202- 214, 220-406, 411-514. 199 FO 371/75498 E 9245 Le Rougetel to FO, No. 601, July 28, 1949, FO 371/75499 E 9807 Le Rougetel to FO, No. 25, August 2, 1949; BP 80924 Hobson to Rice, No. 153, August 2, 1949, Gass to Hobson, No. 176, August 18, 1949. 200 FO 371/75500 E 12238 Gass to Wright, October 7, 1949; RG 59 891.6363 AIOC/9- 2049, Wiley to State, NO. 1166, September 20, 1949; Katouzian, Musaddiq, 67; Fāteh, Panjāh sāl naft-i Iran, 392-403.

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Agreement. Ebtehāj felt that “the bargain was not nearly good enough.” Thornburg had advised him that 20 shillings per ton was a “reasonable figure,” yet AIOC had offered about 14 shillings equating to only 40c/barrel, compared to 82c/barrel earned by Venezuela.201 In November, as a new Majlis was elected through mass tampering and ballot-box stuffing, Moṣaddeq led a protest in the shah’s palace, later convening his closest followers and forming a new organization: jebhe-ye melliyun, “Popular Movement” or National Front. By the end of 1949, relatively free

Majlis elections in Tehran had returned five National Front deputies led by Moṣaddeq, with two more allied deputies, Allāhyār Sāleh and the populist cleric Ayatollah Kāshāni, joining them.

This group would continue to oppose any deal that granted AIOC further powers within Iran, and by 1950 the National Front began advocating a new policy: the nationalization of the oil industry and the expulsion of AIOC.202

2.5 Too Little, Too Late

Without a new oil agreement, the government faced bankruptcy. Poor harvests in 1948 and 1949 were compounded by high unemployment in the cities. The political malaise in early

1950 looked worse than ever, as a new government supported by the shah and led by prime minister ‘Alī Manṣūr was accused of widespread corruption and the embezzling of development funds.203 Support for the shah ebbed as the National Front used the emotion surrounding the oil issue to chip away at the Pahlavi regime’s stability. Every speaker decrying the company was

201 RG 59 891.6363 AIOC/7-2749, Wiley to State, No. 960, July 28, 1949, 891.6363/7- 3149, Wiley to State, No. 973 August 3, 1949. 202 Fu’ād Ruhāni, Zindagī-i siyāsī-i Musaddiq: dar matn-i nah̤ zat-i millī-i Irān [The Political Life of Musaddiq: in the National Front Movement of Iran] (London: Intishārāt-i Nah̤ zat-i Muqāvamat-i Millī-i Īrān, 1987): 123-127; Katouzian, Musaddiq, 71-77; Fāteh, Panjāh sāl naft-i Iran, 403-404. 203 Amīnī, Khātirāt, 54-55.

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praised as a “patriot,” while every moderate “[was] branded as traitor and tool of the British.”

When the Majlis reconvened, consideration of the Supplemental Agreement was placed in the hands of a special oil committee, chaired by Moṣaddeq and filled with his supporters.204

AIOC held a firm line in the aftermath of the failed ratification: if the government desired more money, it should re-submit the Supplemental Agreement for ratification. The British government continued to push AIOC, but the chairman was immovable. Fraser, while conscious of Razmara’s desperate need for money, felt the company had to remain firm; AIOC had

“already conceded too much and should concede nothing more.”205 Meanwhile, the Seven Year

Plan, which may have alleviated the country’s growing economic instability, was chronically short of funds and lacked real leadership. The OCI mission remained attached to the Plan

Organization, but Thornburg believed the program was now too dysfunctional. “The time has come,” he wrote, “to concentrate all the constructive and forward-thinking forces of the country…on the eradication of the sources of public maladministration.” In practice, this meant a stronger central government, utilizing authoritarian means to deliver meaningful results.206

After years of standing aloof, the United States finally became concerned about the situation in Iran in June 1950. Secretary of State Dean Acheson argued that the Supplemental

Agreement was “essential for Iran’s recovery:” without higher oil revenues, the producing states of the Middle East would be unable to develop their economies and would remain vulnerable to

Soviet pressure.207 The diplomacy of neglect made way for “give aid, demand reform,” as the

204 Muz̲ ākirāt-i Majlis, Vol. XVI, May 15, 1950; Azimi, Crisis, 221, Abrahamian, Iran Between Two Revolutions, 262; Makkī, Kitāb-i Siyāh, Vol. I, 46-50. 205 RG 59 888.2553/1-2150, Wiley to State, No. 115, January 21, 1950, 888.2553/2-350, Holmes to State, No. 641, February 3, 1950; Louis, British Empire in the Middle East, 643-44. 206 Thornburg Diary Entry, quoted in Baldwin, Development and Planning in Iran, 33-34 207 RG 84 USLETCGR 1950-1952, Box 35, Acheson to London, No. 668, June 8, 1950; RG 59 888.2553 AIOC/1-2450, Memo of Discussion, January 24 1950, 888.2553 AIOC/5-1250, 161

U.S. adopted a much more pro-active strategy after March 1950. Limited aid and political pressure seemed the best means “of forcing the Iranians…to put their house in order.”208 The

U.S. prevailed upon the shah to appoint a “strong” prime minister in June 1950: the shah chose

General ‘Ali Razmārā, the former Minister of War and Army Chief of Staff and a man with a reputation for discipline and decisive action. Razmārā equated his country to a “burst appendix” in need of “emergency operations.”209 A strong man regime would silence political dissent, crush the Tudeh, manage Moṣaddeq’s nationalists, pass the Supplemental Agreement, and re-vitalize the Seven Year Plan: in other words, create the conditions necessary for dual integration.

First, Razmārā decentralized the Seven Year Plan, removed Ebtehāj from the Bank-i

Melli and pushed through a raft of “impact” projects, under the management of OCI. Max

Thornburg fully approved of Iran’s turn towards authoritarian government after three years of anarchy and acted as Razmārā’s economic advisor. Next, he turned to AIOC: the Supplemental

Agreement was “dead,” the company’s approach “inflexible and unsatisfactory,” and a new agreement would hinge on substantial financial concessions from the British. With Thornburg’s help, Razmārā put together “face-saving” proposals to offer the company, but they were rejected immediately. AIOC had no intention to negotiate further; they reasoned that economic pressure would force Razmārā to relent and accept the deal.210 Razmārā continued to scheme for new

Dept to US Embassy London no. 2275, May 12, 1950; FRUS 1950 Vol. V, Memo by Wilkins and Funkhouser, March 15, 1950, No. 15, “Middle East Oil,” September, 1950, No. 36; Najmabadi, Land Reform and Social Change, 62-66. 208 FRUS 1950 Vol. V, UM D-97, “The Present Crisis in Iran,” April 1950, No. 232. 209 RG 84 USLETCGR Box 35, Grady to Acheson, No. 14, July 3, 1950, Grady to Acheson, No. 44, July 6, 1950, Grady to Acheson, No. 187, July 21, 1950; RG 59 888.2553 AIOC/7-350, Grady to Acheson, No. 13 July 3, 1950, 888.2553 AIOC/7-1350, Grady to Acheson, No. 111 July 13, 1950. 210 RG 59 888.2553 AIOC/7-2450, Grady to Acheson, No. 204 July 25 1950, 888.2553 AIOC/8-950, Douglas to Acheson No. 792, August 9 1950, 888.2553 AIOC/8-950, Grady to Acheson No. 347, August 9 1950, 888.2553 AIOC/8-1250, Acheson to Douglas, No. 978 Aug 22 162

negotiations, but time was against him. On November 25, Moṣaddeq’s oil committee rejected the

Supplemental Agreement.211 The situation was altered irretrievably when in December 1950,

Saudi Arabia signed a historic fifty-fifty concession with the Arab-American Oil Company

(Aramco). The deal would deliver increased revenues to Saudi Arabia while allowing the four

U.S. Aramco partners to deduct royalty expenses from their domestic taxes: the cost of paying a higher share to Riyadh was effectively nil, the companies having shifted the burden to the U.S. taxpayer. The Saudi concession rendered AIOC’s offer obsolete and effectively killed any chance of the Supplemental Agreement being accepted by the Majlis.212

The new U.S. ambassador Henry Grady, dispatched in March 1950 with the specific task of kick-starting the Plan, fretted that development remained under-funded, weighed down by

“the usual Persian inefficiency and intriguing politics.” Moṣaddeq’s National Front renewed their attacks on OCI, “as an expensive organization which accomplished nothing.”213 The presence of foreign advisors had become an embarrassment, and Thornburg himself seemed more concerned with solidifying his status within the Razmārā government than with furthering U.S. strategic aims or advancing the Seven Year Plan. The Plan itself had almost no political support outside the shah and a few of his counselors: Ebtehāj, Nafīsī, Taqī Naṣr and other developmentalists had

1950. 888.2553 AIOC/: 9-1450, Grady to Acheson No. 658, Sept 14 1950, 888.253 AIOC/10- 950, Grady to Acheson, no. 828 October 9 1950, Truman Library, Grady Papers, Box 2, Dooher to Grady, October 18 1950, Grady to Bechtel, November 4 1950; Goode, United States and Iran, 67-80, Qaimmaqammi, “Catalyst of Nationalization,” 18-24. 211 Fāteh, Panjāh sāl naft-i Iran, 403-408. 212 Irvine H. Anderson, “The American Oil Industry and the Fifty-Fifty Agreement,” Musaddiq, Iranian Nationalism and Oil, eds. James A. Bill and Wm. Roger Louis (London: Tauris, 1988), 143-163. 213 Truman Library, Grady Papers, Box 3, Grady to Rountree, September 13, 1950; RG 84 USLETCGR Box 35, Grady to Acheson, No. 853, October 18, 1950; FRUS Vol. V 1950, Wiley to State, May 26, 1950, 558-559; Bostock and Jones, Planning and Power in Iran, 105.

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either left the country or retreated into obscurity.214 The World Bank’s observing officer wrote to

Razmārā in March: Iran faced a mounting budget deficit, which meant that oil revenues would have to be diverted from the Plan. Even if funds were available, they could not be “prudently and economically utilized on projects that would be of lasting benefit to the Iranian economy.”215

Grady recommended that U.S. support for Thornburg be withdrawn. The OCI contract was cancelled and work on the First Seven Year Plan came to a standstill. Thornburg remained, attached as an advisor to Razmārā, but development was now entirely overshadowed by the oil question.

The Supplemental Agreement was finally buried by Majlis vote on January 11. Grady warned that the question of nationalization had reached the point of “hysteria,” and was a serious possibility, while the British complained that Razmārā had failed to adequately publicize the deal’s benefits.216 The company spread propaganda, utilizing its elaborate public relations apparatus to warn against nationalization. Northcroft worked in early 1951 to reach a rapprochement with Razmārā, now exceedingly desperate for funds to prop up his government.

In January he used his influence over the prime minister to engineer a speech by the finance

214 RG 59 888.2553 AIOC/10-3150, Grady to Acheson, No. 994 October 31 1950; RG 84 USLETCGR Box 35, Memo by Grady, September 18, 1950. 215 Iliff to Razmara, March 2, 1951, Iran—General—Correspondence—Volume 8, RMENARVP, WBGA. The Bank was prepared to fund five specific development projects, including a multi-purpose dam at Karaj near Tehran, and suggested to Razmara that discussions begin for a loan worth $18-20 million. Razmara agreed, but no progress was made before his assassination, and the matter was eventually dropped. 216 RG 888.2553 AIOC/1-2650, Acheson to Wiley No. 157, February 14 1950, 888.2553 AIOC/1-2450, Memo of Discussion, Jan 24 1950, 888.2553 AIOC/1-3150, Holmes to Acheson No. 550, January 31 1950, 888.2553 AIOC/2-250, Wiley to Acheson No. 188, February 2 1950; RG 84 USLETCGR 1950-1952, Box 38, Grady to State, No. 1454 and No. 1455, January 3, 1951, and No. 1929, February 28, 1951; Heiss, Empire, 37-40

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minister refuting some of the more aggressive attacks made against the company.217 AIOC distributed a pamphlet in Iran arguing that “nationalization” had been misinterpreted, deployed by “politicians and youths who…scarcely comprehend what it means,” and a political movement

“which disregards…the facts of the international oil trade.”218

After considerable prodding from the British, Razmārā addressed Moṣaddeq’s oil committee on March 4, delivering a speech which Northcroft and his staff gave “considerable assistance in preparing.” He argued that Iran did not have the technical skill to manage the industry; that it could not access markets or distribute its products without the assistance of

AIOC; that it should concentrate on maximizing oil revenues for the Seven Year Plan. He then read from the opinions of “experts” who advised against nationalization on technical grounds.

These experts had been carefully canvassed and interviewed by AIOC beforehand. His arguments did little to impress Mosaddeq, who rejected the government’s case on March 4.219

The Supplemental Agreement was done; the Plan was defunct; and the Pahlavi regime seemed powerless to slow the pace of events.

Razmārā was assassinated on March 7, gunned down on his way to the mosque by a member of Warriors of Islam, a militant group associated with Ayatollah Kāshānī. Hours before, the prime minster had met with oil engineers Bāqir Mustawfī and Fathallāh Nafīsī, where he was briefed on Iran’s limited capacity to run the refinery at Abadan and the benefits of the British

217 Heiss, Empire, 47-51; BP 126353, March 14 1951, “Iranian Concessional Position— Means of Approach to Iranian Public Opinion;” Makkī, Kitāb-I Siyāh, Vol. I, 324-325, 326-328. 218 BP 126353 Rice to Northcroft, No. 5697, March 2 1951, Rice to Northcroft, NO. 728, March 2 1951, Draft, “Nationalization of Iran’s Oil Industry.” 219 For text of Razmārā’s speech, see Ettela’at, March 4, 1951; BP 126353 Northcroft to Rice, No. 652, March 3 1951, Northcroft to Directors, Rice, No. 8396, March 4 1951, Northcroft to Rice, No. 8398, March 6 1951, Northcroft to Gass, No. 8401, March 7 1951, Northcroft to Seddon, No. 662, March 7 1951.

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fifty-fifty offer.220 In the wake of his death, the momentum towards nationalization became unstoppable. Ambassador Grady was shocked at the failure of U.S. policy: “We have done nothing…I just cannot understand the general attitude of our Government toward this vital spot.”221 While Iran’s “territorial integrity” and internal security had been preserved, in part thanks to the on-going presence of the military aid missions, efforts at sponsoring dual integration had been unsuccessful. Blame could be heaped on the stubborn British, whom

Acheson denounced for their “persistent stupidity,” as well as the Pahlavi regime, which had proven to be a disappointing partner. Grady felt that the Iranians, “despite their genuine desire for improvement,” were incapable of following advice, “particularly when it runs counter to political or financial interests of officials being advised.”222

Max Thornburg, exceedingly bitter at his forced departure, blamed the British: foreign interference in Iran had made it “impossible for the shah to develop a really responsible government,” creating a “state of anarchy” that nationalists like Moṣaddeq could exploit for their own “irresponsible” aims. The work of developmentalists like Ebtehāj, who left Iran in 1950 in total disgust at the failure of the Plan Organization, could only blossom into true economic development if a strong government was in place. Thornburg came to believe that only a return to dictatorial government and the ejection of the British would allow Iran to stabilize. He wrote to U.S. diplomat Averell Harriman that the U.S. should ditch the British and support the shah “in

220 FISDS, San`at-i petroshimi-i iran: az âghâz tâ âstâne-ye enqelâb (The Evolution of Iran’s Petrochemical Industry), Interview with Bāqir Mustawfī, Part 1 [Accessed on February 20, 2017]; FIS, Interview with Houshang Farkhan, 14. 221 Truman Library, Grady Papers, Box 2, Grady to Bechtel, March 16, 1951. 222 RG 59 788.00/9-2250, Iran at the End of Summer, 1950,” September 25, 1950; RG 84 USLETCGR Box 35, Grady to Acheson, No. 853, October 18, 1950; Qaimmaqammi, “Catalyst of Nationalization,” 26.

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establishing his own reform program.”223 Thornburg was also critical of the United States government: “We have never really developed a policy towards the Middle East or towards

Persia,” and the lack of a strong and forceful U.S. policy had led to the circumstances preceding the nationalization crisis that began in 1951.224

Dual integration, as an expression of U.S. policy, had proven a colossal failure. Rather than link the smooth integration of Iranian oil into the international energy system, negotiations between AIOC and the Pahlavi regime had exacerbated Iranian nationalist opposition. Local integration through the Seven Year Plan, meanwhile, had been a non-starter: despite the efforts of the shah, Ebtehāj and his supporters, political will had proven inadequate. Yet more importantly, local integration was not possible without global integration: the Plan was doomed without a new oil agreement. The exit of Thornburg and the failure of AIOC indicated that the

U.S. government would take a larger role in ensuring the success of Iran’s dual integration in the chaotic years of 1951-1954. First, however, it would have to contend with the challenge of nationalization and the forceful de-integration of Iranian oil, both from the development program and the international energy system.

223 RG 59 888.2553/10-551, Thornburg to Harriman, October 5, 1951; Truman Library, Grady Papers, Box 2, Grady to Bechtel, April 19 1951. 224 Longines Chronoscope, August 9, 1951—Max Thornburg, Interview, [Accessed February 15, 2018] https://www.youtube.com/watch?v=p24qu-FoTiw

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CHAPTER THREE: ‘NATIONALIZATION’ AND THE DE-INTEGRATION OF IRANIAN

OIL 1951-1952

The crisis that ensued from Iran’s oil nationalization in May 1951 was in fact a series of crises, linked together through the complex four-sided relationship of the oligopoly, the British, the Iranians, and the United States. First, there was the dispute over Iranian oil: the legality of nationalization, Moṣaddeq’s challenge to the international energy system and the response of the oil companies. Second, the crisis was one of Anglo-American relations: the British, conscious of their weakening position in the Middle East and the immense economic and political value of

Iranian oil, insisted that British rights and the rights’ of AIOC should be protected above all else.

Third, there was the political crisis in Iran ignited by the rise of Moṣaddeq and the National

Front. Fourth, the nationalization crisis was a challenge the U.S. containment of the Soviet

Union. Fear over the collapse of the Pahlavi regime and the possibility that Iran might fall to communism was a key part of U.S. policy, though not the sole motivating factor.

With the rise of the National Front government of Mohammed Moṣaddeq,

“nationalization” came to dominate Iran’s politics, and determining its precise meaning was the key to American mediation between Iran and the British after the passage of the nationalization laws in March and May 1951. The U.S. was not an “honest broker,” as is often argued,1 but acted in the interest of maintaining the international energy system and achieving the dual integration of Iranian oil. While the U.S. recognized the “principle of nationalization” as a political and strategic necessity, given the apparent fervor of Iranian nationalism, it was not

1 For arguments that the U.S. acted as an “honest broker,” see Heiss, Empire, 77-107, Jerrold L. Walden, “The International Petroleum Cartel in Iran: Private Power and the Public Interest,” Fundamental Concepts of Public Law Symposium 11 (1962): 64-121, Louis, The British Empire in the Middle East, 1945-1951, 632-689.

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prepared to allow Iran to take full control over its industry and market oil independently, as

Moṣaddeq envisioned. American mediation in 1951 aimed at satisfying the Iranians with the appearance of nationalization without disrupting the energy status quo.

The British worked with oil companies to deter customers from purchasing Iranian oil, with the cooperation of the United States, despite some misgivings among policy-makers regarding the efficacy of such a strategy. The embargo was extremely successful, and Iran’s oil vanished entirely from global markets. The United States constructed an apparatus, the

Petroleum Administration for Defense (PAD), that allowed for oil resources to be re-distributed, softening the blow of Iran’s sudden shutdown. Public and private organizations worked together to neuter Moṣaddeq’s challenge to the international energy system, and by 1953 Iran was effectively isolated from the world of oil. This isolation would force the National Front government to embark upon an “oil-less” economic strategy, which in turn convinced American officials the country was headed towards economic disaster, one that would prepare the way for an eventual communist revolution. The de-integration of Iranian oil was thus a crucial precursor to the events of August 1953 and the forced removal of the Moṣaddeq government through

Anglo-American covert action.

3.1 Moṣaddeq and the National Front

While Rezā Shah had “cancelled” the D’Arcy Concession in 1932, evicting the oil company or taking over its assets and property within Iran had never been seriously considered.

Calls for “cancelling” the 1933 Concession, particularly after Taqīzādeh’s speech in January

1949, became increasingly common, but they were distinct from “making the industry national”

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(millī shudan).2 Within a year, however, nationalizing the oil industry had become the most important political issue in Iran. Peter Avery, a teacher working for AIOC, noted that before

1949 Moṣaddeq “was not even being talked about…it all happened quite quickly.”3 Attitudes within AIOC had changed very little from the days of Cadman and Reza Shah, while the world outside Abadan and behind the boardrooms in Britannic House “had changed a great deal,” according to company historian J.H. Bamberg. AIOC was not prepared for the shock of nationalization, “and matters had not reached the point of breakdown” on the same level of 1932-

1933.4 There is little to excuse the company’s utter shock and surprise, as the movement against foreign concessions was already decades’ old. It had its roots in the Tobacco Protests of 1892, the 1906 Constitutional Revolution and the Abrogation of Capitulations in 1927. It was presaged by the successful rejection of the Soviet oil concession in 1946-1947. Internationally, it had its roots in the resource nationalism which had blossomed in Latin American, particularly the

Mexican nationalization of 1938. The nationalization movement in Iran “coagulated” in 1949-

1950 and was fed by several different political and intellectual currents, but in the context of the post-constitutional opposition to foreign “capitulations” it was not an aberration.5

The head of the movement was Mohammed Moṣaddeq, a man who, to Western observers, defined the Iranian aristocrat: significant wealth tied to land, a French education, anti-

2 Katouzian, Musaddiq, 67-68; Makkī, Naft va nutq-i Makkī, 174-194. 3 Azimi, Crisis, 257-287, Abrahamian, Iran Between Two Revolutions, 267-280; FIS, Peter Avery Interview, 13 4 Bamberg, Vol. II, 410-411. 5 Ansari, Modern Iran, 130-131; Ruhāni, Tārīkh-i millī shudan-i ṣanʻat-i naft-i Irān, 5- 46, 47-57, and Zindagī-i siyāsī-i Musaddiq, 123-127; Fāteh, Panjāh sāl naft-i Iran, 515-517. Moṣaddeq’s political philosophy of passive balance had its roots in the ideology of Sayyed Ḥasan Muddaris in the 1920s, who argued for “passive balance” (tavazun-i adami) to oppose his contemporaries pro-Soviet policies. See Katouzian, Musaddiq, 56.

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communist with familial connections to the Qājār dynasty. Yet Moṣaddeq was not a typical aristocratic politician, in the mold of experienced conservatives like Sayyed Ḥasan Taqīzādah or

Aḥmad Qavām. A staunch advocate of constitutional government, Moṣaddeq had initially supported Rezā Khan’s modernizing regime, though he opposed the dictator’s ascendance to the throne and the solidification of arbitrary power (istibdād). As a Majlis deputy he fought against corruption inside Iran’s bureaucracy, leading to his dismissal by Rezā Shah and resignation from political life. In 1944, he returned as a deputy in the Majlis: representing Tehran, where elections had been conducted freely without coercion or foreign influence, Moṣaddeq commanded a considerable following in the Fourteenth Majlis (1944-1946). One of that body’s most notable legislators, Moṣaddeq championed bills that limited royal authority and championed the 1906 constitution. He also authored the 1944 and 1947 bills banning foreign oil concessions and delivered a number of passionate speeches addressing the pernicious influence of the British oil company.6

Moṣaddeq was not anti-Western, in the sense that he opposed Western-style modernization. He was a post-colonial nationalist who felt Iran could deal with foreign powers on equal terms. His true convictions were wedded to the idea of bringing Iran full independence from all foreign influences. His philosophy of “negative equilibrium,” or “passive balance”

(Siyāsat-i muvāzanah-i manfī) argued for a non-aligned Iran that pursued self-sufficiency without becoming entangled in Cold War politics. Unlike most politicians, Moṣaddeq was willing to use the crowd as a means of bringing pressure to bear on the Majlis, the shah and other

6 Yamagāni, Kārnāmah-i Musaddiq, 15-34, 35-78, 117-128; Katouzian, Musaddiq, 1-77, and Musaddiq’s Memoirs, 1-25; Husayn Makkī, Duktur Muṣaddiq va nuṭqʹhā-yi tārīkhī-i ū dar dawrah-ʼi panjum va shishum-i taqnīnīyah bā tajdīd-i naẓar va i̤ zāfāt [Dr. Musaddiq and His Historical Speeches] (Tehran: Sāzmān-i Intishārāt-i Jāvīdān, 1985), 116-119, 168-172, 172-199; Kay-Ustavan Siyāsat-i muvāzanah-i manfī, Vol I, 20-35.

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groups that opposed him and the National Front. He was, noted one aristocratic observer,

“indigestible,” from a political point of view, “both a patrician and a populist.” His position was one of adaptation, rather than adoption, of Western ideas “into their workable Iranian counterparts;” he eschewed the “purely superficial emulations of the West” which the Pahlavi regime seemed to embody.7 Old constitutionalists like Taqīzādeh respected Moṣaddeq, an

“honest, trustworthy and patriotic” figure, though a “rabble-rouser.”8

He was not a communist, nor was he friendly with the Tudeh Party. In 1946 the Tudeh had come out in support of a Soviet oil concession, which Moṣaddeq fiercely opposed. A Soviet memo from 1949 noted that Moṣaddeq opposed “truly friendly relations with the USSR,” and his

“pro-British” followers were chiefly interested in Majlis seats.9 The Tudeh openly criticized the

National Front as a “dependent bourgeois movement” and a tool of American imperialism.10

Mozaffar Firūz, Qavām’s deputy prime minister, considered Moṣaddeq to be a classic conservative aristocrat who was motivated by anti-British animus, while the communist Tudeh party painted him as a Western puppet who lacked strong convictions to reform.11 Throughout

7 Katouzian, Musaddiq’s Memoirs, 9; Ansari, Politics of Nationalism, 130, 11 and Modern Iran, 131-134. 8 Taqīzādeh, Zendegi-ye tufāni, 366. 9 Memorandum, “The National Front in Iran,” October 28, 1949, trans. Jamil Hasanli, Wilson Center Digital Archive [Accessed February 8, 2018] http://digitalarchive.wilsoncenter.org/document/119116 10 Maziar Behrooz, “Tudeh Factionalism and the 1953 Coup in Iran,” International Journal of Middle East Studies 33, no. 3 (Aug., 2001): 364. 11 FIS, Interview with Mozaffar Firūz, 2-4. Moṣaddeq criticized the Tudeh in late 1944, accusing them of working chiefly to further the interest of the Soviet Union. Thereafter, he was the subject of repeated Tudeh propaganda attacks. Muẕākirāt-i Majlis Vol. XIV, December 22, 1944.

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his tenure as prime minister, Moṣaddeq was lampooned in the Tudeh press, which did not relax its stance until after the July 1952 crisis, when Iranian politics underwent an additional shift.12

The National Front (jebhe-ye melliyun) was a loose coalition of political groups united around the idea of taking over the national oil industry through nationalization or “repossession”

(khal’-i yad). The National Front gradually accumulated allies: the populist Ayatollah Sayyed

ʻAbū al-Qāsim Kāshāni; Mozaffar Baqā’i, head of the Iran Workers’ Party (ḥezb-e zahmatkesān- e millat-e Irān); veteran parliamentarians like Sayyed ʿAbd-al-Husayn Ḥāʾerizāda and Mahdī

Āẕar, as well as constitutionalists like Allāhyār Sāleh and ‘Ali Shāyegān, both members of the socialist Iran Party. The premier’s inner-circle who advised him on oil issues included Ḥusayn

Makkī, who had filibustered the Supplemental Agreement in July 1949; Ḥusayn Fāṭimī,

Moṣaddeq’s deputy, Foreign Minister in 1952-1953 and editor of the paper Bakhtar-I Emruz, the major National Front organ; Bāqir Kāẓimī, a career diplomat from an aristocratic background; and Kāẓim Ḥāsibī, former head of the Engineer’s Association (the precursor to the Iran Party) and a technical expert on the oil industry, though he lacked familiarity with marketing and pricing.13

According to Moṣaddeq, in November 1949 Fāṭimī was the first to suggest the industry be nationalized, along the lines of Britain’s coal mines and railways, with compensation paid to

AIOC for the loss of its installations. Thereafter, Moṣaddeq and his followers disseminated the idea of nationalization, primarily through Fātemi’s Bakhtiar-I Emruz and Baqāʾi’s Shahed, while

12 Kārnāmah-i Muṣaddiq va Ḥizb-i Tūdah [Records of Mosaddeq and the Tudeh Party] (Florence: Mazdak, 1973): 71-278; Sepehr Zabih, The Communist Movement in Iran (Berkeley CA: University of California Press, 1966), 173. 13 Abrahamian, The Coup, 48-54; Ebtehāj, Khātirāt, Vol. I, 286-87; ‘Ali Shāyegān, Sayyed ʿAli Shāyegān: Zendagi-nāma-ye siāsi [Sayyed ‘Ali Shāyegān: A Political Biography] Vol. I (Tehran: 2006), 329-39, 349-50; HIOHP, Interview with Mahdī Āẕar, No. 1, 1-16.

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Moṣaddeq used his position as head of the Majlis oil committee to push other deputies towards nationalization.14 By early 1951, nationalization emerged as an electrifying concept, one that galvanized the Iranian public. Thousands turned out to hear speeches by Makkī, Kāshāni, and

Moṣaddeq. “Nationalization” meant full Iranian control over the industry, including exploration, exploitation, transportation and sale; literally to make the industry “of the nation” (millī shudan).

“The nationalization of industries in any country is an act emanating from the sovereign rights of the nation,” Moṣaddeq argued. The 1933 Concession, concluded “in an atmosphere of terror and tension by a dictatorial government,” illegally infringed upon the rights of the nation, placing it

“under the bondage of another government.” Oil represented a vital natural resource, and Iran should have the right “to exploit its own resources…for the welfare and prosperity of the country and its people.” 15 Nationalization was an act of national sovereignty, following “the practice of those countries who have nationalized their mineral resources,” of which Britain was one. While nationalization was Iran’s sovereign right, Moṣaddeq used AIOC wrong-doing to justify Iran’s forceful “re-possession” of the company’s assets. AIOC had underpaid Iran’s royalty, meddled in politics and mistreated workers. According to international legal precedents, Iran was within its rights to nationalize foreign-held assets as long as it offered compensation: it was

“nationalization,” as opposed to “confiscation.”16 Oil was a political issue, where the “moral aspect” was more important than the “economic aspect.”17 He was open to financial concessions

14 Katouzian, Musaddiq, 90; Makkī, Naft va nutq-i Makkī, 402-411; for the proceedings leading up to nationalization, see Makkī, Kitāb-I Siyāh, Vol. III (Tehran: Bungāh-i Tarjumah va Nashr-i Kitāb, 1981), 1-180. 15 RG 59 888.2553/4-1051, US Embassy No. 800, Mosaddeq Press Conference, April 10, 1951. 16 BP 126464A Mosaddeq Speech, September 27, 1951; Walden, “International Petroleum Cartel,” 89. 17 Quoted in Katouzian, Musaddiq, 92.

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yet would not depart from points of principle: “if necessary it was better for Iran to be poor and independent than to tolerate the survival of the AIOC.”18 It was an issue of “national sovereignty” rather than “dollars and cents or numbers of barrels per day.”19 This stance explains his much-mocked practice of referring to the “former company” rather than call AIOC by its name: such re-branding was politically necessary, as it maintained the fiction that AIOC no longer existed in Iran.20

Nationalization, therefore, represented more than the simple seizure of assets. AIOC would vanish. Iran would produce and sell its own oil, without recourse to the international energy system’s elaborate and inter-locking mechanisms of vertical and horizontal integration.

Moṣaddeq’s “negative equilibrium” was, in a sense, “negative integration,” a refusal to abide by the rules put in place by the oligopoly. Iran could sell oil at the net-back price, which after 1950 was known as the “posted price,” while the National Iranian Oil Company (NIOC) formed by

Moṣaddeq and his advisors in 1951 would retain all the original foreign technical staff. Iran’s former customers would be free to buy oil, with Iran setting aside a sum from oil sales as payment in compensation for the British, so that “the great industry may not be disrupted.”21

Selling oil at the posted price would allow Iran to realize immense profits.22 It would also permit

18 Azimi, Crisis, 260. 19 Farmānfarmāʼiyān, Blood and Oil, 242-2. 20 Fāteh, Panjāh sāl naft-i Iran, 517-523; HIOHP Interview with Nuṣrat Allāh Amīnī, No. 3, 9-20. 21 BP 126464A Mosaddeq Speech, September 27, 1951. Starting in 1950, Aramco began publicly posting the price at which it sold crude oil from Ras Tanura according to the net-back formula. Other companies followed suit and by the mid-1950s each country had a known “posted price.” 22 Iran’s total production in 1950 was 30 million tons. If sold at the posted price of $1.75 per barrel this would translate into roughly $375 million, or £133 million, which is approximately what Mosaddeq quoted to the Americans as a “just share” from oil income. RG 59 888.2553/5-451, Grady to State, No. 2665, May 4, 1951.

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the country, according to Moṣaddeq, “to eradicate the misery and poverty that are plaguing the lives of the Iranian people.”23

Iran was capable of running its own oil industry, as AIOC had recognized as early as

1933. When the National Iranian Oil Company (NIOC) was established formally after nationalization took place, it was led by experienced oil men like Mahdī Bāzargān, Bāqir

Mustawfī, ‘Abbas Pārkhideh and Manūchehr Farmānfarmāʼiyān.24 These men were sensible to the realities facing Iran as an independent oil producer. They frequently criticized the policies of the National Front, though Bāzargān supported Moṣaddeq’s broader program.25 Moṣaddeq and his closest advisors argued that the risks to Iran were small. Competition between U.S. and

British oil firms would work to their advantage: AIOC would be quickly replaced by U.S. firms, and compensation for AIOC would be paid “with American money,” since Moṣaddeq assumed the Americans were eager to gain access to cheap Iranian crude, as they had been in 1944.26 In this, he entirely misjudged the degree of solidarity that existed within the oligopoly regarding the threat of resource nationalism; neither Moṣaddeq nor his advisors fully understood the integrated character of international oil, nor did they seem to appreciate the challenges of marketing oil independently.27 It is important to note, as Ali Ansari does, that nationalization was not at its

23 The Washington Post, “Mossadegh Pleads Cause,” October 23, 1951. 24 Mosaddeq asked for ‘Ali Shāyegān’s assistance in crafting the laws creating the new oil company. See Shāyegān, Sayyed ʿAli Shāyegān: Zendagi-nāma-ye siāsi, Vol. I, 468-469. 1.1.1 25 RG 59 888.2553/5-1052, US Embassy Tehran No. 1204, May 10 1952; FISDS, Tahavvul-i san`at-i naft-i iran: negâhi az darün, Interview with Parviz Mina, Part 1 [Accessed March 15, 2018]. Bāzargān would become a key opposition figure to the shah in the 1950s, leading the Liberation Movement of Iran (Nihzat-i Āzād-yi Iran), and was the second president of the Islamic Republic. See Bill, Eagle and the Lion, 264-265. 26 FO 371/91497EP 1155, Minute by Logan, May 2, 1951. This was a popular idea among supporters of Mosaddeq at the beginning of the crisis; considering the terms of the 1954 consortium agreement, it is not far off the mark. 27 Fāteh, Panjāh sāl naft-i Iran, 523.

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core anti-British, but rather a campaign to end the exploitative Anglo-Iranian relationship.

National Front supporters admired the postwar British welfare state and Moṣaddeq frequently used Britain as an example of a monarchy where the king “reigned, rather than ruled.”28

Cowed by the National Front’s immense popular following, the conservative opposition was hamstrung by the unwillingness of the shah to openly oppose Moṣaddeq. While the United

States recognized the power of the nationalization movement, it was not averse to having the shah use “firm leadership” to forestall more aggressive moves by the National Front: he remained “the best hope…to control the situation.”29 Customarily indecisive, the shah bounced back and forth, between openly supporting Moṣaddeq so as to benefit from the enthusiasm around nationalization, to secretly conspiring against the popular prime minister with opposition figures and the British. The shah remained an influential figure; he commanded a significant following in the Majlis, and as commander-in-chief of the armed forces customarily appointed the Minister of War and exercised direct influence over the army. Despite this, the shah was unable to forcefully opposed Moṣaddeq, who was chosen by vote of the Majlis and retained immense popular support. Personally opposed to nationalization, the shah was too fearful of his position to challenge it directly; the specter of his father’s abdication no doubt loomed large in his mind.30

Anglo-American negotiators expressed frequent frustration with Moṣaddeq. His habit of taking meetings in bed, dressed in his pajamas, struck his Western interlocutors as a strange,

28 Ansari, Politics of Nationalism, 132-134, Katouzian, Musaddiq, p. x; BP 126464A Mosaddeq Speech, September 27, 1951. 29 RG 59 888.2553/4-1751, Memo from McGhee for Acheson, April 17, 1951 30 Azimi, Crisis, 265-270, and “Unseating Mossadeq,” in Gasiorowski and Byrne, eds., 32-40.

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even feminine affectation.31 The British felt Moṣaddeq was a “lunatic,” and assumed his tenure would not last long.32 The British position was quite clear from the onset: nationalization was to be resisted and Moṣaddeq pushed out of office. Abadan, and the entire Iranian oil industry, was

British: there was anger over the Iranian presumption to control an industry “to which they have made no contribution.”33 While the Labour Government could not oppose “nationalization” on moral grounds, having overseen the state take-overs of most major industries after the war, they argued that Moṣaddeq’s actions amounted to confiscation of assets. The 1933 Concession had expressly forbade unilateral changes to the contract and included an arbitration clause:

Mosaddeq’s nationalization amounted to a violation of the sanctity of contracts.34 The opposition of the oligopoly to Moṣaddeq and “nationalization” was universal, for understandable reasons.

Key aspects of Moṣaddeq’s platform, particularly the demand that Iran be permitted to operate its own oil industry and sell oil internationally outside the oligopoly directly threatened the international energy system. The “contagion” of nationalization could potentially spread beyond

Iran to other countries. Nationalization breached the “sanctity of contracts,” and threatened both oil security and the future of the global capitalist system.35

To some U.S. officials Moṣaddeq was a nationalist, a savvy politician of the patrician class and one of the first truly popular figures in Iranian political history; to others he was “a

31 Heiss, Empire and Nationhood, 4-5. Moṣaddeq suffered from fainting spells and regularly took to his bed for discussions; the Americans, however, regarded it as an affectation. 32 FO 371/91459 EP 1015/201, Shepherd to Furlonge, May 6, 1951, FO 371/91463 EP 1015/305, Shepherd to FO, September 4, 1951, FO 371/91464 EP 1015/361, Shepherd to Franks, October 2, 1951; Louis, British Empire in the Middle East, 651-7. 33 Quoted in Azimi, Crisis, 261. 34 Louis, British Empire in the Middle East, 667; Galpern, Money, Oil and Empire, 80- 141. 35 Elm, Oil, Power and Principle, 144-145, Walden, “International Petroleum Cartel,” 88-105.

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dramatic demagogue…without particular wisdom or background for government.”36 In most cases, their attitudes reflected many of the stereotypes attached by Americans to Iranian politicians. Moṣaddeq was thought to be untrustworthy, theatrical, fickle, and irrational. Yet the

U.S. was not prepared to oppose “nationalization” as aggressively as the British. Senior officials in the Truman Administration felt Iranian nationalism was a real, tangible force in Iranian politics; rather than opposed, it had to be placated lest the movement fall under communist influence. The shah, who the U.S. was prepared to back before May 1951, had neither the will nor the courage to act so long as the nationalization issue loomed so large, and the U.S. found

British hopes for a more “reasonable” government quickly replacing Moṣaddeq to be unrealistic.

To assuage Iranian nationalism, a new oil arrangement had to recognize nationalization, “at least in principle.”37 The U.S. was more sympathetic to the British that to Moṣaddeq, though in the midst of Anglo-American disagreements this was not always clear.38 Allowing a nation’s oil industry to be run by the national government was something neither of the Anglo-American governments were prepared to accept. Instead, the U.S. worked to find a suitable definition of

“nationalization,” one which would satisfy both the National Front and the international energy system. Using the flexibility within the Iranian nationalization laws and their leverage over the

36 Dean Acheson, Present at the Creation: My Years at the State Department (New York: Norton, 1969), 504; Azimi, “The Coup Revisited,” 702; FRUS Retrospective Iran 1951-1954, No. 20, Memorandum Prepared in Office of National Estimates, CIA, May 1, 1951, No. 23, Embassy in Iran to State No. 899, May 4, 1951, No. 25, Minutes from Director of Central Intelligence Smith’s Meeting, May 9, 1951. 37 FRUS Retrospective Iran 1951-1954, No. 21, Progress Report Prepared for National Security Council, May 2, 1951, No. 22, Telegram from CIA Station to CIA, May 3, 1951, No. 26, Memo for the Record, May 10, 1951, No. 28, Special Estimate, May 22, 1951. See Goode, In the Shadow of Musaddiq, 25-26, Marsh, Anglo-American Relations, 63-67, Bill, The Eagle and the Lion, 72-75, Heiss, Empire, 20-21. 38 Heiss, Empire, 78; Abrahamian, The Coup, 90-108.

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British, the United States government made a series of attempts during 1951 to resolve the nationalization crisis in a way that would still permit the dual integration of Iranian oil.

3.2 Defining “Nationalization”

The day after Razmārā’s death, National Front demonstrations led by Kāshāni formed in

Baharestan Square in Tehran; the popular cleric spent the afternoon denouncing the company and British oil imperialism. A government was assembled by Ḥusayn ‘Alā, the shah’s loyal ex-

Ambassador the United States, on March 11; the shah had hoped to appoint Sayyed Ziā, the preferred British choice and a known Anglophile, but Ziā lacked support in the Majlis and ‘Alā was left in place as a caretaker. Meanwhile, Moṣaddeq’s oil committee voted to accept the

“principle of nationalization.” Royalists presented a bill identifying Iran’s oil as belonging to the

Iranian people, but Makkī was able to insert a new clause, identifying the measure as calling for the “nationalization of the oil industry,” rather than just the oil in the ground. The

Nationalization Resolution, in its altered form, was passed by the Majlis and Senate by March

20.39 The bill declared the oil industry “nationalized,” but did not specify how “nationalization” would be carried out, or even what it would mean. It was a single-article bill, “no more than a statement of principle.”40

There were immediate doubts as to what, if anything, the Nationalization Resolution signified. U.S. Ambassador Henry Grady wondered if the National Front was prepared to

39 FRUS Retrospective Iran 1951-1954, No. 3, Memo prepared by Office of National Estimates (ONE), Central Intelligence Agency (CIA), March 9 1951; BP 126353 Northcroft for Gass, NO. 8402, March 8 1951, Northcroft to Gass, No. 669 March 11 1951, Northcroft for Seddon, unnumbered, March 15, 1951; FO 371/91454 EP 1015/58, Shepherd to FO No. 255, March 28, 1951; Bamberg, 90-91. 40 Katouzian, Musaddiq’s Memoirs, 32; Ruhāni, Tārīkh-i millī shudan-i ṣanʻat-i naft-i Irān, 116-122.

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confiscate AIOC’s assets.41 Acheson noted there were “wide differences…as to what nationalization should encompass,” between extremists calling for confiscation and moderates who “might be content with AIOC management” under a different form. Max Thornburg, former advisor to the Razmara government, suggested implementing “nationalization” as a simple

“legalistic conveyance of certain titles” from AIOC to Iran, “to provide for continuing operation by AIOC with certain benefits accruing to both.” The bill carried an extension of two months, which indicated Moṣaddeq did not wish the oil industry to break down and the “collapse of the economy laid at his door.”42 Conscious of the resolution’s limited scope, Moṣaddeq moved to table a bill containing nine points, one that detailed “re-possession” (khal’-i yad) of the oil industry.

AIOC chairman William J. Fraser had no intention of accepting nationalization. The loss of Iranian oil would strip £100 million annually from the British Treasury, seriously affecting the re-armament program and standards of living. Nationalization posed a serious threat to other oil concessions and British overseas possessions, including the Suez Canal. The Foreign Office contemplated military intervention to protect oil fields and issued a warning to Iran: abrogating the 1933 Concession without recourse to arbitration was illegal. While the British government was prepared to negotiate, “substantial control of Persia’s oil should remain in British hands.”

They doubted the staying power of Moṣaddeq’s nationalist movement, and there was a strong belief that a government led by Seyyed Ziā, with support from the shah, would facilitate a settlement along lines favorable to British interest.43

41 RG 59 888.2553/4-2351, Grady to State, No. 2514, April 23, 1951. 42 RG 84 USETCGR 1950-1952, Box 38, Acheson to Grady, No. 1598, March 14, 1951, Bayne to Iliff, March 17, 1951, Grady to State, No. 2102, March 18, 1951. 43 RG 59 888.2553/4-2351, Acheson to Grady, No. 4857, April 23, 1951. British Ambassador Francis Shepherd praised Ziā as “an honest and courageous person,” and frequently 181

Fraser and the company’s senior management appeared curiously blasé towards the nationalization threat, as well as the on-going danger of labor militancy in Abadan. Despite pleas from the refinery’s managers, AIOC instituted cut-backs in March as part of a multi-year efficiency drive: the company expected to reduce labor by 8,000 in 4-5 years, and would end extra pay for workers in the oil fields.44 The measure sparked a series of strikes and demonstrations on March 22, leading to a mass walk-out among field workers at Agha Jari.

Local Iranian authorities cooperated with the company to put down the unrest and martial law was declared in the oil fields. Unrest spread to Abadan, where demonstrations were led by the students of the Abadan Technical Institute. Government troops fired into crowds, killing and injuring a number of Iranian and British company employees. For a time in April, operations were halted and the company eventually acquiesced to higher pay for workers who returned to work and “resisted all efforts at intimidation.”45 Despite these problems, the company was certain that they could outlast the danger. Strong pressure would be exerted and Moṣaddeq’s time in office waited out: “the beggars will crawl to settle with us when their money runs out.”46

This represented an effective unity of position between AIOC and the British government. “You

argued that he could form a government with the shah’s blessing that could settle most of Iran’s immediate problems. See FO 371/91454 EP 1015/48 Shepherd to FO, No. 240, March 21, 1951; Louis, British Empire in the Middle East, 666-678. 44 AIOC’s policy was driven by the rising costs in Iran; management argued that high wages after the 1946 strike and the burgeoning cost of house construction and amenities forced a reduction in staff. See BP 101108 Elkington to Fraser, January 16, 1950, Gobey for Rice and Northcroft, March 14, 1950. 45 Ladjevardi, Labor Unions and Autocracy, 188-189. 46 RG 59 888.2553/4-651, Acheson to Tehran, No. 799, April 6, 1951.

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will realize,” Britannic House wrote to Northcroft, “the extent to which His Majesty’s

Government have now identified themselves with the Company’s interests.”47

The U.S. was prepared to accept the “principle of nationalization:” the idea that Iran should own and operate its oil industry and tacit acknowledgement that the terms of the concession were unjust and should be negotiated (preferably to reflect the fifty-fifty principle).

Grady found the British “self-righteous and arrogant.” As he saw it, “Iranian emotion” had to be balanced with British control of the oil: “nationalization” would be acknowledged in the final agreement, even if the actual terms differed little from the 1933 Concession.48 Assistant

Secretary George C. McGhee felt it was time to “subordinate” British financial concerns to the over-riding goal of “maintaining stability in Iran and continuing the uninterrupted flow of oil.” A new concession had to be as equitable as the Saudi deal. “Full nationalization” could not be permitted; oil could not be allowed to pass out of British hands, as doing so would upset the existing energy system and potentially threaten all existing oil concession. However, “it would be necessary to go a long way in that direction,” in order to satisfy nationalist opinion in Iran.

Above all, he felt that fifty-fifty, a “demonstrably fair” commercial arrangement, should be applied in Iran just as it had been in Saudi Arabia. The key was to show the Iranians that they

47BP 126353 Rice to Northcroft, No. 730 March 6 1951, Northcroft to Rice, NO. 657, March 5 1951 Rice to Northcroft, No. 754 April 11 1951; FO 371/91470 EP 1023/11, Draft for UK Delegation, FO 371/91456 EP 1015/139, Shepherd to FO No. 365, April 21, 1951; Bamberg, Vol. II, 417. 48 RG 59 888.2553 AIOC/3-1751, Grady to Acheson, No 2100. March 18 1951, 888.2553/4-2351, Acheson to Grady, No. 4857, April 23, 1951, 888.2553/4-2451, Grady to State, No. 2535, April 24, 1951; Truman Library, Grady Papers, Box 3, Grady to Rountree, March 16, 1951; BP 126353 Matthews Interview with Grady, March 17, 1951.

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would get as much under a “lip service formula,” as they would from actual ownership of the industry.49

The “lip service” idea did not encourage the British, who bristled at the “unhelpful needling” of the Americans.50 Ambassador Sir Francis Shepherd, who doubted the viability of

Moṣaddeq’s movement, suggested they transfer AIOC’s Iranian assets to a new company, with some board representation for Iran. Refusal would be met with a swift withdrawal from Abadan.

The offer was essentially an ultimatum: accept the terms, or force AIOC’s withdrawal and invite economic catastrophe.51 The U.S. thought the offer “faced certain rejection,” but Grady agreed to take a position of benevolent neutrality. The United States was tempted to preserve the situation by offering clandestine assistance to ‘Alā, a moderate if weak personality. With the cooperation of the Central Intelligence Agency’s office in Iran, a subsidy for the new prime minister was prepared, to be paid in installments possibly through 1952.52

The offer of U.S. financial help came too late. Under pressure from the British and the shah, ‘Alā prepared to step down as prime minister. Seyyed Ziā, the British favorite, intimated to the shah that if a Majlis vote were held, he was sure to be selected by the conservative majority.

An extraordinary session of the Majlis was held on April 28, and rather than propose Ziā’s name,

49 RG 59 888.2553/4-2051, Memo from McGhee to Acheson, April 20, 1951; RG 84 USETCGR 1950-1952 Box 38, McGhee to Grady, No. 5, March 26, 1951; FO 371/91470 EP 1023/12, Minutes of Meeting, April 2, 1951, EP 1023/16, Franks to FO No. 1079 and No. 1080, April 11, 1951; Bamberg, Vol. II, 417-418. 50 FO 371/91470 EP 1023/17, Franks to FO NO. 1080, April 11, 1951, EP 1023/18, FO to Franks NO. 1459, April 12, 1951, EP 1023/19, FO to Franks NO. 1935, April 14, 1951, EP 1023/20, FO to Franks No. 1481, April 13, 1951; RG 59 888.2553/4-2851, Gifford to State, No. 5654, April 28, 1951. 51 FO 371/91471 EP 1023/26 “Suggested Approach to Persian Government by Sir Francis Shepherd.” 52 FRUS Retrospective Iran 1951-1954, No. 18 Memo from Wisner to A. Dulles, April 23, 1951. It is not clear if the money was ever delivered.

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which would be instantly attacked by the National Front deputies, the conservative president of the Majlis held the customary straw poll and suggested Moṣaddeq, whom he felt was sure to decline. Surprisingly, Ziā earned only a single vote, as the Majlis overwhelmingly chose

Moṣaddeq. Conscious that the conservative majority would never agree to his oil nationalization law once he was in power, Moṣaddeq instead accepted the position on the condition that the

Majlis vote on the law. The law was summarily passed on April 28 by the Majlis, the following day by the Senate, and signed into law by the shah on May 1.53

If the March 20 resolution had affirmed the “principle of nationalization,” the Nine-Point

Law passed on April 28 illustrated how nationalization would be implemented. A committee would be formed to take over the industry and execute rapid “Iranianization.” Oil would continue to be sold to Iran’s customers at a “just price.” In the post-nationalization reality, the

Anglo-Iranian Oil Company no longer existed: the “former company” was ordered to hand over all revenues accrued since March 20 to the Iranian state, minus twenty-five percent which would be used to pay AIOC compensation for the nationalized assets, once company claims had been weighed again Iranian counter-claims. For the National Front, the law represented the legitimate exercise of national sovereignty; Moṣaddeq was determined to implement nationalization according to the Nine-Point Law as quickly as possible.54

The U.S. was prepared to accept the Iranian legislation as a fait accompli. Grady,

McGhee and Acheson argued that the British had to recognize the “principle of nationalization;” ownership of AIOC’s assets in Iran, including the Abadan refinery, should reflect that right; and resulting revenues from the sale of Iran’s oil abroad should be split fifty-fifty, so as not to

53 Azimi, Crisis, 253-8, Musaddiq’s Memoirs, 33-34. 54 Bamberg, Vol. II, 418-419, Elm, Oil, Power and Principle, 92-3.

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prejudice concessions elsewhere. British “effective management” would be retained. The

“principle of nationalization,” as it was expressed by the U.S., was designed to placate the

National Front while serving the needs of the international energy system. The U.S. believed

Moṣaddeq would move slowly and attempt a take-over of the company’s assets “with a minimum of dislocation” to avoid a breakdown in production, as this would jeopardize Iran’s finances.55

The British resented what they saw as insufficient U.S. support, particularly McGhee’s

“generally unhelpful” and “hectoring” attitude.56 In the British view, Moṣaddeq was a “mad man” and “ludicrously misinformed” regarding the operations of the oil industry. In time the company could bring Iran to face the “hard realities of the situation,” pulling them away from their “largely emotional” position. Amidst the crisis, AIOC’s independence was curtailed and the

British government, still its major shareholder, took on a greater degree of responsibility.

Norman Seddon, who had replaced Northcroft as chief representative, was instructed to “stay the stampede” towards confiscation. The company would remain in Iran for as long as possible, and on May 8 formally requested arbitration from the International Court of Justice.57 Major

American companies echoed the British position. They assured McGhee that no firm would step

55 RG 59 888.2553/5-451, Grady to State, No. 2666, May 5, 1951, 888.2553 AIOC/5- 151, Grady to State No. 3631 May 1 1951, 888.2553 AIOC/5-451, Grady to State, NO. 2674 May 4, 888.2553 AIOC/5-451, Gifford to State, No. 5748 May 4, 888.2553 AIOC/5-551, Gifford to State, No 5774 May 5, 888.2553 AIOC/5-551, Acheson to Gifford, NO. 5199 May 11, 888.2553 AIOC/5-1851, Gifford to State, No. 6005 May 18 1951. 56 FO 371/91530 EP 1531/261, FO to Shepherd NO. 332, May 1, 1951, Text of Morrison’s Speech to the Commons FO 371/91531 EP 1531/291, FO to Washington, No. 1766, April 28, 1951. 57 BP 126353 Seddon to Rice, No. 751, May 6 1951, Rice to Seddon, No. 785, May 10, 1951; FO 371/91530 EP 1531/264, Franks to FO No. 1361, May 3, 1951, EP 1531/261, FO to Shepherd No. 352, May 6, 1951, FO 371/91531 EP 1531/288, Note on Persia, May 4, 1951, EP 1531/289, Note to Shepherd May 9, 1951; Marsh, Anglo-American Relations, 47-50.

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in to replace AIOC. Any that did so would be “cutting its own throat.” While critical of AIOC, they were uniformly opposed to the “vacuous slogan” of nationalization. While Iran perhaps had a sovereign right to nationalize, its actions had threatened the sanctity of contracts; the 1933

Concession expressly forbade unilateral action without recourse to arbitration. While a settlement with Iran would likely include “some form of nationalization,” it was desirable to restrict its extent, so that “control of future operations…remains in the hands” of AIOC.58

McGhee took the lead in forming U.S. policy. A former petroleum engineer and son-in- law to famed oil-man Everette DeGolyer, McGhee combined an intimate knowledge of the international oil system with a nuanced view of Middle East politics and U.S. national interest.

Before 1951, he had argued for a dedicated economic development program from the Middle

East and Asia, a “Marshall Plan for the East.” In lieu of formal aid, McGhee had argued for better concessions like the Saudi/Aramco fifty-fifty deal of December 1950.59 While McGhee sympathized with the companies’ position, he urged them to accept the nationalization “as an established fact.” Opposing it would only push Iran towards the Soviet Union. Areas beyond Iran seemed secure from nationalization threat: the model of Aramco in Saudi Arabia, “keeping ahead of the game” through equitable deals and removing pressures “before they became acute,” remained the ideal means of handling oil-producing states. For McGhee, it was possible that the

58 RG 59 888.2553 AIOC/5-1751, Brewster Jennings (SONJ) to McGhee, May 17 1951, 888.2553 AIOC/5-1851, BB Howard (SONJ) to McGhee, May 18 1951; BP 28341 F.J. Hopwood of Shell to V. Butler, MFP, Petroleum Division, June 5, 1951. 59 George C. McGhee, Envoy to the Middle World: Adventures in Diplomacy (New York: Harper & Row, 1969). See also Citino, “International Oilmen, the Middle East and the Remaking of American Liberalism,” 245-251 for McGhee’s contribution to U.S. diplomacy between 1949 and 1951; Painter, Oil and the American Century, 168-171. Many on the British side believed McGhee aimed to supplant AIOC. McGhee defended himself in his memoir, claiming that few U.S. companies had any interest in Iranian oil once it was nationalized. McGhee, Envoy to the Middle World, 322.

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very act of nationalization, with all its accompanying political messiness and incoherence, would be enough of a deterrent to other oil-producers. It would not be necessary to isolate Iran; rather, a solution would lie in defining “nationalization” in suitable terms that fit the Iranian context but would be difficult or unprofitable if attempted elsewhere.60

On May 30 Moṣaddeq’s government invited AIOC to offer proposals on how nationalization would be implemented, noting that Iran was “anxious that benefits should be taken of the experience and knowledge of the former oil company.” Fraser took that to mean the company would have some say as to how nationalization would be carried out, while the

Americans were encouraged that Iran was ready to discuss the process according to the

Nationalization Resolution of March 20, and not the Nine-Point Law of May 1. The initial mission would be primarily educational, “since most people here have not the slightest conception of the magnitude and difficulty” of carrying out full nationalization. A basis for discussion had been found, according to Acheson, thanks to the “loose wording” of the

Nationalization Resolution.61 AIOC manager Basil Jackson was chosen to lead negotiations: he would emphasize to the Iranians that the success of Iran’s industry rested on its close cooperation with the global oil system. AIOC and its affiliates purchased 74% of all Iranian exports, while the other majors purchased 22% (the remaining 6% was purchased by distributing concerns in

Sweden, Italy, Turkey, Switzerland, and other markets which relied on tanker tonnage from

60 RG 59 888.2553 AIOC/5-1451, Memo of Conversation, May 14 1951. 61 RG 59 888.2553 AIOC/5-2251, Acheson to Grady, No. 2163 May 22, 888.2553 AIOC/5-2451, US Embassy Tehran No. 989, May 26, 888.2553 AIOC/5-2451, Acheson to Gifford No. 5456 May 24, 888.2553 AIOC/5-2551, Grady to Acheson No. 2980, May 25, 1951, 888.2553 AIOC/5-2951, Acheson to US Embassy London No. 5663, June 5, 1951; BP 126464 Note from Min of Fin to Fraser, May 20, 1951, Note Handed to Seddon by Min of Fin, May 30, 1951, Seddon to Rice, No. 8480, May 30, 1951, Seddon to Rice, No. 8482, May 31, 1951, Rice to Seddon No. 813 June 1, 1951.

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AIOC).62 Iran would lose access to these outlets if it abrogated the 1933 Concession. The

“immense complexity” of the Abadan refinery depended on the technical knowledge of a handful of British engineers. Outside of AIOC, this specific expertise “does not exist.” Operating the industry alone invited disaster: should a fire break out in Abadan, it was unlikely it could be put out “before the whole plant had been ruined and many hundreds of people burned to death.”63

Once the Iranians were suitably “educated,” Jackson would offer the fifty-fifty proposal: a subsidiary of AIOC would manage the industry, employing Iranians “to the greatest extent compatible with efficiency,” and splitting profits from production fifty-fifty. A draft agreement suggested an adequate preamble would include “suitable recitals setting out the Company’s acceptance…of the principle of nationalization.”64

Jackson arrived in Tehran on June 11. He made a good impression on the Americans, coming across as a “straight-forward, top-flight corporation executive.” He stated his mission was to determine “what…exactly is meant by ‘nationalization.’” Moṣaddeq explained to Jackson that his country was not hostile to the Western democracies, but was opposed to a foreign influence that caused “utter misery,” and conspired with a dictatorial government to oppress the people “who lived in pre-historic hovels.” The general populace was naturally inclined to support a foreign policy “that claimed to be their champion and savior” from foreign exploitation, but if this force were allowed to get out of control, “disaster would be the only result…an overwhelming movement in favor of communism” would take its place. Any form of nationalization “other than the true one” would be treated by the Iranian public “with extreme

62 BP 28341 AIOC’s Customers, June 19, 1951. 63 BP 72363 “Abadan Refinery: Withdrawal of British Staff,” June 11, 1951, “Effect of the Withdrawal of British Staff on Producing and Refining Operations in Persia,” Pattinson to Gass, Undated, “Abadan Refinery: Note on Complexity of Operations.” 64 BP 28341 Copy of Heads of Agreement, June 25, 1951

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suspicion.” It was a nuanced argument, but one Moṣaddeq would use countless times during the crisis: oppose nationalization, he warned, and Iran would turn to communism.65

Led by Kāẓim Ḥāsibī and ‘Ali Shāyegān, the Iranian delegation demanded that AIOC obey the articles of the Nine-Point Law, beginning with the immediate payment of all company revenues since March 20. The industry would now be overseen by the National Iranian Oil

Company (NIOC), with operations subject to Iranian management. A provisional council led by

Ḥusayn Makkī was dispatched to Abadan, in order to take possession of the refinery. Makkī gave a rousing speech to a crowd of thirty thousand, and the Iranian flag was raised above the company’s offices, but no further action was taken. In Tehran, meanwhile, Ḥāsibī and Shāyegān laid out the government’s position. “The former company” would transfer its assets and employees to the council’s control, pending a formal arrangement with NIOC. Operations would continue “under the same mechanism as had hitherto been in operation;” there was no need for an interruption in oil production. Running a nationalized industry may be expensive, but Ḥāsibī reasoned that profits without AIOC would be “eight or nine times” what they had been before.

Production could also be lower than it had been in the past, conserving Iran’s oil reserves and ensuring they were not wasted.66 If the company did not accept all aspects of the Nine-Point Law he would throw them out. Incidents between AIOC staff and Makkī’s provisional council in

Abadan were raising tensions, as the Iranians were demanding AIOC hand over account books,

65 RG 59 888.2553 AIOC/6-1251, Grady to Acheson, No. 3229 June 12, 1951; BP 72363, Notes on an interview between Dr. Mossadeq, Prime Minister, and BR Jackson, June 13, 1951; 888.2553 AIOC/6-1351, Grady to Acheson NO. 3255, June 13 1951, 888.2553 AIOC/6-1451, Acheson to Grady, No. 2393 June 14, 1951, 888.2553 AIOC/6-1451, Grady to Acheson No. 3266 June 14, 1951 888.2553 AIOC/6-1451, Grady to Acheson No. 3283 June 14, 1951; Ruhāni, Tārīkh-i millī shudan-i ṣanʻat-i naft-i Irān, 146-147; Fāteh, Panjāh sāl naft-i Iran, 524-551. 66 BP 72363 Meeting at Ministry of Finance, June 14, 1951, Notes on a Meeting, June 17, 1951; BP 101108 Drake to Seddon, June 11, June 12 and June 19, 1951; Bamberg, Vol. II, 426- 427.

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declare all staff employees of the government, and force tankers to submit to government receipts indicating the oil was the property of Iran.67

Like many AIOC negotiators before him, Jackson believed what the Iranians wanted most was money.68 He prepared an offer that included an immediate payment of £10 million, with £3 million every month for as long as the dispute continued. In return, Iran would agree not to interfere in oil operations and Makkī’s provisional committee would depart Abadan.

“Nationalization” would be implemented by having all AIOC assets transferred to NIOC, which would then grant their use to an AIOC subsidiary with Iranian board representation. AIOC would purchase oil from this subsidiary and split profits fifty-fifty. McGhee thought it “fully consistent with the principle of nationalization,” while retaining “effective British control.”69 AIOC was prepared to work towards a “liberal interpretation” of the Nine-Point Law, but would not agree to the “letter of the law;” only the March 20 Nationalization Resolution would be considered as valid. The Iranian delegation discussed the proposal for half an hour. They determined that it conflicted with the Nine-Point Law “as enacted,” particularly its stipulation on compensation.

Shāyegān would not deviate from his position, and he pronounced discussions closed.70

AIOC had misunderstood the Iranian goal; they did not realize that “nationalization” meant greater control over production, or that arguments based on oil’s international character

67 RG 59 888.2553 AIOC/6-1951, Grady to Acheson No. 3335, June 19, 1951; Bamberg Vol. II, 427; BP 101108 Drake to Fraser, June 11, 1951;Fāteh, Panjāh sāl naft-i Iran, 549-551. 68 FO 371/91548 EP 1531/669, Shepherd to FO No. 650, June 15, 1951. 69 BP 126464 Aide Memoire to Iran, June 19, 1951; RG 59 888.2553 AIOC/6-1551, Acheson to Grady No. 2403 June 15, 1951, 888.2553 AIOC/6-1551, Gifford to Acheson No. 6597, June 15, 888.2553 AIOC/6-1551, Grady to Acheson No. 3186, June 15, 888.2553 AIOC/6-1951, Grady to Acheson, NO. 3347 June 19, 1951, 888.2553 AIOC/6-1451, McGhee to Matthews, Memorandum: United States Position in Iranian Oil Controversy, June 14, 1951. 70 FO 371/91548 EP 1531/663, Shepherd to FO No. 674, June 19, 1951; Ruhāni, Tārīkh- i millī shudan-i ṣanʻat-i naft-i Irān, 157-167.

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would fail to move the Iranians, who seemed to care little about the inner workings of the international energy system. Moṣaddeq could not be bought off, as Rezā Shah had been; the political significance of carrying out nationalization mattered more than the economic arguments or financial promises made by the company, many of which seemed disingenuous and misleading to the National Front negotiators. The shah, watching helplessly from the sidelines, believed Jackson’s offer had been “unfortunately phrased,” thereby offering Ḥāsibī and other nationalists the opportunity to reject it. Jackson refused to stay in Iran for additional talks, noting the Iranians “had slammed the door in the face of the British so hard that [we] cannot with dignity sit around Tehran.” Moṣaddeq defended his decision before the Majlis, receiving a unanimous vote of confidence while Kāshāni led demonstrations against the company in

Baharestan Square. Crowds watched as the AIOC information office was ransacked, its sign torn apart, and its offices occupied. A trove of compromising information was discovered, including dozens of articles written by the company for Iranian publication and records of payments to

Iranian politicians: detailed proof of the company’s decades-long interference in Iranian political and social life. Seddon retreated to his residence, carrying company propaganda records and sensitive documents with him; he fled the country in late July.71 In Abadan, preparations were made to slow output and reduce non-Iranian staff, in preparation for a complete withdrawal. Iran had succumb to “mob rule,” Seddon wrote to London: there was no hope in negotiating with

Mussadiq. Jackson made similar remarks to the press a few weeks later: no settlement was

71 BP 72363 Seddon to Rice, No. 78, July 9 1951, Seddon to Northcroft, No. 83, July 16 1951; RG 59 888.2553/7-551, US Embassy Tehran No. 21, July 5, 1951; for the documents taken from the AIOC information office and translated into Farsi, see Asrār-i khānah-ʼi Siddān [Records from the House of Seddon] (Tehran: Muʼassasah-ʼi Intishārāt-i Amīr Kabīr, 1979).

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possible while the National Front was in power. A resolution would only come when Moṣaddeq was removed.72

The Americans were not ready to give up, however. AIOC had badly botched its first attempt to resolve the crisis, but few in Washington held the company in high esteem. Acheson determined that “strong moderation” was needed, that both the British and the Iranians were

“pushing their luck to the point of suicide.”73 “The Iranian government and AIOC desperately need each other,” yet the British seemed content to let the situation spiral out of control, confident that an end to oil revenues would force Moṣaddeq to resign. Ambassador Grady thought this “utter folly,” arguing that the prime minister enjoyed the support of “95 to 98 percent” of the country. There was no chance of a more reasonable figure taking his place.74

Despite optimistic reports from Ambassador Shepherd, the morale of British staff in

Abadan was in decline. The work of Makkī’s provisional council was making things

“intolerable,” and Atlee’s cabinet was considering a military solution. Acheson rejected the idea of an armed intervention: landing troops would mobilize the entire country against the West and could even trigger a Soviet response. Moṣaddeq seemed ready to negotiate, just not with the

British: he wrote to President Truman, expressing his eagerness that the oil continue to flow and the British staff remain at their posts. At Acheson’s urging Moṣaddeq agreed to allow Averell

72 RG 59 888.2553 AIOC/6-1951, Acheson to Grady No. 2430, June 19 1951, 6-2051, Grady to State, NO. 3372 June 20 1951, 5-2251, Grady to State No. 3404, June 22, 6-2251, Grady to State No. 3399 June 22,1951, 888.2553 AIOC/5-2151, Grady to State No. 3373, June 21, 1951, 888.2553/6-2951, Acheson to Gifford No. 6268, June 29, 1951; BP 72363 Interview between HE Varasteh and Mr. NR Seddon, 23 June 1951, Seddon to Rice, No. 74 June 25, 1951; BP 101108 Mason to Fraser, July 1, 1951. 73 Quoted in Heiss, Empire, 81-82. 74 Truman Library, Grady Papers, Box 2, Grady to Simpson, June 16 1951; RG 59 888.2553/6-3051, Grady to Acheson, No. 3521, June 30, 1951, 888.2553/7-151, Grady to Acheson No. 6 July 1, 1951.

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Harriman, a prominent diplomat and Truman advisor, to act as mediator. The British felt U.S.- led talks would only convince Washington of Moṣaddeq’s “intransigence and unreasonableness.”

The shah was convinced that Moṣaddeq “must be got rid of,” suggesting Seyyid Ziā or Qavām could replace him; but he would not act while the nationalization issue dominated politics, for fear that it would backfire and endanger his position and that of the monarchy. Seddon agreed:

Moṣaddeq’s government was under pressure to reach a settlement and was far weaker than commonly thought, he wrote. Strong resistance would see his regime crumble. Few in the British side thought the renewed American effort would yield positive 75

Harriman arrived on July 15. He offered an assessment entirely at odds with those submitted by the British. Arriving amidst massive demonstrations in favor of Moṣaddeq,

Harriman felt there was real power behind “nationalization,” which he regarded as the most popular political program in Iran’s history. Past attempts at reform by conservative governments, including the much-maligned Seven Year Plan, had never generated such enthusiasm. There was no question of the shah replacing Moṣaddeq, who was the only figure capable of meeting with the company and reaching an agreement without being painted a traitor. Harriman argued that a resolution could fit the Nine-Point Law, “through interpretation of law and perhaps additional legislation.” This was probably the “last opportunity” to conclude a settlement before AIOC was ejected entirely.76

75 RG 59 888.2553/7-451, Acheson to Gifford No. 72, July 4, 1951; FO 371/91461 EP 1015/267, Note from Bowker, June 30, 1951, EP 1015/268, Draft Memorandum, July 3, 1951, EP 1015/272, Draft Memorandum, July 3, 1951; FO 371/91462 EP 1015/281, Shepherd to FO, July 16, 1951, EP1112/53, Shepherd to FO, July 30, 1951; BP 72363 Seddon to Rice, July 17 1951; Heiss, Empire, 83. 76 RG 59 888.2553/7-1951, Grady to Acheson NO. 276, Note from Harriman, July 19 1951, Grady to Acheson, No. 285, Note from Harriman July 19 1951, 888.2553/7-2051, Grady to Acheson NO. 301, Note from Harriman July 20 1951, 888.2553/7-2151, Grady to Acheson, 194

Walter Levy, who accompanied Harriman as oil expert, met repeatedly with Ḥāsibī,

Moṣaddeq’s oil advisor, to “educate” him on the global oil market. Levy was a world-renowned oil consultant, and had argued for a new oil settlement in Iran as early as February 1951.77

Unlike AIOC, Levy did not argue that Iran could not operate its own industry; instead, he emphasized the impenetrability of the international energy system. Selling 8 or 10 million tons

(156,000 to 195,000 bpd) to independent buyers as Ḥāsibī imagined was unrealistic: there were no market outlets for that amount that were not under oligopoly control. To be successful, the

Iranians would have to convince the global industry of its good intentions and establish

“confidence and cooperation” with the oligopoly. Ḥāsibī and Allāhyār Sāleh admitted that NIOC could sell oil to distributors, provided it was not a single large company: it was necessary “that their customers would at least appear to be a large number of different units.”78 Levy suggested a new solution: a group of companies formed into a consortium could manage the distribution of

Iranian oil. The companies could include AIOC subsidiaries, suitably “dressed up” to take on the job: it was preferable that these companies “appeared to be coming to Iran’s rescue.” The compensation problem would be solved by having the companies pay AIOC in return for interest in the new scheme, with AIOC’s ownership “diluted.” Overall, Levy was not optimistic. He insisted to the British that AIOC “had virtually no bargaining position,” that the Iranian people would rally around “nationalization” in whatever form it took, and that what mattered was securing “a degree of cooperation.” The ability of the Iranian people to endure the hardships of

No. 318: Note from Harriman, July 21 1951, Grady to Acheson, NO. 322, Note from Harriman July 22 1951. 77 Walter Levy, “Iranian Royalty Question Serious Problem,” Oil Forum, February 1951. 78 888.2553/7-2751, US Embassy to State, NO. 121: Meeting with Mustafa Fāteh, 888.2553/8-3151, Technical Oil Discussions Between Mr. Levy of the Harriman Mission and Iranian and British Officials, July-August 1951,” Conversation with Ḥāsibī and Sāleh, July 16 1951, 888.2553/7-1951, Eakens for Levy No. 282 July 19 1951.

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an “oil-less” economy “should not be under-estimated:” he predicted Iran would likely survive for at least a year without oil revenues.79

The imminent cessation of all oil exports in late July, Levy and Harriman’s “education” campaign, and persistent pressure from moderates softened the National Front position. On July

23, the government identified the principle of nationalization as including the “discovery, extraction and exploitation” of oil “now in the hands of the Iranian government.” This was an indication that the March 20 Oil Resolution, not the Nine-Point Law, would be the basis for discussion.80 Harriman concocted a formula which was dispatched to the British: recognizing the principle of nationalization, the British government would negotiate on behalf of AIOC, which would be excluded until a settlement was reached. The British assumed from Harriman’s formula that the May 1 Nationalization Law was being “laid aside,” though no explicit Iranian statement was made acknowledging this. Nonetheless, Harriman had apparently achieved a breakthrough, and urged the British come to Iran as soon as possible to conclude a deal.81

Atlee chose Sir Richard Stokes, Lord Privy Seal, to lead the British team. Like Cadman, he would have to spin a victory into a defeat for the newspapers, and convince the Iranians to concede necessary ground while allowing Moṣaddeq the latitude to declare victory and satisfy nationalist opinion. An accomplished businessman, Stokes was neither a diplomat nor an oil-

79 RG 59 888.2553/8-3151, “Technical Oil Discussions, July-August 1951,” Memo of Conversation, Levy and Butler, July 28 1951, Summary of Conversation with Ministry of Fuel and Power, July 29 1951, Memo of Conversation with Ministry of Fuel and Power, July 30 1951. 80 RG 59 888.2553/7-3051, Grady to Acheson NO. 131: Memo of Conversation with Mossadegh, 888.2553/7-3051, Grady to Acheson No. 443 July 30 1951. 81 Tehran Embassy, Tel. No. 927, July 24 1951, Tel. 895, July 23, 1951, quoted in FO 371/98656 EP 1532/98, Minutes by Rothnie, Johnson, May 2, 1952, FO 371/98657 EP 1532/111, Sarrell to Rosss, May 17 1952, Transcript of Meeting between Kāẓimī and Middleton, July 25, 1951; RG 59 888.2553/7-2551, Grady to Acheson, NO. 380: Note from Harriman, July 25 1951, FO 371/91575 E 1531/1281 FO to Shepherd, No. 969, August 3, 1951; Heiss, Empire, 80-81.

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man, and his approach to Moṣaddeq betrayed prejudices towards Iranians, whom he regarded as

“inefficient, corrupt and dishonest.”82 Before departing, the British team was briefed by AIOC.

The company recognized that offering Iran a share of some AIOC subsidiary would not satisfy them, “unless the British lost control—which would be unacceptable to us.” Aware that they already stood at an impasse, the company prepared an offer similar to what Jackson had proposed in June.83 It was on the subject of compensation that AIOC guidance was to prove most significant. Moṣaddeq had made repeated assurances that compensation would be paid for

AIOC’s assets: but did that include the Abadan refinery, the oil fields, the oil or the future profits

AIOC could have expected to earn over the lifetime of the concession? A fifty-fifty agreement precluded compensation for lost future profits, since AIOC would still be profiting from Iran’s oil industry. From a symbolic point of view, winning compensation was important, yet without a fifty-fifty agreement or free use of assets, payments from Iran to AIOC would amount to a figure

“between £1000-£2000 million.” Negotiating such an accord with destitute Iran, against

American objections and public opinion, would be impossible. The company was inclined to offer Iran “free use of assets” in lieu of compensation. This would allow the company to retain the assets, including Abadan, on its balance sheet and claim depreciation. AIOC cared little about receiving monetary compensation from Iran: it was much more important that Iran appear to pay for its crime of nationalization by earning nothing beyond the political capital of having seemingly purged the country of British influence.84

82 Heiss, Empire, 88, Louis, British Empire, 680-681. 83 BP 126364 “Lord Privy Seal’s Mission to Persia,” Memo for Guidance; Heiss, Empire, 90. 84 BP 28390 “The Compensation/Depreciation Conception,” August 27 1951, BP 91031 Flett, “Compensation for AIOC Assets,” August 28, 1951, “Persia—Compensation,” August 28 1951.

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Stokes presented his “Eight-Point” Proposal on August 13. AIOC would retain control over Iranian oil, albeit in a “camouflaged” form. An operating company would be established to manage the company’s assets in Iran, with a board of two British, two Iranian and two “neutral” members. A purchasing organization set up to purchase oil directly from Iran, with profits split in a way that would account for the expenses of the operating company (thus allowing AIOC to claim depreciation).85 Stokes conceded that Iran’s oil was the property of the state, but that while it remained in the ground it had “no value.” Only when it was “carried to those who want to use it,” did oil obtain worth, and any settlement had to enable Iranian oil to compete with oil sold elsewhere.86 The price at which the operating company sold to AIOC would be below the posted price of $1.75/barrel, taking into account operating expenses. The agreement would accept the principle of nationalization, based on the March 20 resolution, in exchange for Iran recognizing

AIOC’s right to compensation and the country’s need “for the services of the British staff” for the marketing and distribution, “in order to deal with the maximum of oil and so benefit the

Iranian exchequer.” Iran must, in other words, admit that nationalization would not be worthwhile without the on-going cooperation of AIOC and the international energy system.87

Moṣaddeq formally rejected the Eight-Point Proposal on August 18, arguing that it did not “conform to the definition of nationalization” cited in Harriman’s formula: it removed from the “hands” of Iran “a substantial part of the power of management,” and permitted the return of

AIOC “in a new form.” Iran would gladly sell oil to AIOC according to “ordinary commercial

85 An AIOC internal memo indicated that the Iranian board members be selected from Iranians already employed in Abadan, such as Mostafā Fāteh or Reza Fāllah; “The Makkis must be avoided at all costs.” BP 126364 “Next Step in Iran,” August 1951. 86 RG 59 888.2553/8-1351, Brief Explanation of the British Proposal. 87 BP 126364 Outline of Suggestions Submitted by the British Delegation (8-Point Offer), August 13, 1951, “Eight Point Proposal—Child’s Guide Edition,” Memo, “Next Step in Tehran;” Heiss, Empire, 90.

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contracts,” but would not accept “a situation approximating a monopoly.” Another grievance was the price structure, where Iran sold oil at a discount in order to manufacture a fifty-fifty split: they did not understand why a discount was necessary, since a purchasing organization buying at a price already factored in costs before measuring profitability. Why not, then, sell oil at the full posted price of $1.75?88

The rejection forced Harriman to intervene. Meeting with both British and Iranian negotiators, Levy and Harriman emphasized the “large income” the British proposal would yield to Iran, allowing Moṣaddeq’s government to re-start the Seven Year Plan, “and thus improve the health and welfare of the Iranian people.” He implied U.S. assistance would only be forthcoming if a deal with AIOC was reached.89 To successfully realize wealth from oil, Iran needed to “make arrangements with a large organization” for transportation and distribution, and it needed to secure “a competent foreign management or operating organization” to run the industry.90

Moṣaddeq agreed to delay the announcement of their rejection pending further discussions with

Stokes, who agreed to go a little father, “if only to convince Harriman and public opinion…that I had made every effort.” He suggested a British manager run the domestic industry, under Iranian supervision, so long as relations with the Iranian management were “properly established.” The

AIOC staff would work only if they were guaranteed “competency of the management,” which means “a predominantly British management:” they had refused an offer on June 27 to work for

NIOC. Moṣaddeq, in search of compromise, abandoned his earlier objections to an AIOC

88 RG 59 888.2553/8-1351, Grady to Acheson, No. 601, Note from Harriman August 13, 1951, BP 126364 Reply of the Persian Delegation to the Proposals of the British Delegation, August 18, 1951; Ruhāni, Tārīkh-i millī shudan-i ṣanʻat-i naft-i Irān, 188-209. 89 RG 59 888.2553/8-1951, Grady to Acheson No. 709, Note from Harriman August 19, 1951. 90 RG 59 888.2553/Berry to Acheson, August 20, 1951.

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monopoly on oil purchases and said he would draft a law assuring security for British staff.

Stokes indicated he would not agree to “piece-meal proposals.” Neither AIOC nor any other

“responsible firm” would agree to such conditions. Stokes ended talks in late August and AIOC withdrew all its remaining personnel to Abadan.91

Harriman sincerely thought the British terms were just and fair. He admitted there was

“little if any chance” of a settlement being reached with Moṣaddeq, who expected foreign oil companies to buy and distribute oil “on his terms.” Harriman suggested that Moṣaddeq and his

“ignorant advisors” had led public opinion to this point, milking the talks for as long as possible in order to stoke Iranian anti-British sentiment, before rejecting the proposals. If Iran did not agree to a deal on a “commercial basis,” meaning the basis offered by Stokes and AIOC, it would get nothing, “with disastrous results.” Moṣaddeq repeated his oft-made assertion that the

US and UK would not allow that to happen, as it would invite communist rule in Iran. While the

Harriman-Stokes missions ended ostensibly on a positive note, with talks “on hold” rather than terminated, the sense of failure was undeniable.92

The British felt the Harriman-Stokes experienced had taught the United States some valuable lessons about dealing with Moṣaddeq government. Seddon blamed Harriman for

“excessive care and…too much soft soap” in his treatment of Iran. Only Seyyed Ziā, they argued, possessed the “will and ability” to carry off successful oil negotiations, and furthermore

91 BP 126364 Rice and Northcroft August 22, 1951, Note give to Stokes by Elkington, August 22, 1951, RG 59 888.2553/8-2251, Memo of Conversation, August 22 1951, FO 371/91580 EP 1531/1386 Stokes to Atlee, August 22, 1951, EP 1396 Shepherd to Bowker, August 20, 1951; Heiss, Empire, 92-93; Fāteh, Panjāh sāl naft-i Iran, 560-561. 92 888.2553/ 8-2251, Grady to Acheson NO. 736, Note from Harriman August 22, 1951, 888.2553/8-2451 Grady to Acheson No. 786, Note from Harriman August 24, 1951; BP 126364 Note Regarding Principal Points in “So-Called” Counter-Proposals Handed to Lord Privy Seal, August 22, 1951.

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only his government would “adopt the long-term policy of development and reform which is essential for Persia’s long-term stability.”93 Harriman himself was convinced that Moṣaddeq would have to go: it would be important to give the shah “necessary encouragement” to take steps in this direction. Neither he nor Stokes advised immediate action, however, and the Lord

Privy Seal in particular opposed the idea of punitive sanctions. It was important that Moṣaddeq be seen to fail out of “ineptness” rather than outside pressure or British economic warfare. On

October 4, AIOC withdrew the last of its staff from Abadan. Both Britain and Iran were prepared to go before the UN General Assembly to argue their case. Britain would claim that Iran’s

“unilateral abrogation” did not fit the generally-understood meaning of “nationalization…[as] hitherto practiced,” and “cannot be genuine or practicable” in the case of a large foreign- dominated industry “which the Iranians themselves are admittedly unable to conduct.”94 They believed only AIOC’s full return could prevent Iran’s de-integration from the international energy system.

The U.S. government was frustrated by British intransigence. A British plan to install Ziā would surely backfire: British intrigue “is the surest way of increasing Iranian antagonism,” according to Henry Villard of the Policy Planning Staff.95 Loy Henderson, who had replaced

Grady as ambassador to Iran, felt the British attitude was “unrealistic.” Acheson was convinced a

93 BP 126361 Seddon to Rice Aug 27, 1951; FO 371/91462 EP 1015/296, Shepherd to FO No. 1248, August 29, 1951, FO to Shepherd, September 1, 1951, EP 1015/298a, Shepherd to FO No. 1264, September 1, 1951, EP 1015/299, Foreign Office to Shepherd NO. 1137, September 4, 1951, FO 371/91463 EP 1015/325, Shepherd to FO, NO. 1358, September 18, 1951, EP 1015/385, Note from Strang, September 12, 1951. 94 RG 59 888.2553/8-3051, Memo, August 30, 1951, 888.2553/9-1451, Acheson to US Embassy, September 14, 1951, 888.2553/10-1551 US Embassy Tehran No. 488, October 15 1951.; FO 371/91463 EP 1015/333, Shepherd Dispatch No. 255, September 18, 1951; Louis, British Empire in the Middle East, 688-689. 95 FRUS Retrospective Iran 1951-1954, No. 47, Memo from Henry Villard of PPS to Chairman of PPS (Nitze), September 26 1951.

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“new element” had to be “injected” into proceedings: despite the withdrawal of AIOC, it was still possible to reach an equitable settlement that allowed oil to flow. An opportunity arose when

Moṣaddeq announced he would be visiting New York in October to address the United Nations.

Private meetings would be held between Moṣaddeq and McGhee, without British involvement.96

McGhee promised U.S. oil executives that he would offer nothing that threatened the existing concessionary regime in the Middle East. Acheson wanted the U.S. to act as “honest broker,” but that didn’t mean surrendering to Iranian control of the industry: a corporate unit, possibly including AIOC, would be needed to ensure continued integration. Conscious of Iran’s need for economic development, McGhee would dangle various offers in front of Moṣaddeq, including greater technical aid and a $25 million grant to mechanize Iran’s agriculture.97

Moṣaddeq, now a hero for post-colonial nationalists throughout the world, delivered his address to the United Nations with aplomb, “becoming overnight a television star.”98 Upon meeting him in late October, McGhee judged the prime minister’s interest in securing a deal to be genuine. He was willing to have a third party determine compensation for AIOC. Iran would employ British technicians, as long as they were under a non-British manager. NIOC could manage production, but a foreign company could market Iran’s oil abroad. Assisted by translator

Col. Vernon Walters, McGhee gradually constructed a new formula, the “Good Offices” proposal, in consultation with a special working group led by Paul Nitze, head of the Policy

96 RG 59 888.2553/9-2051, Webb to Tehran, September 22, 1951, 888.2553/9-2851, Acheson to London and Tehran Embassies, September 26, 1951, 888.2553/10-551, Henderson to Acheson No. 1296, October 5 1951. 97 RG 59 888.2553/10-1051, Memo of Conversation, October 10 1951; Citino, “International Oil Men,” 248, McGhee, Envoy to the Middle World, 388-404. 98 Acheson, Present at the Creation, 510.

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Planning Staff, and economic advisor Harold Linder.99 The key to the proposal was Moṣaddeq’s unexpected statement that the Abadan refinery had not been nationalized: neither the March Oil

Resolution nor the Nine-Point Law had mentioned it specifically. Thrilled to have found such a loophole, McGhee suggested AIOC could sell Abadan to a separate, neutral company, preferably

Royal Dutch/Shell. A purchasing company would buy oil from NIOC and sell it to marketers, primarily AIOC, which was recognized as the only major company with outlets capable of managing Iranian oil in large enough volumes. Profit from the purchasing company would be split fifty-fifty. The sale of the refinery would provide AIOC compensation, while subsidiaries could continue to purchase Iranian oil. “NIOC under management thus created will assure efficient operations of oil industry in Iran,” argued McGhee, meeting British requirements. The proposal would recognize the nullification of the 1933 Concession yet preserve for AIOC

“something reasonably close to what it would have earned under a continuation of the concession.”100

Where the proposal faced an uphill battle was over the issue of price. Iran would need to earn enough from its oil to return to economic health; it could not earn substantially more than any other Middle East producer; and it needed to pay AIOC compensation for the expropriated assets.101 Under “full nationalization,” argued Moṣaddeq, Iran should be permitted to sell its oil directly to customers at the posted price of $1.75/barrel. Were Iran to produce what it had in

99 Bamberg, Vol. II, 461-465. 100 RG 59 Box 5506 Nitze-Linder Working Group US Good Offices Proposal (Position Paper) October 15 1951, Basic Premises of US Good Offices Proposals, November 1951; RG 59 888.2553/10-3051, Acheson to US Embassy London, October 30, 1951. 101 The U.S. did not make a determined effort to come up with a compensation sum, but according to the Nitze-Linder group the figure could be “anywhere from $2.5 to $5 billion…too large to be payable by Iran.” RG 59 Box 5506 Nitze-Linder Working Group, Basic Premises of US Good Offices Proposals, November 1951.

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1950, after deducting $30 million for freight costs the total profit was $416.9 million.102

Allowing Iran to make such profits by selling oil independently would shatter the international energy system, or as McGhee put it, “destroy the whole fabric of the oil business.” Acheson,

Nitze and McGhee all attempted to explain to Moṣaddeq that the posted price, “was not the actual cost to purchasers who acquired oil.” After all, the posted price was also the invented price, an artificial construct of the companies, and higher than the value of oil in third-party transactions. While he could not get full agreement from Moṣaddeq on this point, McGhee was fairly certain he could talk the prime minister into accepting $1.10. This price, a new but equally arbitrary construction, would divide the resulting profits fifty-fifty and earn Iran and AIOC each around $160 million, after leaving aside free oil given to AIOC as compensation, operating costs, and reinvestment. Iran’s per-barrel return would be roughly equal to other Middle Eastern producers.103 Selling at a higher price would deter the major companies, depriving Iran of outlets and forcing it to sell smaller quantities to independent distributers: as McGhee pointed out to

Moṣaddeq, “this was not consistent with his desire to improve the living standards of his people and carry out economic and social reforms.”104

McGhee’s plan was forwarded to the British government, now led by the Conservatives

Winston Churchill and Anthony Eden. Under no circumstances could AIOC be permitted to return alone to Iran. The Iranians were now aware “of the enormous difficulties inherent in their running the complex refinery,” and were prepared to employ foreign technicians, as long as they

102 RG 59 Box 5506 Nitze-Linder Working Group, L-Series Papers, November 19, 1951. 103 RG 59 888.2553/10-2451, Funkhouser to Linder, October 24, 1951, 888.2553/11-251, Minutes of Meeting, November 2, 1951, 888.2553/10-2551, Memo of Conversation, October 25, 1951; RG 59 Box 5506 Nitze-Linder Working Group, Basic Premises of US Good Offices Proposals, November 1951. 104 RG 59 888.2553/10-2551, Memo of Conversation, October 25, 1951.

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were not British. On price there had been no agreement, yet the Department was reasonably sure it could bring Moṣaddeq to agree to $1.10.105 Despite the change in leadership, British thinking had not changed. Officials from the Ministry of Fuel and Power were skeptical of the Nitze-

Linder calculations, and thought the $1.10 price too high. “Was Iran,” they asked, “to be rewarded for nationalization,” and granted a higher return than was enjoyed in Saudi Arabia or

Kuwait?106 Neville Gass argued a selling price of $1.10, after taking account of production costs, would result in a 70-30 split in Iran’s favor. He also argued that a foreign operator of Abadan could be pressured by Tehran into making concessions on social improvements, resulting in higher production costs. “If Mossadegh were allowed to get away with this monstrous performance,” he claimed, “it would have the most disastrous effect on other countries.” Similar nationalizations would sweep across the region, and the international oil system, “to which the

Americans professed to attach so much importance,” would be irrevocably altered. Eden formally rejected the U.S. plan in early November. 107 Churchill’s government was content to squeeze the Iranian government financially and wait until Moṣaddeq was replaced by a more

“reasonable” figure. McGhee’s offer was allowed to lapse, and Moṣaddeq left New York in late

November.108

105 RG 59 888.2553/10-3051, State to London, No. 2256, October 30, 1951, 888.2553/10- 2451, Funkhouser to Linder, October 24, 1951. 106 RG 59 888.2553/11-251, Minutes of Meeting, November 2, 1951. Returns for Saudi Arabia and Kuwait were $0.88 and $1.09. Heiss, Empire, 102. 107 Quoted in Bamberg Vol. II, 464; BP 100572, Seddon, Note on Treasury Meeting, November 6 1951; RG 59 888.2553/11-351, Memo of Meeting, November 3, 1951, 888.2553/11-751, US Embassy Paris to Webb, No. 8, November 7, 1951. 108 FRUS Retrospective Iran 1951-1954, No. 51, Telegram from CIA Station to CIA, October 12, 1951, No. 54, Henderson to State, NO. 1829, November 16, 1951, No. 57, Henderson to US Embassy London, No. 2732, November 29, 1951, RG 59 888.2553/11-1451, Bruce to Webb (Acting) No. 2862, November 14, 1951.

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Subsequent efforts aimed largely at stop-gap agreements that would allow the flow of oil to resume while protecting the legal position of AIOC. The first such effort aimed at setting up the World Bank as an agent managing Iran’s oil industry. Moṣaddeq remained adamant that Iran be permitted to sell oil at posted price, and he found the bank’s insistence that AIOC technicians be put back in control of the industry utterly unacceptable. The British objected to the figure of

£100 million for AIOC’s compensation; they wanted a much higher sum.109 They felt the United

States was more concerned with keeping Moṣaddeq in power than with delivering justice for

AIOC.110 The bank’s initiative collapsed in February 1952. Anglo-American discussions continued for months, but yielded no new proposals.111 There remained no satisfactory definition of nationalization.

Despite the concessions to Iranian nationalism made over the course of 1951-1952, the

United States never deviated from the foundation of its position: while Iran could manage its oil production, and own its oil, it could not control how that oil was sold on the world market. Iran could not be permitted to act like a major oil producing company. Moṣaddeq’s definition of nationalization presumed that this was possible, but it was a point on which the American government was not prepared to surrender ground. Without a suitable definition of nationalization, Iranian oil was effectively de-integrated from the international energy system.

Accomplishing this without disrupting the flow of oil required a “two-part” embargo: as AIOC

109 According to the Ministry of Fuel and Power, AIOC’s assets in Iran were worth £340 million, while loss of profits under a fifty-fifty concession was over £1 billion. POWE 33/1929, Memo from Nuttall, January 11, 1952. 110 POWE 33/1929, Memo by Murphy, January 12, 1952. 111RG 59 888.2553/3-2752, Memorandum, “The Iranian Oil Controversy,” March 27, 1952; FRUS Vol. X Iran 1951-1954, No. 180, Acheson to Henderson No. 2835, June 11, 1952. No. 182, Minutes of Conversation, June 24, 1952; Katouzian, “Oil Boycott and Political Economy,” 205-206, Bamberg, Vol. II, 467-71, Heiss, Empire, 119-124, Elm, Oil, Power and Principle, 194-207.

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and the other major companies isolated Iran, the U.S. government through the offices of the

Petroleum Administration for Defense (PAD) coordinated with the companies to reconfigure global oil into an “Iran-less” system, secure from the demands of Moṣaddeq and the National

Front.

3.3 Isolating Iran: The Embargo

In July 1951, after the failure of the Jackson mission, the British determined that a negotiated settlement with the Moṣaddeq government would be impossible. AIOC reduced its operations, tankers were diverted from Abadan and the flow of Iranian oil to global markets came to an end. Instead of withdrawing, the company should appear to be forced out by Iranian action: “[we] should leave on the Persians the onus” of interrupting operations, rather than ending them deliberately.112 The shut-down would appear to be the result of Iranian irrationality rather than British perfidy. After the Harriman-Stokes mission ended in failure, all operations in the oil fields ceased. Despite the U.S. argument that the flow of oil was “essential to Iran and the

West,” the British were content to isolate Iran if a satisfactory settlement was not found.113

An embargo of Iranian oil was officially in place by September, as AIOC and other major companies ceased offloading Iranian oil. The company published a letter in the press, warning that anyone who purchased Iranian oil would face legal action. The success of the embargo was predicated on the oligopoly’s dominance of marketing and transportation. Before 1951, AIOC purchased seventy-four percent of Iran’s exports through its own affiliates or sold to the

112 FO 371/91548 EP 1531/666, FO to Tehran, No. 573, June 20, 1951, FO 371/91498 EP 1156/17 Economic Sanctions Against Persia, Ramsbotham, June 23, 1951. 113 RG 59 888.2553 AIOC/5-2951, Acheson to US Embassy London No. 5663, June 5, 1951.

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Admiralty by special contract.114 Another twenty percent was sold to other majors, chiefly through long-term contracts to Stanvac and Shell, who had competed for an Iran concession back in 1944. The remaining six percent was sold to independent refiners or marketers, mostly in

Western Europe. If Iran did find willing customers, it would have immense difficulty moving any oil to market. Thirty percent of the world’s tanker fleet was under British charter or ownership, while the oligopoly’s other members owned another 45%. Beyond the transportation controlled by the international energy system, third-parties including the Soviet Union could supply tankers for about 3 million tons of Iranian oil; carriers of Iranian oil ran the risk of AIOC legal action should they attempt to market the “stolen” product.115 The British were not overly concerned about Iran selling small amounts of oil abroad: it would have little economic impact on the bankrupt Iranian government and would not break the solidarity of the major companies.116

That solidarity was crucial to the success of the embargo: if any of the oligopoly broke ranks, Iran would have an outlet for its oil and nationalization would be a success. AIOC was severely criticized for its handling of the crisis. The head of Gulf Oil, AIOC’s partner in Kuwait, expressed frustration with the “traditional Fraser stubbornness.” A number of oil executives advocated for a new corporate entity to replace AIOC in late 1951, and some privately agreed

114 The terms of this contract permitted the Admiralty to purchase fuel oil at 20/s (£1) per ton, significantly less than market price or posted price.. FO 371/91620 E 1535/22 Lord Pakenham to Younger, June 15, 1951. 115 RG 59 Lot File No. 78 D 442 Petroleum Policy Staff Subject File Relating to Iranian Oil and U.S. Middle Eastern Oil Policy, 1921-1951, Box 2 Iran—AIOC Activities, The World Today: Chatham House Review August 1951, “World Tanker Fleet;” Elm, Oil, Power and Principle, 145. 116 BP 28431 Copy of Working Group Note, Annex I “Action by AIOC,” June 23, 1951, Note on AIOC’s Customers, June 19, 1951.

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that the company could not be allowed to return to Iran.117 Nevertheless, the threat of nationalization encouraged the oligopoly to close ranks. Horizontal integration, the shared commitment to stable concessions, and vulnerability to nationalizations encouraged the companies to take a hard line with Iran, particularly when it became apparent that Britain had no interest in negotiating. The shut-down of Abadan and the embargo created opportunities: as Iran was swept off the market, production elsewhere increased to fill the gap.

Despite its immense investment in Iran, AIOC was not entirely unprepared for its sudden withdrawal. Plans for new refineries at Aden and in Australia were moving forward in the fall of

1951. The Iranian crude off-take of 7.5 million tons (142,000 bpd) accounted for about one-third of AIOC’s production, and it could make up the difference from other sources. The company’s half-share of the Kuwait Oil Company encouraged it to increase production there; by February

1952, fifty-fifty agreements had been signed in Kuwait and Iraq, allowing both countries to increase their crude production and fill the gap in crude and products left by the Iran embargo.

Deprived of Iran’s sterling oil, British companies compensated by increasing sterling oil production elsewhere, buying the remainder from US companies at favorable prices.118

Fraser struck a confident tone, noting that AIOC had trained Iranians, “educated them, taken care of their housing and social services.” The company was capable of operating Iran’s national oil industry, smoothly integrating Iranian oil into the international energy system, in ways the Iranians were “incapable of doing.” Both British and American offiicals were frequently exasperated by Fraser’s arrogance, stubbornness, and imperious attitude, but the

117 RG 312 PAD Assistant Deputy Administrator Foreign Petroleum Operations (ADA FPO), Box 4, Raynor to Snodgrass, “Iranian Oil Problem,” October 22, 1951; POWE 33/1858 Franks to MFP, No. 111 October 24 1951 118 POWE 33/1858 Memo by Brook, June 1952.

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chairman was in a comfortable position. AIOC shifted its operations beyond Iran while its management was content to “sit back and await developments.” By early 1953, oil experts were convinced that AIOC could carry out its business “quite profitably” without Iranian oil.119

Company figures indicate AIOC revenue before taxes declined from £84 million in 1950 to £47 million in 1952, yet net profits fell only slightly, from £33 to £25 million thanks to lower British taxes.120 “Anglo-Iranian” it might have been, but the nationalization convinced the company that placing all of one’s eggs in one basket was exceedingly dangerous in a time of rising post- colonial nationalism.

The British position was premised on the belief that Iran could not operate its oil industry without foreign assistance.121 Stokes made this clear to Taqīzādeh and other conservatives during a meeting in August: “whilst they had the oil we had the know-how…they would kill themselves if they did not come to an arrangement with us.”122 There was no hard evidence to support this belief, since the country had never been permitted to operate its industry and market its oil independently without subjugation to the oligopoly. The British position stemmed from long- held racial and cultural prejudices regarding Iranian “inefficiency” and “irrationality,” evident in the management of Abadan and British diplomacy.123 These assumptions were not born out be events. By late 1951 the National Iranian Oil Company (NIOC), staffed in large part by former

119 RG 59 RG 59 Box 5506 Nitze-Linder Working Group, Memo of Conversation, Dinner—February 14, 1952, 888.2553/2-552, Memo Coe to Perkins, Iranian Oil Problem, February 5, 1952, RG 59 888.2553/7-252, US Embassy London NO. 26, July 2, 1952, 888.2553/1-253, Henderson to State, No. 2505, January 3, 1953; POWE 1930, Note of Discussion with Snow, June 4, 1952. 120 Painter, Oil and the American Century, 181. 121 Galpern, Money, Oil and Empire, 110-111; BP 100738, “Persian Social and Political Scene,” Persian Working Group, May 25, 1951. 122 FO 371/91580 EP 1531/1383 Record of Meeting, August 16, 1951. 123 Cottam, Nationalism in Iran, 273.

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AIOC-employees and skilled technicians, began re-starting parts of the Abadan refinery. Parvīz

Mīnā, a NIOC engineer, recalled that while the nationalization was “thrilling,” and allowed skilled Iranians to run the industry themselves for the first time, the company suffered from

“unwarranted interference and daily pressure and disregard” from National Front officials, who did not understand the industry or acknowledge the immense technical problems NIOC faced.124

Ḥāsibī believed Iran could market 8 to 10 million tons of crude (151,000 to 189,000 bpd) and realize a profit of £35 to £45 million ($98 to $126 million).125 Iran would not have to produce the same quantities of oil before: its oil resources could be conserved yet still yield significant benefits for the national economy.

Many of NIOC’s engineers and technical management had been trained by AIOC or had attended British universities, and were appalled by the flights-of-fancy that frequently appeared in National Front rhetoric. They understood that Iran could not break into markets abroad without working with the oligopoly: unless the major companies chose to cooperate, nationalization could not be made profitable, at least not in the short term. In November lead engineer Mahdī Bāzargān wrote a letter to Bakhtiar-i Emruz, accusing Ḥāsibī of misleading the public.126 Despite such friction, NIOC made significant progress, bringing part of the massive

Abadan refinery on-line and producing enough for domestic consumption. NIOC made plans to expand production in 1952 and managed the country’s internal distribution system, peacefully

124 FISDS, Tahavvul-e san`at-e naft-e iran: negâhi az darün, Interview with Parvīz Mīnā, Part 1 [Accessed February, 25 2017]. 125 At a price of $1.70-$1.75/barrel, reflecting Ḥāsibī’s belief (which he shared with Mosaddeq) that Iran could sell at the posted price. Kayhan, December 3, 1951; Interview with Ḥāsibī, Bakhtar-i Emruz March 16, 1952. 126 Bāzargān departed the NIOC board by the end of 1951, according to a confidential AIOC informant, “due to intrigue by Makkī.” BP 67820 Report on Situation in Abadan, December 1951.

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acquired from AIOC in July-August 1951, with laudable efficiency.127 In February 1952, a labor attaché for the IBRD reported the effective operations of NIOC were held back only by a lack of spare parts and declining discipline among workers, for whom payment had come sporadic: the restaurants, clubs and movie theaters of Abadan which the British “with their mental attitude of nineteenth-century commercial colonialism” had barred to non-Western workers were now frequented solely by the liberated Iranian staff and management.128 Abadan would henceforth be a true Iranian city, albeit one shaped by the production of oil and oil-products: its days as a

British enclave were at an end.

Iran was able to produce oil in commercial quantities; yet its efforts to market oil abroad were almost entirely unsuccessful. Moṣaddeq threatened to sell oil to the Soviet Union in early

1952, but observers noted that there were no available tankers to move crude or products from

Abadan; overland routes to the Caucasus, which had supplied the Soviet Union during the war, lacked the infrastructure to move more than a few thousand barrels a day.129 A sales commission was established to sell oil in February 1952, and throughout the year Bakhtar-i Emruz, as well as popular dailies Ettela’at and Kayhan reported on rumors of deals being struck with foreign companies. As one State Department reported noted, these stories seemed designed “for internal political consumption,” as rumors were rarely substantiated and frequently disproved days after

127 Bahktiar-I Emruz, December 3 1951, Ettela’at, April 1, 1952.; RG 59 888.2553/2- 1152, US Embassy Tehran no. 909, February 11, 1952; 888.2553/3-1752, Henderson No. 3553 March 17, 1952; 888.2553/: 4-752, US Embassy No. 168, April 7 1952. 128 RG 59 888.2553/2-1152, US Embassy Tehran No. 909, February 11, 1952. 129 FO 371/98653 EP 1532/5, British Embassy The Hague, Aide memoire, December 21, 1951, FO 371/98654 EP 1532/37, Middleton to Foreign Office, No. 120, February 4, 1952; RG 59 888.2553/12-1451, Henderson No. 2201, December 15, 1951, 888.2553/12-2151, Henderson No. 2290, December 21 1951; RG 59 Box 5506, Nitze-Linder Working Group Papers, Funkhouser, BOP Background Paper, December 18 1951

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being printed.130 NIOC officials confided in US Embassy officers, admitting such reports were largely fabrications. ‘Abbas Pārkhideh, who led the sales commission, told Kayhan in June 1952 that “no effective steps” had been take to sell Iranian oil abroad, citing monopolized markets and lack of transport as the key obstacles. He admitted to the U.S. that his agency would not protest the publication of rumors, as they served to “confuse the opposition.”131

There was considerable interest in Iranian oil among American independents, including refiners, marketers, and ambitious smaller firms. Officially, the U.S. government could not back the embargo, but it did take action to discourage companies seeking to cut deals with Moṣaddeq.

The U.S. had acknowledged the right of sovereign nations to nationalize assets: “AIOC would not succeed in an action…in an American court against a purchaser of Iranian oil,” according to

Department counsel, and the British threat of legal action was dismissed as a bluff.132 Experts estimated that Iran could successfully market between 100,000 and 150,000 bpd through independent tankers. Major cuts to the price would have to be made to make this oil competitive; after deducting production costs and the considerable expense of keeping all former AIOC employees on the payroll, Iran would realize a small profit.133 Yet Moṣaddeq could use the political victory as proof of a successful nationalization, potentially increasing the threat of

130 FO 371/98654 EP 1532/38, UK Embassy Tehran to FO, February 4, 1952; RG 59 888.2553/3-452, US Embassy Tehran No. 975, March 3, 1952, 888.2553/6-452, Acheson to US Embassy Tokyo, No. 392 June 6, 1952. 131 RG 59 888.2553/5-2252, Henderson to Acheson, No. 4516 May 22, 1952, 888.2553/5-2152, US Embassy Tehran No. 1229, May 21, 1952, 888.2553/5-2452, Henderson to Acheson No. 4546, May 24, 1952, 888.2553/6-252, Henderson to Acheson No. 4666, June 2, Kayhan, June 8, 1952, Interview with Pārkhideh, 888.2553/6-1652, US Embassy Tehran No. 1322, June 16, 1952, 888.2553/6-1852, Henderson to Acheson No. 4885, June 18, 1952. 132 Memorandum, Metzger to Tate, September 16, 1952, from RG 59 Office of Greek, Turkish and Iranian Affairs, 1950-1958, Subject Files Relating to Iran, 1951-1958, Box 9, Iran— AIOC, 1952. 133 RG 59 888.2553/8-2052, Eakens to Richards, August 20, 1952.

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similar actions in other oil-producing states. Paul Nitze of the Policy Planning Staff argued against the embargo, pointed out that it was much better for Iran to try, and subsequently fail, to market oil independently. This would moderate Moṣaddeq’s stance and force him back to the bargaining table, while simultaneously deterring other producers from threatening to nationalize.

The worst possible outcome, from the U.S. point of view, was if the embargo took on the character of an international conspiracy, led by the British, to punish Iran. This would only succeed in bolstering Moṣaddeq’s political appeal at home, allowing him to characterize his failure to translate the nationalization into economic prosperity as the result of British intrigues.134 Thus, there were arguments both for and against the embargo; a success in deterring

Iranian oil sales could embolden Moṣaddeq’s more out-spoken anti-British supporters, potentially pushing his government further away from the West.

The affair of the tanker Rose Mary illustrated this aspect of the embargo. After months of failed attempts, the Iranian government finally succeeded in off-loading a cargo of oil to a

Italian-owned, Swiss-chartered tanker in June 1952. Rose Mary was waylaid by British military forces while at sea and steered into Aden, where it was impounded by the British-controlled

Aden court, which inevitably ruled in favor of AIOC. Moṣaddeq condemned the “tyranny and injustice” perpetrated by the British, blaming the “blockade and all kinds of subversive activities” for the country’s weakening financial state. 135 The affair of the Rose Mary came just

134RG 59 888.2553/6-452, Acheson to US Embassy Tokyo, No. 392 June 6 1952, 888.2553/6-1752, State to US Embassy Tehran No. 6799, June 20 1952; RG 59 Box 5506 Nitze- Linder Working Group, Memorandum, State Dept. Petroleum Division, Consequences of a Settlement of the Iranian Oil Problem, January 24, 1952; POWE 33/1329, Burrows to Bowker, January 26, 1952. 135 FO 371/98657 EP 1532/122, Middleton to Eden No. 385, June 1, 1952, FO to Tehran No. 372, June 2, 1952; FO 371/98657 EP 1532/130,AIOC to Logan, May 29 1952; RG 59 888.2553/5-2652, Henderson to Acheson, No. 4562 May 26, 1952; Heiss, Empire, 130.

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as the International Court of Justice met in The Hague to rule on the Iranian nationalization, which the British argued violated international law. Moṣaddeq traveled to The Hague and addressed the Court, listing the crimes of AIOC, arguing the legitimacy of Iran’s sovereign right to nationalize, and the folly of an international body ruling against it: the 1933 Concession was a commercial contract and did not constitute an international agreement between states. On July

22, 1952 the ICJ ruled in favor of Iran: it had no competence to rule in a case involving a private company and a sovereign government. All AIOC could rightfully do was claim compensation for its lost assets, once those assets had been properly defined and evaluated. The reaction in Iran was ecstatic, with Allāhyār Sāleh calling for the “oil trust” to surrender and end the embargo.136

AIOC did not abandon its position, and now claimed it would seek ICJ arbitration for compensation. For the remainder of 1952 and 1953, when several more Italian and Japanese tankers succeeded in offloading small amounts of oil in defiance of the embargo, their owners were challenged in court by British lawyers acting on behalf of AIOC.137

As the legal and political considerations behind the embargo changed, so too did the economic calculus. A report from the Ministry of Fuel and Power warned that the world tanker shortage present in 1951 was disappearing; by mid-1953 there would be a tanker surplus. Oil was the single most expensive item in the balance of payments of most developing countries, and

Moṣaddeq was prepared to undercut the embargo and out-maneuver the oligopoly by selling at rock-bottom prices. Dollar-poor countries like Brazil and Argentina would be tempted to

136 RG 59 888.2553/7-3152, Henderson to State NO. 476, July 31, August 28, 1952; Elm, Oil, Power and Principle, 208-214. 137 FO 371/98661, EP 1532/247, Legal Basis for Further Action by the AIOC, July 23, 1952; RG 59 888.2553/7-2552, Holmes to State, NO. 478, July 25, 1952, 888.253/8-752, US Embassy Paris No. 308, August 7, 1952 (AIOC note in Le Figaro).

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purchase Iranian oil.138 American independents led by oil-man Alton Jones (a personal friend of

Republican presidential candidate Dwight D. Eisenhower) were hungry for cheap Iranian crude, free from the control of the oligopoly. Political pressure was growing around the issue of international oil, as the U.S. Department of Justice began pursuing an anti-trust case against the majors. It was felt that overt action in support of the embargo “could easily be made to appear a knuckling-down to pressures from the big oil companies.” Jones himself toured Abadan in

September 1952 and found it in excellent condition. Dismissing British claims that Iranian management was “unsafe,” Jones praised the senior Iranian staff, particularly Rezā Fāllah (who had been trained by AIOC). A few hundred technicians would be sufficient to return Abadan to full operation, and Jones suggested managing such an advisory mission himself. He would not

“lose much sleep” if AIOC brought a suit against him, and his associates seemed to regard the

AIOC legal threat “as a huge joke.”139

Jersey Standard, Socal, and other majors assured AIOC of their continued support for the embargo, but it was becoming increasingly clear that the embargo was weakening by the day.140

By the end of 1952, the United States could no longer see the strategic advantage of actively backing the embargo. Nitze had never considered AIOC’s case to be particularly strong: the company had purchased oil from Rumania shortly after that country nationalized its oil industry,

138 FO 371/98663 EP 1532/289, Note on Persian Oil, August 28, 1952, EP 1532/298, Thompson to FO, September 11, 1952. 139 FO 371/98664 EP 1532/318, Middleton to FO, 22 September, 1952, FO 371/98706, EP 15316/16, Middleton to FO, September 15, 1952; September 18, 1952 note on Henderson; RG 59 888.2553/7-3152, Dwyer (Petroleum Branch) to John Stutesman (Officer in Charge of Iranian Affairs), July 31 1952, . 888.2553/8-1652, Bruce to Tehran No. 412, August 16, 1952, 888.2553/9-352, Henderson to Acheson, No. 968, September 3, 1952. 140 Arthur L. Richards to Henderson, October 1, 1952, from RG 59 Office of Greek, Turkish and Iranian Affairs, 1950-1958, Lot File No. 60 533: Subject Files Relating to Iran, 1951-1958, Box 9, Iran—AIOC, 1952.

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“for which compensation certain has not been paid.” Discouraging companies from approaching

Iran would become more and more difficult as independents began “nibbling” away. If allowed to work with the “sharks” of the oil world, Iran would earn a tiny revenue for its immense effort.141 Iran was burdened with managing AIOC’s former work-force, the production costs of

Abadan and its own growing budget deficits. Oil that Iran could sell without the assistance of the international energy system was insignificant. The State Department issued a note in December

1952, officially indicating it would no longer actively discourage American companies from approaching Iran.142

Despite some grumbling, the British were mostly satisfied with the Department’s note.

The “greatest deterrent” to buying Iranian oil was not the threat of AIOC legal action, “but the spectacle of Persia free to sell her oil but failing to do so.”143 The embargo would remain, in fact if not in name. In 1953, Alton Jones reiterated his desire to re-start the Abadan refinery, and began pushing his personal friend President Dwight D. Eisenhower to allow his technicians to visit Iran. The British opposed this, and in time Jones’ request was quietly crushed. Though the

U.S. worried over the Iranian threat to “dump” oil and drive down prices, the British gave little credence to such threats. There was a global over-supply in every product except aviation gasoline, which Iran could not produce in large quantities, and any impact from Persian

141 RG 59 888.2553/9-1952, Memo of Conversation, September 19, 1952, 888.2553/9- 2252, Memo of Conversation, September 22 1952, 888.2553/9-2052, Gifford to Acheson No. 1640, Sept 20, 1952, 888.2553/9-2352, Acheson to US Embassy London, NO. 2091 Sept 23 1952. 142 RG 59 888.2553/8-2052, Eakens to Richards, August 20, 1952, 888.2553/11-452, Bruce to Gifford No. 3139, November 4, 1952, 888.2553/11-1752, Byroade to Bruce, Matthews, November 17, 1952; FO 371/98666 EP 1532/249, Message from Acheson to Eden, November 5, 1952. 143 FO 371/98666 EP 1532/249, FO to Franks, No. 4754, November 7, 1952, EP 1532/350, NOTE, ADM Ross, November 1, 1952, EP 1532/365, Note from Rothnie, November 19, 1952, EP 1532/367, Note from Rothnie, November 20, 1952.

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“dumping” of cheap oil on the market “is unlikely to prove more than a local and temporary phenomenon.” With the oligopoly still refusing to do business with Moṣaddeq, there was “no reason to fear…a serious threat to the world oil price structure.”144

At the same time, continued Iranian efforts to sell oil were opposed at every turn. When companies in Italy and Japan successfully off-loaded Iranian oil in early 1953, their governments came under withering diplomatic representations from British envoys. Pārkhideh returned from

Iran after a four-month trip in 1953 without a single successful deal. Legal challenges continued to weaken the embargo’s flimsy justification, without breaking the majors’ resolve. In early 1953 the U.S. worried that Moṣaddeq would make good on his threat to dump oil at a fifty-percent discount, undercutting the posted price system. One British official noted that the Eisenhower

Administration seemed more concerned with the impending collapse of the embargo than with the likelihood of a communist take-over in Iran.145 Concern over the on-going Iranian threat to the international energy system was a factor in the shift in U.S. policy in early 1953, though not the most important. Having lost its legal basis, the embargo continued thanks to the solidarity of the oligopoly, the staunch resistance of the British, and the tacit cooperation of the Americans.

Overall, the effort to isolate Iran from the international market was extremely successful.

Iran exported only 495,000 barrels of oil in 1952-1953, compared to 221 million barrels in 1950, and its revenues from oil were reduced to zero. Court rulings in favor of Iran failed to break the oligopoly, while repeated efforts by Moṣaddeq and his government to contact potential buyers

144 RG 59 888.2553/3-453, Byroade to Dulles, March 4, 1953; FO 371/104612 EP 1531/158, FO to Makins NO. 716, February 18, 1953, FO 371/104620 EP 1533/113, Persian Oil, March 30, 1953; RG 59 888.2553/5-1253, Eakens to Richards, May 12, 1953, comments on British memo, “Sale of Persian Oil.” 145 RG 59 888.2553/11-2059, Mattison to State, NO. 2003, November 20 1952; FO 371/104612, EP 1531/155, Makins to FO NO. 304, February 12, 1953, FO 371/104615, EP 1531/243, Note from Ramsbotham, April 14, 1953.

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yielded nothing. Engineers maintained the Abadan refinery while Pārkhideh worked to sell Iran’s oil abroad, disproving the British assumption that “inefficient” Iranians couldn’t operate their own oil industry.146 Optimism over breaking the embargo waned and in June 1953 long-suffering

NIOC sales director Abbas Pārkhideh finally resigned his post. On his way out, Pārkhideh confessed to the US Embassy his opposition to Moṣaddeq’s oil policy: he had urged the prime minister to accept a compromise proposal, but lost out to hard-liners in the National Front who refused Anglo-American terms.147 According to one embassy report, Iran had “psychologically” passed into a “new economic era,” one in which oil would no longer play any role.148 Though there was some speculation that Iran would eventually succeed in moving oil in commercial quantities, real fears that the embargo might break down were never realized.

The chief reason for the embargo’s success was the coordination between AIOC and the other majors, along with their domination of the world tanker fleet. Without transportation, boycotted by the world’s largest buyers of crude, and facing stiff competition from other low- cost producers, Iran never came close to breaking the embargo in any meaningful way. Yet it would be misleading to argue that market forces, or even the obstruction of the oligopoly, were by themselves enough to crush Iranian dreams of oil independence. Throughout the crisis, companies regularly petitioned the U.S. State Department, requesting permission to purchase

Iranian oil; they had every legal right to do so, as both the Department’s lawyers and the

International Court of Justice regarded the oil as the lawful property of Iran. Yet the U.S.

146 RG 59 Box 5506 Nitze-Linder Working Group, Memo of Conversation, Dinner— February 14, 1952, 888.2553/2-552, Coe to Perkins, Iranian Oil Problem, February 5, 1952; Heiss, “The International Boycott of Iranian Oil,” 198-200. 147 RG 59 888.2553/5-2653, US Embassy Tehran No. 1006 May 26, 1953, 888.2553/6- 1753, US Embassy Tehran No. 1089, June 17, 1953. 148 RG 84 USETCGR, 1953-1955, Box 60, US Embassy Tehran, No. 933, Monthly Economic Survey, May 12, 1953.

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intervened and maintained the embargo, despite misgivings among American officials. The tacit cooperation of the United States government was decisive in deterring U.S. oil companies from approaching Moṣaddeq. At the same time, the U.S. government worked with the companies to mititage the impact of the Iranian nationalization on the international energy system.

3.4 Oil Responds: the Petroleum Administration for Defense

If AIOC could move beyond its losses in Iran, bitter though they were, the international energy system faced a bigger problem. The de-integration of Iranian oil could not be resolved simply by turning on the oil tap. Iran produced 150,000 bpd of crude for export and 460,000 bpd of refined products (equal to 510,000 bpd of crude), 7% and 5.3% of world supply respectively.

Crude from Iran was relatively easy to replace. Other Middle East producers were ruled by pro-

Western governments, while Kuwait was a formal British protectorate: they were more than happy to increase output to seize Iranian market share, while at the same time realizing higher revenues from new fifty-fifty concessions. But while crude oil could be produced in abundance, there remained a substantial deficit in refined products. Abadan, the world’s largest refinery, produced half of all aviation gasoline outside the United States, along with large quantities of fuel oil consumed in Western Europe and Eastern hemisphere markets. Refinery capacity in 1951 was near its limit and the amount of refined products on the market lay in “very delicate balance.” Western Europe received 31% of its refined products and 16% of its crude oil from

Iran; South Asia counted on Iran for 70% of its needs. Once the decision was made by AIOC, the

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British government and the major oil companies to isolate Iran, the next step in the two-part embargo was finding ways to prevent that isolation from disrupting the system.149

In 1950, following the decision to re-mobilize the U.S. and the outbreak of the Korean

War, Congress passed the Defense Production Act (DPA), granting federal agencies like the

Department of the Interior greater powers to intervene in the domestic energy sector. Oil demand in the civilian sector was expected to rise, but the demands of the war in Korea placed an immense pressure on the national energy infrastructure. By early 1951, experts were becoming concerned that global oil demand would outstrip supply, while the possibility of overseas disruptions would endanger the United States, a net importer since 1948.150

No one was more conscious of threats to American “energy security” than Secretary for the Interior Oscar L. Chapman. A veteran of the department and former assistant secretary under

Harold Ickes, Chapman was a consistent advocate for an internationalist approach to oil. He argued in late 1950 that a new organization should be formed that could plan “programs and policies with respect to the operation of the oil and gas industries,” relying on close cooperation with advisory councils made up of industry experts and executives. “This is not a simple industry, nor one concentrated in a few companies…the Government has not and cannot provide itself with a staff which knows all the answers,” and should instead provide a forum and operational apparatus “for the free expression and crystallization of opinion” from the energy

149 RG 312 PAD Foreign Supply and Transportation Division (FSTD), Box 2, “History of Foreign Branch, PAD;” FRUS Retrospective Iran 1951-1954, No. 39, Intelligence Memorandum, July 11 1951; RG 59 888.2553/4-1751, Memo of Conversation, April 17, 1951; RG 59 Box 5506 Nitze Linde Working Group, BOP Background Paper, Funkhouser, December 18, 1951. 150 RG 59 Petroleum Policy Staff Subject File Relating to Iranian Oil and U.S. Middle Eastern Oil Policy, 1921-1951 Box 2 Iran—Petroleum Reports, Funkhouser to Kopper, “Latest Information on Importance of ME Oil,” January 31, 1951.

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industry itself. Cooperation with major energy companies was required in defense of national security. 151 Chapman was also a firm believer in the U.S. mission to encourage development abroad, which by the early 1950s was being carried out by Point Four, administered overseas by

Interior’s “exterior” agents.152 “If the prospect of human freedom…is to become any brighter, we have got to find a better way to develop and use the riches of this earth,” he argued.153 Support for an active US presence in resource exploitation went hand-in-hand with a vigorous defense of

U.S. oil companies, whose control of foreign energy resources was considered crucial to protecting the free world’s access to those resources.

The Petroleum Administration for Defense, or PAD, was formed in January 1951 with the express purpose of coordinating the national petroleum industry, assembling statistics, and monitoring trends in the global energy system. It was staffed almost entirely by former oil-men.

The Abadan strike of April 1951 proved Chapman’s prescience, as the U.S. government became increasingly concerned with the risks posed by a sudden disruption in Middle East oil production and the possible ramifications it could have on U.S. energy security.154 On June 25, formal permission was given for PAD to form the Foreign Petroleum Supply Committee (FPSC), an advisory committee made up of representatives from nineteen different oil and gas companies.

Information gleaned from company operations was essential to PAD’s success, “the very basis

151 Truman Library, Chapman Papers, Box 99, Chapman to Asst. AG Peyton Ford, April 13, 1951. 152 Black, “Interior’s Exterior,” 81-110. 153 Truman Library, Chapman Papers, Box 77, Public Addresses, Speech at University of Denver, August 21, 1951, Box 102, “The Progressive Threat to the US Position in Foreign Oil,” Unmarked memorandum, July 25, 1952. 154 Truman Library, Chapman Papers, Box 99, “Order No. 2591, Amendment No. 2,” January 29, 1951, RG 312 PAD FSTD, Box 6, West to Wilson, February 25, 1952.

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upon which our planning and operating is done.”155 The utility of having oil industry executives assist a federal agency staffed by ex oil-men was not lost on the oil-men themselves, particularly as an alternative to more invasive forms of state intervention. James Terry Duce of Aramco noted to PAD official C. Stribling Snodgrass that countries around the world would likely follow the U.S. example, forming commissions like the FPSC, “for the handling of supply problems,” and to avoid the “numerous political questions” that arose when other governmental organs became involved: “I feel certain that the industry itself will see that such crises are remedied with the least damage.”156

Analysts within PAD estimated an Iranian shut-down would remove 660,000 bpd of crude and refined products, with “severe shortages” experienced in the Eastern Hemisphere. In late July PAD adopted Plan of Action No. 1, which mandated close cooperation with all U.S. companies, “to organize their schedules of production, refining, transportation and distribution,” so that energy requirements in the Free World could be met without serious disruption. PAD worked to ensure that any “interruption of supplies or exhaustion of stocks” abroad would be kept “at the absolute minimum,” while examining how global production, transportation and storage could be increased to better preserve the Western economies from future disruptions.157

The problems associated with the Iranian crisis were interconnected and posed major challenges. First, Britain faced a shortage in sterling oil: it lacked access to AIOC’s supply, which it could buy in sterling, thereby preserving dollars and maintain a positive balance of

155 RG 312 PAD FSTD, Box 2, “History of Foreign Branch, PAD.” 156 RG 312 PAD ADA, FPO, Box 1, James T. Duce to CS Snodgrass, February 27, 1952. 157 Truman Library, Chapman Papers, Box 99, Memo, “Supplying Petroleum to Free World Without Iran,” July 12, 1951; RG 312 PAD FSTD, Box 1, Snodgrass to R.R. Ellen, Aus. Embassy, August 10, 1951, Box 2, “History of Foreign Branch, PAD.”

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payments.158 A report for the FPSC on July 16 indicated a total shortage of 600,000 bpd in

August in sterling oil, rising to 666,000 bpd in Sept. Even with increases in Kuwait (120,000 bpd) and Qatar (10,000 bpd), the sterling zone faced a shortage of 376,000 bpd of crude and products in August, rising to 435,000 bpd by September. This difference had to be made up in dollar oil, which threatened to drain the British Treasury of its dollar reserves: British companies spent $160 million in June and July, and if they were forced to continue it could cost the beleaguered sterling zone $312 million per year. To rebalance sterling oil, production in Kuwait and Iraq was increased by 311,000 and 489,000 bpd: Shell and AIOC received sterling oil from these sources, alleviating the dollar drain from the sterling zone.159 Shell and AIOC purchased

$230 million in dollar oil to make up the difference. While Britain suffered losses in 1951 and

1952, actions by the US government in cooperation with the international energy system prevented a real financial crisis from breaking out.160

Recovering supplies of crude to replace Iran was relatively straight-forward: there was more than enough spare capacity in the other Middle Eastern producers to make up the deficit.

Far more difficult would be replacing the Abadan refinery and its output of refined products.

AIOC and Shell, working with the British Ministry of Fuel and Power, could increase refinery output by 115,000 bpd, but this still left a deficit of 310,000 bpd. Abadan supplied sixty percent of total aviation gasoline in the Eastern Hemisphere, and the 18,000 bpd it had formerly

158 RG 59 888.2553/5-2551, London to ECA Administration NO. 438, May, 25, 1951 159 Meanwhile, Saudi Arabia (which was entirely run by U.S. companies) enjoyed an increase of only 75,000 bpd. Effect of Iranian Shutdown on World Oil Situation, September 28, 1953. RG 59 Office of Greek, Turkish and Iranian Affairs, 1950-1958, Lot File No. 60 533: Subject Files Relating to Iran, 1951-1958, Box 41. 160 RG 312 PAD FSTD, Box 3, Report By Wilkerson’s Group to FPSC, July 16 1951; Box 2, “History of Foreign Branch, PAD;” PAD Assistant Deputy Administrator (ADA), Foreign Petroleum Operations (FPO) General Records 1951-1954, Box 4, Foreign Petroleum Operating Committee, Meeting No. 8, July 31 1951.

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marketed East of Suez could not be replaced. Fuel oil, which made up half of Abadan’s output, would also be in short supply. Eastern markets like Australia, South Africa/Rhodesia faced crucial shortages by the fall, and while Western Europe was somewhat better off, spare refinery capacity in 1952 was almost non-existent. A deficit in refined products would endure for several years before new refineries could be completed. British companies, which had formerly purchased products from Abadan, were now buying from US refiners, leaving a gap in American supply. PAD predicted that without Abadan, 95% of existing refinery capacity would be needed to cover civilian needs, leaving the West completely exposed should further military forces require mobilization (the Korean War was then in its third year).161 Refineries were already operating past their normal efficient operating rates and would soon show signs of stress; within a year, they would begin to break down. Measuring the total cost of this disruption was difficult, but an estimate from the International Monetary Fund indicated that transportation costs, replenishing stocks and running refineries at maximum capacity would cost oil companies $435 million annually.162

PAD issued new regulations to refiners, permitting them to limit their use of alkylate, a blending agent that improved product composition, only when producing aviation gasoline. The agency placed floor on the amount of tetraethyl lead used in aviation gasoline production, allowing U.S. refiners to increase production. PAD mandated that companies manage supplies of aviation gasoline and fuel oil, “to the end that the impact of the short supply would be most

161 USNA RG 59 888.2553/5-2951, US Embassy London NO. 5763, May 29, 1951, RG 312 PAD ADA FPO, Box 4, Foreign Petroleum Operating Committee, Meeting No. 8, July 31 1951, Operating Program: Foreign Petroleum Industry, Fourth Quarter 1951, August 9, 1951; RG 312 PAD FSTD Box 3, Memorandum, Snodgrass to Brown, August 17, 1951. 162 RG 59 Box 5506 Nitze-Linder Working Group, BOP Background Paper, Funkhouser, December 18, 1951.

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equitably distributed.” Refiners looking for subsidies were rebuffed by PAD officials unless they trafficked in strategic commodities.163 Information from the FPSC kept PAD abreast of changing conditions in the foreign oil market, and federal agents were confident that the FPSC, “all sensible working oil men,” would adopt the necessary measures to avoid serious disruptions themselves.164

The efforts of PAD and U.S. companies, working in tandem with British authorities,

AIOC and Shell, corrected the imbalances left by the Abadan shut-down. A study by the World

Bank found the crisis almost entirely resolved in early 1952: “the impact on the world petroleum position” of the crisis in Iran “has been considerably less than might have been expected,” and construction of new refineries in 1953 would ease the tight markets for refined products.165 By

July 1952, the crisis had been averted and Plan of Action No. 1 was allowed to expire. Those involved in the year-long effort considered it a triumph of private-public partnership: that the

Free World successfully avoided major shortages of aviation gasoline or other strategic substances “is a tribute to the effectiveness of industry cooperation and to the informed position in which PAD was placed,” according to PAD agent D.H. West. In addition, it was “unnerving” to imagine the “dislocations that the gap in world supply caused by the loss of Iran,” without the aid of the companies, which had come at no cost to the tax payer: “no servants of the government could possibly match the skill and technical resources of the petroleum operations in their own

163 RG 312 PAD FSTD Box 1, PAD 174 October 19, 1951, Snodgrass to FPSC, September 21, 1951 Box 6, Snodgrass to Brown, February 29, 1952; Truman Library, Chapman Papers, Box 120, Chapman Reading File, Note from Chapman to Deputy Administrator, May 1, 1951, Note to Refineries, April 23, 1951. 164 RG 59 Box 5506, Nitze-Linder Working Group Papers, Funkhouser, BOP Background Paper, December 18, 1951; RG 312 PAD FSTD Box 1, West to Gately, March 11 1952, West to Gately, 12 March 1952; POWE 33/1858 Beckett to Butler, January 15, 1952. 165 “Importance of Iran in World Oil Industry,” January 28, 1952, Iran—General— Calculations—Correspondence—RMENARVP, World Bank Group Archives.

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field,” nor could PAD alone have compiled the statistics and raw data necessary to avoid catastrophe without spending “hundreds of thousands of dollars for which it is neither staffed nor equipped.”166

To correct for future shortages, the oil men in the FPSC recommended a massive program of investment in new production, transportation, and storage, both in the US and abroad.

The tone of the report was alarmist and warned of encroaching social instability throughout the industrial world if shortages were experienced. Based on FPSC recommendations, in the first half of 1952 PAD approved fifty-eight new storage and transportation projects. These projects complemented others approved in late 1951 by PAD’s Foreign Supply and Transportation

Division: two new pipelines in Saudi Arabia, two in Kuwait, and five in Venezuela. Sensitive to the interests of domestic producers, PAD officials reassured independents in the US that the program would not pit them against cheap imports: according to Bruce K. Brown, PAD Deputy

Administrator, the US commitment to increasing global oil production went hand-in-hand with its obligation to NATO, “attempting to achieve national security in part by achieving security throughout the world.” The program would dig 80,000 new wells in the United States, increase

American refinery capacity by 750,000 bpd and lay thousands of miles of new pipelines while adding 153 million barrels to existing storage capacity.167

This did not distract from considerations within PAD that the international energy system was “one entity, integrated and interdependent,” and that US policy towards oil had to consider

166 RG 312 PAD FSTD, Box 6, West to Gately, 12 March 1952, West to Snodgrass, March 6, 1952, “Value and Accomplishments of the FPSC Program,” Memo by West, July 24, 1952. 167 RG 312 PAD FSTD, Box 3 “Expansion Goals for the Petroleum Industry— Worldwide, July 1 1952 to December 31 1952,” Program Division, PAD January 18, 1952, Box 3, Petroleum Expansion Goals, April 2 1952; RG 312 PAD ADA, FPO, Box 4, Letter from Bruce K. Brown to Russell B. Brown, January 5, 1952.

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the commodity “on a global basis.” As Snodgrass wrote in late 1951, “the world-wide oil industry is an integrated unit,” and a shut-down or disruption in peacetime could lead to “civilian unrest and dissatisfaction which breed revolution’s violence and invite Communist infiltration.”

Led by Chapman, PAD advocated policies that would increase the American involvement in the international energy system, despite the political backlash and increased competition it was likely to inspire among domestic companies. Their arguments were echoed by the President’s

Materials Policy Commission in June 1952. Known as the Paley Commission, the group’s report argued that the United States, which already imported some 500,000 bpd, would depend upon foreign sources for as much as 2.5 million bpd by 1975.168 Foreign oil represented a large and growing part of the U.S. energy infrastructure; while the Iran nationalization could be successfully contained, mass nationalizations could potentially threaten American access to energy. The experiences of PAD and the FPSC seemed to indicate, however, that private actors could be relied upon to contain the damage and preserve American energy security.

One PAD report, written by oil expert Walter Levy shortly after the Paley Commission released its findings, made the connection between the future security of the United States and the international energy system explicit. The major US oil companies currently controlled the bulk of world production and foreign reserves; their ability to operate without interference was crucial to their continued success. There was an increasing tendency among oil-producing governments to press for “direct national control” of oil resources, in the name of “sovereign rights…even though they could have never developed them themselves.” The Iranian

168 RG 312 PAD ADA, FPO, Box 4, Rayner to Snodgrass, May 26, 1952, Box 6, West to Lafortune, September 23 1953; RG 312 PAD FSTD, Box 3, Report on Energy Security, re- printed from “Resources for Freedom,” President’s Material Policy Commission, June 1952; C. Stribling Snodgrass and Arthur Kuhl, “U.S. Petroleum’s Response to the Iranian Shutdown,” Middle East Journal 5, no. 4 (Autumn, 1951): 501-4.

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nationalization was but one indication of this trend, and the danger of other countries following the Iranian example posed an immediate challenge to future US national security. Oil states,

“unable to direct the complex technical and commercial operations of the oil industry,” would throw the international energy system into chaos and deprive the free world of oil resources, while simultaneously using their control over oil to increase their relative standing in international relations by threatening to sell oil to the Soviet Union. While Iran had been successfully isolated by the two-part embargo, Levy noted that further attacks by nationalists were inevitable.169

Having failed to reach a suitable definition of “nationalization” in 1951, the United States supported the embargo of Iranian oil by AIOC and the international energy system, taking action through the PAD to complete the de-integration of Iran. By mid-1952 these processes had isolated Iran and preserved global oil from the effects of the oil dispute. For Moṣaddeq and the

National Front, the inability to market oil abroad threatened the success of the nationalization movement, forcing him to pivot away from oil in order to preserve his government. For the

United States, the danger to the international energy system was not the only concern; it also feared the possible danger de-integration posed to Iran itself. Fundamentally, the concern was whether Iran could survive without the local integration of oil. Through multiple rounds of negotiations, the U.S. did not discover a suitable definition of “nationalization” that would satisfy by Iran and the international energy system. Commitment to the British and the security of the international energy system was ultimately more important than the preservation of Iran’s

169 Truman Library, Chapman Papers, Box 102, “The Progressive Threat to the US Position in Foreign Oil,” July 25, 1952.

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nationalist government, which (it was assumed) would begin to disintegrate without access to oil revenues. “Nationalization” could have triggered a revolution in the international energy system, the moment when producing states chose to produce and sell their oil independently of the oligopoly and its self-serving system of vertical and horizontal integration. For the United States government, this was too dangerous an outcome to contemplate. The failure to find a workable definition and the two-part embargo doomed the Nationalization Resolution and the Nine-Point

Law almost as soon as the ink was dry. Thereafter, the issue would not be how Iran could defeat the oligopoly; rather, it would be whether Iran could survive without oil.

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CHAPTER FOUR: ‘OIL-LESS’ ECONOMICS, THE MORDAD COUP, AND THE RE-

INTEGRATION OF IRANIAN OIL, 1952-1954

On August 19, 1953 (28 Mordad 1332), the streets of Tehran exploded into violence.

Tanks rolled through the city as rival crowds clashed in street warfare. Pro-shah forces secured the radio station and other key points. An armored column surrounded the home of Prime

Minister Moṣaddeq, peppering it with machine gun fire. Shouts of “Zendebad shah!” or “Long live the shah” filled the air as Moṣaddeq’s National Front government fell from power. It was replaced by a new regime led by former-general Faz̤ lallāh Zāhidī and the young shah, who returned from a forced, panicked exile on August 20. Moṣaddeq and several of his key advisors were placed under arrest; foreign minister Ḥusayn Fāṭimī went into hiding but was found in a

Tudeh safehouse and put to death in March 1954.1

The Mordad Coup would not have been possible without the active participation of the

CIA and the British secret intelligence services. While the precise extent and impact of Anglo-

American covert activities in Iran may never be known, the Western powers spent the months leading up to 28 Mordad bribing Majlis deputies, distributing propaganda to undermine

Moṣaddeq’s legitimacy, and set the events of the coup in motion with an initial attempt on

August 16. After the initial failure, CIA operatives continued their work, paying for pro-shah crowds and coordinating Zāhidī’s emergence as leader of the pro-shah faction. The operation to remove Moṣaddeq, code-named TPAJAX, never would have succeeded without Western help.2

1 Abrahamian, The Coup, 183-203, 212, Mark J. Gasiorowski, “The 1953 Coup D’etat in Iran,” International Journal of Middle East Studies 19, no. 3 (Aug. 1987): 261-286, and “The 1953 Coup d’Etat Against Mossadeq,” in Gasiorowski and Byrne, Mohammed Mossadeq, 227- 260. 2 A small number of scholars have attempted to revise this narrative, downplaying the significance of Western interference and emphasizing the coup as the result of indigenous opposition to Mosaddeq, particularly among the Shi’a clergy. See Darioush Bayandor, Iran and 231

Upon his return from exile, the shah met with Kermit Roosevelt, a CIA operative working in Iran a few days after the coup. “I owe my throne,” he supposedly said, “to God, my people, the army—and you.”3 The coup was the first time in the postwar period the U.S. conspired to topple a government, and was the first meaningful intervention in Middle Eastern politics for a country which had traditionally stayed above the fray. Its significance in Iranian history cannot be overstated: it solidified a suspicion of the United States among Iranians that grew over the years, exploding into anger and violence amidst the 1978-1979 Islamic Revolution. In more immediate terms, the coup created the conditions necessary to accomplish the re-integration of Iranian oil. A year after 28 Mordad, the shah’s ministers reached an agreement with the oligopoly for the re- integration of Iranian oil. Nationalization was undone and Moṣaddeq’s experimental “oil-less” economy receded into memory.

Why did the Mordad Coup take place? Why did the United States, after more than a year of negotiations, decide to remove Moṣaddeq from office? Ostensibly, Operation TPAJAX was carried out to prevent a communist take-over of Iran. Subsequent accounts all emphasize the importance of the communist threat and the need for action to save Iran from Soviet domination through the Tudeh Party, Iran’s well-organized communist political organization.4 Some

the CIA: The Fall of Mosaddeq Revisited (Houndsmill: Basingstoke, 2010), Ray Takeyh, “What Really Happened in Iran: the CIA, the Ouster of Mosaddeq, and the Restoration of the Shah,” Foreign Affairs 93, no. 4 (July/August 2014): 2-14. For a detailed response to this revisionism, see Azimi, “The Overthrow of the Government of Mosaddeq Reconsidered,” 693-712. 3 Kermit Roosevelt, Countercoup: The Struggle for the Control of Iran (New York: McGraw-Hill, 1979): 199. 4 Kermit Roosevelt, Countercoup, 3; Donald Wilber, CIA Clandestine Service History: “Overthrow of Premier Mossadeq of Iran, November 1952-August 1953,” published on-line by National Security Archive, November 29, 2000, accessed March 23, 2017, 1-3, https://nsarchive2.gwu.edu/NSAEBB/NSAEBB28/; John Waller, Interview, Released September 5, 2014, CIA Crest Computer https://www.cia.gov/library/readingroom/document/0006122540 [Accessed November 14, 2017]. Apart from the Wilber Clandestine Service History, two other CIA internal histories, Zendebad Shah! and The Battle for Iran, were written in subsequent 232

scholars, finding that argument a little hard to swallow given the relative weakness of the Tudeh at the time of the coup, have pointed to the greater willingness of the Eisenhower Administration to undertake covert action in pursuit of Cold War objectives, at a time when anti-communist hysteria was reaching a fever pitch inside the United States.5 Some see the hand of “perfidious

Albion,” arguing that the British persuaded the Americans to cooperate with them in bringing down Moṣaddeq.6 Greed for Iranian oil was not a motivating factor in the decision to remove

Moṣaddeq, though some scholars do emphasize oil’s importance in Moṣaddeq’s downfall.7 The companies had successfully isolated Iran, and despite the gradual weakening of the embargo and the threat of Iran “dumping” oil on the open market at cut-rate prices, the danger to the international energy system had been minimized. Those who argue the 1954 Consortium

Agreement prove American actions were driven by oil miss the crucial context surrounding both the coup decision and the oil negotiations of 1953-1954. The world of oil had moved on: the

United States did not topple Moṣaddeq at the behest of a cabal of self-interested corporate power-brokers.

decades, and have been partly de-classified and released. See Scott A. Koch, “Zendebad Shah!”: The Central Intelligence Agency and the Fall of Iranian Prime Minister Mohammed Mossadeq, August 1953 (Washington DC: CIA, June 1998) and The Battle for Iran, published on-line by National Security Archive, June 27, 2014 https://nsarchive2.gwu.edu/NSAEBB/NSAEBB476/ [Accessed March 28, 2018]. Among scholars, the argument that the coup was driven by fear of communism is dominant; see Gasiorowski, “The 1953 Coup D’etat in Iran,” 261-286, and “The 1953 Coup d’Etat Against Mossadeq,” in Gasiorowski and Byrne, Mohammed Mossadeq, 227-260; Marsh, Anglo-American Relations, 152-153. 5 Goode, The United States and Iran, 110; Heiss, Empire, 172; Stephen E. Ambrose, Eisenhower: The President, Vol. 2, 1952-1959 (London: Allen and Unwin, 1984), 111. 6 Katouzian, Musaddiq, 177; Joseph Frankel, British Foreign Policy, 1945-1973 (London: Oxford University Press, 1975), 218; Bill, “Politics of Intervention,” in Bill and Louis, Musaddiq, 274, 279. 7 Abrahamian, The Coup, 5, Elm, Oil, Power and Principle, 276; Joyce and Gabriel Kolko, The Limits of Power, 412-420.

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In reality, both oil and communism played a role in the decision to oust Moṣaddeq. The communist threat to Iran was linked to the American desire to accomplish dual integration, return Iranian oil to international markets and kick-start the Iranian domestic economic development program. Faced with the Anglo-American embargo, Mohammed Moṣaddeq launched a series of polices in late 1952 designed to render Iran “oil-less.” The notion of an oil- less Iran filled the United States with dread. Without oil, U.S. officials believed that Iran would be unable to survive as an independent state. Furthermore, they believed that the National Front was not capable of running Iran or the country’s economic development effort without foreign help or oil-based financial resources. While it was difficult to predict exactly when Iran’s oil-less collapse would come, it would almost certainly lead to a social revolution or communist take- over. A major U.S. aid campaign might have rescued Moṣaddeq, and during the nationalization crisis an American development effort was run inside Iran under the auspices of the Point Four program. Yet a solution to the crisis could not lie with financial aid, which would only lengthen

Iran’s de-integration and keep the British and Iranians at odds with one another. Moṣaddeq’s oil- less experiment, which may have succeeded in decoupling Iran from oil thus preserving its independence from the international energy system, did not appear viable to American policy- makers. There could be no progress without petroleum in Iran, at least from the U.S. point of view.

With this in mind, the U.S. made one final attempt to find a negotiated end to the oil crisis in late 1952 and early 1953. These negotiations form the crucial background to the ultimate shift in American thinking. The efforts to appease Moṣaddeq and re-integrate Iranian oil were effectively sabotaged by the British, who had no interest in negotiation and were instead determined to keep the Americans “in play” in order to bring down Moṣaddeq once negotiations

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failed. Moṣaddeq himself, under increasing political pressure, proved stubborn in negotiations and would not yield to the British insistence that AIOC receive compensation for its lost future profits. Amidst an increasingly-fraught political situation, the U.S. government determined that

Iran’s salvation would only be possible if Moṣaddeq were removed from office. His replacement would be offered emergency financial aid and pushed towards a settlement with the companies for the re-integration of Iran’s oil into world markets. Returning Iran’s oil to international markets and providing oil revenues to fund internal economic stability went hand in hand: the

Mordad Coup was launched in order to successfully carry out the dual integration of Iranian oil.

Re-integration was successfully completed with the conclusion of the Consortium Agreement in

October 1954, which returned Iran’s oil to the control of the oligopoly while preserving the façade of the 1951 nationalization, resuming the flow of oil and increasing oil revenues for the re-established Pahlavi state.

4.1 The July Uprising and Iqtisad-i Bidun-i Naft

In order to understand how Iran became “oil-less,” it is first necessary to grasp the importance of oil to Iran before nationalization. Mary Ann Heiss has argued that the U.S. over- estimated oil’s importance: oil royalties “amounted to only 12 percent of government revenue and a mere 4 percent of national income,” and the United States mistakenly chose to analyze Iran

“through the lens of an industrialized nation.”8 At the time of the crisis, obtaining a clear idea of the Iranian economy or state finances was exceedingly difficult, due to conflicting or inaccurate statistics, opaque budgets and the government’s month-to-month appropriation system: it was

8 Heiss, “International Boycott of Iranian Oil,” 198. Heiss bases her conclusion on figures from Amuzegar and Fekrat, Iran: Economic Development Under Dualistic Conditions, 21.

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impossible to offer anything more than a “short-term analysis of Iran’s fiscal prospects.”9

Nevertheless, figures compiled by the American embassy in Iran indicated that without oil, Iran faced an almost insurmountable budget deficit, as well as a gaping hole in its foreign exchange balance. These were the figures used at the time to assess the state of Iran’s economy, and while they differ somewhat from statistics assembled subsequently, they provide a window into the minds of U.S. officials whose task it was to analyze the health of the Iranian economy in the aftermath of nationalization.10

In 1949-1951, AIOC paid £39 million to Iran in royalties, and converted another £50.29 million into rials to pay local expenses. According to the Seven Year Plan law of 1949, oil revenues were to be diverted to the Plan Organization, though the government raided the Plan to cover the persistent budget shortfalls during the Iranian years 1328-1330 (March 1949-March

1951; see Note on Transliteration and Dates, xi), resulting in a development effort which was

“desperately short of funds” by the time of nationalization.11 During 1327-1328, the Plan absorbed about £19 million, equal to 2.3 billion rials. The remainder went to the budget and accounted for 10-12% of actual expenditure: 930 million rials out of 7.1 billion rials in 1327 and

909 million rials out of 7.78 billion rials in 1328.12 Oil revenues were split between the

9 RG 59 Box 5506 Nitze-Linder Working Group, Crowl to Ferguson, Iran’s Economic and Financial Position, January 29, 1952. 10 Majd notes that reliable macroeconomic data for Iran “does not exist” before 1959, and questions the data used in the analysis of Clawson and Sassanpour, who determine that Mosaddeq’s policies were largely successful. See “M.G. Majd, “The 1951-53 Oil Nationalization Dispute and the Iranian Economy: A Rejoinder,” Middle Eastern Studies 31, no. 3 (Jul., 1995): 450.

11 RG 84 USLETCGR 1950-1952, Box 35, US Embassy No. 611, February 2, 1951. 12 RG 84 USLETCGR 1953-1955, Box 60, Iran Economic Paper No. 16, January 15, 1953, “The Seven Year Plan, the Plan Organization and OCI;” Clawson and Sassanpour, “Foreign Exchange Shock,” 12. The stated expenditure for 1329 (March 1950-March 1951) was 236

development program and the budget in an ad hoc, sporadic fashion, but the treasury and the

Plan Organization both depended on oil to meet obligations. Between 1945 and 1951 Iran maintained large non-oil trade deficits, due to the weakened postwar economy and a series of bad harvests, and required foreign exchange from oil to pay for its imports. The sterling earned from

AIOC amounted to between sixty and eighty percent of Iran’s foreign exchange earnings.13

Table 4.1 AIOC Foreign Exchange Contributions (Millions of Rials) 1948-195114

Year Royalties Local Expenses Total % of Foreign Exchange

1330 /Mar. 1951-Mar. 271 694 965 26.7

1952

1339 /Mar. 1950-Mar. 1885 1795 3680 64.3

1951

1328 /Mar. 1949-Mar. 1284 2240 4024 77.3

1950

1327 /Mar. 1948- 1190 2094 3284 64.9

Mar.1949

10 billion rials, yet in reality the Ministry of Finance reported only 8.5 billion rials spent, against revenues of 7.79 billion rials, leaving a 710 million rial deficit. However, this figure does not include the Plan Organization’s expenditures, which equaled 1.1 billion rials for 1329; there are expenditures which do not make it into the final reckoning, as the system for accounting ordinary and non-ordinary expenses “vary from year to year.” RG 469 RUSFAA Iran Branch, Subject Files 1952-1959, Box 1, Iran Economic Paper No. 2, Government Budget, January 1, 1952. 13 RG 84 USLETCGR, 1953-1955, Box 60, Iran Economic Paper No. 9, Balance of Payment, January 1953; for British estimate, see FO 371/82342 EP 1119/1 Shepherd to FO, No. 394, 27 August 1950. 14 RG 84 USLETCGR, 1953-1955, Box 60, Iran Economic Paper No. 9, Balance of Payment, January 1953.

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Iran earned rials and foreign exchange from the AIOC royalty, income taxes on AIOC salaries (though British employees were exempt), customs duties, and other sundry revenues.

When AIOC converted sterling to rials, the Bank-i Melli forced the company to pay one rate, while it sold the sterling to importers at a different rate: the U.S. embassy estimated Iran earned as much as 485 million rials in 1950 this way, and could have earned 700 million rials in 1951 had AIOC remained.15 In total, earnings from oil in 1327 reached 1.9 billion rials, 2 billion in the following year and 2.3 billion in 1329.16 In the year 1330 (March 1951-March 1952), government expenditures without nationalization would have been 9.55 billion rials, according to a budget drawn up by Razmārā’s government before his death. Plan spending during the year is hard to guess, though Razmārā optimistically hoped to spend roughly 2.5 billion rials during

1330 and another 2.5 billion rials the following year. The Iranian government would earn £10 million worth of rials from AIOC operating expenses, customs duties on imported items and income taxes on employee salaries; another 1.1 billion rials from sales of sterling; and £15.9 million in royalties, or under the Supplemental Agreement, a royalty of £26 million. Under these conditions, AIOC would contribute 4.5 billion rials, more than one-third of the entire budget for

1330, including development expenses.17

15 This was the result of Iran’s two-tiered exchange rate and its convertibility agreement with the Bank of England in 1948. AIOC bought rials at the “official” rate (32 rials/$1 or 90 rials/£1). Yet a different rate prevailed in the market, allowing the Bank-i Melli to earn rials through the sale of sterling purchased at a lower rate from AIOC. See RG 84 USLETCGR, 1950- 1952, Box 39, US Embassy No. 574, Effects of the Cessation of AIOC Operations on the Iranian Budget, October 31, 1951. 16 RG 59 888.2553/3-551, US Embassy No. 712, Annual Report of the Petroleum Developments in Iran in 1950, March 5, 1951. 17 Iran regularly budgeted for more rials than were actually spent. For example, for 1329 (March 1951-March 1952), 10 billion rials were budgeted yet actual expenditures amounted to 8.2 billion rials, against revenues of 8.1 billion rials. See RG 84 USLETCGR, 1953-1955, Box 60, Iran Economic Paper No. 2, Government Budget, January 1953.

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Table 4.2 AIOC Contribution, 1330 (Estimated, April 1951)18

Excise Tax Income Tax Electricity Customs Royalty (est.) Foreign Exchange

Tax Sales

£6,598,972 £1,047,234 £207,874 £2,151,176 £26,000,000 1.1 billion rials

Total 4.5 billion rials

Budget 9.55 billion

rials

The end of AIOC operations removed these lucrative sources of revenue and foreign exchange. In October 1951, embassy economic counselor Robert M. Carr offered “very rough approximation” of how nationalization had affected Iran’s finances. The loss of import duties and income taxes amounted to 200 million rials; profit from the sale of foreign exchange at variable exchange rates, another 700 million rials. The Plan Organization had been spending about 100 million rials per month out of oil revenues; this money would now have to come from other state sources, as it was “doubtful” operations could be cut below this figure “and still accomplish anything in the way of economic development.” Taking over the industry saddled the government with its operating expenses. The pre-existing monthly budget deficit Iran faced before April 1951 (300 million rials), which had been covered by raiding the Plan

Organization’s oil-based budget, thus increased to 400 million rials. The foreign exchange balance, meanwhile, would be reduced by 70%.19 Based on these assessments, Carr argued that

18 RG 59 888.2553/4-2751, US Embassy No. 866, Contributions of the AIOC to the Iranian Embassy, April 27, 1951. 19 RG 84 USLETCGR, 1950-1952, Box 39, US Embassy No. 574, Effects of the Cessation of AIOC Operations on the Iranian Budget, October 31, 1951.

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oil provided one-third of Iran’s state revenue and two-thirds of its foreign exchange requirements, and these figures were repeated in other U.S. analyses. This conclusion was a simplification, since once the costs of nationalization were factored in, Iran faced a deficit derived from the loss of AIOC totaling one-half of all government expenditures, if development spending was included.20

Of course, Iran was already in serious fiscal straits before nationalization. The state faced a deficit of 900 million rials in March 1951 (the end of the year 1329), due to poor harvests in previous years, the cost of the Seven Year Plan, administrative, and military budgets.21

Nationalization made an unsatisfactory situation much, much worse. In April 1952, Carr estimated that for 1331 (March 1952-March 1953), Iran would have to tackle a combined budget deficit of 6 billion rials: 4 billion from ordinary expenses, 1.5 billion from NIOC and 774 million from the Plan Organization, assuming it was not shut down entirely. Iran faced a trade crisis, a state budget crisis, a balance of payments crisis, and a defunct development plan, all of which would occur more or less simultaneously.22 The World Bank came to the same conclusion as the

U.S. embassy: “Barring large scale assistance, resumption of oil production appears to be the only means of providing the government with adequate funds to balance its budget…and embark on the long-delayed execution of a realistic development program.”23

20 RG 84 USLETCGR, 1953-1955, Box 60, Iran Economic Paper No. 2, Government Budget, January 1953. 21 Iliff to Razmārā, March 2, 1951, Iran—General—Correspondence—Volume 8, RMENARVP, World Bank Group Archives. 22 RG 84 USLETCGR 1950-1952 Box 36, Henderson to State No. 3781, Drafted by Carr, April 4, 1952. 23 Bank-i Melli Role in Iranian Government Financing, May 6, 1952, Iran—General— Correspondence—Volume 8, RMENARVP, World Bank Group Archives.

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One figure who worked to generate the “collapse” narrative was Moṣaddeq himself. In early 1952, with attempts at another brokered oil settlement falling apart, he begged the United

States for financial assistance, warning that Iran would not last a month without a large loan.24

The British were unperturbed by the lasting economic impacts of the embargo. Iran’s economy was “fundamentally rural” and “somewhat backward.” By their estimates, oil contributed no more than 10% of the national income; its disappearance would pressure the Moṣaddeq government and hopefully lead to its collapse while preserving the rest of Iran from lasting harm.25 They felt that any aid would only prolong oil negotiations; their reasoning, like that of

AIOC before nationalization, was that once Iran received money it would simply demand more.

While the U.S. worried that letting matters drift was dangerous, there was some support for the

British position. One CIA assessment determined that if the U.S. withheld aid, Moṣaddeq would fall and be replaced by a conservative government loyal to the shah. Aid would only “postpone a crisis,” as only an oil settlement and oil revenues could cease the drift “toward economic and political deterioration.”26 “The continuing deteriorating of Iran’s financial position,” along with pressure on Moṣaddeq from forces outside the National Front, would compel him to either accept an oil settlement or resign his office.27 Official policy focused on reaching a settlement through negotiations, but in reality the U.S. adopted the British strategy to “wait it out.”28

24 RG 84 USLETCGR 1950-1952 Box 36, Henderson to State No. 3031, February 11, 1952. 25 FO 371/98623 EP 1103/1, Structure of Persia’s Economy, Economic Intelligence Department, FO November 21, 1951; RG 59 Box 5506 Nitze-Linder Working Group, Memo of Anglo-American Meeting, February 14, 1952. 26 FRUS Vol. X Iran 1951-1954, No. 147, Memo by Borel, January 17, 1952. 27 RG 888.2553/3-2752, Memorandum, “The Iranian Oil Controversy,” March 27, 1952. 28 FRUS Vol. X Iran 1951-1954, No. 153, Henderson to Acheson, January 29, 1952, No. 156, Acheson to Henderson, February 9, 1952.

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With no aid from the U.S. and no revenue from oil, Moṣaddeq desperately tried to buy time. He used emergency sources of financing, cut funds from the Plan Organization, withdrew

£14 million from the foreign exchange reserves, and borrowed from the Bank-i Melli. By June

1952, emergency sources of income were exhausted. Major expenses such as civil servant and army salaries could not be reduced for political reasons. Elections for the Seventeenth Majlis held at the end of 1951 had seen widespread tampering by the British, the shah and conservatives, who hoped to force Moṣaddeq from power. The shah in particular believed that

Moṣaddeq had to be “completely discredited” before he could be safely dismissed: moving too soon could provoke a popular backlash. Aware of the tampering, Moṣaddeq ordered voting to end early, in order to return a Majlis dominated by National Front deputies chosen through fair elections. Yet even with thirty out of seventy-nine deputies, Moṣaddeq could not win the emergency powers he needed to undertake the necessary fiscal countermeasures.29 The economic counselor of the U.S. embassy, Robert M. Carr, summed up the situation: “the government had virtually exhausted all capital and other financial resources…it was about three months behind in wages and salary payments to its employees, including military personnel…[it] had acquired a huge accumulation of unpaid bills, unemployment was critical and business had reached a state of stagnation.”30 In June, U.S. officials confidently predicted that Moṣaddeq would be out of power “in a few weeks,” and put plans together to extend emergency aid to a successor government “determined to settle the oil controversy.”31 The U.S. continued to discuss a

29 FRUS Retrospective Iran 1951-1954, No. 67, Memorandum Prepared by Office of National Estimates, March 28, 1952; Abrahamian, Iran Between Two Revolutions, 268-269. 30 RG 84 USLETCGR 1953-1955, Box 60, US Embassy Tehran, No. 824, April 8, 1953. 31 RG 59 Subject Files Relating to Iran, 1951-1958, Box 9, Memo of Conversation, June 1, 1952.

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settlement with the British but did nothing to aid Moṣaddeq. The National Front government would be left to drive itself off the fiscal cliff.

Moṣaddeq, sensing perhaps that his position was on the verge of collapse, created a political crisis in mid-July. He demanded the right to appoint the Minister of War, a position traditionally (though not constitutionally) left to the shah to fill. The shah refused Moṣaddeq’s demand, and the prime minister resigned on July 17. His departure made way for Ahmed Qavām, who had been maneuvering for months, courting the favor of the U.S. and British embassies.

Ambassador Loy Henderson, while ostensibly sticking to a strict non-interference policy, was favorably disposed to Qavām as Iran’s new premier. Qavām was eager to resolve the oil problem

“as soon as possible,” but had to move with “decorum and caution” in order not to upset public opinion. The State Department agreed that Qavām would be immediately given $26 million in emergency economic aid to tide him over until an oil agreement could be reached.32

But before any progress could be made, massive street demonstrations and violence broke out in Tehran, as crowds rallied in support of Moṣaddeq. The Tudeh Party were heavily represented, as were supporters of the populist cleric Ayatollah Kāshānī. The shah wavered, uncertain of whether harsh measures should be used. Qavām lost his nerve and resigned.

Convinced that no other conservative choice would be acceptable to Iranian nationalists and fearing a Tudeh uprising, the shah reappointed Moṣaddeq to the premiership on July 21.33

32 RG 59 888.2553/7-1952, Memo from Byroade to Acheson, July 19, 1952; FRUS Retrospective Iran 1951-1954, No. 69, Henderson to State, March 31, 1952, No. 70, Acheson to Embassy, April 1, 1952, No. 75, Henderson to Acheson, May 24, 1951, No. 78, Henderson to Acheson, June 12, 1952, No. 84, Henderson to Acheson, July 18, 1952, No. 85, Henderson to Acheson, July 18, 1952, No. 86, State to US Embassy London, July 18, 1952, No. 88, Henderson to Acheson, July 19, 1952. 33 Bamberg, Vol. II, 472-473, Azimi, Crisis, 288-293; Husayn Makkī, Vaqayi’-I 30 Tir 1331 [Events of 30 Tir, 133] (Tehran: Bungāh-i Tarjumah va Nashr-i Kitāb, 1982), 24-26, 39-57, 62-91.

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The 30 Tir or July Uprising, as it was known, revived Moṣaddeq’s power and marked a major turning point in the oil crisis. Conservative opposition to the National Front had been squashed and the shah relegated to the periphery of politics. More leftist elements, such as Khalīl

Malikī’s “Third Force” rallied to his side. Moṣaddeq forced a Majlis vote on a ruling granting him emergency powers (ikhtiyarat) to rule by decree for six months. This allowed the National

Front government to engage in an aggressive push for fiscal, economic and institutional reform in the second-half of 1952: legislation could be passed without a Majlis vote. The centerpiece of the new reforms undertaken by Moṣaddeq’s government was “oil-less economics” (iqtisād-i bidūn-i naft), an idea that enjoyed strong support from Ayatollah Kāshāni. While the National

Front had scored a major victory, the movement itself almost immediately began fracturing, with

Ḥusayn Makkī, Mozaffar Baqā’I, and parliamentarian Sayyed ʿAbd-al-Husayn Ḥāʾerizāda breaking from Moṣaddeq. Even Kāshāni, despite his support for the new economic policies, began to resent Moṣaddeq for his concentration of power.34 Moṣaddeq managed these defections by bringing more National Front loyalists into government. For Moṣaddeq, authority over the government was necessary to enact economic reforms, preserving Iran from its de-integration and bolstering his regime’s legitimacy. As global oil became “Iran-less,” so too would the

National Front seek to make Iran “oil-less.”35

To meet its budget deficit, the government ordered the Bank-i Melli to secretly begin printing bank notes. The U.S. embassy estimated 2 billion rials entered circulation by January

34ʻAlīnaqī ʻĀlīkhānī, Iqtiṣād va amnīyat: tārīkh-i shifāhī-i zindagī va ās̲ ār-i ʻAlīnaqī ʻĀlīkhānī [Economy and Security: An Oral History of Life and Work of Dr. Alinaghi Alikhani], Hossein Dehbashi ed. (Tehran: Sāzmān-i Asnād va Kitābkhānah-i Millī-i Īrān, 2015): 22-23. 35 Katouzian, “Oil Boycott and the Political Economy,” 203-227; Hasan Tavanayan-Fard, Duktur Musaddiq va iqtisād [Doctor Mosaddeq and the Economy] (Tehran: Sāzmān-i Intishārāt-i ʻAlavī, 1983), 5-12

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1953, a twenty-percent increase in the total note issue.36 This de facto devaluation caused the rial-dollar exchange rate to change from 50 rials to 100 rials by the summer of 1953, and boosted exports while helping to restrict imports.37 The rial had been overvalued for years, and its devaluation proved a boon to economic activity in Iran, cutting unemployment and increasing domestic trade. This was a reversal for the prime minister, who had warned against reducing the value of the currency, calling it “a cure worse than the disease.”38 Moṣaddeq announced in

August that 3 billion rials would be diverted to a new “Five Year Plan,” meant to make Iran self- sufficient in sugar and tea, two large import items. The move would also combat unemployment, which had become widespread in urban areas and the oil fields where thousands of former AIOC employees remained idle.39 An Export Bank was founded and 450 million rials set aside to encourage Iranian exports, while barter deals with were pursued as a way to cut down on foreign-exchange demands. Non-essential imports were placed under heavier regulations and most luxury goods restricted; the rial devaluation made exports much more competitive against imports, and Iran’s non-oil exports surged, buoyed along by an excellent 1952-1953 harvest.40

Along with these measures, Moṣaddeq embarked upon a wide-ranging program of fiscal and

36 RG 84 USLETCGR, 1953-1955, Box 60, US Embassy Iran, No. 46, “Quarterly Economic and Financial Review, Iran, Second Quarter, 1953,” July 18, 1953; RG 84 USLETCGR, 1950-1952, Box 36 501 Henderson to State, No. 1245 September 23, 1952; FO 371/98625 EP 1112/29, Middleton to FO, NO. 292 (E), September 22, 1952. According to figures later released by the Plan Organization, the total rial issue increased from 7.27 billion in 1950 to 10.49 billion in 1953. See Dadkhah, “Oil Nationalization Movement,” 96. 37 Clawson and Sassanpour, “Foreign Exchange Shock,” 5. 38 Kay-Ustavan, Siyāsat-i muvāzanah-i manfī, Vol. I, 114. 39 RG 84 USLETCGR 1950-1952, Box 36, US Embassy Tehran, No. 470, October 4, 1951, No. 80, July 30, 1952; RG 84 USLETCGR 1953-1955, Box 60, Iran Economic Paper No. 16, January 15, 1953, “The Seven Year Plan, the Plan Organization and OCI,” No. 2, “Government Budget,” January 1953. 40 RG 84 USLETCGR, 1953-1955, Box 60, US Embassy Tehran, NO. 824, April 8, 1953; Tavanayan-Fard, Duktur Musaddiq va iqtisād, 129-173.

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labor reforms, promoted a free press and a more competent judiciary, and generally pursued legislation (all of it passed without the need of a Majlis vote) that would appeal to the urban middle class, urban workers and rural peasantry.41

The oil-based and unpopular Seven Year Plan was the first casualty of the oil-less economy. Millions of rials purportedly earmarked for the Plan Organization were in fact

“raided” by the Treasury. Moṣaddeq had been critical of the Plan Organization: to the National

Front, the Plan symbolized the wasteful, corrupt, and foreign-backed development efforts of the shah’s governments before 1951. In the Majlis and press, attacks were launched on Ebtehāj, the most well-known symbol of the Pahlavi regime’s development program, denouncing him as a tool of the British.42 The Plan did not die; rather, it limped on in a reduced form. According to figures supplied to the U.S. Embassy, the Plan Organization disbursed about 800 million rials in

1951 from total receipts of 1.1 billion rials. Plan operations employed thousands of laborers across Iran.43 Though Moṣaddeq announced billions of rials in new development spending, in reality most development funds were re-directed to support the oil-less budget. Confidential sources informed the U.S. embassy that only 4 million rials were spent on the government’s new

41 See Ladjevardi, “Constitutional Government and Reform Under Musaddiq,” in Bill and Louis, eds., Musaddiq, 76-90. 42 Ebtehāj wrote personally to Mosaddeq, defending his actions as governor of the Bank-i Melli. His letter was printed at his request in Ettela’at and Kayhan. See Ebtehāj to Mosaddeq, February 18, 1953, Iran—General—Correspondence—Volume 8, RMENARVP, World Bank Group Archives. 43 RG 84 USLETCGR, 1950-1952, Box 39, US Embassy No. 574, “Effects of the Cessation of AIOC Operations on the Iranian Budget,” October 31, 1951; RG 84 USLETCGR 1953-1955, Box 60, Iran Economic Papers No. 16, The Seven Year Plan, The Plan Organization and OCI, January 15, 1953.

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“Five Year Plan” by August 1953, with appropriations instead used to pay NIOC employees or fill holes in the official budget usually covered by oil revenues.44

The new measures were successful at meeting some of Iran’s economic needs. Non-oil exports increased from 1.4 billion rials to 2.8 billion rials between 1328 and 1332.45 The devaluation of the rial along with a much more restrictive quota policy caused imports to plummet. Exports of agricultural goods and textiles increased by 19% and 25%, respectively.

Cotton exports rose rapidly.46 The balance of payments deficit declined from 2.7 billion rials in

1329 to only 399 million rials for the first six months of 1331.47 By the end of 1332, with the oil embargo still in place, the Bank-i Melli reported a surplus of 1.1 billion rials. A larger note issue provided a temporary boost to the marketplace. Good harvests in 1951-1952 and 1952-1953 improved rural employment and cut back on the need for imports. Some analyses of Iranian finances have determined that account deficits and balance of payments problems would have been resolved had the country stayed on course.48 However, analyses by Kamran M. Dadkhah and M.G. Majd point to the ever-present budget deficit and the declines in living standards caused by rations to imports as evidence of progressive economic decline.49 The oil-less

44 RG 84 USLETCGR, 1953-1955, Box 60, US Embassy Tehran No. 256, November 5, 1953. Allocation Acts undertaken between August and November 1952 earmarked 5.3 billion rials for the Plan, but it is not at all clear if any rials were actually spent on Plan projects. See H. Motamen, “Development Planning in Iran,” Middle East Economic Papers 3 (1956): 105. 45 Elm, Oil, Power and Principle, 273. 46 Clawson and Sassanpour, “Foreign Exchange Shock,” 10-11. 47 This was according to figures provided by the Bank-i Melli for the U.S. Embassy. See RG 84 USLETCGR, 1953-1955, Box 60, Iran Economic Papers, No. 8, “Imports and Exports.” 48 Clawson and Sassanpour, “Foreign Exchange Shock,” 2, 17-18, Katouzian, “Oil Boycott and the Political Economy,” 212-214. 49 Kamran M. Dadkhah, “The Oil Nationalization Movement, the British Oil Boycott and the Iranian Economy 1951-53,” in Elie Kedourie and Sylvia G. Haim, eds., Essays on the Economic History of the Middle East (London: F.Cass, 1988): 104-131 and Majd, “The 1951-53 Oil Nationalization Dispute and the Iranian Economy,” 449-459.

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economy was no miracle; nor was it an unmitigated disaster, insofar as its long-term success can be judged based on so short a timeframe. While exports and imports had been brought closer into balance and the agricultural economy had improved, the government’s budget ultimately depended on deficit spending, while the improving trade balance relied on import suppression and an artificially devalued currency. It is not clear if the oil-less economic policies would have succeeded in the long-term at producing prosperity within Iran.

Moṣaddeq printed new bank notes, proposed new development efforts, and funneled money through NIOC and the Plan Organization to cover the state deficit because he had no other choice. The National Front had come to power promising an improved economy based on nationalization. An initial attempt in September 1951 to raise public debt through a 2 billion rial bond issue failed to raise even a tenth of that amount; the aristocracy, who held the bulk of the country’s wealth, had no interest in backing the National Front’s oil-less economic strategy, just as conservatives in the Majlis blocked Moṣaddeq’s efforts before July 1952 to increase the money supply by law.50 Only through aggressive tax collection or a sizable foreign loan would

Iran be able to meet its obligations without printing new notes, which it could not do indefinitely.

Moṣaddeq would need to either woo the landed aristocracy or take on dictatorial powers to raise new taxes. The former appeared impossible, particularly after July 1952, while the latter would likely erase any hope of increased support or aid from the United States. Moṣaddeq embraced oil-less economics as his only viable option, in the hope that the United States would support him with aid rather than let his government fall apart.

50 Tavanayan-Fard, Duktur Musaddiq va iqtisād, 192-194.

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4.2 Progress Without Petroleum? Point Four in Iran

Despite the oil crisis and Iran’s dispute with the British, the United States maintained its commitment to fostering economic development inside Iran. After 1950 this policy was carried out by the Technical Cooperation Administration, known as Point Four. The first Point Four agreement was signed with Razmārā’s government in late 1950, and the U.S. had already committed itself to an aid package for Iran shortly before Moṣaddeq came to power. While the

U.S. denied Moṣaddeq’s government large-scale economic assistance, it allowed the Point Four program to continue, allocating $23 million in 1952 and again in 1953. This policy was, admittedly, somewhat contradictory: while supporting the British embargo, the U.S. helped to prop up Iran’s development program, including projects proposed by Moṣaddeq himself. The calculation was that the U.S. would appear to be “abandoning” Iran, thereby emboldening communist agitation in the countryside, if it was seen to retreat on rural development support.51

The American effort, almost by accident, helped to keep the oil-less economy afloat by bolstering Iranian agriculture and the national recovery effort at a time when the state struggled to support economic development in a meaningful way.

Point Four was a Cold War program: an attempt to fashion a free-market liberal capitalist system for the post-colonial order, fostering economic growth and markets for American goods while also securing access to strategic materials.52 In more immediate terms, however, it was about containing communism. Iran shared a 1500-mile border with the Soviet Union; the

51 Technical assistance through Point Four during the nationalization crisis has received little attention. A few exceptions include Najmabadi, Land Reform and Social Change in Iran, 59-75, H. Motamen, “Development Planning in Iran,” Middle East Economic Papers 3 (1956): 98-111. 52 Black, “Interior’s Exterior,” 81-110, Amuzegar, Technical Assistance in Theory and Practice, 41-52.

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ramifications of Iran falling under communist control, on the rest of the Middle East and U.S. strategy during a general war, would be enormous. The standard of living among Iran’s seventeen million people “is one of the lowest in the world,” according to Point Four analysts.

“The masses of Iranian people…are becoming more restless and dissatisfied,” which made them far more susceptible to Tudeh propaganda, particularly after the oil-shutdown brought the Seven

Year Plan to a standstill.53 “Inequality of wealth is becoming more pronounced,” and without a clear approach to win the support of the rural peasantry, the U.S. and its allies would lose public support to the Tudeh.54 Development aid would concentrate on the countryside: Point Four and its director in Iran William E. Warne, an agricultural specialist from southern California, focused on issues of rural poverty, education, agricultural improvement and land reform.55

For some Americans active in development during the nationalization period, oil was a distraction from the main issue: rescuing Iran’s peasantry from a state of backwardness. Despite the oil crisis, the U.S. still enjoyed high prestige among the Iranian people. By focusing entirely on the oil problem and siding with the British, the U.S. was at risk of doing in Iran what it had done in China: “converting this good will and good feeling into one of bitterness, resentment and disaster.”56 No Point Four officer expressed this position more forcefully than Paul Maris, chief rural specialist from 1951 to 1954. Like Warne, Maris was an agrarian analyst, an intellectual of

53 RG 469 RUSFAA Technical Cooperation Administration (TCA): Iran Division, Subject Files (IDSF) 1951-1954, Box 15, Point Four Country Program Authorization, Iran FY 1953. 54 Gideon Hadary, “The Agrarian Reform Problem in Iran,” Middle East Journal, 5, no. 2 (Spring, 1951): 181-196. 55 Warne, Mission for Peace, 75-86. 56 RG 59 Office of Greek, Turkish and Iranian Affairs, 1950-1958, Lot 57 D155 Iranian Affairs, Subject Files 1946-1954, Records of the Officer-in-Charge, Box 41, AIOC, Forkner to Richards, October 27, 1952.

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rurality who believed wholeheartedly that the U.S. effort at international development had to begin, and end, in the farmlands. “Even when the oil industry is operating at maximum capacity,” he wrote, “the prosperity of Iran and the welfare of the people…depend in large measure upon the prosperity and purchasing power of the rural people.” Maris pointed to Iran’s entrenched “feudalism” as the greatest obstacle to its advancement. Practical rural reforms required an energized, motivated populace, but Maris felt Iran’s peasants were woefully unprepared due to Iran’s socio-economic inequality: “essentially without technical or scientific knowledge and without even elementary schooling…unaccustomed to making decisions, taking far-sighted action or cooperating effectively for their mutual advantage in matters of production.” The critique continued the pre-1951 view among Americans that Iranians lacked the capacity to manage their own development without foreign assistance.57

Warne managed a staff of 250 technical experts and around 1000 Iranians.58 Young technocrats like Ardashīr Zāhidī, Jahāngir Amūzegār, and Abdolrezā Ānsāri worked as assistants and translators. Many suspected Point Four acted as a vehicle for U.S. commercial and strategic interests; it was natural, Ānsāri later noted, “that a country such as Iran, with a history of foreign interference in its internal affairs, would view foreign aid in general with distrust.”59 Over time, however, the U.S. mission won support, particularly among the rural population. In practice,

57 RAC Ford Foundation Records, Unpublished Reports, Box 161, Paul Maris Reader, “Proposing Point IV Project for Aiding Purchasers of Crown Lands in Iran” May 28, 1952, “General Frame of Reference Within Which Planning Details for Rural Development in Iran Mya Proceed,” December 7, 1953; Box 99, “How to Acquire the Co-Op Habit: A Two Year Tour Completion Report,” John McCauley, Coop Technician of USOM/Iran, December 2, 1954; Najmabadi, Land Reform,68-72. 58 RG 84 USLETCGR, 1953-1955, Box 60, US Embassy Tehran, No. 847, “Quarterly Economic and Financial Review, Iran, First Quarter, 1953,” April 17, 1953. 59 FISDS, Umrān-i khuzistān [Khuzistan’s Development] Interview with Abdolrezā Ānsāri, Part 1 [Accessed February 25, 2017].

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Warne’s mission took on many of the duties of the largely-defunct Plan Organization: the technical assistance program was patterned deliberately “after the principles and projects contemplated in the Plan.”60 Point Four drew up plans for major irrigation projects, sprayed thousands of villages with DDT, launched anti-malaria campaigns and seed exchanges. Their efforts helped Iran boost rural productivity, contributing to the bountiful harvests of 1951 and

1952.61 Between August 1952 and February 1953, Point Four assisted with sugar imports totaling 60,000 tons, and in 1952 spent $4 million on sugar imports. Warne himself guessed that

Point Four expenses were keeping rial rates down in mid-1953 while its import credits forestalled a major sugar shortage: as sugar was a major import item, the Point Four assistance

“clearly provided important foreign exchange relief.”62 While the goal of the assistance was to improve conditions in Iran and preserve a degree of internal stability, Point Four was also helping to keep the oil-less economy afloat.

A major concern for U.S. developmentalists was rural improvement, “the foundation of

Point Four,” and the issue of land reform.63 The vast bulk of Iran’s arable land, as well as most of its forty-eight thousand villages, were owned by a handful of aristocratic families. The prevailing system of land ownership enriched a few while leaving eighty percent of the population in

60 RG 469 RUSFAA TCA IDSF 1951-1954, Box 15, Point Four Country Program Authorization, Iran FY 1953. 61 RG 469 RUSFAA, Near East Central Files, Iran Project Files, 1951-1957, Box 1, Project Agreement No. 14, June 10, 1952, Henderson to State, No. 3815, April 8, 1952, Project Plan and Justification of Karkheh Dam, May 12, 1953; TCA IDSF 1951-1954Box 16, “The Point 4 Program in Iran,” May 6, 1953. 62 RG 84 USLETCGR 1953-1955, Box 60, Warne to Silver, “Information Requested on November 24, control 2139,” July 9, 1953, Iran Economic Paper No. 9, Balance of Payments, January 1953; RG 59 888.00TA/10-3052, Point Four Tehran, NO. 24, October 30, 1952. 63 RG 469 RUSFAA TCA IDSF 1951-1954, Box 16, Frier to Warne, March 13, 1952

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“poverty, illiteracy, disease and malnutrition.”64 In January 1951, the shah announced his Crown

Lands distribution program, intended to over time sell his personal lands to tenant farmers. The initiative, which was independent from the Plan Organization, garnered early America attention, as the shah cooperated with Paul Maris and the Near East Foundation (NEF), a philanthropic organization present in Iran since the war that focused on of “rural uplift.” NEF would provide a demonstration that the Iranians could then reproduce in other areas.65 Maris drew up a plan for village supervisors to oversee land distribution: the program, he noted, was of “tremendous importance” to Iran, as well as internationally, as it offered a tangible example of socio- economic advancement in the countryside in a nation bordering the Soviet Union.66

The Crown Lands endeavor, a splashy and heavily-publicized program, laid the foundation for the shah’s subsequent effort to portray himself as a champion of land reform, though the project was carried out very slowly, with only seventeen villages distributed by

January 1953. The land distribution scheme did not provide education or training for new landowners. Nor were the allotments (which averaged 10 hectares per family) large enough to provide sufficient income.67 While the shah expressed a sincere desire to promote land reform, he proceeded very slowly, for fear of upsetting Iran’s aristocracy or encouraging the Tudeh, who were themselves strong advocates for land distribution. Crown Lands helped to burnish his

64 RG 469 RUSFAA TCA IDSF 1951-1954, Box 5, Mutual Security Presentation for FY 1953, March 29, 1952. 65 RAC Ford Foundation Grant 51-47 R-0804, “Near East Relief Consummated: Near East Foundation Carries On,” August 6, 1944. 66 RAC Ford Foundation Records, Unpublished Reports, Box 121, Report on Iran No. 7, August 24, 1953; Reel-0806, Maris to Warne, Meeting with Royal Commission, June 15, 1952, Project: “Extending Point IV Aid to Purchasers of Shah’s Lands in Iran.” 67 RG 59 888.00TA/12-85, Point Four Tehran, No. 26, December 8, 1952.

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prestige and attracted positive American attention, but it did little to substantively changed the socio-economic status quo.

Moṣaddeq spoke frequently of the need for reforms to alleviate poverty, but during 1951 this was chiefly linked with the oil nationalization issue. After July 1952, Moṣaddeq came under greater pressure from Kāshāni, Malikī’s Third Force, and other progressive elements to institute real socio-economic changes. In August 1952, Moṣaddeq passed the Bill to Increase the

Peasants’ Share, which mandated landlords had to turn over 10% of all produce to the rural peasantry and 10% to improvement programs. The first significant land reform legislation in

Iran’s history, the Peasants Bill forced landlords to support the formation of village councils who would oversee local improvement. In December, Point Four received $4.5 million to implement the village council program outlined by the Peasants Bill.68

While Warne and his team forged close ties with Moṣaddeq’s government and cooperated with the reform program, the U.S. Embassy was unimpressed by the National Front’s plan. It did not appear “carefully formulated” or inspired by coherent development ideology, and instead seemed driven by political concerns, particularly the pressure Moṣaddeq was feeling from the left wing of the National Front.69 The barrage of legislation passed using ikhtiyārāt as well as the planned Five Year Plan was a “half-baked project,” that displayed “the ultimate limit of improvisation,” without going to the “the root of the problem” or correcting the feudal imbalances at the heart of Iran’s socio-economic structure.70 A tour of the countryside by a U.S.

68 Tavanayan-Fard, Duktur Musaddiq va iqtisād, 263-266; RG 84 USLETCGR, Box 60, US Embassy Tehran, No. 555, “Quarterly Economic and Financial Review, Iran, Fourth Quarter, 1952,” January 17, 1953. 69 RG 84 USLETCGR 1953-1955, Box 60, US Embassy Tehran, NO. 824, April 8, 1953. 70 RG 84 USLETCGR 1950-1952 Box 35, “Quarterly Economic and Financial Review, Iran Third Quarter, 1952” October 22, 1952.

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embassy officer found little enthusiasm for the Peasants’ Bill, where it was regarded as an

“unnecessary interference.” The land reform issued was being “systematically exploited by the

Tudeh,” who were encouraging peasants to drive landlords from their estates and expropriate the land.71 The Ford Foundation, a non-governmental organization that sent a number of officers to tour Iran in 1952, felt that Moṣaddeq, “fearful of repercussions against the private village landlords,” was trying to centralize all reform efforts in his own hands; his actions seemed reactionary, his motivations driven largely by self-preservation.72 Warne was somewhat skeptical of the Peasants’ Bill provisions, chiefly because the law contained “no adequate enforcement machinery.” The Crown Lands initiative, in his opinion, was more important “from the viewpoint of social dynamics,” since it allowed peasants to own the land, rather than forcing them to continue relying on landlord cooperation which in most cases was not forthcoming.73

While the Peasants Bill, by emphasizing rural education and collective action over direct land distribution, was arguably a much more effective land reform measure, Moṣaddeq himself was regarded as a landed aristocrat, rather than a true reformer.74

While the U.S. aid presence offered Moṣaddeq political benefits and economic improvements on a small scale, in the estimation of the embassy Point Four’s efforts were doing little to slow down the general disintegration of the oil-less economy. According to economic counselor Robert M. Carr, foreign exchange contributions from Point Four totaled $19 million

(950 million rials) by December 1952: such funds “were far too little and too restricted in scope

71 RG 84 USLETCGR 1951-1952, Box 29, Memo from Hoffacker to Melbourne, November 1, 1952. 72 RAC Ford Foundation Records, Unpublished Reports, Box 121, Report on Iran No. 7, August 24, 1953. 73 RG 59 888.00TA/4-1553, TCA Monthly Program Summary, April 15, 1953. 74 Cottam, Nationalism in Iran, 270-272.

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to support economic development.”75 While he praised Point Four’s successes in the field of rural improvement, Ambassador Loy Henderson argued that technical assistance could not cure

Iran’s “economic ills,” until a sound economic basis, “dependent on oil export,” was re- established.76 This view explains why policy-makers in Washington decided to leave Point Four in place even as they worked to undermine Moṣaddeq in preparation for his removal in August.

The program provided a convenient façade of continued American consideration for the life of the lowly Iranian peasant, preserving the notion that development remained at the core of the

U.S. mission abroad. But façade it was, despite Warne’s enthusiasm and willingness to work closely with members of the Moṣaddeq government. Despite the Tudeh-led attack on a Point

Four office in Shiraz on April 15, Warne felt that mission reached its “climax” in June, and was encouraged by the public shows of support from Moṣaddeq and other Iranian officials.77

Moṣaddeq himself, guessing that the U.S. was plotting against him, used Point Four to illustrate to the public the on-going support he still had from Washington. During the summer, letters he wrote to Warne were published in Iran’s newspapers, while Etella’at and other papers declared that Point Four “has opened new doors of hope” for the Iranian people.78

As the U.S. became more antagonistic towards Moṣaddeq, Warne’s presence grew embarrassing: he was “swimming against the general current.”79 After Moṣaddeq’s fall from

75 RG 84 USLETCGR, 1953-1955, Box 60, US Embassy Tehran No. 555, January 17, 1953, US Embassy Tehran, No. 540, Quarterly Report on MSA, January 10, 1953. 76 RG 84 USLETCGR, 1953-1955, Box 60, US Embassy Tehran, No. 540, Quarterly Report on MSA, January 10, 1953, Henderson to State, No. 3192, February 15 1953. 77 RG 59 888.00TA/7-1153, TCA Monthly Program Summary, July 11, 1953. 78 RG 469 RUSFAA TCA IDSF 1951-1954, Box 17, Warne to Fryer, May 15, 1953, Press and Public Affairs File, June Critique by Warne, Mosaddeq to Warne, July 28, 1953, A. Zanganeh to Warne, June 29, 1953; Ettela’at, “The TCI Second Year of Operation,” July 1953. 79 FRUS Retrospective Iran 1951-1954, No. 243, Roosevelt to Dulles, July 17, 1953. The CIA history Battle for Iran, claims that on the day of the Mordad Coup, Mosaddeq fled his house 256

power, development organizations like the Ford Foundation and World Bank rushed to assist his successor. Maris, as well as Warne, were eager to work with the resurgent Pahlavi regime. The concept of oil-less development, pursued with some success by Warne and his technicians, was left behind. Warne, his eyes fixed to the future, believed their accomplishments spoke for themselves, “esteemed by Iranians above all local political considerations.”80 Neither Warne, nor

Maris nor any of the developmentalists working in Iran during the Moṣaddeq era viewed oil-less economics with much enthusiasm, and in that they reflected a much broader consensus, one that was particularly evident in the U.S. Embassy.

4.3 Judging Collapse: The American View of the Oil-Less Economy and the National Front

Did Iran need oil? Was the oil-less economy a viable notion, and would an oil-less Iran successfully stave off communism and remain a pro-Western state? These were crucial questions that the United States government grappled with during the nationalization crisis. The disappearance of oil from Iran’s financial and economic infrastructure, coupled with the National

Front attempts to replace Iran’s pre-nationalization economy with a new, “oil-less” version, filled

U.S. policy-makers with concern over the possibility of a “collapse” brought on by deteriorating economic conditions. Such a collapse would, it was believed, exacerbate Iran’s political divisions, tear apart the fabric of Iranian society and create a situation in which a communist uprising, a Tudeh coup d’etat or perhaps even a Soviet invasion became more likely. A corollary to this fear was the belief that Moṣaddeq would turn first to the Tudeh and then to the Soviet

Union, in desperate need of help to alleviate his financial situation.

as it came under machine gun fire, seeking shelter in Warne’s office next door; the report offers no evidence to support this claim. See Battle for Iran, 70. 80 Warne, Mission For Peace, 255.

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Several analyses have determined the oil-less economy a success. By 1953 imports had fallen, non-oil exports were up, and the Bank-i Melli’s foreign exchange balance had improved.

The most detailed examinations of the National Front economy have concluded that Iran was on its way to economic stabilization after 1952.81 This was not clear at the time, however, and it most certainly did not seem evident to Washington that Moṣaddeq’s economic strategy would yield positive results. Estimating economic conditions inside Iran was never an exact science, and it was heavily dependent on perceptions of Iran’s political situation, which grew more and more uncertain between July 1952 and March 1953. The State Department, National Security

Council, and CIA wrote reports that offered glimpses of Iran’s economic condition. Ambassador

Loy Henderson was a crucial figure in molding opinion; he delivered a stream of updates on

Iran’s internal political situation and his advice was carefully weighed by policy-makers in

Washington. The key figure in crafting the narrative of Iran’s oil-less “collapse,” however, was

Robert M. Carr, the embassy’s economic counselor. Carr worked closely with the rest of the embassy staff and the British to compile reports that were, according to Carr, “the most recent and comprehensive compilation of economic information which exists in respect to Iran.”82 They were based on facts, figures, and testimony gleaned from confidential sources inside the Ministry of Finance and Bank-i Melli, and together with Carr’s dispatches from Tehran constitute the chief source of Iranian economic data available to the U.S. government in 1951-1953.

81 Clawson and Sassanpour, “Foreign Exchange Shock,” 1-22, Katouzian, “Oil Boycott and the Political Economy,” 203-227, Tavanayan-Fard, Duktur Musaddiq va iqtisād, 5-12. 82 RG 84 USLETCGR, 1953-1955, Box 60, Carr to Henderson, April 17 1953. These papers were completed in January 1952 and updated in January 1953. The originals can be found in RG 469 RUSFAA, Iran Branch, Subject Files 1952-1959, Box 1.

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Carr initially emphasized Iran’s agricultural economy and its “considerable resistance” to the shock of oil de-integration.83 Up until July 1952, the embassy predicted that the Moṣaddeq government would fall apart without an oil deal, but felt the larger Iranian economy would be preserved.84 This attitude was shared by other observers, including the British and World Bank.85

Iran’s economy, Carr argued, was perfectly capable of managing existing obligations, “if the burden was properly distributed.” The country had $140 million in exchange and gold reserves.

The country’s agrarian economy would feel the effects of deficit spending and inflation slowly, and successful harvests could offset the damage from the oil shutdown for months. Iran’s problems were political, more than economic. Before July 1952, Moṣaddeq was reticent to place more pressure on aristocratic landowners, for fear of a political backlash. Abandoning the oil industry and releasing thousands of idle NIOC workers was not possible “psychologically or…politically,” as doing so would herald the failure of nationalization and fill the southern cities with tens of thousands of angry, Tudeh-leaning oil workers. Given the circumstances, Carr recommended the “carrot” of aid rather than the “stick” of economic warfare: the Iranians should be offered limited assistance, with the promise of more should they prove amenable to an oil deal acceptable to the British.86

83 RG 59 888.2553/7-2351, “Prospects for Economic Stabilization in Iran After Oil Nationalization,” July 23 1951. 84 RG 84 USLETCGR 1950-1952 Box 35 500 Henderson to State, No. 1479, October 22, 1951, Henderson to State, No. 4362, May 10, 1952. 85 FO 371/98625 EP 1112/21, Middleton to FO, No. 189 (E) June 19, 1952, EP 1112/26, Bailey to Carrell, July 26, 1952; Bank-i Melli Role in Iranian Government Financing, May 6 ,1952, Iran—General—Correspondence—Volume 8, RMENARVP, World Bank Group Archives. 86 RG 84 USLETCGR 1950-1952 Box 36, US Embassy Tehran No. 1362, June 26, 1952, Henderson to State No. 3781, Drafted by Carr, April 4, 1952.

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After July 1952, Carr and the U.S. embassy adopted a somewhat more alarmist view.

They worried that oil-less economics would create a crisis inside Iran that would, in time, lead to communist domination. This view was conditioned as much by economic orthodoxy as it was by diagnoses of the National Front’s capacity to administer Iran. Before July 1952, the embassy relied on career government officials, “pro-Western in sympathies and conservative in outlook,” for information regarding the state of Iranian finances, the development plan and policy inside the government. Carr regarded men like finance under-secretary Husayn Pīrnīya, Minister of the

National Economy ‘Ali Amīnī, and Bank-i Melli governor‘Ali Ashqār Nasser as dedicated, capable and loyal civil servants: they were technocratic professionals who were lukewarm towards the National Front. Through regular meetings, Carr and his staff obtained information on which they judged the condition of the Iranian economy. After July, most of those friendly to the embassy were replaced or marginalized. The men who replaced them, such as Bāqir Kāẓimī and

Kāẓim Ḥāsibī, had “little sympathy with the West,” and were generally thought to be demagogic politicians rather than effective bureaucrats.87 One outgoing Bank-i Melli official told Carr that resistance to Moṣaddeq was disappearing while his supporters were busy “lining their pockets.”88

Carr and his staff in the embassy decried the “woeful lack of competent or experienced personnel” in the central ministries, the Plan Organization, and the Bank-i Melli.89 Access to

87 Amīnī, Khātirāt, 62-71; Muḥammad Ibrāhīm Amīr Taymūr Kalālī, Khāṭirāt-i Muḥammad Ibrāhīm Amīr Taymūr Kalālī [Memoirs of Mohammed Amir Teymour Kalali], ed. Habib Ladjevardi. (Cambridge MA: Center for Middle Eastern Studies of Harvard University and Distributed by Ibex Books, 1997), 93-94. 88 RG 84 USLETCGR, 1953-1955, Box 60, US Embassy Tehran, No. 933, Monthly Economic Survey, May 12, 1953, No. 808, April 3, 1953., Memo of Conversation, March 31, 1953 89 RG 84 USLETCGR, 1953-1955, Box 60, US Embassy Tehran, No. 847, April 17, 1953.

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information was also affected, as the Bank-i Melli ceased to publish monthly reports after

August 1952.90

Carr held a very dim view of oil-less economics. His reports analyzing the effects of

Mosaddeq’s policies written in early 1953 emphasized the temporary nature of apparent benefits, as well as the inevitable, disastrous collapse that was sure to come. The economic stimulus from the rial devaluation and the surge in exports were offset by the “growing political and economic uncertainties of the future, resulting largely from failure to solve the oil problem.” Apart from freeing Iran from the “chafing domination of the British” through oil nationalization, the

National Front did not have any “specific objectives.” Plans to increase domestic production to offset imports would require increasing production in textiles by 100-124 million meters per annum, 110,000 tons of sugar, and 6,500 tons of tea, which he and his staff regarded as astronomic figures. The desire to satisfy the regime’s critics through a reform campaign was self- defeating, as it placed more pressure on the budget and forced Moṣaddeq to print more money:

“By yielding to pressures for economic development,” he wrote in April 1953, “Mossadeq is accelerating the country’s approach to economic disaster.”91 Iran enjoyed high non-oil exports, he explained, due to the demand arising from the war in Korea. When the war ended, Iran would find itself with fewer markets. Iran was able to endure a period of low imports because merchants had built up large inventories during the 1948-1950 depression. When these inventories ran out

Carr believed Iran would have no choice but to look to the Soviet Union for assistance: trade with the USSR had already increased from $1 million in 1329 to $28.2 million in 1330. Crops

90 RG 84 USLETCGR, 1950-1952, Box 36, Henderson to State No. 52, July 3, 1952 91 RG 84 USLETCGR, 1953-1955, Box 60, US Embassy Tehran, No. 824, April 8, 1953, US Embassy Tehran, No. 847, “Quarterly Economic and Financial Review, Iran, First Quarter, 1953,” drafted by Parke, April 17, 1953.

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had been good in 1951-1952 and 1953, but one poor harvest would decimate rural employment and cause a run on agricultural goods, leading to famine and dislocation on a scale not seen since the war.92

Finally, Carr felt that the government simply did not have the money to survive without printing notes, which would lead to catastrophic inflation. “The printing press has become a source of government revenue,” as well as the sole means to fund economic development.93 Both

Carr and the British embassy, before it was closed in October 1952, agreed that inflation would begin tearing apart Iran after less than a year of deficit spending.94 In late 1952, the National

Front unveiled a new “oil-less” budget for 1332: 9.25 billion rials against 9.77 billion rials of revenue and 2.5 billion rials in economic development spending.95 To Carr, the figures appeared

“dubious” and “unduly optimistic:” the government expected to earn substantial amounts from new taxes, customs receipts, private investment, and new credits from the Bank-i Melli, but Carr guessed it would simply print more notes.96 Without an oil settlement, deficit spending would continue: “inflationary pressures will before long begin to build up at a rapid rate, bringing with them a sharp rise in prices…and vociferous demands for wage increases.” Carr endorsed the

British argument that Iran’s minor successes in selling some oil abroad had discouraged the government from adopting a realistic attitude during oil negotiations: “it is still doubtful that the amount of oil that can thus be exported will be sufficient to provide revenues on such a scale as

92 RG 84 USLETCGR, 1953-1955, Box 60, Iran Economic Paper No. 15, USSR Economic Interests in Iran, January 1953. 93 RG 84 USLETCGR 1953-1955, Box 60, US Embassy Tehran, No. 824, April 8, 1953. 94 FO 371/98625 EP 1112/21, Middleton to FO, No. 189 (E) June 19, 1952, EP 1112/23, Middleton to FO, NO. 199 (E) June 16, 1952, EP 1112/26, Bailey to Carrell, July 26, 1952. 95 Tavanayan-Fard, Duktur Musaddiq va iqtisād, 109-118. 96 RG 84 USLETCGR, 1953-1955, Box 60, Iran Economic Paper No. 2, Government Budget, January 1953, US Embassy Tehran No. 555, January 17, 1953.

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to relieve Iran of much of the financial and foreign exchange stringency with which it is confronted.”97

It was feasible that a government possessed of greater will, “sufficiently able, demagogic and dictatorial,” could balance the budget and survive for years, perhaps forever, without oil revenues. Carr felt that the oil-less reforms were already leaning in that direction: “the reformers are the apostles of the typical ‘bureaucratic revolution,’ complete with the statism, controls and neo-Keynesian economics which have become increasingly questioned elsewhere.” Without an oil settlement, the rise of such a government in place of the inefficient National Front became more and more likely.98 Iran was positioning itself to become a source of oil for the communist world through barter deals with Eastern Bloc countries: “The groundwork has been laid for the sale of oil to satellite countries if the Prime Minister should decide to do so.”99 That Moṣaddeq made no practical efforts to sell oil to the Soviets did not prevent the Embassy from predicting that he would, in time, be forced to take such action. The embassy foresaw a statist, bureaucratically-run economic model in Iran, one that could take on “nationalist socialist”

97 RG 84 USLETCGR, 1953-1955, Box 60, US Embassy Tehran, No. 847, April 17, 1953. As of this report, Iran had successfully exported several tanker-loads of oil to Italy and one to Japan. 98 RG 84 USLETCGR 1950-1952 Box 36, US Embassy Tehran No. 1362, June 26, 1952, US Embassy Tehran, No. 555, “Quarterly Economic and Financial Review, Iran, Fourth Quarter, 1952,” January 17, 1953, No. 847, April 17, 1953, US Embassy Tehran, No. 824, April 8, 1953, No. 933, May 12, 1953, Iran Economic Papers, No. 9, Balance of Payments, January 15, 1953. 99 RG 84 USLETCGR, 1953-1955, Box 60, US Embassy Tehran, No. 808, April 3 1953. Mosaddeq threatened to sell oil to communist countries twice, in February 1952 and again in March 1953. Doing so would have invalidated Iran for Point Four assistance under the Battle Act, and it is likely that Mosaddeq deployed the threat to place pressure on the U.S., hoping that it would compel them to offer him greater assistance or take his side in the oil dispute. Needless to say, some U.S. officials took his threats seriously.

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characteristics under Moṣaddeq or Ayatollah Kāshāni, the populist cleric and arguably the second-most powerful man in the country.100

Ambassador Henderson repeated Carr’s belief that nothing “short of dictatorship” would be sufficient to rescue Iran from its oil-less crisis.101 Like Carr, Ambassador Henderson believed an oil-less economy would need “skillful, strong and ruthless dictatorship,” the kind that only the

Tudeh “was capable of furnishing.”102 The National Front, meanwhile, would find it exceedingly difficult to carry out any kind of internal reform campaign “because of the varying objectives of its leaders.” It could not hope to improve social or economic conditions “without external moral and material support.”103

These arguments from Tehran reflected a general skepticism of the National Front government that pervaded American thinking. While high-ranking officials such as Dean

Acheson and Paul Nitze argued that Iran had undergone a “revolution,” doubts arose regarding the staying power of nationalism under Moṣaddeq’s leadership. In early 1952, embassy counselor John Stutesman wrote a widely-circulated analysis of the National Front. While

Moṣaddeq’s nationalization was meant to end Iran’s “semi-colonial” status, the prime minister had no concrete reform program: “he claims no panacea…beyond nationalization,” and his methods of seizing power are, “by their own destructive nature…not sufficient to bring progress.” The National Front, fixated on a single issue, had become a rudderless movement.104

100 FRUS Vol. X Iran 1951-1954 No. 233, Webb to US Embassy Iran, October 31 1952. 101 RG 59 888.2553/5-952, Henderson to Acheson, No. 4349 May 9, 1952. 102 RG 84 USLETCGR 1950-1952 Box 36 501 Henderson to Acheson NO. 1857 November 5, 1952 103 FRUS Retrospective 1951-1954, No. 112, Henderson to State, August 3, 1952. 104 FRUS Retrospective Iran 1951-1954, No. 65, Despatch from Embassy in Iran to State, No. 878, February 16, 1952

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Its supporters were characterized by “irrational political and psychological attitudes,” and guided by emotions rather than logic; they could not be expected to negotiate in good faith or act in

Iran’s best interests.105

CIA reports also emphasized how “economic and political disintegration under Mossadeq would occur quite rapidly,” and the National Front government would be incapable of satisfying

“popular desires for social and economic reform.”106 For the National Front to build a permanent political coalition would require a “great increase in the strength, education and political sophistication of the urban middle class, which will probably not occur for many years.” Stability in the short term could be secured by re-instating Iran’s traditional aristocratic government, with the shah at its head.107 These doubts extended outside the U.S. government. Like the Ford

Foundation, the World Bank was apprehensive about the National Front government, noting its

“apparent lack of any financial responsibility.” While the Bank had considered extending aid to the Razmārā government, it assiduously avoided making any similar overtures to Moṣaddeq.108

Allen Dulles of the CIA was a noted skeptic of the National Front. Before assuming control of the agency in early 1953, Dulles turned to Max W. Thornburg for advice on how to manage the Iran situation. The two men had established a connection in the 1940s, and

Thornburg came to meet with agency officials several times in 1952. Speaking as an “Iran expert,” Thornburg scoffed at the National Front’s pretensions towards reform. Supporters of

Moṣaddeq, like Iran Party chief Allāhyār Sāleh and Ḥusayn Fāṭimī “are not the kind of men who

105 RG 59 888.2553/12-1752, Briefing Memo: Iran, December 17, 1952. 106 FRUS Retrospective Iran 1951-1954, No. 62, Memorandum, January 30, 1952 107 FRUS Retrospective Iran 1951-1954, No. 83, Memorandum, Evaluation of the Significance of the National Front Movement in Iran, July 1, 1952. 108 Parker to Iliff, May 8, 1951, Iran—General—Correspondence—Volume 8, RMENARVP, World Bank Group Archives.

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can carry out any practical program.” Rather, the men governing Iran were “political flaneurs” interested only in advancing their own careers. It was a problem the U.S. faced throughout the entire region, according to Thornburg: with the exception of Turkey, no Middle Eastern government had expressed the will to reform. Establishing a “democratic government” was not necessary: “what is necessary is that each of these countries have a stable government dedicated to the welfare of its people and capable of responsible behavior in relation to other governments of the world.”109 Thornburg regarded the monarchy as the only institution capable of carrying forward a real program of economic development: a “responsible” regime led by the shah could impose martial law, rule by decree, and reach a suitable oil settlement, thereby freeing up funds for the Seven Year Plan or some new development scheme. What Iran needed, according to Thornburg and Dulles, was authoritarian rule and coordinated top-down economic reform, carried out with American guidance.110

American skepticism of the oil-less economy matched the doubts surrounding

Moṣaddeq’s land reform bills, as well as Western media’s consistent denunciation of Moṣaddeq as a demagogue, “a dizzy old wizard,” who through his negligence proved Iran “incapable of self-rule and in need of a Westernized guardian.”111 This fed into a cultural stereotype of

Moṣaddeq that by early 1953 was prevalent within the U.S. government. As Richard Cottam has noted, Moṣaddeq was viewed not as a “proponent of liberal democratic institutions” but rather as

109 FRUS Retrospective Iran 1951-1954, No. 116, Memo of Conversation, August 20, 1952. 110 FRUS Retrospective Iran 1951-1954, No. 118, Memo Prepared by Thornburg, August 22, 1952, No. 154, Memo from Dulles to Smith, February 19, 1953. 111 William A. Dorman and Mansour Farhang, The U.S. Press and Iran: Foreign Policy and the Journalism of Deference (Berkeley CA: University of California Press, 1987), 31-62.

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a “demagogic agitator” leading his gullible public to ruin.112 Facing internal opposition from

Iran’s conservatives, the external intrigues of the British and the coordinated embargo of the oil oligopoly, Moṣaddeq resorted to extreme tactics to preserve his position and maintain his government. Policy-makers in Washington interpreted these actions as part of a trend towards dictatorial radicalism. Moṣaddeq’s reliance on ikhtiyarat and an increased centralization of power seemed to confirm U.S. fears: the National Front would in time become an authoritarian dictatorship without a basis in Iran’s existing socio-economic structure., one that was hostile to

U.S.-sponsored reform programs. Through this commentary ran a narrative tying Iran’s future survival to oil, Western assistance, and a change in government.

The embassy would make such arguments well into 1953, but they were particularly prevalent in late 1952, as the Truman Administration prepared to leave office. According to

Secretary of State Dean Acheson’s recollection, the “economic situation was deteriorating…various people put it at four, six, seven or eight months,” but sooner or later, “we would reach…the point of no return.” Looking back, Acheson admitted the U.S. error: “we thought disaster was closer to us than it probably turned out to be.”113 Even without an oil agreement or foreign aid, Iran could pay for all its essential imports through 1953, “unless there is a serious crop failure or an unfavorable export market.”114 However, judging by the reports from Carr, Iran’s economy “seemed locked in a downward spiral that would inevitably lead to the kind of environment in which communism flourished.”115 “Nationalist failure to restore the

112 Cottam, “Nationalism in Twentieth-Century Iran,” Bill and Louis, Musaddiq, 36-37. 113 Truman Library, Dean Acheson Papers, Box 81, Princeton Seminar, May 15, 1954. 114 FRUS Retrospective Iran 1951-1954, NO. 132, Special Estimate-33, “Prospects for Survival of Mossadeq Regime in Iran,” October 14, 1952, No. 143, National Intelligence Estimate, November 13, 1952. 115 Heiss, Empire, 183.

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oil industry has led to near-exhaustion of the government’s financial reserves…and is likely to produce a progressive deterioration of the economy at large,” unless Iran received relief.116 Iran needed to be pushed into a deal that would provide “sufficient revenues to meet its economic problems.”117 Secretary of Defense Robert Lovett insisted that the U.S. “must get the oil flowing,” in order to prevent the situation from deteriorating to the point where a military intervention became necessary.118 There could be no progress without petroleum in Iran. No one could predict when “collapse” would occur, but few doubted that it was inevitable. Hence, the

United States’ government exerted considerable energy in the second half of 1952 and in early

1953 to re-integrate Iranian oil and save Iran from its oil-less fate.

4.4 The Final Attempt: November 1952-March 1953

For the British, removing Moṣaddeq had always been the preferred solution to the oil crisis. In the aftermath of the July Uprising the British embassy continued its intrigues against the National Front government, forming an alliance with opposition leader Faz̤ lallāh Zāhidī.

Once he learned of the plot, Moṣaddeq ordered the embassy closed and all British diplomats expelled from Iran in late October. Without a base from which to undermine the National Front government, the British turned to the United States. They approached the CIA and State

Department with a plan to topple Moṣaddeq in October, arguing that the “communist danger” was now too great to ignore. CIA Director Bedell Smith, according to one account, scoffed at

British pretension: “You may be able to throw out Moṣaddeq,” he told the British, “but you will

116 FRUS Retrospective Iran 1951-1954, No. 147, Policy Statement, NSC 136/1, “Present Situation in Iran,” November 20, 1952. 117 RG 59 888.2553/11-652, Nitze for Acheson, November 6, 1952. 118 RG 59 888.2553/10-2452, Lovett to Acheson, October 24, 1952, 888.2553/11-1252, Lovett for Acheson, November 12 1952.

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never get your own man to stick in his place.”119 The U.S. believed no conservative political figure, including the shah, was powerful enough to supplant Moṣaddeq without inviting widespread popular upheaval. Removing Moṣaddeq would only hasten Iran’s slide into communism.120

Instead, U.S. efforts aimed at pushing Moṣaddeq and the British towards an oil settlement that would re-integrate Iranian oil while delivering compensation for AIOC and $100 million to

Iran. In exchange for aid, Moṣaddeq would agree to submit the question of compensation for

AIOC to international arbitration. The major companies would be convinced to participate in an organization, or consortium, that could distribute Iranian oil. The proposal contained a “package” of deals that covered each factor in the Iranian equation. Action was necessary, with or without

British cooperation: as Acheson saw it, “the British were so obstructive and determined on a rule-or-ruin policy in Iran that we must strike out on an independent policy or run the graves risk of having Iran disappear behind the Iron Curtain.”121 The companies, which had little interest in

Iranian oil, were cajoled into participating through promises of anti-trust protection.122

The U.S. effort was the most sustained diplomatic campaign yet waged for the resolution of the oil nationalization crisis. It culminated in a series of meetings between Ambassador

119 Zendebad Shah!, 15. 120 RG 59 888.2553/10-2352, Memo Jernegan to Matthews, October 23, 1952 and FRUS Retrospective Iran 1951-1954, No. 133, Byroade to Matthews, October 15, 1953, RG 59 788.00/11-2652, Bryoade to Matthews, November 26, 1952 and 788.00/12-352 Memo of Conversation, December 3, 1952. 121 Acheson, Present at the Creation, 682. 122 The majors were at that time the subjects of an anti-trust suit by the Justice Department, which Truman had authorized several years before. They were therefore extremely reticent to cooperate openly with one another. Truman used national security concerns as a pretext for absolving the companies from anti-trust legislation. See Painter, Oil and the American Century, 186-187.

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Henderson and Moṣaddeq between December 1952 and late February 1953. Henderson assured

Moṣaddeq that Iran would remain “master of its own oil industry;” nothing would be done to reverse nationalization, and the deal would supply Iran with funds “for budgetary and economic development purposes.”123 The consortium would reactivate the Abadan refinery, “on terms which will protect the interests of the Western world in the oil resources of the Middle East,” without challenging NIOC’s overall control.124 Moṣaddeq seemed to acknowledge AIOC’s right to adequate compensation, and his agreement to keep negotiations a secret indicated he was willing to reach a deal on terms the United States could accept. Acheson felt the U.S. must “take advantage of change in Moṣaddeq’s attitude,” and avoid unnecessary delay.125

The U.S. convinced the major oil companies to support its scheme, yet their cooperation was contingent on British involvement. The British government had no interest in compromising with Moṣaddeq and were instead intent on letting matters drift until Moṣaddeq was removed from power. They were eager to keep the Americans “in play” and preserve the Cold War alliance.126 Foreign Secretary Anthony Eden refused to yield on any deal that did not explicitly consider compensation for lost future profits, or “loss of enterprise” as the British chose to phrase it: this figure, according to original AIOC projections, could be as high as £1-2 billion.127

123 RG 59 888.2553/12-2652, Henderson to Acheson No. 2425, December 27, 1952. 124 RG 59 888.2553/1-1454, Mem for Attorney General, January 14, 1953. 125 RG 59 888.2553/12-2652, Acheson to Henderson NO. 1568, December 29, 195, 888.2553/12-2952, Acheson to US Embassy London, No. 4273, Note for Eden, December 29, 1952. 126 For an examination of the British attitude, see Marsh, Anglo-American Relations, 146- 147. 127 BP 91031 Flett, “Compensation for AIOC Assets,” August 28, 1951, “Persia— Compensation,” August 28 1951; RG 59 888.2553/12-1652, Memo of Conversation, December 11, 1952, 888.2553/12-1452, Dunn to Acheson, NO. 3475, December 14: Briefing Notes for Eden Meeting, December 14, 1952, 888.2553/12-1652, Dunn to State, No. 3494 December 16, 1952, 888.2553/12-2352, Acheson to Gifford, No. 4192, December 23, 1952, 888.2553/12-2452, 270

The U.S. felt such terms constituted a “grave public relations difficulty” for Moṣaddeq, who had indicated he might be willing to consider compensation for future profits but for political reasons could not be seen to make such a concession publicly.128 Yet Eden held firm, and argued the

Americans terms were essentially a “buy-out” that would lead to a “mockery” agreement and a situation of “restlessness” throughout the Middle East “resulting from the spectacle of Persia reaping a handsome reward for her behavior towards the AIOC.” Eden, anticipating a change in policy under the Eisenhower Administration after January 20, would not change the British position; rather than make concessions the British were dragging their heals, “keeping the formula/gesture game going, regardless of its futility.”129

The British strategy succeeded in sabotaging the American efforts. The offer made to

Moṣaddeq on January 15 was generous compared to the demands made by AIOC and Stokes-

Harriman in 1951; yet the offer tied Iran to compensation for AIOC’s “loss of enterprise.”

Moṣaddeq objected to this, equating it to blackmail; it was impossible for him to agree to terms that could saddle Iran with a huge debt. He also continued to insist that Iran could sell oil independently of the companies. Several Italian tankers offloaded oil from Abadan, bolstering the morale of the National Front and encouraging some of his more exuberant advisors to oppose the package deal. Henderson scoffed at the Iranian objections, “a confused, meaningless mass of disjointed statements,” and suggested they derived in part from Moṣaddeq’s religious beliefs and the Persian language’s inadequate translations of complex commercial terminology.130

Gifford to Acheson No. 3529, December 24, 1952; FO 371/98668 EP 1532/413, Beckett to Butler, December 12, 1952. 128 RG 59 888.2553/1-1253, Acheson to Gifford, for Byroade No. 4607 January 12, 1953. 129 Quoted in Marsh, Anglo-American Relations, 134; FO 371/104610 EP 1531/115, Note from Ross, January 22, 1953, EP 1531/106, FO to Makins, No. 302 Jan 23 1953. 130 RG 59 888.2553/1-1653, Henderson to Acheson No. 2741 January 16, 1953, 888.2553/1-1653, Henderson to Acheson No. 2727 January 16, 1953, 888.2553/1-1753, 271

Henderson guessed that the real reason Moṣaddeq had allowed talks to resume was to gain the political advantage of appearing to be near a settlement of the oil question, despite agreeing to hold such talks in secret. If he neared an oil agreement, Moṣaddeq could argue for an extension of his ikhtiyarat powers, set to expire early in February.131

After January 20, as the Eisenhower Administration assumed control of the on-going discussions, the British were determined to hold their position. The new administration did not seem overly keen to “give away” millions of dollars for oil the United States did not need: the goal, after all, was to “inject” this money into Iran’s economy, “which is believed to be in a parlous state.”132 Nevertheless, despite British expectations, there was a strong degree of continuity between the Truman and Eisenhower Administrations: neither the president nor

Secretary of State John Foster Dulles were ready to give up on oil talks, as there did not seem to be a viable replacement for Moṣaddeq.133 The British were patient, however: in time Eisenhower would grow frustrated with Moṣaddeq and refuse to offer additional concessions.134 As

Ambassador Makins put it, some further “twists and turns” would have to endured, “if we are to bring the State Department along with us.”135

Henderson to State No. 2755, January 17, 1953, 888.2553/1-1753, Henderson to State No. 2763, January 17, 1953888.2553/1-1753, Henderson to State No. 2761, January 17 1953, 888.2553/1- 2153, Henderson to Acheson No. 2814, January 22, 1953. 131 RG 888.2553/1-1953, Henderson to State, No. 2802, No. 2803 and No. 2804, January 19, 1953. 132 FO 371/104611 EP 1531/139, Brook to Ramsbotham, January 24, 1953. 133 Marsh, Anglo-American Relations, 145. 134 FO 371/104610 EP 1531/117, Makins to FO No. 184, January 28, 1953. FO 371/104610 EP 1531/107, Makins to FO No. 155, January 26, EP 1531/117, Makins to FO No. 184, January 28, 1953, FO 371/104611 EP 1531/139, Brook to Ramsbotham, January 24, 1953, FO 371/104613 EP 1531/167, Memo from Dixon, Feb 19 1953. 135 FO 371/104612 EP 1531/149, Minutes of Discussion with Dulles, February 4, 1953.FO 371/104611 EP 1531/126, Makins to FO NO. 201, January 30, 1953, EP 1531/128, 272

Within the State Department, officials admitted to the British in late January that they were getting “very close” to breaking off talks.136 Henderson, exceedingly frustrated with

Moṣaddeq’s “one track mind,” “hyper-sensitivity attitude” and “suspicious character,” recommended three courses of action. They could abandon Iran entirely, ending all aid programs in the hope that Moṣaddeq would moderate his position; or the U.S. could offer aid to Moṣaddeq in the absence of an oil agreement, keeping his government afloat and preventing the economic collapse Carr was predicting. The first course would drive Iran into the arms of the Soviets, while the second would “flaunt” basic principles of commerce, infuriating the British and temporarily preserving the status quo in Iran. Henderson did not think Iranians would take a U.S. aid campaign seriously: based on centuries of experiences in an “oriental environment,” the

Iranians “look for sinister motives in actions which on their face would appear to be prompted by sheer generosity.” Henderson instead suggested a “Course C” whereby the U.S. continued to offer Iran Point Four aid and limited military assistance, but extended no additional help until

Iran agreed to a compensation settlement: the U.S. should “stand firm on the rock of principle,” essentially taking up the British position of “wait and see,” and offer no more to Iran.137

Henderson’s “Course C” was given an enthusiastic endorsement by the U.S. embassy in London and was widely circulated in the new administration.138

Makins to FO NO. 217, February 1, 1953, EP 1531/136 FO to Makins, No. 513, February 4, 1953. 136 FO 371/104610 EP 1531/114, Makins to FO, No. 172, January 27, 1953. 137 RG 59 888.2553/1-2453, Henderson to State No. 2865, January 24, 1953. 138 RG 59 888.2553/1-3053, Holmes to Dulles, No. 4208 January 30, 1953.Henderson’s memo was re-circulated in early March. The Ambassador “has described Iranian characteristics with such clarity” that the memo was worth re-reading “in its entirety.” RG 59 888.2553/3-553, Note, March 5, 1953.

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Moṣaddeq indicated in late February that the final British offer would be unacceptable, though he refused to reject it entirely without first consulting his advisors. Majlis opposition to

Moṣaddeq’s emergency powers was growing, which along with his rift with Kāshāni was making his political position unstable. Moṣaddeq had worked to maintain outwardly amicable relations with the shah, but animosity between the two had been growing for months. A show-down between the prime minister and the shah in late February, in which Henderson intervened on the shah’s behalf, brought Kāshāni out against Moṣaddeq and rallied clerical support for the shah. A pro-shah crowd assaulted Moṣaddeq at home, forcing the prime minister to seek shelter with

Warne in the Point Four offices next door.139 The events of February marked a political turning point: henceforth, the only organized popular support Moṣaddeq could expect would come from the Tudeh.140 CIA Director Allen Dulles reported to Eisenhower that the situation in Iran was

“slowly disintegrating.” Moṣaddeq would now move to “neutralize all opposition,” including army officers loyal to the shah and former National Front figures like Kāshāni and Baqāʾi: he was also likely to “resent Henderson’s activities during the crisis,” potentially pushing him towards a more anti-Western position.141

139 Warne, Mission for Peace, 124-125. Henderson’s role in the February 1953 crisis was obscured for years, with documents edited to conceal his role in urging the shah to remain in the country. De-classified documents in 2017 illustrate how Henderson felt compelled to act “at a time when the monarchical institution which we have in the past regarded as a stabilizing influence…is in grave danger.” His willingness to act against Mosaddeq and in support of the shah casts some doubts as to whether he remained committed to resolving the dispute through negotiations, though he continued to advocate against covert action as late as May 1953. See FRUS Retrospective Iran 1951-1954, No. 159, CIA Briefing Note, Undated, No. 161, Henderson to State, February 25, No. 162, Henderson to State, February 26, 1953, No. 165, Henderson to State, February 27, No. 166, Henderson to State, February 28, 1953. Years before these documents were released, Moṣaddeq argued in his memoirs that Henderson conspired against him. See Katouzian, Musaddiq’s Memoirs, 273-274. 140 Azimi, “Unseating Mosaddeq,” Gasiorowski and Byrne, 57. 141 FRUS Retrospective Iran 1951-1954, No. 169, Memo from Dulles to Eisenhower, March 1, 1953.

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With oil talks stale-mated and the political situation in Iran growing more and more uncertain, the U.S. government weighed its remaining options. When the National Security

Council met on March 4, President Eisenhower seemed preoccupied with the problem of settling

Iran’s financial state: “If…I had $500,000,000 of money to spend in secret, I would give

$100,000,000 of it to Iran right now.” The President was eager to find a “feasible course of action” that would “save the situation in Iran.” For the moment, the focus was still on finding a peaceful path through negotiation. The U.S. could buy out AIOC of its concession, an idea that

Dulles, Eisenhower and Special Assistant for National Security Affairs Robert Cutler thought showed some promise. Any deal would have to involve offering aid to Iran, which was a

“gamble,” but “a good gamble,” and less dangerous than abandoning Moṣaddeq completely.142

Yet the administration was clearly running out of patience. Dulles admitted that they needed “a new approach.” The Americans, wrote Ambassador Makins, “are perpetually eager to do something.”143 Recent events, including the death of Stalin on March 5, may have influenced

U.S. thinking. On March 4, Moṣaddeq said that if oil talks failed, the U.S. should proceed with independent purchases of Iranian oil without bothering with a compensation agreement for

AIOC. When Henderson said Moṣaddeq’s demand placed the U.S. “in the horns of a dilemma,”

Moṣaddeq replied that buying oil from Iran would prevent the country “from becoming communist.” To Henderson, this appeared akin to blackmail.144

On March 11, the NSC met for a second time. Moṣaddeq had effectively turned down the latest offer, and it was now believed he would insist on the U.S. purchasing Iranian oil, or

142 FRUS Retrospective Iran 1951-1954, No. 171, Memo of Discussion at the 135th Meeting of the National Security Council, March 4, 1953 143 FO 371/104614 EP 1531/197, Makins to FO, No. 487, March 7, 1953. 144 RG 59 888.2553/3-553, Henderson to Dulles No. 3548, March 5, 1953.

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request U.S. technicians to restart the oil industry. In Henderson’s estimation, Moṣaddeq would not ask these questions directly unless he was sure he would receive a “favorable reply.”145

Moṣaddeq was now deliberately manipulating negotiations to gain support from the U.S. without offering anything to the British. Dulles felt that buying oil without a compensation agreement for

AIOC would be a “terrific blow to the British.” The threat of Iranian dumping was highlighted, as was the tanker surplus. The embargo would break, sooner or later, and Iran would be free to sell oil independently, either disrupting the international energy system or tempting Iran towards the Soviet Union. Eisenhower, who had once pressed for a deal with Moṣaddeq, now mused that such an agreement “might not be worth the paper it was written on,” and noted the effects on oil concession “in other parts of the world,” if the terms were too favorable to Iran.”146 A shift had occurred in American thinking. There could be no oil deal with Moṣaddeq in office. On March

13, Dulles indicated to Henderson that no new oil deals would be offered to Moṣaddeq; nor would the U.S. extend any additional aid, apart from the existing Point Four commitment.147

By refusing the package proposal, Moṣaddeq had pushed the U.S. back its breaking point.

The proposal was, on its surface, a highly attractive offer. NIOC would have been left in full control of the oil industry, with no provisos mandating foreign assistance. Iran would have received $100 million in aid from the U.S. in return for oil which would have been sold on the international market. AIOC’s history admits the company “owed a large debt of gratitude” to

Moṣaddeq for rejecting a deal which would have left the company with very little beyond a share

145 RG 59 888.2553/3-953, Henderson to Dulles No. 3605 March 9, 1953. 146 FRUS Retrospective Iran 1951-1954 No. 176, Memorandum of Discussion at the 136th Meeting of the National Security Council, March 11, 1953. 147 RG 59 888.2553/3-1353, Dulles to Henderson NO. 2387, March 13, 1953.

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in a marketing consortium.148 The package proposal was, essentially, nationalization with an open-ended compensation clause for AIOC. This last measure Moṣaddeq could not accept, for political reasons: he believed he could not be seen to give in to any demand by AIOC for payments covering “loss of enterprise.”

In June President Eisenhower wrote Moṣaddeq a letter, rejecting any and all Iranian requests for economic aid, arguing that it was “unfair” to expect American tax-payers to aid Iran

“as long as Iran could have access to funds derived from the sale of its oil and oil products.”149

The U.S. was giving up on any further attempts to negotiation with Moṣaddeq. After March, U.S. policy focused first on distancing the United States from the National Front government; and second, on removing Moṣaddeq through covert action, in cooperation with the British and pro- shah elements in Iran. A new, “responsible” government would be brought into power, one which could oppose the Tudeh and settle the oil question. Funds for the operation, code-named

TPAJAX, were released by April. The British had got their wish; Moṣaddeq would go.150

4.5 Considering a Coup

Ostensibly, Moṣaddeq was overthrown to prevent a Tudeh take-over of the Iranian government. This take-over was not expected to be imminent: the Tudeh Party lacked “the

148 Bamberg, Vol. II, 511. 149 RG 59 888.2553/6-2653, Memo for the President, Statement to Prime Minister Mossadeq, June 26, 1953. 150 FRUS Retrospective Iran 1951-1954, Memo from Roosevelt to Dulles, April 4, 1953. No record has been found indicating when exactly Eisenhower and Dulles made the decision to remove Mosaddeq. It’s likely from other documents that decision was made shortly after the March 11 NSC meeting. Fakhreddin Azimi contends that planning for the coup was “fully in motion” in November 1952 when the CIA met with British officials, but it is clear that U.S. support for the coup couldn’t have come any earlier than March, as efforts remained focused on reaching an oil settlement. See Azimi, “Overthrow of the Government of Mosaddeq,” 696.

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intention or the ability to gain control of the government.”151 The party, illegal since 1949, was well organized but had not yet penetrated the government sufficiently to organize a coup d’etat: they had a minor presence in the army but controlled no combat units. The CIA had been operating in Iran for several years, combatting the Tudeh and organizing anti-communist forces: it had sources deep within the party’s organization and was alerted whenever major decisions were made. Estimates in late 1952 indicated that the Tudeh, with a few thousand members and the ability to organize sizable demonstrations, was not ready to challenge the government.152

Nevertheless, the communist threat was the chief justification for the coup operation.

While the Tudeh were not an imminent concern, American officials worried that over time conditions within Iran would facilitate the rise of a communist government. The CIA, which would plan and execute the coup, had long been suspicious of Moṣaddeq and the National Front.

In July 1951, the Office of National Estimates had predicted nationalization would lead to a new government dominated by “chauvinistic elements,” which would in time produce “bankruptcy, internal unrest and, at worst, Communist control of the state.” Allen Dulles, head of the CIA in

February 1953, had previously recommended an aggressive course of action: “throw out

Mossadeq, close the Majlis…at a later date a premier could be installed with our help.”153 Along with Frank Wisner and Kermit Roosevelt, Dulles expressed a hardline towards Moṣaddeq, one which before 1953 had been checked by the caution of Truman, Acheson, McGhee and Nitze.

These attitudes came to dominate U.S. thinking by 1953. An intelligence estimate published in

151 Gasiorowski, “The 1953 Coup D’etat in Iran,” 275-278; Zendebad Shah!, 11. 152 FRUS Retrospective Iran 1951-1954, No. 138, CIA Memo, Undated; Mark J. Gasiorowski, “The CIA’s TPBEDAMN Operation and the 1953 Coup in Iran,” Journal of Cold War Studies 15, no. 4 (Fall 2013): 4-24. 153 FRUS Retrospective Iran 1951-1954, No. 20: Memorandum Prepared in the Office of National Estimates, Central Intelligence Agency, May 1 1951, No. 37 Memorandum Langer to Smith, July 6, 1951, No. 25, Minutes of Meeting with Director Smith, May 9, 1951.

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November 1952 was modified in January to reflect the more alarmist tone prevailing in

Washington.154 If current trends were allowed to continue “beyond the end of 1953,” internal tensions and the “continued deterioration of the economy” would lead to a “breakdown of governmental authority” and the “gradual assumption of control by the Tudeh.”155 According to the CIA and State Department, should Moṣaddeq resign or die, his departure “would leave a power vacuum into which the Tudeh Party might move.” Ayatollah Kāshāni, Moṣaddeq’s apparent successor to lead the National Front, had repeatedly argued that Iran “forget its oil resources and develop a self-sustaining economy.”156 It was assumed that a Kāshāni government would reject an oil agreement and quickly collapse, paving the way for Tudeh domination, which would grow “imperceptibly over a considerable period of time.”157

Ambassador Henderson fed the view of a growing Tudeh influence under an increasingly dictatorial Moṣaddeq, and he continued to send reports warning that “the Iron Curtain was about to envelop Iran.”158 Henderson believed that Moṣaddeq received “Tudeh-slanted advice," and a

154 The agency was internally torn about the question of what to do in Iran; while the analytical staff usually recommended caution, the operators in the field were far more supportive of covert action, and actually began to quietly undermine Moṣaddeq in the summer of 1952, when American policy was still to support him. According to a section of CIA history Zendebad Shah! declassified in 2017, cooperation between the two branches was almost non-existent at the time of TPAJAX. See Appendix E, 113-120; for CIA operations against Moṣaddeq before 1953, see Gasiorowski, “Coup D’ETat Against Mosaddeq,” 242-244. 155 FRUS Retrospective Iran 1951-1954, No. 143, NIE-75 November 13, 1952, No. 147, NSC Policy Statement, NSC 136/1, “Present Situation in Iran,” November 20, 1952, , No. 150 Memo from Office of National Estimates, CIA December 11, 1952, No. 152, NIE-75/1 January 9, 1953. The quotes indicate passages of the original NIE which were altered for the January draft. 156 FRUS Retrospective Iran 1951-1954, No. 159, CIA Briefing Note, Undated. No. 181, OIR Memo No. 1378, Potential Character of a Kāshānī-Dominated Government,” March 31, 1953. 157 FRUS Retrospective Iran 1951-1954, No. 180, Progress Report to the NSC, March 20, 1953. 158 Quoted in Goode, The United States and Iran, 116.

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number of cabinet ministers were in fact “Tudeh tools.” Communist influence within the government, while apparently quite small, could grow quickly under the right circumstances:

“infiltration of this kind might result in communists creeping almost imperceptibly into power.”159 Though Henderson resisted the push for covert action coming out of the CIA, he did not feel much could be gained from further negotiation beyond tactical and moral advantage. The

U.S. should be seen to stand “firmly and calmly on the rock of principle,” before resorting to covert methods: “I do not believe the problem can be solved merely by attempts to unseat

Moṣaddeq.”160 Yet Henderson’s protest focused on tactics; when the time came, he ably assisted the CIA in planning the operation, despite some lingering reservations.

Were the Americans deluded into seeing a communist threat in Iran where none existed?

The danger appeared real, particularly if no action was taken. The atmosphere of paranoia prevalent within the United States in 1953, Eisenhower’s campaign promise to take a harder stance against international communism than his predecessor, and the anti-communism of officials such as the Dulles brothers, Loy Henderson, and Kermit Roosevelt should not be discounted. The British were savvy enough to appeal to American anti-communism: their first request for U.S. aid in removing Moṣaddeq, “The Communist Danger in Persia,” was clearly designed to appeal to the Cold War ethos at work in American policy-making.161 Moṣaddeq himself believed the “communist bogey” had been used as a clever pretext for his removal, “and

159 FRUS Vol. X Iran 1951-1954 Henderson to State Dept. November 5, 1952; RG 84 USLETCGR 1951-1952, Box 24, Henderson to State, No. 1850, November 5, 1952. 160 RG 59 888.2553/5-853, Memo by Stuteseman, May 8, 1953, Attachment, Henderson to State, No. 4348, May 7, 1953. 161 FRUS Retrospective Iran 1951-1954, No. 133, Byroade to Matthews, Comments on “Communist Danger in Persia,” October 15, 1952.

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the plunder of the people’s property” through a new oil agreement.162 While the British undoubtedly saw communism as a way to bring the Americans on board, by March 1953 the

Americans seemed convinced that the communist threat was real, and only covert action could prevent the Tudeh from eventually coming to power.

To a certain extent, American actions fed into their perception of the Tudeh threat. In the spring of 1953, the CIA and British intelligence services began operations to discredit and undermine Moṣaddeq. They used “black propaganda” to tie the National Front to the Tudeh, manufacturing evidence of collusion between the two groups in order to push mainstream Iranian opinion away from Moṣaddeq. President Eisenhower refused Moṣaddeq’s last request for aid in

June, while both he and Secretary Dulles delivered pointed statements in public expressing their concern over the growth of communism in Iran. The goal, according to coup planner Donald

Wilber, was to “shatter any hopes” that Moṣaddeq would receive any assistance from the U.S.,

“and disabuse the Iranian public of the Moṣaddeq myth that the United States supported his regime.”163 The British-backed scheme to kidnap and murder the pro-Moṣaddeq chief of police of Tehran produced further instability, while agents worked tirelessly “to promote panic and chaos” inside Iran in order to de-stabilize Moṣaddeq.164 The Tudeh had long been hostile to

Moṣaddeq, painting him as a tool of bourgeois capitalists; the National Front maintained an uneasy relationship with Iran’s communists, as both groups fought for support among the country’s educated middle-class and urban workers.165 As Moṣaddeq’s allies, including Kāshāni,

162 Katouzian, Musaddiq’s Memoirs, 294. 163 Wilber, “Overthrow of Prime Minister Mossadeq,” vii. 164 Azimi, “Unseating Mosaddeq,” 86-87, Gasiorowski, “Coup d’Etat Against Mossadeq,” 232-233, 244-246. 165 Azimi, “Unseating Mosaddeq,” 69.

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deserted him and his feud with the shah intensified, CIA officials believed that he would eventually have to rely upon Tudeh support in order to preserve his position. After March 1953,

Moṣaddeq relaxed restrictions on the Tudeh, partly out of a desire not to openly antagonize the

Soviet Union (which continued to back the party) and also because the Tudeh was the most hostile anti-shah force in the country; this “generally tolerant” attitude, according to the CIA, had strengthened the party, to the point that it would begin electing Majlis deputies.166 If Moṣaddeq’s supporters came to blows with the shah’s men in the streets, Tudeh support would be essential.

Western efforts to pull support away from Moṣaddeq made his limited pivot towards the Tudeh even more necessary, further fueling the American narrative that his government was coming under Tudeh domination.

While communism acted as a justification, the motivation for removing Moṣaddeq in

1953 was linked to the oil crisis. The events of early 1953 had proven that Moṣaddeq would not be able to reach an oil agreement; and without oil or massive, continuous U.S. economic aid, Iran was doomed. Instability would mount, Carr’s prediction of fiscal and economic crisis would come to pass, and the way would be open to Tudeh domination. Along with regime change, Iran needed oil revenues. Emergency financial aid would stabilize the new government and allow it to carry out limited economic development, but permanent stability would only be assured through the re-integration of Iranian oil. The U.S. offered support for the coup only if the British agreed to recognize nationalization: “no commercial concessions or special political privileges should be asked of Iran.”167 The British, thrilled to have finally secured an American commitment, agreed to this so long as compensation for AIOC was left to international arbitration and other

166 FRUS Retrospective Iran 1951-1954, No. 247, Paper Prepared by CIA, “Soviet Union Offers to Settle Iranian Financial Claims,” July 22, 1953. 167 FRUS Retrospective Iran 1951-1954, No. 223, Undated Memo, CIA.

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concessions were protected from the contagion of nationalization. The final deal with the new

Iranian government “must not appear to reward the ‘tearing up’ of contractual obligations or disturb the ‘pattern’ of world oil prices.”168 As Max Thornburg argued, the key issue “is not how to make an oil agreement that will bolster up the government in Persia, but how to bolster up the government in Persia so it can make an oil agreement.”169 Thornburg may have lacked substantive influence over U.S. policy beyond his relationship with Dulles, but his view encapsulates American thinking.

While oil was linked to the coup decision, it was purposefully downplayed as a factor in

American strategy. Nearly a year before the final coup operation, CIA officers John Leavitt and

Kermit Roosevelt had discussed how best to remove Moṣaddeq without igniting popular Iranian opposition. First, all U.S. support for Moṣaddeq should be withdrawn, and disparate factions in the army, National Front, Majlis and conservative aristocracy united against him. The shah would be chosen as a symbolic leader, in whose name a new government could be formed. The oil issue would be de-emphasized and the British remain as inconspicuous as possible. The new government would be given a sizable loan, with further aid “contingent on a satisfactory solution of the oil issue.” There should be no indication in public that the oil issue and the loan “were in any way connected.”170

Very similar thinking prevailed at the time of the coup. According to John Stutesman, now the director of the State Department’s Bureau of Greek, Turkish and Iranian Affairs, the

168 FRUS Retrospective Iran 1951-1954, No. 350, Makins to Smith, July 23, 1953; see also Wilber, “Overthrow of Prime Minister Mossadeq,” Appendix C. 169 FRUS Retrospective Iran 1951-1954, No. 154, Memo from Dulles to Smith, February 19, 1953. 170 FRUS Retrospective Iran 1951-1954, No. 123, Leavitt to Roosevelt, September 22, 1952.

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U.S. “should avoid any statement that the oil question is involved in a change of government in

Iran,” and the new government in Iran should be deterred from raising the oil question publicly for at least several months, “as doing so is incredibly dangerous.” In the meantime the new government “must lay claim to a program to develop the country economically.”171 Harold

Stassen, director of foreign aid, assured the CIA that “substantial economic assistance” would be provided to Iran’s new government, which would move “as rapidly as possible” to get the country’s economic development program “on a sound footing.”172 Aid would give the new regime time to crush its political opponents and prepare public opinion for an oil agreement; discussions for the agreement would be conducted in secret under U.S. supervision. Stabilization of Iran’s political and economic system, and the country’s preservation from the Tudeh, was the immediate objective; but an oil settlement that could place the government on a firmer footing, tie it to the international energy system and provide it the means to fund a viable development program was the ultimate aim of TPAJAX.

To engineer the coup, the CIA and the British concocted an elaborate plan, one that would use “quasi-legal” means to remove Moṣaddeq and appoint the pro-shah Faz̤ lallāh Zāhidī as the new prime minister. The shah, who most U.S. officials regarded as a weak, indecisive figure, would act as a symbolic leader around which anti-Moṣaddeq forces could rally.

Henderson suggested at one point that he could be replaced if he proved uncooperative.173 Yet

171 FRUS Retrospective Iran 1951-1954, No. 256, Memo from Stutesman, Undated, No. 299, Nash to Cutler, Undated. 172 FRUS Retrospective Iran 1951-1954, No. 282, Memo for the Record, August 19, 1953. 173 FRUS Retrospective Iran 1951-1954, No. 216, Memo of Conversation, June 6, 1953. This document, though heavily redacted, makes it clear that a senior figure in the coup could be replaced “by one of his brothers.” Prince Abdorezā, former head of the Plan Organization, was discussed as a potential replacement.

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for the coup to seem legitimate, it had to have royal support: months were spent convincing the shah to give his approval to the operation, with appeals delivered through U.S. officials he trusted (such as military advisor General Norman Schwarzkopf) and his twin sister Princess

Ashraf.174 If quasi-legal means failed, the coup would rely upon support form army units to seize control of strategic positions in Tehran and overwhelm National Front loyalists. The ultimate success of the coup operation rested upon the shah’s symbolic importance as leader of the nation and the army. Though the U.S. thought very little of the army’s military capabilities, it was the only institution capable of carrying out an operation to seize control of the government: it was also closely connected to the Pahlavi monarchy, and the shah commanded a sizable personal following in its officer corps.175

Units would be mobilized by supporters of Faz̤ lallāh Zāhidī, who was chosen to lead the post-coup government. The former Minister of the Interior, cited as early as May 1952 as a potential Moṣaddeq replacement, was “energetic and ambitious,” with good relationships with key conservative figures; he was also “opportunistic,” and for this reason could be counted on to seek an oil settlement “on a realistic basis.”176 Some doubted whether Zāhidī possessed enough

“forceful leadership” qualities to successfully lead a post-coup government; there were concerns surrounding the “vagueness” of his political thinking, and he explained to his handlers Iran’s need for free health care for all citizens, mechanized agriculture, equal pay, and higher income taxes on the wealthy. The agency found his zeal somewhat troubling: “it[s] clear Zāhidī will need

174 Gasiorowski, “Coup d’Etat Against Mosaddeq” 246-248. 175 Zendebad Shah!, 44. 176 FRUS Retrospective Iran 1951-1954, No. 73, Memorandum of Conversation, May 16, 1952, No. 282, Memo for the Record, August 19, 1953.

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firm realistic guidance,” though he was the only conservative figure with enough “guts” to lead the anti- Moṣaddeq forces.177

The coup operation was carried out in August, 1953. A reluctant shah finally agreed to issue a firman, or royal decree, dismissing Moṣaddeq from office. The firman was delivered on

August 16, but the operation backfired: Moṣaddeq refused to recognize the order’s validity and arrested the officer who delivered it.178 The shah fled Iran in a panic, eventually making it as far as Rome. Jubilant Tudeh crowds filled the streets of Tehran, calling for the dissolution of the monarchy and the establishment of a republic. The declarations were not endorsed by

Mossadegh, though he did order that statues of Rezā Shah be removed throughout the city: support for a republic did exist within the National Front’s ranks.179 While some U.S. officials were prepared to call the entire operation off, CIA agents in the field continued their activities; operatives were planted within the Tudeh crowds and used to commit further acts that were sure to offend moderate Iranians.180 On August 18, Henderson returned to Iran and scheduled an urgent meeting with the prime minister: he warned Moṣaddeq that order would have to be restored, in order to prevent harm to the hundreds of Americans at the embassy and Point Four offices. Moṣaddeq complied and ordered the streets of Tehran cleared of all Tudeh

177 FRUS Retrospective Iran 1951-1954, No. 248, Memo from Acting Chief of the Near East and Africa Division to Mitchell, July 23, 1953, No. 260, Tehran Station to CIA, August 14, 1953. 178 The CIA blamed the failure of August 16 on their Iranian co-conspirators’ “incapacity for large scale organized effort under clandestine conditions.” FRUS Retrospective Iran 1951- 1954, No. 263, Tehran Station to CIA, August 16, 1953. 179 Randjbar-Daemi, “Down with the Monarchy,” 8-15. 180 FRUS Retrospective Iran 1951-1954, No. 273, Tehran Station to CIA, August 17, 1953, No. 274, Memorandum from Directorate of Plans, August 17, 1953, No. 278, CIA to Tehran Station, August 18, 1953. The crowd plans are mentioned in Roosevelt, Countercoup, 183-197.

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demonstrators. Without support from the Tudeh, Moṣaddeq’s supporters were outnumbered. On

August 19, pro-shah crowds emerged with support from army units coordinated by the CIA,

Zāhidī’s supporters, and other pro-shah factions. To what extent these crowds were spontaneous, funded through CIA action, or organized by other, independent actors remains unclear.

Nevertheless, the success of the coup came swiftly. The National Front was routed, Moṣaddeq arrested and Zāhidī named prime minister.181

4.6 The Consortium Approach and the Façade of Nationalization

Moṣaddeq was gone, but the coup was only half-complete. Iran still seemed dangerously close to economic collapse; the Tudeh remained at large; and the new government was non- democratic and relied almost entirely on the power of the army, which had come out in support of the shah in the crucial street fights of August 19. In the short-term, Iran would need emergency financial assistance; but in the long-term, only a new oil settlement would accomplish the ultimate U.S. goal of TPAJAX and secure the stability of Iran.

Once Zāhidī’s new government was installed, it received an emergency infusion of $45 million from the United States, estimated to cover the budget deficit and an “impact” development program. “The most difficult problem confronting us,” argued Dulles, “was how to develop revenues for Iran out of her oil.”182 Dulles told Henderson that the U.S. would move “at the earliest possible date” to secure an oil agreement “[that] would lessen the danger” of losing

Iran. He was wary of moving too quickly, lest it appear that Zāhidī’s appointment “was

181 FRUS Vol. X 1951-1954, No. 347, Henderson to State, August 18, 1953; Wilber, “Overthrow of Prime Minister Mossadeq,” ix-xiii, 39-77; Gasiorowski, “The 1953 Coup D’etat in Iran,” 261-286. 182 FRUS Retrospective Iran 1951-1954, No. 304, Memo of Discussion at 160th Meeting of the NSC, August 27, 1953.

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sponsored by outside powers with oil considerations in mind.”183 The CIA measured Iran’s chance of achieving long-term success lay “in the rapid improvement of the country’s finances and economy,” with a new Seven Year Plan to create “public confidence” and a public relations campaign to prepare the way for a new oil agreement.184 The new regime “cannot survive in the long-run without a solution to the oil problem,” and immediately the U.S. pressed the Zāhidī regime to begin “preparing public opinion” for a forthcoming settlement that the British could accept.185 The Embassy went so far as to plant stories in Western newspapers, which were then re-printed in the Iranian press, urging the Iranian people to rally to the shah’s side and support an oil settlement before aid ran out: “the Iranian people as a whole will realize that only through a speedy settlement of the oil problem will the country have stability and again move along the road towards prosperity,” according to one planted piece.186 Dulles encouraged Henderson to sit for interviews with the New York Times and US News and World Report, “to keep alive certain themes which we want most to impress on the Iranian public.” Publications of this kind could be used to shape public opinion in the West, but would most of all “provide excellent material for playback to Iran.”187

183 RG 59 888.2553/8-2553, Dulles to Henderson, No. 612, August 25, 1953. If Dulles hoped to avoid this perception growing in the Iranian consciousness, he was to be sorely disappointed. The removal of Mosaddeq was widely believed to have been executed by the CIA at the behest of American and British oil companies, and Mosaddeq himself would argue at his trial that his removal had been orchestrated by “agents of foreigners.” Quoted in Azimi, “Overview of the Political Career of Dr. Muhammad Musaddiq,” 47. 184 FRUS Retrospective Iran 1951-1954, No. 308, Monthly Report, Undated (August 1953). 185 RG 59 888.2553/9-953, Memo on Iranian Situation, September 9, 1953. 186 RG 469 RUSFAA TCA IDSF 1951-1954, Box 17, US Embassy No. 264, November 7, 1953, Attachment No. 1, “Dilemma in Iran.” 187 RG 469 RUSFAA TCA IDSF 1951-1954, Box 17, Dulles to Henderson, November 18, 1953

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Emergency aid was only meant to give Zāhidī breathing room before meeting the companies. He would also need time to disseminate propaganda, preparing public opinion for an oil settlement. The British were particularly adamant that funds be limited “for the immediate stabilization” of the Iranian government and economy, and should not appear a “regular annual subsidy” as this would “tend to lessen [Iran’s] desire for a settlement.”188 In a speech in

Washington in December 1953, Assistant Secretary Henry F. Byroade insisted that resolving the oil problem “is the most pressing need of the Iranian government.”189 Henderson argued that intransigence from the Iranians during oil negotiations should result in the U.S. withholding additional aid, “even though its cessation might result in the collapse of Iran and its fall under communist control.”190 The new government had to “demonstrate clearly to the people that…with US help, [it] is determined to improve their lot,” and unless this was accomplished,

“there is no good prospect for survival…except [as a] police state.”191

Reviving Iran’s oil industry “cannot be achieved without the help of the major companies,” and it was imperative that whatever settlement secured should recognize the “fact of nationalization” without offering Iran anything more than any other concessionary state.192 AIOC could not return to Iran. Instead, a consortium of major companies, including AIOC, would be formed to purchase and distribute Iran’s oil. This was an old solution, first suggested by Ḥusayn

188 FO 371/104577 EP 1024/3 FO to Makins, No. 3342, August 28, 1953. 189 Byroade, “The Present Situation in Iran,” delivered before the Middle East Conference, Washington D.C., December 12, 1953, in The United States and Iran: A Documentary History, Yonah Alexander and Allan Nanes, eds (Frederick MD: University Publications of America, 1980): 259-63. 190 FRUS Iran 1951-1954 Vol. X, No. 399, Byroade to Dulles, “United States Aid to Iran,” Drafted by Henderson, December 23, 1953. 191 RG 84 USLETCGR 1953-1955, Box 60, Henderson to DC, 4 September 1953. 192 RG 59 888.2553/9-1153, US Embassy London No. 1031, September 11, 1953.

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‘Alā as far back as 1947. A “consortium approach” had been a key component of the U.S. package proposal in 1952-1953. But bringing Iranian oil back to market posed a challenge of its own. Thanks to the work of the U.S. Petroleum Administration for Defense, the imbalances caused by the nationalization had been corrected. Fifty-fifty agreements had been signed in all major Middle Eastern oil producers.193 The old market for Iranian oil was gone. Even AIOC, having invested considerable capital into new refineries in Aden and Australia, felt the re- integration of Iran’s oil “[would] not be easy.”194

Table 4.3 Middle East Production, 1945-1955195

1200

1000

800

600

400

200

0 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955

Iran Iraq Saudi Arabia Kuwait

193 RG 59 Office of Greek, Turkish and Iranian Affairs, 1950-1958, Lot File No. 60 533: Subject Files Relating to Iran, 1951-1958, Box 41, Effect of Iranian Shutdown on World Oil Situation, September 28, 1953. 194 FO 371/104640 EP 15316 Belgrave, “Persia and Her Oil,” August 24, 1953. 195 Leeman, Price of Middle East Oil, 269.

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During the final attempt to come to terms with Moṣaddeq in late 1952, an effort was made to convince the companies into buying Iranian oil through a consortium mechanism. The five American firms (Socal, Jersey Standard, Gulf, Texaco and Socony) were under attack in the

U.S. for price-fixing and their cartelization of production: an anti-trust investigation had been launched by the Department of Justice, and the companies were unwilling to cooperate to resolve the Iranian situation without assurances from the government. Truman agreed to grant the companies protection from anti-trust prosecution on the grounds of national security, though he noted that U.S. companies would have to cooperate with AIOC, requiring British consent.196

Paul Nitze found oil company executives hesitant. They warned that upsetting existing concessions by offering Iran something more than fifty-fifty would have “cataclysmic results.” If

Iran were re-integrated, both Saudi and Kuwaiti production would have to be brought back down, producing an “extremely difficult” political situation. All the companies agreed that a solution would have to be worked out through the British, since it was in essence a “British problem.”197 The companies were only grudgingly willing to go along with the Department’s plan, and they remained fixated on the issues which affected them the most: anti-trust prosecution, the preservation of fifty-fifty, and the risk of nationalization outside of Iran. They had no direct commercial interest in re-integrating Iranian oil and were only willing to enter the consortium if they could do so without incurring any risks or costs.

In October, Under-Secretary of State and oil-man Herbert Hoover Jr. came to Iran to

“educate” the Iranians on how their oil would be re-integrated. While acknowledging the

196 RG 59 888.2553/1-2253, Memorandum for the Secretary, November 20 1952, 888.2553/11-2252, Bruce to Gifford, No. 3510, November 22, 1952, 888.2553/11-2552, Gifford to Acheson, No. 2955, November 25, 1952, 888.2553/11-2752, Mattison to Acheson No. 2075, November 27, 1952. 197 RG 59 888.2553/12-452, Memo of Meeting, December 4, 1952.

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political importance of keeping nationalization in place, Hoover insisted that a new agreement provide Iran a sufficient income: only the major companies could produce and market oil in the necessary quantities.198 According to Manūchehr Farmānfarmāʼiyān of NIOC, Hoover’s proposal was essentially an ultimatum: if the “principle” of foreign control was not admitted, Iran’s oil would not be re-integrated.199 Though he denounced the “colonial aims” of the companies,

Zāhidī accepted a consortium solution with AIOC as a “junior partner,” though he insisted that the agreement would have to outwardly conform to nationalization.200 The Americans were prepared to be flexible on this point. As Dulles had written to Henderson shortly after the coup,

“phraseology of formula” was the key to a lasting settlement.201 As in 1933, it was important for political reasons that the agreement be presented as a victory for Iran, though ultimately the companies would have to be satisfied.

To stay within the bounds of the Nine-Point Nationalization Law, the companies agreed that Iran’s ownership of oil would not be questioned; however, they would dispute the government’s competence to manage “the highly technical operations requiring vast amounts of capital, know-how and access to markets.”202 This skepticism was unfounded, as an inspection of

198 RG 59 891.2553/10-2253 Henderson to Dulles, NO. 949, October 22, 1953, 891.2553/10-2253 Henderson to State, No. 958, October 23, 1953, 891.2553/10-2953 Henderson to State, No. 996, October 29, 1953. 199 Farmānfarmāʼiyān, Blood and Oil, 302-303. 200 RG 59 888.2553/11-253 Informal Memo on Oil Situation, November 2, 1953, 888.2553/11-953 Dulles to Henderson, No. 1153, November 9, 1953, 888.2553/11-353, US Embassy Tehran No. 255, Conversation Between Hoover and Pirnia, November 3, 1953, 888.2553/11-653 Aldrich to State, No. 1968, November 6, 1953, 888.2553/11-753 Aldrich to State, No. 2002, November 7, 1953, 201 RG 59 888.2553/8-2553 Dulles to Henderson, No. 612, August 25, 1953. 202 BP 58246 S.A. Swensrud, Gulf Oil, to William Fraser, AIOC, October 9 1953; Fraser, AIOC to Companies, December 3, 1953; Notes from Meetings, December 16 and 17, 1953; Final Draft, “Memorandum: Agreement with Iran,” December 17 1953.

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Abadan in February proved: NIOC had done an “excellent job” maintaining security and order, and with $25 million in investment over two years Iran would regain full production, with annual output of 20 million tons reached in twelve months. Direct foreign management would be difficult due to the “competence of the Iranian staff.”203 Nevertheless, the fiction of Iranian inadequacy would justify the companies control over operations: a settlement would have to leave “effective management” in the hands of a consortium, with revenues to Iran on a fifty-fifty profit-sharing basis. NIOC would be permitted to retain title to the oil and the refinery, and eventually would be granted management of “non-basic” services such as housing, medical services, training, education, and the Abadan Technical Institute.204 A working relationship would be maintained, “to preserve the façade of control of the oil industry by the Persian

Government.” Zāhidī was open to the idea of foreign control, as long as it was camouflaged.205

As to the make-up of the consortium itself, British attempts to secure a 50% stake for

AIOC were vigorously rebuffed by Dulles, who argued it would put the entire venture at risk: forcing such terms on Iran would undermine Zāhidī’s shaky credibility and risk a nationalist reaction, perhaps even a counter-coup.206 British demands to be paid compensation by both the companies and Iran were also rejected by the U.S. government. The goal of negotiations was to

203 RG 59 888.2553/2-1354 Henderson to State, No. 1768, February 13, 1954, 888.2553/2-2454 Aldrich to State No. 3642, February 24, 1954. 204 BP 66232 Meeting of Reconnaissance Party, February 23 1954, No. 14, “Iran: Memorandum by AIOC,” January 19, 1954, Comments on Two Memoranda, February 4, 1954, “Operations in Iran: Basic and Non-Basic Services,” March 10, 1954, BP 94794 Notes from Meeting, February 23 1954. 205 BP 67067 “Management—South Persian Oilfields and Refinery,” Abadan Technical Mission, N.A. Gass, February 17, 1954; FO 371/10058 EP 1534/1 Wright to London, No. 15, January 6 1954. 206 FO 371/110047 EP 1531/48 Makins to London, January 22 1954; RG 59 888.2553/2- 1854, Smith (Acting) to Henderson No. 1745, February 18, 1954, 888.2553/2-2454, Dulles to Aldrich, No. 4365, February 24, 1954.

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“move Iranian oil,” and that it was vital to reach a settlement “which had some hope of enduring.” A serious Anglo-American rift was resolved with help from Shell, which convinced

Fraser to back down.207 Eventually Fraser and AIOC accepted a 40% stake, with 40% going to the American companies; 5% of their stake was given to a group of American independents, concluding their years’ long quest to obtain access to Iranian oil. To satisfy the British and

Iranians, 14% was given to Royal Dutch/Shell, an Anglo-Dutch firm. The final 6% went to the

French national firm Compagnie française des pétroles (CFP). On January 20 the US Attorney

General Herbert Brownell determined that American companies could participate in a “joint company” without violating anti-trust laws.208

Negotiations with the Iranians, led by Minister of Finance ‘Ali Amīnī, were held that spring. The Iranian team featured experienced oil men ʿAbd-Allāh Entezām, Fu’ād Ruhāni, and

Fathallāh Nafīsī. American executives from Jersey Standard were impressed with Amīnī and his deputy Ruhāni, whom they found knowledgeable and reasonable negotiators.209 Amīnī had served in Moṣaddeq’s government, where he had pushed for a fifty-fifty agreement between Iran and U.S. companies. While Amīnī understood the weakness of Iran’s position, he was determined to put up a good fight: he focused on achieving a settlement that both secured the

207 BP 66232 “American Group Views on Basis for Settlement with Anglo-Iranian,” March 16 1954, Francis Hopwood, Shell, “Iran—Basis for Settlement with Anglo-Iranian,” March 16 1954.; RG 59 888.2553/3-1554 Henderson to Dulles, No. 1943, March 15, 1954, 888.2553/3-1754 Dulles to Aldrich, No 4773, March 17, 1954, 888.2553/3-2254 Memo of Conversation March 22, 1954. 208 Painter, Oil and the American Century, 195-196. 209 Wall, Growth in a Changing Environment, 491-494.

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façade of nationalization, thus mollifying Iranian public opinion, while simultaneously ensuring the rapid return of Iranian production and the high revenues that would come with it.210

Amīnī proposed a “joint organization” based on a “community of interest” between the consortium and NIOC. Iran possessed “the oil resource and facilities,” while the consortium could provide “the means of distributing oil in world markets in very large quantities.”211 Amīnī insisted that the final agreement include an “agency clause,” making it plain that the operating companies functioned “as agents of, and for the sole account of the NIOC, which would exercise supervision over the operations.” The consortium rejected this: the technical expertise and experience required to bring Iran’s industry back to full capacity and manage it in the future

“would only be effective if they could be brought to bear without interference.” The companies would guarantee effective management of Iran’s oil only if the Iranian government promised not to interfere.212 But Amīnī would not back down from insisting on an agency clause. AIOC management suggested that appropriate “machinery” could be constructed to accomplish the intended result. The task was finding “suitable words” to facilitate Iranian acceptance. It was proposed that the consortium could manage the industry “on behalf of Iran/NIOC,” as it was pointed out that while the industry had been nationalized, the Iranians “were incapable of running [it]…and were inviting the consortium to come in and run it for them.”213

210 FIS, Interview with ‘Ali Amīnī, 11-12; Amīnī, Khātirāt, 78-85. Amīnī claims that Ayatollah Kāshānī called him personally, warning him that his life and honor were at stake if he reached an inadequate agreement. 211 BP 100720 No. 5, Memorandum on Organization, April 27, 1954, No. 9 Memorandum, May 9, 1954. 212 BP 100720 No. 16, Note on the “Memorandum on Agency,” May 17, 1954, No. 19, Airport Memorandum, 28 May 1954; BP 3244, Note on Negotiations with Iran, 28 May 1954. 213 BP 126490 Minutes of Principals Meeting June 2, 11 and 15 1954, US Companies: Nationality of the Operating Companies, June 3, 1954, AIOC: Memo on Nationality of 295

Amīnī continued to haggle, but by August 1954 he had agreed to most of the companies suggestions. He secured “nationalization in principle,” Iranian control over non-basic services and the agency clause, in exchange for granting the consortium complete control over production, marketing and distribution. The Iranians were unwilling to admit any “phraseology” admitting the industry was being turned over to foreign control, “even though they recognize

[this]…in fact.” The shah insisted the “point of presentation…went to the root” of the Iranian position, as it would be crucial in representing the agreement to a skeptical public. 214 A final agreement on compensation for AIOC was reached in August. Amīnī successfully argued that

Iran’s counter-claims against Britain had to be accounted for in any settlement. It was not the legal case for these claims that mattered, but rather their significance in the Iranian imagination: public opinion had been “inflamed,” and Amīnī insisted that the government would be “bitterly attacked for agreeing to any payment.” The British yielded to the political realities, accepting a

£25 million compensation award for AIOC.215

Companies, June 31, 1954; BP 94794 Minutes of Principals Meeting, June 2, 1954; FO 371/110065 EP 1534/184, Memo “Persian Oil,” T.R. Belgrave, June 14, 1954. 214 FO 371/110065 EP 1534/187, Stevens to Foreign Office No. 648, June 23, 1954, EP 1534/189, Stevens to Foreign Office No. 647, June 23, 1954; FO 371/110066 EP 1534/198, Stevens to Foreign Office No. 685, July 1, 1954, EP 1534/203, Stevens to Foreign Office No. 43, July 1, 1954. 215 FO 371/110068 EP 1534/231 Stevens to Foreign Office No. 771, July 22, 1954, EP 1534/236, Stevens to Foreign Office No. 752, July 19, 1954, EP 1534/243, Paper by the Foreign Secretary, July 28, 1954, EP 1534/246, Stevens to London, July 24, 1954, EP 1534/251, Stevens to Foreign Office No. 805, July 26, 1954; FO 371/110069 EP 1534/267, Foreign Office to Stevens No. 70, July 29, 1954, Stevens to Foreign Office No. 866, August 1, 1954, EP 1534/268, Stevens to Foreign Office No. 867 and No. 868, August 1, 1954; BP 126500 Iran: Compensation Negotiations, August 4, 1954. It had been discovered that paying the amount originally owed under the Supplemental Agreement (equaling £50 million) would allow AIOC to deduct £25 million from its domestic tax liability. The compensation award thus cost the company practically nothing.

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The final terms of the Consortium Agreement were settled in a way that preserved the façade of nationalization. It was sold to the Iranian public as a victory for the new government.

Iranian oil men who assisted Amīnī during the consortium negotiations, including Parvīz Mīnā and Bāqir Mustawfī, gave interviews for the Iranian press, representing the agreement as satisfactory.216 Amīnī argued that the terms were the best they could obtain “under the circumstances,” and that one day Iran could re-negotiate the deal once it possessed the

“technical, material and economic resources to compete all over the world with powerful trusts supported by the Great Power.”217 He emphasized the close cooperative ties that now existed between NIOC and the operating companies, whose “brains and practical guidance” Iran would need if its oil were to compete internationally. The rhetoric took elements of Moṣaddeq-era nationalism and combined it with common corporate language regarding international competition and “sound commercial practices.” The shah himself hailed the concession in public as “the best agreement yet made,” admitting that Iran needed “know-how and outside help” in running its industry.218 Though he secretly chafed at the constraints of the new oil agreement, and would spend the subsequent years doing his utmost to work around its restrictions while pressuring the companies for more concessions, the shah had no choice but to accept the companies’ offer.219

The Nationalization Law was preserved as a legal fiction: while NIOC and the operating companies managed the industry, every decision of real importance was made by the consortium

216 FISDS, San`at-i petroshimi-i iran, Interview with Bāqir Mustawfī, Part 1, Tahavvul-i san`at-i naft-i iran, Interview with Parvīz Mīnā, Part 1 [Accessed January 21, 2018]. 217 See Shafiee, “Cracking Petroleum with Politics,” 440-441; Muẕākirāt-i Majlis, Vol. XVIII, October 19-21, 1954. 218 POWE 33/2121 Consulate Khorramshahr No. 1, March 29, 1955. 219 Milani, The Shah, 196-197.

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partners in London.220 The arrangement was “an ingenious face-saving device” according to a

British oil working group report in 1959, “providing the appearance rather than the substance of nationalization.”221 Iran agreed to a fifty-fifty split of profits from oil production, but not marketing or distribution; it had no control over the price of its oil, nor could it affect the amount produced. Iran would pay AIOC £25 million over ten years, while the consortium partners paid the company $600 million for participation: “American money” satisfied AIOC demands for compensation, as some Moṣaddeq supporters had predicted in 1951. The companies, abiding by the terms of the settlement, moved quickly to re-start the industry in the fall of 1954, with the goal of producing 10 million tons (189,000 bpd) by the end of the following year and 30 million tons (567,000 bpd) by 1957. They managed Iran’s re-integration through a sophisticated production coordination system of aggregated program quantity (APQ) that would prevent

Iranian production from rising too quickly, while the fifty-fifty profit-sharing agreement mirrored those in other countries. Nationalization remained in name, if not in fact, and the independence long sought by Moṣaddeq was abandoned in favor of re-integration.

The Mordad Coup was planned and executed in order to achieve the dual integration of

Iranian oil. The CIA history of the coup indicated on its first page the rationale behind eliminating Moṣaddeq, “as the alternative to certain economic collapse in Iran and the eventual loss of the area to the Soviet orbit…[due to] the dangerous and advanced stage of illegal deficit

220 As late as 1960, NIOC directors complained that board meetings were mere “little more than a formality,” and correctly guessed that all decisions regarding budgets and production schedules were made in secret by the consortium partners. See FO 371/149805 EP 1531/1 Note by Fearnley, January 8, 1960. 221 Burdett, OPEC Origins & Strategy, 1947-1973, Vol. I, “British Working Group Report,” 305.

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financing” reached by his regime.222 When he was put on trial shortly after the coup, Moṣaddeq was charged with certain “tyrannical” acts, including the printing of new rials. His violation of conservative economic orthodoxy was used as a justification for his subsequent imprisonment, despite his sincere arguments that the country “could sustain itself without oil revenues.”223 In the coup’s aftermath, the empowered Pahlavi regime crushed sources of opposition, including the Tudeh Party and remnants of the National Front. Populist newspapers were shut down. Over the course of the 1950s, new repressive tools were developed with help from the U.S. to solidify the new regime’s hold to power. Yet crucial to the stability of the post-coup order was Iran’s successful global integration, which the 1954 Consortium Agreement had secured. Local integration would be managed by a new development plan, which the United States was prepared to assist on a much larger scale than before.

The oil-less experiment, had it been granted more time, may have succeeded in permanently de-coupling Iran from the international energy system. The American fear of communism, suspicion of the National Front and preoccupation with petroleum as progress ended the experiment before it had time to prove itself. The regime’s re-integration into the international energy system was followed by a tidal wave of U.S. economic and military aid.

According to the embassy, most of the U.S. aid was almost immediately wasted and its positive economic impact “sterilized.” Inflation continued to grow, prices marched upwards and Iran’s trade balance became radically more skewed as the Zāhidī regime encouraged a return to mass imports. Budget deficits and balance of trade problems grew far more acute in the late 1950s, as the Pahlavi regime embarked upon a new economic development program and radically

222 See Wilber, Clandestine Service History, 1, Appendix B, ‘London’ Draft of TPAJAX Operational Plan. 223 Quoted in Katouzian, “Oil Boycott,” 209.

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increased the country’s military spending. Yet the psychological impact of regime change, and the hope for a new oil settlement, would offset the waste: “the economy of Iran has considerable resistance and flexibility, and that political factors are often more important than economic,” while ongoing deficit spending could probably continue for months, “perhaps even a year or so,” before becoming “disastrous.”224 Under National Front rule, Iran was doomed; but under the regime of Zāhidī and the shah, the United States felt it had more cause for optimism. The consortium agreement and the new development plan undertaken after 1954 vastly increased oil’s importance to Iran’s economy. Iran would never again be “oil-less.” Henceforth the fate of the Pahlavi regime would be closely tied to that of the international energy system.

224RG 469 RUSFAA Iran Branch, Subject Files 1952-1959, Box 2, Barnes to Henderson, Conversion of US Aid Dollars to Rials, September 21, 1953, Barnes to Warne and Henderson, Utilization of Grant Aid Funds, October 14, 1953.

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CHAPTER FIVE: PETROLEUM, PROGRESS, AND THE SECOND PLAN: U.S.-LED

DEVELOPMENT IN IRAN 1954-1964

On 2 July 1958, the shah of Iran, Mohammed Rezā Pahlavi, addressed a gathering of

American businessmen, industrialists and entrepreneurs in Washington D.C. Present at the gathering was David E. Lilienthal, a prominent American liberal and at that time a significant figure within Iran’s economic development effort. Lilienthal, an ardent personal supporter of the

Pahlavi monarchy, wrote in his diary that the shah, “a dark handsome man” who greeted each attendee with a “warm quiet smile, not an artificial grin,” spoke of Iran’s desire to rapidly develop its economy and described a Middle East “bright with the future wealth of oil [and] dark with the abundance of misery.” Iran’s ruler, whom the United States had placed atop the country’s government through a coup d’etat in August 1953, announced his intention to use

Iran’s vast oil resources to bring “a more equitable distribution of wealth” to its downtrodden, landless peasantry, through “cooperation between public and private groups.” A transformation of the countryside, which developmentalists and Pahlavi technocrats had envisioned since the

1940s, was now possible thanks to Iran’s burgeoning oil revenues: state power, harnessed to the technical expertise of non-government organizations (NGOs), could bring practical improvements in living standards, but it was progress fueled by petroleum, wedded to Pahlavi ambition, that lay at the heart of Iran’s new development project, the Second Seven Year Plan.1

In the aftermath of the Mordad Coup until the shah’s White Revolution of 1963-1964, private organizations harnessed technical “know-how” to Iran’s oil-drive development program in an attempt to accomplish the local integration of oil. Forcing out the uncooperative Zāhidī, the

1 David E. Lilienthal, The Journals of David E. Lilienthal: The Road to Change, 1955– 1959 (New York: Harper & Row, 1969), 246-248; The Unified Development of the Khuzestan Region, 28 August 1958, 1, 14, PDL Subseries 18C: 1955-1958, Box 409.

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shah used his unchallenged position to squash the Tudeh Party and National Front, harnessing

U.S. support to expand the army and internal security apparatus. Yet these were short-term solutions. To correct the country’s long-term problems, the shah’s government put its faith in a central economic development plan, run by a semi-autonomous Plan Organization, reconstituted after the abortive First Plan ended in 1954.2 The repression of the popular political forces unleashed during the Moṣaddeq years would make way for broad economic and societal progress, as envisioned by the shah’s chief development architect, Abul’hasan Ebtehāj, who returned to oversee the Second Seven Year Plan. Attached to the Plan were a number of non- government organizations (NGOs). Of particular interest is the Ford Foundation, the Harvard

Advisory Group, and Development & Resources, a company run by David E. Lilienthal. These groups would provide technical and administrative “know-how,” which when harnessed to Iran’s vast oil resources would allow for sweeping economic and social improvements. This would, in turn, accomplish the U.S. strategic objective and turn Iran into a stable, prosperous country.

The Plan was beset with problems from the very beginning. In the eyes of American developmentalists, the country and its government were rich in resources, yet deficient in expertise. Resistance to foreign developmentalists and the lack of unification within the Pahlavi regime knee-capped the work of Lilienthal, the Ford Foundation and the Harvard Advisory

Group. After only a few years, the Second Plan’s potential to facilitate progress through petroleum began to fade. The developmentalists squabbled amongst themselves, unable to

2 For the Plan Organization (later re-named the Plan and Budget Organization) and Iran’s development program after 1953, see Bharier, Economic Development of Iran, 42-61, Katouzian, The Political Economy of Modern Iran, 107-122, Farhad Daftary, “Development Planning in Iran: A Historical Survey,” Iranian Studies 6, no. 4 (October 1973): 176-228, Mofid, Development Planning in Iran, 90-95, Amuzegar and Fekrat, Iran: Economic Development Under Dualistic Conditions, 41-56, Abrahamian, Iran Between Two Revolutions, 426-446; Binder, Iran: Political Development in a Changing Society, 308-314.

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influence the shah’s policy. The Kennedy Administration pushed for a new development agenda, yet hesitated to withdraw all support for the shah, whom they viewed as the only person capable of steering Iran along the course of modernization.3 With Ebtehāj muscled out and the Plan failing, the shah redirected popular attention towards the issue of land reform, which he harnessed for his own ends through a “White Revolution.” While some development advocates remained staunch supporters of the shah, other NGOs and developmentalists were frustrated with their failure to foment real reform and left Iran dejected, rather than emboldened, by the promise of development. The shah, meanwhile, had accomplished his objective, and in the aftermath of his consolidation Iran seemed close to an economic “take-off,” satisfying the U.S. government and ending twenty years of U.S. efforts to encourage progress through petroleum in Iran.

5.1 Plan Redux: the Pahlavi Return to Oil-Based Development

Shortly after the Majlis ratified the Consortium Agreement in October 1954, the agreement’s architect, finance minister ‘Ali Amīnī, addressed a crowd of oil workers in Abadan.

Oil wealth, he declared, “will, like blood running into the veins, pervade the whole life of this country.” New oil wealth would “wipe out misery and poverty as a flood washes away dirt and pollution.”4 As a representative of the Pahlavi government, now under the firm leadership of

General Faz̤ lallāh Zāhidī and the shah, Amīnī was under strong pressure to correlate the new agreement Iran’s imminent economic rehabilitation. The legacy of the Mordad Coup weighed on the regime; while the details remained secret, most educated Iranians suspected that the coup and

3 JFKPL National Security File (NSF), Box 116, Iran 11/61-12/61, Memo for Rostow: Talk with Prof. T. Cuyler Young, 24 November 1961. 4 RG 59 888.2553/1-455 Eakens to Lockett, January 4, 1955, Speech by Amīnī on October 30, 1954.

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subsequent Consortium Agreement were the result of Anglo-American machinations. The shah was secure at the top of the Pahlavi state, yet the situation was far from stable. Zāhidī told U.S.

Ambassador Loy Henderson that his government would be effectively bankrupt without financial assistance for economic development, to “give Iranian people real hope for better future” and preserve the post-coup status quo. Anxious to preserve the fragile peace, the U.S. opened its coffers to the shah. For 1334 (March 1954-March 1955), 80% of Iranian budgetary expenditures were covered by American aid. Between 1953 and 1960, the U.S. government and international organizations including the World Bank provided Iran with $567 million in economic and $450 million in military aid.5

The coup had succeeded in large part thanks to the shah’s support in the army. Assisting with Iran’s military build-up was a crucial component of the American program. Increased assistance for Iran’s armed forces was part of the Eisenhower Administration’s New Look strategy adopted in mid-1953, which sought to de-emphasize containment of the Soviet Union through the deployment of conventional U.S. troops in favor of a greater reliance on regional proxies and a massive nuclear deterrent. For the Middle East, this policy was embodied by the

“northern tier” principle, which saw the U.S. bolster states bordering the USSR and the formation of a new regional defense organization known as the Baghdad Pact. Iran’s traditional neutrality and its policy of refusing to take sides in a general conflict was abandoned. The advisory missions to Iran’s army and gendarmie (ARMISH and GENMISH) were streamlined and upgraded, while the sophistication of the equipment provided to Iran increased. Between

5 FRUS Retrospective Iran 1951-1954, No. 208, US Embassy Tehran No. 982, May 20, 1953, No. 260, Iran Station to CIA, August 14, 1953; FRUS Vol. X Iran 1951-1954, No. 357, Henderson to State, August 27, 1953; RG 84 USETCGR 1953-1955, Box 60, Henderson to State Department, 11 September 1953; Gasiorowski, US Foreign Policy and the Shah, 101-103, Bill, Eagle and the Lion, 114.

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1954 and 1963, Iran received $535.6 million in military assistance. Internal security continued to be a priority, and in 1957 CIA operatives assisted the shah’s government in setting up a new organization for managing dissent: the Sazman-e Etaalaat va Amniyat-e Keshvar (Organization of National Intelligence and Security) or SAVAK.6

The Eisenhower Administration did not expect Iran to survive as a garrison state indefinitely. An oil-less, unstable Iran would lurch “from crisis to crisis,” depending on

American largesse “doled out only in minimum quantities to meet emergencies.” Such a policy would do little to create “real stability, permit development or avoid future emergencies.”7 Once in power, the Pahlavi regime ought to be encouraged to embark upon its own development program “designed to bring to the Iranian people tangible social and economic benefits.”8 The maintenance of political stability, “including the position of the shah,” depended in large part upon the success of the Plan Organization “in carrying out economic development program.”9

The significance of the Mordad Coup was not lost on American observers. Paul Maris returned to Iran and advised Zāhidī in 1953 and 1954 on agrarian reforms. He felt that Iran was poised at a crucial historical moment, “when both the politics and the economics of the situation call for prompt and statesmanlike measures for alleviating the dire poverty…of its peasants.”10

6 FRUS 1955-1957, Vol. XII, No. 291, NSC 5504 Statement of Policy by the National Security Council, January 15, 1955; Gasiorowski, US Foreign Policy and the Shah, 93-95, 109- 126, Little, American Orientalism, 128-129; McGlinchey, US Arms Policies Towards the Shah’s Iran, 9-18. 7 FRUS Retrospective Iran 1951-1954, No. 355, NSC-5402, Statement of Policy by the NSC, January 2 1954, No. 365, Memo from ONE, March 29, 1954. 8 FRUS 1955-1957, Vol. XII, No. 289, NSC 5402/1, Memo from Jernegan to Dulles regarding NSC 5402/1, January 11, 1955. 9 RG 59 888.00/10-356, Chapin to State, NO. 522, October 3, 1956. 10 RAC Ford Foundation Records Box 116, “General Frame of Reference Within Which Planning Details for Rural Development in Iran May Proceed,” Paul V. Maris, December 7, 1953.

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Ford Foundation officer Kenneth Iverson, who had advised against assisting the National Front but enthusiastically embraced the new regime, reported that political conditions had “much improved…the new government is responsive to the needs of the people.” Iran was now “calm,” and ready to accept U.S. assistance.11 The First Seven Year Plan was effectively defunct: most of its major projects were being carried out by the U.S. Point Four mission and affiliated non- governmental organizations like the Near East Foundation. By their efforts, the Plan itself was kept from becoming “entirely moribund.”12 In a statement released shortly after the oil agreement was signed, the U.S. announced a new program of economic and budgetary aid to tide

Iran over until oil revenues reached an appropriate level and the Pahlavi government had

“concrete plans regarding its economic development.”13 According to one American intelligence estimate, it was “politically necessary that visible progress” be made on development goals, as failure to do so would only endanger the shah’s government and risk a return to the political upheavals of the Moṣaddeq period.14

The concept of development took on a more defined character in the mid-to-late 1950s.

Fostering economic growth and societal change came to be viewed from the perspective of a unifying concept of historical change, known as modernization theory. As expressed by social scientists such as Talcott Parsons, Edward Shils, Gabriel Almond, Lucien Pye and Walt V.

Rostow, modernization theory expressed the idea that all societies move through distinct

11 RAC Ford Foundation Records Box 142, Divest of Report Submitted by Mr. Iverson, Price to Program Committee, “Iran Program,” December 17, 1953. 12 RG 469 RUSFAA, Iran Branch, Subject Files 1952-1959, Box 1, Iran Economic Paper No. 16, “The Seven Year Plan, Plan Organization and Overseas Consultants Inc.” 15 January 1952. 13 RG 59 888.2553/10-2954, Dulles to Henderson, No. 855, October 29, 1954. 14 FRUS 1955-1957 Vol. XII, No. 381, National Intelligence Estimate (NIE) 34-57, “The Outlook for Iran,” January 23, 1957.

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evolutionary stages, on their way towards attaining full liberal democracy and functioning industrial capitalism.15 As Rostow explained in The Stages of Economic Growth: A Non-

Communist Manifesto, “traditional societies” progressed economically and culturally until they reached a “take-off” point, when their growth became more sustained, accelerated and continuous. The final stage mirrored the affluence, technological sophistication and perceived political and social stability of post-war America: “materialism without class conflict…democracy without disobedience,” according to Nils Gilman.16

While Rostow argued that such growth was universal, Daniel Lerner contended that urbanization, education and the consumption of mass media in the Middle East would transform the “traditional” peoples of the region into a vibrant, nationalist middle-class. The key characteristic separating advanced Western peoples from their under-developed fellows was empathy, or the ability to see oneself as part of a community rather than as a self-interested individual.17 The economic philosophy behind central planning chiefly stemmed from the work of Paul Rosenstein-Rodan, who theorized that a “big push” through public investment would draw in private capital; also at work was Albert O. Hirschman’s counter argument of “un- balanced growth,” where investment in key places could create forward and backward linkages, setting the general economy towards take-off.18 Development represented a universally-

15 Gilman, Mandarins of the Future, 1-17, Gendzier, Managing Political Change, 1-13, Ekbladh, The Great American Mission, 1-12, 101-113, Latham, The Right Kind of Revolution, 34-61. 16 Rostow, The Stages of Economic Growth, 4-16; Gilman, Mandarins of the Future, 13. 17 Lerner, The Passing of Traditional Society, 45-53. 18 Rosenstein Rodan, “Problems of Industrialisation of Eastern and South-Eastern Europe,” The Economic Journal 53, no. 210/211 (June-Sept., 1943): 202-211, Albert O. Hirschman, The Strategy of Economic Development (New Haven, CT: Yale University Press, 1958), 93-102; see also Amuzegar and Fekrat, Iran: Economic Development Under Dualistic Conditions, 4-5.

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applicable toolkit, and inspired the work of private, non-governmental organizations (NGOs) which largely shared Cold War objectives but operated outside the confines of federal control.19

While different forms of modernization theory ascribed distinct positions on what policies should be taken, the core concept was widely accepted: Iran could eventually achieve stability through economic growth, and in time might even blossom into a functioning democracy. Yet while these ideas were present in the U.S. aid policy after August 1953, the focus of the Eisenhower Administration’s assistance campaign had more short-term goals in mind: Iran had to be stabilized, the shah’s regime put on sound footing and the development plan re-launched. The actual economic impact of the emergency aid program maintained by the U.S. after the 1953 coup was relatively minor.20 Aid was distributed liberally in an uncoordinated, unsophisticated fashion. Corruption, graft and waste were endemic. A report by the Government

Accounting Office revealed in April 1956 that more than $200 million in aid had been “thrown away.”21 The Point Four mission had been managed “in a loose, slipshod, and un-businesslike manner,” according to a Congressional investigation; it was neither technical assistance nor economic development, but rather an “ad hoc method of keeping the Iranian economy afloat.”22

Following the re-evaluation of foreign aid policy in 1957, Point Four activities were integrated with the Iranian government. Requests for economic assistance were directed to the World Bank,

19 For the work of private development firms, see Staples, The Birth of Development, 1–7, Connelly, Fatal Misconception, 18–45. 20 For the impact of Point Four, see Jahangir Amuzegar, “Point Four: Performance and Prospect,” Political Science Quarterly 73, no. 4 (December 1958): 530-546 and Technical Assistance in Theory and Practice, 47, 67-71. 21 Chicago Daily Tribune, “Nobody’s Money,” April 18, 1956. 22 Cited in Bill, Eagle and the Lion, 125-126.

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which would provide loans tailored to Iranian needs, to be serviced by oil revenues.23 This shifted the onus onto the shah’s development program, the Second Seven Year Plan, and its main architect, the developmentalist and technocrat Abu’l-Hạsan Ebtehāj.

The shah’s favorite development expert, Iran’s best-known banker and “first technocrat,” had not been welcome in Moṣaddeq’s Iran. Following his dismissal by General Razmārā in May

1950, Ebtehāj had gone into unofficial exile, working at the embassies in Paris and London. His exile came to an end, however, when the Mordad Coup returned the shah to power. Speaking to his friend Hector Prud’homme at the World Bank, Ebtehāj could barely contain his excitement at the thought of returning to Iran to “push development” for the new regime: “he was convinced the country could do it and should do it…he will try to force the issue of Iranian development” on whomever would listen, “and he did not know if he would have any success.”24 But he was in luck: the shah immediately offered him a choice between chairmanship of NIOC or a position as managing director of the re-constituted Plan Organization. Ebtehāj, willing this time to direct the

Plan effort himself, chose the latter: he was to be “the de facto ruler of the planning process.”25

As Iranian oil production began to recover following the 1954 agreement with the international consortium, the shah’s government eagerly pressed on with plans for a new

23 RG 469 RUSFAA Iran Branch, Subject Files 1952-1959, Box 1, Carter Ide, Iran Desk, “Material for Mr. Hollister’s Terminal Report,” September 9, 1957; Burton I. Kaufman, Trade and Aid: Eisenhower’s Foreign Economic Policy, 1953-1961 (Baltimore, MD: Johns Hopkins University Press, 1982): 95-112. 24 Prud’homme to Files, April 26, 1954: Phone Call with Ebtehāj, Iran—General— Correspondence—Volume 8, RMENARVP, World Bank Group Archives. 25 Ebtehāj, Khāṭirāt, 329-330; FISDS, ʻUmrān-i Khūzistān, Introduction by Gholam Reza Afkhami [Accessed February 10, 2017].

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development program.26 As one Iranian official wrote in 1963, after the coup “political pressure

…was directed in full force” toward Iran’s economic development.27 Economic development had become a “magic phrase” in Iran, as it had all throughout the Third World.28 The First Plan, widely regarded as a failure, concluded in 1954 and plans were immediately set in motion to begin a Second Seven Year Plan. Budgeted at $930 million or 70 billion rials (later raised to

$1.1 billion or 84 billion Iranian rials), the Second Seven Year Plan was larger and more ambitious than its predecessor. It was not “comprehensive” in the sense that it did not lay out a particular plan for developing Iran’s distinct economic sectors. Instead, the Plan allocated funds for projects related to particular areas (agriculture, transportation, industry, etc.) in the hope that it would increase productivity and spur economic growth. Though its formulation preceded

Rostow’s Stages of Economic Growth, it paralleled the thinking present in modernization theory: infrastructure and agriculture were targeted, in order to provide a basis for industrial growth. The

Plan Bill passed in 1956 indicated that 90% of all oil revenues would be allocated for Plan purposes.29

The Second Plan was placed in the hands of Ebtehāj, and he ruled over the Plan

Organization as his personal fiefdom.30 Ebtehāj conceived of development as facilitating a “big

26 In 1954, Iran earned $36.7 million from oil production, while in 1955 it earned $33 million. By 1956, this had increased to $85.8 million, and the following year reached $138.6 million. Gasiorowski, U.S. Foreign Policy and the Shah, 103. 27 RAC, Ford Foundation Records, Unpublished Reports, Box 559, Report 012037, Khudādād Farmānfarmāʼiyān “Report on the Formation and Development of Economic Bureau, 1336-1342,” 12. 28 RG 59 888.00 SEVEN YEAR/4-1856, US Embassy No. 887, April 18, 1956. 29 Mofid, Development Planning in Iran, 40, 90-95; Katouzian, Political Economy of Modern Iran, 203-204. 30 RG 59 888.00 SEVEN YEAR/4-1856, “Iran Second Seven-Year Development Plan,” April 18, 1956; Ebtehāj, Khāṭirāt, 399, 403; RAC Ford Foundation Grant 55-173 R-0811, Hill to Iverson, May 23, 1955.

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push” by separating economic growth from the central government, placing it in the hands of an independent organization, free from the corruption and inefficiency that plagued the Pahlavi government, “which [was] not equipped to assume quickly and with precision and competence the duties of a development system.”31 His “greatest fight,” according to his friend Khudādād

Farmānfarmāʼiyān, was to keep money “out of the hands of the ministries.” Ebtehāj continued to regard oil as a “wasting asset;” revenues from the oil industry had to be pumped into productive enterprise. He was vigorously opposed to spending oil money on military expenditures and regarded a large army as an unnecessary expense. This would inevitably bring him into conflict with the shah, for whom a powerful military was a priority. 32 He was not an easy man to work with, and even his supporters within the Plan Organization, men like Farmānfarmāʼiyān,

Manūchehr Gūdarzī, and ʻAbd al-Majīd Majīdī, regarded him as combative and stubborn; he spurned delegation and preferred to run the Plan Organization as a “one man show.”33 His use of foreign experts, as well as his open disdain for other branches of the Pahlavi government, made

Ebtehāj an unpopular figure. Yet initially this unpopularity could not threaten his position; he

31 Ebtehāj, Khāṭirāt, 326. 32 RG 59 Office of Greek, Turkish and Iranian Affairs, 1950-1958, Lot File No. 60 533: Subject Files Relating to Iran, 1951-1958, Box 10, Memo of Conversation, January 25, 1958; FISDS, Barnāmeh rīz-i ʿomrāni va taṣmim giri-i siāsi, [Ideology, Process and Politics in Iran’s Development], Part 2, Interview with Khudādād Farmānfarmāʼiyān [Accessed 10 February 2017]. 33 RG 59 888.00/4-1456, US Embassy Tehran No. 873, Quarterly Economic and Financial Review, April 14, 1956; ʻAbd al-Majīd Majīdī, Khāṭirāt-i ʻAbd al-Majīd Majīdī : vazīr-i mushavir va raʼīs-i Sāzmān-i Barʹnāmah va Būdjih, 1351-1356 [Memoirs of ʻAbd al- Majīd Majīdī, Director of the Plan and Budget Organization 1973-1977) Habib Ladjevardi, ed. (Cambridge MA: Iran Oral History Project, Center for Middle Eastern Studies Harvard University, 1998): 82-89; FISDS, Barnāmeh rīzī-ye, Part 1, Interview with Manūchehr Gūdarzī, and Part 2, Interview with Khudādād Farmānfarmāʼiyān [Accessed 10 February 2017].

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enjoyed the firm backing of the shah, who supported him even when he feuded openly with

Prime Minister Zāhidī in late 1955.34

The Mordad Coup was a transformative moment in the career of the second Pahlavi monarch. Crouched in the American ambassador’s office in Rome on August 17, 1953, the shah had seemed defeated: he talked of relocating his family to America and of taking on personal employment, “as he has a large family and very small means outside of Iran.”35 Upon his arrival on August 20, the thirty-four year-old shah was a “new man.”36 He benefitted from Zāhidī’s

CIA-assisted efforts to stamp out the Tudeh, the increased status and importance of the armed forces, and the muzzling of the Majlis. In 1955, he succeeded in removing Zāhidī from office, replacing him with his long-time supporter and advisor Ḥusayn ‘Alā; henceforth, the office of the prime minister was occupied by a shah loyalist. The shah gradually transformed into a more authoritarian, determined individual, albeit one who could still be paralyzed during times of severe crisis. In the decade succeeding the coup, he listened less to the advice of old counselors and more to his friends and confidantes, particularly Asad Allāh ‘Alam, Manūchehr Iqbāl, and

Jaʻfar Sharīf Imāmī.37

After 1957, restrictions on political activities were loosened somewhat and a two-party system was introduced to give elections and Majlis proceedings more structure. Yet in reality,

Iran had turned into an authoritarian dictatorship, with political power concentrated in the hands of the shah and his immediate supporters in the government and the army. A powerful internal

34 Ebtehāj, Khāṭirāt, 399, 403 35 FRUS Retrospective Iran 1951-1954, No. 271, Berry to State, August 17, 1953. 36 FRUS Retrospective Iran 1951-1954, No. 317, CIA Information Report, September 14, 1953. 37 Milani, The Shah, 223-225; Bill, Eagle and the Lion, 99-102.

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security service led by SAVAK suppressed dissent.38 There remained a fairly vocal conservative group in the Majlis representing the feudal aristocracy; they continued to hold most of the country’s landed wealth. The National Front, though decimated after August 1953, lived on through an incipient “second” National Front, a smaller and more tightly-knit coalition of intellectuals, journalists and reformist politicians led by former Ambassador to the U.S. Allāhyār

Sāleh.39 Other political groups, such as Mozaffar Baqā’i’s Toiler’s Party and Khalīl Malikī’s

Third Force, were allowed to continue organizing: the shah was comfortable with the appearance of opposition, as long as it was “loyal to the crown.”40 Populist figures such as Ayatollah

Kāshānī slipped into obscurity, while senior Shi’a clerics like Ayatollah Burūjirdī either were co- opted by the regime or convinced to remain out of politics.41

The shah had long sought to portray himself as Iran’s greatest reformer. He regularly expressed his desire to make Iran a “model country,” and spoke of himself as the champion of

Iran’s “barefoot millions.”42 American developmentalists like David E. Lilienthal came to regard him as a true progressive and an ardent advocate for positive modernization, blinding themselves to the corruption and arbitrary power often deployed by the Pahlavi regime to quell dissent.43

Paul Maris regarded him as “benevolent-minded and forward-thinking,” and thought the Crown

38 Bill, Eagle and the Lion, 98-130, Ansari, Modern Iran, 159-186, Abrahamian, Iran Between Two Revolutions, 419-426. 39 Bakhtiyār, Khāṭirāt, 40-44. 40 FRUS Retrospective Iran 1951-1954, No. 332, Richards to Henderson, October 17, 1953. 41 In return for their cooperation, the Pahlavi regime permitted the Shi’a leadership to crack down on religious minorities inside Iran, particularly members of the Baha’i sect. In 1955- 56, the shah’s security forces took no action as mobs organized by the clergy converged on Baha’i centers throughout the country. Hundreds of Baha’i were killed and thousands more forced to recant. See Bill, The Eagle and the Lion, 101-102. 42 Ansari, Modern Iran, 176-177. 43 Bill, The Eagle and the Lion, 121.

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Lands distribution program, the shah’s highly-publicized yet decidedly small-scale land reform project, “well-conceived” and “statesmanlike.”44 The success of his regime was bound to the success of the development program. “The shah’s political position,” noted John Bowling at the

U.S. embassy, “will become weaker with the passage of time unless he is able to satisfy the people with substantial advancement financed by oil revenues.”45

The shah himself was an inconsistent proponent of socio-economic reform. Like other

Third World modernizing dictators, he was enamored of construction feats that burnished the prestige of his regime: his support for costly, unnecessary projects like the Demag-Krupp steel mill illustrated this tendency.46 He voiced the need “to maintain social equilibrium,” which placed a significant break on the pace of land reform or other transformative programs. A supposed-champion of modernization, he displayed considerable fear of the National Front, and declared all former supporters of Moṣaddeq “traitors” with no right “to participate in the political life of the country,” though he permitted men like Baqā’i and Allāhyār Sāleh to remain active in order to give the appearance of political lenience.47 While his rhetorical support for the Plan

Organization was fairly consistent, he rarely involved himself in the technicalities of development work: by the 1960s, Plan Organization officials noted that the monarch seldom attended meetings and offered only “general tips” and suggestions as to how the Plan should proceed.48 The shah was chiefly concerned with preserving his position: he feared enemies, both

44 RG 59 888.00/4-1855, Maris to Henderson, April 18, 1955, Speech by Maris, February 15, 1955; RAC Ford Foundation Records, Unpublished Reports, Box 161, Paul Maris Reader, “Proposing Point IV Project for Aiding Purchasers of Crown Lands in Iran” May 28, 1952. 45 RG 59 788.00/3-2656, US Embassy Tehran No. 807, March 26, 1956. 46 RG 59 788.00/1-1660, US Embassy Tehran No. 435, January 16, 1960. 47 RG 59 888.00/1-2456, Chapin to State, No. 1043, January 4, 1956, 788.00/9-2460, US Embassy Tehran No. 150, September 24, 1960. 48 Majīdī, Khāṭirāt-i ʻAbd al-Majīd Majīdī, 93.

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foreign and domestic, and thus did all he could to bolster his regime and his own place atop it.

He was pre-occupied with building up Iran’s military capabilities, to the point that it appeared his obsession.49 Personally, the shah was able to profit handsomely from Iran’s oil wealth in the

1950s, siphoning it into the Pahlavi Foundation through which he purchased property and distributed largesse to his supporters: his personal wealth by the mid-1960s was estimated to be at least $120 million, and by the 1970s it had ballooned to several billion. Members of his family benefited, as did close advisors like Reza Fallah, the shah’s oil advisor, and Ahmed Maybud, a businessmen characterized by the Americans as “irresponsible, opportunistic and corrupt” who regularly represented the shah’s personal interest in commercial concerns, particularly deals with smaller oil companies.50 The shah was careful not to antagonize key parts of his power base. A land reform bill proposed in 1959, which the shah hoped would help bolster his credibility and improve his position with the Americans, ran into heavy opposition from the religious leadership, with Ayatollah Burūjirdī threatening to issue a fatwa against land distribution. The bill was passed by the Majlis in a heavily watered-down form. 51

The shah’s support for development was thus contingent on how certain reforms would affect his position. Nevertheless, after the coup interest in re-launching the Plan Organization was at an all-time high. Farmānfarmāʼiyān recalled that the government “could not wait another year…people wanted to see results. People wanted to see agriculture increase, industry increase,

49 JFKPL NSF Box 116a, Iran: 4/20/63, Memo for NSC, Proposed Approach to the Shah, March 8, 1963. 50 FRUS 1955-1957 Vol. XII, No. 377, Stevens to Hannah, Januaruy 14, 1957. Maybud defended himself, claiming he acted merely as an agent of the shah. HIOHP, Interview with Ahmed Maybud, Tape No. 6, 8-15, Tape No. 7, 1-3. 51 Milani, The Shah, 240-242.

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dams built. People wanted water, electricity, roads…all were began early and could not wait.”52

As Ebtehāj saw it, it was useless to wait for the economy to develop itself: “the way to build a country is not to listen to economists who constantly say no, do nothing…Iran is the patient who will die if not operated upon.”53 Change had to be immediate, to satisfy the lingering discontent left over from the Moṣaddeq era and prove the Pahlavi regime’s claim to power. Speed was essential. Though oil revenues increased steadily after 1954, Iran’s economic growth between lay on unstable foundations. The rapid influx of capital and foreign exchange funded a massive increase in imports. Modern amenities, such as radios, televisions and automobiles, entered the country in large numbers. The state bureaucracy expanded, adding thousands of highly-paid civil servants and army officers, many of whom performed little service yet drew hefty salaries. Rural poverty was endemic, corruption and waste were rampant. Rising expectation through greater exposure to mass media and years of promises of economic improvements from the government were feeding public discontent: the shah and his allies were racing against time and had to deliver substantive results.

Political opposition to Ebtehāj emerged almost immediately, with provincial elites expressing irritation at the “encroachment” of the Plan Organization into new spheres of influence. Rather than stabilize the country, the Plan created immense frictions between Ebtehāj and the shah’s ministers and major landowners. Ebtehāj, “probably the most unpopular man in

Iran today,” owed his position entirely to the shah: were it not for the shah’s support, Ebtehāj and the Plan Organization “would be swept from the Iranian scene.” Ebtehāj, while projecting

52 FISDS, Barnāmeh rīz-i, Part 2, Interview with Farmānfarmāʼiyān [Accessed June 24, 2017]. 53 Ebtehāj, Khāṭirāt, 396, Ebtehāj, San Francisco October 1957/Mehr 1336, quoted in The Unified Development of the Khuzestan Region, 28 August 1958, 108, PDL Subseries 18C: 1955- 1958, Box 409.

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decisiveness and a desire for action, “makes a great deal of noise…[but] has produced nothing.”54 Ḥasan Shahmīrzādī, a Plan Organization administrator, noted that early in the Plan’s history staff were transferred from the central ministries: “the lack of experts in irrigation, agriculture, electricity, management, accounting and other disciplines was evident,” forcing the

Plan to rely on foreign expertise, which generated more political opposition.55 When Point Four increased its involvement in Iran after the August coup, taking on many of the Plan

Organization’s dormant projects, it did so largely due to the recognized “lack of managerial and administrative skills” in the Iranian government.56

Despite the official support of Iran’s development scheme, American attitudes towards

Ebtehāj and the Plan Organization were just as conflicted as they had been before the Moṣaddeq era. Some worried that Iran’s central development program would deter private investment, or that Ebtehāj was steering Iran away from a free enterprise system. Despite the political imperative of rapidly improving the nation’s economy in order to meet rising expectations,

Ebtehāj pushed for enormous construction projects like multi-purpose dams, which were both costly and time-consuming. The Plan itself was regarded as a “loose affair” likely to run over budget by as much as $200 million by 1960. Apart from the principle of applying oil money to development and asserting independence from the central government, the Plan had no guiding ideology. There was little binding the different sections together: “objectives were not translated

54 RG 59 788.00/12-2255 US Consulate Meshed No. 30, Dissatisfaction with Plan Organization, December 22, 195, 788.00/3-2656, “Analysis of the Plan Organization and the Political Stability of Iran,” 26 March 1956, 888.00/10-1556 US Embassy Tehran NO. 301, Prospect for Implementation of the Plan Organization’s Economic Development Program, Memo of Conversation, October 15, 1956 55 FISDS, ʻUmrān-i Khūzistān, Part 2, Interview with Ḥasan Shahmīrzādī [Accessed February 15, 2017] 56 RG 469 RUSFAA Iran Branch, Subject Files 1952-1959, Box 1, Hollister, “Description of ICA Program,” October 23, 1956.

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into a consistent set of clearly stated quantitative goals,” and money was allocated in random, ad hoc disbursements entirely at the discretion of the Plan director. There was a lack of accurate statistics and an un-clear chain of command.57

It was true that Ebtehāj lacked trained personnel for a project on the scale of the Plan. Yet

U.S. criticisms of his administration, and of the Iranian development project in general, were unmistakably tinged with cultural, if not racial prejudice. It was not just that skilled Iranians were in short supply; Iranians themselves were not up to the task at hand. Henderson warned

Dulles in September 1953 that any effort to assist the Iranian economy required a “firm guiding hand” from the United States, due to the “serious lack of competence…[and] complete lack of sophistication in economic and fiscal matters” among the shah’s ministers.58 The First Seven

Year Plan had failed, not only because oil revenues had ceased, but because Iran lacked

“competence, and a sense of public responsibility in Government.” Iran would need to accept

“guidance and discipline” from foreign consultants to overcome these deficiencies.59 “The

Iranians,” wrote one consular officer, “don’t really understand how to use the wealth they have.”60 As one Ford Foundation report noted, this was a problem endemic to the region: the vast

57 RG 59 888.00/9-2055, US Embassy Tehran No. 162, Views of World Bank Official, September 20, 1955, 888.00/12-2255 US Consulate Meshed No. 30, Dissatisfaction with Plan Organization, December 22, 1955, 888.00 SEVEN YEAR/4-1856, “Iran Second Seven-Year Development Plan,” April 18, 1956, 888.00/8-1559, US Embassy Tehran No. 112, August 15, 1959. RG 469 RUSFAA Iran Branch, Subject Files 1952-1959, Box 2, Iran—Program Evaluation 1957, Memorandum of Conversation: Francois Cracco, May 19, 1957; Division of Economic Affairs (Economic Bureau), Plan Organization, Iran, Review of the Second Seven Year Plan Program in Iran (Tehran, March 10, 1960), 6, 3-19. 58 RG 84 USETCGR 1953-1955, Box 60, Henderson to State, No. 293, September 4, 1953. 59 RG 469 RUSFAA Iran Branch, Subject Files 1952-1959, Box 1, Iran Economic Paper No. 1, “Summary of the Current Economic Situation,” January 1953. 60 RG 59 788.00/7-2057, US Embassy Tehran No. 83, July 20, 1957.

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wealth from oil could only be harnessed by “training leaders in social endeavor as well as technical skills.”61 Iran’s deficiency lay not in a lack of capital investment in agriculture, but in a shortage of “know-how, knowledge and the ability to implement improved farming practices.”62

A consultant’s report written in 1960 suggested difficulties in cooperating with the shah’s government were largely due to “cultural differences.” Iranian administrators were tied to familial and social networks, rather than to the state apparatus or national community:

“Individual actions [are] chiefly influenced by inclinations to preserve a satisfactory and comfortable status-quo.”63 Iranian society, noted one consular officer, suffered from intense

“fractionation” and seemed to lack a sense of “community feeling.” All Iranian actions, both in everyday life and in the formation of national policy, stemmed from the pursuit of “individual self-interest.”64 “There is a marked tendency,” wrote one departing American, “to personalize all official matters,” to the point that assumptions of Western administrative practice “cannot be made with any confidence.”65 Officials within the US Embassy commented on the “bazaar” mentalities governing Iranian policy, emerging from “emotional, rather than economic motives.”66 Abdolrezā Ānsāri, who worked at the Point Four as a translator, recalled how his

American colleagues would complain over the “poor organization” endemic in Iranian

61 RAC Ford Foundation Archives: International Division, Office of the Vice President, Office Files of Francis X. Sutton, Box 63, “Near East Program Report and Recommendations,” July 1952. 62 V. Webster Johnson, “Agriculture in the Economic Dev elopement of Iran,” Land Economics 36, no. 4 (Nov. 1960): 317. 63 Government Affairs Institute, Final Report on the Advice of the Government of Iran, 1956-1961, ICA Contract No. W-222, USOM-Iran Project No. 116, 60-63. 64 RG 59 788.00/7-2057, US Embassy Tehran No. 83, July 20, 1957. 65 RAC Ford Foundation Records, Report No. 006417, Box 288, McLeod, “National Planning in Iran, Vol. 2,” December 31, 1964, 182-184, 206. 66 RG 59 888.00/11-1058, US Embassy Tehran No. 336, November 10, 1958.

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bureaucracy, that different departments “functioned as piggy banks” for their frequently-absent staff.67 Richard Gable wrote in 1959 that Iranian administrators were loyal first to their specific social circle (dowreh), usually led by a prominent political figure, and to themselves, rather than to the state or nation. Work was defined by “a high degree of individualism,” while the limits of necessary work were determined by social status: “People seldom deign to perform a task beneath their status or even, at the same level, to cross lines of specialization.”68 Breaking this system was required in order to set Iran on its course towards modernity, yet from the point of view of most American officials and developmentalists, the Iranians themselves were woefully unprepared for such a task. They would require American expertise, “know-how” and leadership to set them on their way.

Running alongside this critique was the feeling left over from the Moṣaddeq era that

Iran’s modernizing middle class was not ready to take up the reins of government. Embassy officials noted the “Iranian distaste for group action and preference for rule by one strong individual” as evidence for preserving a dictatorial regime.69 John Bowling, working in the embassy in Tehran, felt Iranian discontent over the 1953 coup and subsequent “surrender” to foreign oil companies could be offset if the shah “is able to satisfy the people with substantial advancement financed by oil revenues.” Free elections in Iran would create a Majlis divided between “urban demagogues and reactionary landlords, with a scattering of clergymen and liberals.” Democracy might come to Iran, he reasoned, but only after a transitory period of

67 Ansari, The Shah’s Iran, 46. 68 Richard W. Gable, “Culture and Administration in Iran,” Middle East Journal 13, no. 4 (Autumn, 1959): 407-421; “Report on Education in Khuzestan and for the KDS,” William R. Odell, February 1961, PDL, Series 18, Subseries 18D: 1959-1961, Box 426; RG 59 788.00/5- 360, US Embassy Tehran No. 698, May 3, 1960. 69 RG 59 788.00/5-360 US Embassy Tehran No. 698, An Assessment of the Internal Political Situation, May 3, 1960.

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authoritarian rule by the shah.70 It was substantively the same recommendation Max Thornburg had offered a skeptical CIA in late 1952: progress through petroleum was only possible with the shah in charge.71

Here was the central paradox of American support for reform in Iran: economic development could bring political progress, deemed crucial to Iran’s long-term survival, only through the administration of the shah, who stood to gain the least, and lose the most, if such reform efforts succeeded.72 Little work was done by the U.S. government to build up any democratic opposition to the shah, or to reach out to the second National Front. Official

American support would focus on bolstering Iran’s military capabilities and keeping the shah happy, preserving Iran’s Western alignment. Aid was needed “in order to maintain Iranian confidence in strong U.S. support,” and influence the shah “in the direction of economic improvements and fiscal and administrative reforms.”73 This was a common justification deployed by American Cold Warriors: stability and prosperity would precede democratization. In time, a successful development effort would allow the shah to gradually turn away from authoritarianism. When and exactly how that would happen was never determined. Yet the experience of Americans in Iran since 1940s and the frequent criticism levelled against the

Iranian effort conflicted with the universalism at the heart of modernization theory. All nations

70 RG 59 788.00/3-2656, “Analysis of the Plan Organization and the Political Stability of Iran,” March 26, 1956, 788.00/9-458, “Current Political Situation in Iran and Assessment of Future,” September 4, 1958, 788.00/10-2158, “Aspects of Current Political Situation in Iran,” October 21, 1958. 71 FRUS Retrospective Iran 1951-1954, No. 116, Memo of Conversation, August 20, 1952, No. 118, Memo Prepared by Thornburg, August 22, 1952, No. 122, Leavitt to Roosevelt, September 22, 1953, No. 154, Memo from Dulles to Smith, February 19, 1953. 72 Popp, “An Application of Modernization Theory,” 89-91, Binder, Iran: Political Development, 311-314. 73 FRUS 1955-1957, Vol. XII, No. 378, Memo from Jones to Bowie, January 11, 1957.

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could presumably reach Rostow’s “take-off” and achieve modernization. The consistent cultural critique of Iranian administrators indicated that Americans were in doubt as to whether a functioning, economically developed Iranian democracy was even possible. What faith they had was placed in the shah and Ebtehāj, who turned to non-government organizations (NGOs) for the know-how needed to make the Second Plan a success.

5.2 “What They Need is Management:” American NGOs in Iran

As Ebtehāj assumed directorial duties over the Plan Organization, he sought advice from

Hector Prud’homme and Eugene Black at the World Bank. Prud’homme suggested Ebtehāj meet with David E. Lilienthal, whose company Development & Resources Corporation (D&R) was actively looking for projects. Prud’homme was a close friend of Ebtehāj and had worked on

Iranian issues since the late 1940s: he thought Iran was unique among developing countries in that it needed no financial assistance: “What they need,” he told Lilienthal, “is management.”

Lilienthal met with Ebtehāj in Istanbul, and the two briefly discussed the possibility of a visit: the Iranian was, wrote Lilienthal, “intense, cultivated, and utterly sincere…positively incandescent, full of feeling,” and possessed of a “missionary zeal” which Lilienthal found appealing. He was nevertheless initially skeptical of the Iranian invitation, and agreed to a visit in early 1956 after some delay, writing to his business partner Gordon S. Clapp that the Plan

Organization was offering too much “hard money” to resist.74

During the 1930s, Lilienthal spearheaded the Tennessee Valley Authority (TVA), an immense multipurpose dam project that brought electricity and irrigation to the Southeastern

74 Lilienthal, The Road to Change, 9-10, 26. PDL, Subseries 18C: 1955-1958, Box 398, Lilienthal to Andre Meyer (World Bank), September 15, 1955.

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United States. The TVA was the most evocative symbol of New Deal-era liberalism. It was also the most easily-exportable component of the American postwar development mission, what

James Scott has called the “grand-daddy of all regional development projects.”75 Lilienthal considered the cause of development to be something of a religious calling.76 His company

Development and Resources (D&R) was the chief means by which he spread his gospel. The company’s main goal was to “provide planning, engineering, managerial and other technical services to public and private agencies…undertaking programs of water, land, power, industrial and mineral developments.”77 Lilienthal envisioned it as a way of exporting American know- how. “In most of the so-called underdeveloped countries,” he wrote, “there is an absence of business imagination, character, and creative financial judgement and experience.” Like many

American developmentalists, Lilienthal felt the abundance of Iran’s natural resources was being held back by a lack of “managerial competence.” He argued that D&R could foster long-term stability in the country by slowly training young Iranians to take over established industrial and agricultural projects. The guiding “concept,” for the company’s development efforts was locked in the DNA of the original TVA: by harnessing of water and the irrigation of land, “we ‘speak’ in a universal language, understood almost everywhere.” 78 In and out of public service since the

75 James Scott, Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed (New Haven, 1998), 6; David C. Ekbladh, “Mr. TVA:’ Grass-Roots Development, David Lilienthal and the Rise and Fall of the Tennessee Valley Authority as a Symbol for Overseas Development, 1933-1973,” Diplomatic History 26, no. 3 (Summer, 2002): 335-374. 76 Lilienthal, The Road to Change, 105-106. See David E. Lilienthal, This I Do Believe (New York, 1949), and TVA: Democracy on the March (New York, 1953); Fisher, “Moral Purpose is the Important Thingm,” 431-451. 77 PDL, Subseries 18D: 1959-1961, Box 419, “Khuzestan Development Program” November 1960 78 Lilienthal, The Road to Change, 1-3; PDL, Subseries 18C: 1955-1958, Box 409: Iran, Lilienthal to Eugene Black (World Bank), September 3, 1958, Lilienthal to Clapp, May 7, 1958.

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1930s, Lilienthal fostered numerous connections within the U.S. government and engaged with the ideas of modernization theory advocates like Walt W. Rostow and Max Millikan. An energetic man who disdained theorizing, Lilienthal preferred action to postulating on development “in system analysis or econometrics.”79 His understand of development was steeped in romanticism and immediacy; the mechanics of the work he left to Clapp, a skilled engineer and administrator, and by far the superior manager of the two.

Lilienthal and Clapp arrived in Iran in February 1956. Their discussions with Ebtehāj focused on the southwestern Iranian province of Khuzestan, where Ebtehāj hoped a comprehensive project could be launched within a year. The conversation concentrated on conditions in Khuzestan, “a salt marsh, [where] the heat is fantastic, and the water brackish.”80

Apart from the presence of Iran’s oil industry, Khuzestan was much like the rest of the country: its population was primarily rural, engaged in seasonal farming on a sharecropper or tenant basis, and endured tremendous poverty and privation. AbdolRezā Ānsāri, touring the town of Dezful, was appalled by the streets “full of filth,” the people who dressed in rags and children “who bathed their faces amidst the dirt and flies” as “waste poured into the street gutters.”81 Despite these draw-backs, both Clapp and Lilienthal felt the region had “enormous potential” for a unified development project based on the TVA model. The upper Karun and Karkheh rivers offered an “unusually favorable setting for a major and fundamental plan of long-range development.” What D&R envisioned for Khuzestan was a vast, multi-dimensional development project linking the country’s oil and gas industry to the expansion of electricity production and

79 Quoted in Fisher, “Moral Purpose is the Important Thing,” 434-444. 80 Ebtehāj, Khāṭirāt, 386. 81 Ānsāri,The Shah’s Iran, 101; FISDS, ʻUmrān-i Khūzistān, Interview with Ānsāri [Accessed February 15, 2017]; PDL, Subseries 18C: 1955-1958, Box 409: Iran, Thomas Mead, “Recruitment and Training” April 21, 1958.

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cash-crop agriculture. Lilienthal had gradually developed a fascination with Iran’s oil and gas industry, and the potentials locked within the country’s petrochemical resources. “The great problem of Middle East oil,” he told oil expert Walter Levy, “is to find a way to develop those resources which will bring good political results [and] cause the Iranians to feel that they are not being exploited.”82 “To many people,” he wrote to Ebtehāj, “oil is but a valuable raw material...It is much more than that. Oil and the volatile gas with which Iran is blessed can become a source of energy convertible into electricity in great quantities at low cost….a raw material for a great complex of inter-related chemical manufacturing to bring a great industrial empire to balance with Iran’s agriculture.83

This was Lilienthal’s vision: a concept of development that merged land, water and oil together. Within the scope of the Khuzestan development plan were fourteen hydroelectric dams; a transmission line linking Abadan to the city of Ahwaz, later to be linked to the completed dams; an irrigation project delivering water to 125,000 hectares of arable land turned over to sugar cane cultivation; a sugar processing plant; a factory producing fertilizer from the excess natural gas produced in the oil fields; and a polyvinyl chloride (PVC) factory, also fed by natural gas.84 The final project would open up thousands of hectares of arable land to small-scale farming, enriching local peasants and furthering the goal of rural improvement. Inhabitants of the

Dez Irrigation Project (DIP) would also, in time, have ample access to fertilizers and electricity from the dams and generators in Abadan. The quality of life in the region would increase ten- fold. The proposal was accepted immediately, with a memo of agreement signed on March 14,

82 Lilienthal, The Road to Change, 104-107. 83 RAC Ford Foundation Grant 55-173 R-0811, Report from Lilienthal-Clapp to Ebtehāj, March 5, 1956. 84 The Unified Development of the Khuzestan Region, August 28, 1958, 19, in PDL, Subseries 18C: 1955-1958, Box 409.

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1956 by Lilienthal, Clapp and Ebtehāj. Ebtehāj praised the Khuzestan project, declaring it to be his “new philosophy towards economic development.”85

The agreement was unique in the way that it granted a foreign company sweeping powers to plan and implement projects, with little oversight from the central government: for all intents and purposes, “D&R would be the Iranian Plan Organization in the Khuzistan region.”86 Within the scope of the Seven Year Plan, the Khuzestan Development Services (KDS) was the single largest item, and easily the most high-profile: the total estimated cost of the Dez Dam was $54 million, and the cost of the entire project was nearly $150 million out of a total Plan budget of

$1.1 billion. Lilienthal and Clapp felt that the added emotional appeal in developing Khuzestan lay in Iranian romantic attachment to a glorious past. The region, once home to a flourishing ancient civilization, held more than agricultural potential: “it now has oil and gas, in vast quantities…the modern door to the full development of Khuzestan, the key to an industrialized

Iran.”87 It was a potent opportunity to deliver a spectacular propaganda victory for the Pahlavi regime, while serving as a potent example of how oil could be transformed into lasting economic growth and sustaining improvements in standards of living.

The KDS was from its earliest days a highly controversial endeavor. It was consistently criticized by the conservative opposition in Iran as over-priced and unnecessary. The National

Front and educated Iranians protested over the widespread employment of foreigners. Touring the Dez Dam construction site, Abdolrezā Ānsāri noted that all the managers supervising construction were foreigners, while all the laborers were Iranian. KDS ran into the same problem

85 RG 59 888.00/7-2259, US Embassy Tehran No. 65, Weekly Economic Review, July 22, 1958. 86 Lilienthal, The Road to Change, 79-80, 80-81. 87 RAC Ford Foundation Grant 55-173 R-0811, Report from Lilienthal-Clapp to Ebtehāj, March 5, 1956; Fisher, “Moral Purpose is the Important Thing,” 437-443.

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AIOC had once face: it proved very difficult to entice educated, qualified Iranians to move to

Khuzestan, given the harsh conditions. As one Iranian administrator later recalled, “facilities for sports and amusement,” along with other amenities were in short supply in Ahwaz, where the

KDS offices were located.88 Ebtehāj scoffed at such objections, viewing them as evidence of the country’s political backwardness and unwillingness to accept foreign financing and technical assistance.89

The Ford Foundation, who mockingly referred to Lilienthal’s March 5 letter to Ebtehāj as the ‘“Rivers, Land and Sunshine’ Report,” thought the project far outside Iran’s means. Along with two other dam projects (Karaj and Sefid Rud), the Dez Dam made up more than eighty percent of total irrigation expenditure in the Second Plan, and little money was left over for rural improvement projects such as fertilizer training or rural cooperatives.90 While government reports regularly denied the poor sanitary conditions, in reality there was “heavy incidence of disease of all kinds” in the villages within the irrigation area. There were pressing concerns that persistent health problems would blunt the impact of the KDS project once it was completed: “a population suffering from severely depressed standards of health…will never be capable of seizing the economic advantages which these projects are supposed to put within its reach.”91

One report noted that few inhabitants of Khuzestan knew what KDS was, and those that did

88 Ānsāri,The Shah’s Iran, 102; FISDS, ʻUmrān-i Khūzistān Part 2, Interview with Shahmīrzādī [Accessed February 10, 2017]. 89 Ebtehāj, Khāṭirāt, 399. 90 RAC Ford Foundation Grant 55-173 R-0812, Eggers to Iverson, May 14, 1956; “Description of Water and Power, Economist Position—Harvard Advisory Group,” May 10, 1959. Division of Economic Affairs (Economic Bureau), Plan Organization, Iran, Review of the Second Seven Year Plan Program in Iran (Tehran, 10 March 1960), 28. 91 PDL Subseries 18C: 1955-1958, Box 409, T.A. Mead, “Medical and Health Problems in Khuzestan,” April 21, 1958.

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considered it “a foreign organization whose activities have little application to the ordinary life of the region.”92 Those who were aware of the project condemned it as a boondoggle, evidence of the out-sized U.S. influence within Iran and the rampant, runaway spending within the Plan

Organization.

After several years of work, it was clear that Iran’s development project was in trouble.

The Plan Organization was not fulfilling its intended political purpose. Public attention was fixed on the lack of Iranians involved in the project, while popular interest among average Iranians was almost non-existent.93 Plan expenses were larger than expected, and more pressure was being placed on the state budget from administrative over-run and the shah’s eagerness to expand military spending.94 Iran’s impressive economic growth was beginning to slow, inflation was setting in and prices ticking upward. It was recognized that what Iran needed was not more money, but a more effective means of applying its significant financial resources to meet its needs. For that, it needed a dedicated staff of economists.

Ebtehāj recognized the Plan Organization’s need for an economic staff early in his tenure, and in 1954 he wrote to the Ford Foundation, the American philanthropic organization, for assistance in obtaining the services of American economists to serve as advisors to the Plan

Organization.95 Paul Maris told the Foundation that Ebtehāj had firm control over the fundamentals of the development program but could not handle all day-to-day operations. As a result, the Plan Organization was tending towards “dramatic construction projects,” which had

92 PDL Subseries 18C: 1955-1958, Box 409, T.A. Mead to Clapp, May 1, 1958. 93 RG 59 888.00/6-2458, US Embassy No. 1143, June 24, 1958. 94 RG 59 888.00/1-2058, Ebtehāj Address to Freedom Party, January 20, 1958, 888.00/4- 2658, “The Second Seven Year Development Program,” April 26, 1958, 888.00/6-2458, June 24, 1958. 95 RAC Ford Foundation Grant 55-173 R-0811, Ebtehāj to Egger, September 12, 1954.

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little immediate impact. Fortunately, Maris noted, a small core of “young intellectuals” was emerging with the Plan Organization who could provide the basis for a strong general staff. The

Foundation agreed to assist Ebtehāj in hiring foreign economists, with the U.S. Embassy indicating its approval “for any action which might materially interest the prospects for success” of the Plan.96

The Ford Foundation was one of several private philanthropic organizations involved in development work during the postwar period. Private institutions like the Ford, Carnegie and

Rockefeller Foundations functioned as important “ideological pillars’ during the early Cold War, encouraging and disseminating ideas related to American liberalism and congruent with

American strategic objectives.97 In the Trustee Report of 1950, the Foundation’s leader expressed the belief that “poverty, disease” and “unequal standards of living and economic insecurity” were the chief causes of war and civil strife. The mission of the Ford Foundation was to provide education, training and technical assistance, which Foundation President Paul G.

Hoffman, formerly head of the Studebaker Corporation and administrator of the Marshall Plan, believed were crucial factors “on which progress toward democratic ideals depends.” Like the

Development and Resources Corporation, the Ford Foundation was primarily a vehicle for

American “know-how.” Missing from most developing countries was “responsible government,” which would only emerge, according to one Foundation officer, “as ignorance is replaced with

96 RAC Ford Foundation Grant 55-173 R-0811, Paul Maris to Foundation, 7 December 1954, Memo of Discussion, 7 January 1955. 97 Edward H. Berman, The Ideology of Philanthropy: The Influence of the Carnegie, Ford and Rockefeller Foundations on American Foreign Policy (Albany NY: State University of New York Press, 1983), 8-34, Tony Smith, America’s Mission: the United States and the Worldwide Struggle for Democracy in the Twentieth Century (Princeton NJ: Princeton University Press, 1994), 3-34.

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understanding, economic weakness with strength…and distrust of the United States with confidence.” 98

Though the Foundation contributed only a fraction of Iran’s total development spending in the 1954-1964 period, its influence could be felt in rural improvement programs, vocational training, educational assistance and informational studies compiled for the Iranian government.

Support for the Plan Organization’s economic staff was one of several projects the Foundation managed, with cooperation from the Iranian government and generally at a remove from Point

Four or other formal American operations. 99 In its work in Iran, the Ford Foundation generally expressed a consensus which social scientist Robert Pakenham noted was apparent at the time: that economic development could be “orchestrated by a well-educated elite…dedicated to the principle of sustained economic growth.”100

The first attempt to foster such an elite in Iran met with failure. In early 1956, two economists came to Iran to assist Ebtehāj and aid decision-making inside the Plan Organization.

After less than a year, one resigned in frustration, complaining that “association at top-level has proven impossible to establish,” and calling out Ebtehāj for his arrogance and contempt for other

Iranians.101 In 1957, Kenneth Iverson, the Foundation’s representative for Iran, argued for a

98 RAC Ford Foundation Records, Box 528, Report 011765, Francis X. Sutton, "Ford Foundation History Project, 1985," Section I, pp. 1, 5-6, 11-12. 99 RAC Ford Foundation Grant 62-465, R-0814, Hill to Ward, 24 April 1962. For Ford Foundation activities in Iran, see Nemchenok, “That So Fair a Thing Should Be So Frail,” 261– 284; Shannon, “American-Iranian Alliances,” 661-689. 100 Robert A. Packenham, Liberal America and the Third World: Political Development Ideas in Foreign Aid and Social Science (Princeton NJ: Princeton University Press, 1973), quoted in Berman, Ideology of Philanthropy, 4, 8-9. 101 RAC Ford Foundation Grant 55-173 R-0811 Egger to Iverson, June 22, 1955, Parker to Iverson, July 13, 1955, Cracco-Sibbett to Gibson, April 19, 1956; R-0812, Report by Hill, 9 May 1956, Cracco to Foundation, August 10, 1956; FISDS, Barnāmeh rīz-i, Part 3, Interview with Majīdī [Accessed February 15, 2017].

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second, more elaborate economic advisory mission. “Iran is a country ancient in its culture, but young in concepts of modern development and education,” argued Iverson. What was needed was a staff of Western-trained Iranian economists “responsible for preparing a sound economic development program…of the magnitude possible with oil revenues,” which could be “back- stopped” by a small team of American advisors. Setting up a dedicated economic bureau would help to dispel such notions while beginning the process “which may lead to a national planning concept.” The Foundations’ rural specialist Howard Bertsch recommended similar measures, noting that what Iran lacked was adequate “professional knowledge.” By fostering the right kind of management culture and professional practices, the entire psychology of the country and its attitude towards applied economics would be transformed, allowing for a more vigorous rural development program (on which the Foundation was particularly focused) to be pursued.102

To assist with the establishment of an Economic Bureau staffed by Iranian and American economists, the Foundation turned to Dean Edward Mason of Harvard University. Mason was intrigued by the Foundation’s efforts and agreed to assist them in hunting down promising

Iranian economists, most of whom had stayed in the United States after completing their degrees.

He recommended a young administrator, Kenneth Hansen, to lead the American advisors. The team, drawn from the Harvard faculty, would be known as the Harvard Advisory Group (HAG), and were to provide expert guidance to the Economic Bureau, led by economist Khudādād

Farmānfarmāʼiyān, at that time a professor of economics at Princeton University.

102 RAC Ford Foundation Grant 55-173 R-0812, Iverson to Hill, March 9, 1957 and May 23, 1957; RG 469, Iran Branch, Subject Files 1952-1959, Box 2, Iran—Program Evaluation 1957, Interview with Howard Bertsch, May 1, 1957.

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Farmānfarmāʼiyān seemed uniquely qualified, as he had written his doctoral dissertation on

Iran’s oil industry and its connection to the country’s wider economy.103

Over the course of 1957 and 1958, the Economic Bureau developed into a group of unique talent within the Plan Organization.104 Some, like Farmānfarmāʼiyān, came from ancient aristocratic families, while others emerged from Iran’s middle-class. They were all young, fresh from Western universities and inexperienced in the byzantine rituals of Iran’s ministries.

American officials referred to them as Iran’s “bright young men,” and lauded their competence and commitment to their work. As Farmānfarmāʼiyān recalled years later: “We were the Young

Turks. We were newcomers…the Economic Bureau had a spirit of its own, it was like a

Camelot.”105 In the Iranian press they were usually referred to as the “American chickens,” and frequently criticized for their Westernized backgrounds and outlook.106 Farmānfarmāʼiyān had been out Iran for so long that outwardly he appeared thoroughly “Westernized.” To Foundation officials, this meant he could act as the perfect bridge between American economic expertise and

Iranian culture.107

103 RAC Ford Foundation Grant 55-173 R-0812, Wolf to Iverson, December 6, 1957, Mason to Iverson, December 11, 1957. See Shannon, “American-Iranian Alliances,” 665-671; See Khudādād Farmānfarmāʼiyān, “An Analysis of the Role of the Oil Industry in the Economy of Iran” (PhD diss., University of Colorado, 1956), and Milani, Eminent Persians, Vol.2, 754-55. 104 The Economic Bureau included, at various times, Sīrūs Samīʻī, Ghulām-Rezā Muqaddam, Manūchehr Gūdarzī, Mostafa Elm, Bahman Ābādiyān and Husayn Mahdavī. 105 HIOHP, Interview with Khudādād Farmānfarmāʼiyān, Tape No. 2, 26. 106 RG 59 888.00-SEVEN YEAR/6-659, June 6, 1959; RAC Ford Foundation Grant 58- 158 R-0813, Hill to Ward, September 11, 1962; HIOHP, Interview with Farmānfarmāʼiyān by Habib Ladjevardi, Tape No.7, 84-85. 107 RAC Ford Foundation Grant 55-173 R-0812, Iverson to Hill, September 3, 1957, T. Cuyler Young to Hall, October 19, 1957; RAC Ford Foundation Records, Unpublished Reports, Box 559, Report 012037, Khudādād Farmānfarmāʼiyān “Report on the Formation and Development of Economic Bureau, 1336-1342,” 16-17; RAC Ford Foundation Grant 58-158 R- 0812, Undated Report, Tehran to New York; Bertsch to Ward, 28 May 1959.

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Kenneth Hansen, who supervised both the Western and Iranian staff of the Bureau, had a background in administration. He had worked in the oil industry before entering government service in the 1940s and was a highly disciplined manager who held his staff to an extremely high standard: according to Farmānfarmāʼiyān, he believed that public servants “should not really expect public applause for his services,” and he spent his free time reading any book on

Iranian culture he could find. Other members of the HAG team, while not all American, came largely from American universities. The guidelines of the grant stipulated the HAG was to “train

Iranians for positions on the Bureau, and advise on its operations.” The Americans were not to direct operations or lead projects. 108 The Ford Foundation provided a $1.2 million grant to support the HAG for a three-year period, supplementing the Iranian salaries as the Iranian government, “which has not yet come to appreciate the necessity of employing expert economists,” would not provide financial backing for the Economic Bureau.109

By the late 1950s, both Lilienthal and the HAG team led by Kenneth Hansen were firmly ensconced within the Plan Organization. Neither fit the typical definition of an NGO. D&R was a private corporation that drew on public funds and international loans: Lilienthal’s project was dependent on both World Bank loans and Iran’s oil revenues. The Ford Foundation worked closely with Point Four, which contracted with organizations like the Near East and Rockefeller foundations, and its operations were closely monitored by the US Embassy. Yet both were

108 RAC Ford Foundation Records, Unpublished Reports, Box 559, Report 012037, Khudādād Farmānfarmāʼiyān, “Report on the Formation and Development of Economic Bureau, 1336-1342,” 19-22; RAC Ford Foundation Grant 58-158 R-0812, Request for Allocation Action, 27 July 1957. 109 RAC Ford Foundation Grant 58-158 R-0812, Request for Allocation Action, 27 July 1957; Shannon, “American-Iranian Alliances,” 610-611.

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largely independent and cooperated more closely with the shah’s government than with US officials.

Ebtehāj had sought out foreign help to make the Plan a success, but after a few years the situation in Iran had scarcely improved. The influx of new money, both in aid and in oil dollars, fueled runaway imports and failed to generate any increase in productivity. The state budget was growing year by year, as the shah increased military spending and encouraged a rapid expansion of the government as a way to co-opt Iran’s educated middle class, Moṣaddeq’s key constituency, through comfortable salaried positions. The spending boom could continue as long as oil revenues rose year to year, but by 1959 this looked less certain, as cuts to the price of oil

(discussed in Chapter 6) threatened the steady rise in Iran’s oil revenues. Ebtehāj favored long- term projects like the KDS, which took years of planning and construction before they could begin having any impact on standards of living or agricultural activity. By early 1957, U.S. observers had already detected growing dissatisfaction with the Plan, Ebtehaj and the entire development program. “Public disillusion,” due to delays and exaggerated expectations, “makes it politically necessary that visible progress…of immediate impact value” be realized as quickly as possible.110

In August 1958, Hansen and Farmānfarmāʼiyān estimated that the Plan Organization had exceeded its original budget, while Iran’s state spending would overtake revenues by $933 million by September 1962. The estimates, which the U.S. Embassy considered optimistic, indicated a massive financial crisis once foreign exchange reserves ran out. Hansen admitted privately that the Plan Organization was dangerously over-committed, under-funded and

110 FRUS 1955-1957 Vol. XII, No. 381, National Intelligence Estimate (NIE) 34-57, “The Outlook for Iran,” January 23, 1957.

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disorganized, while the World Bank indicated “that until Iran’s financial house is put in order, no more Bank loans would be forthcoming.” Hansen was particularly concerned over the KDS, which he saw as a costly and over-indulgent use of Iran’s resources.111

A series of crises in 1958 indicated the growing instability inside Iran. The first was a right-wing coup attempt in February led by a high-ranking intelligence officer General Valī

Allāh Qaranī. The coup attempt left the shah wary of the U.S. embassy, which he believed had supported Qaranī, and made him suspicious of rivals who might challenge his authority.112 The second, far more important event was the July Revolution in Iraq which toppled the pro-Western

Hashemite monarchy. The event “shocked and frightened” the shah and served to underscore the fragility of his position: if one pro-Western modernizing monarch could be toppled, he could very well be next. While the Eisenhower Administration was not worried about Iran’s stability in the short term, the country was still run, according to Secretary of State Dulles, “by a corrupt group of rich landowners, some of whom were very close to the shah.” The CIA reported that without “substantial reforms…the overthrow of the monarchy is likely.” Dramatic reforms would be needed if the shah and his government were to survive, though the Eisenhower

Administration took few practical steps to translate this feeling into concrete action, instead striving to maintain a “balance between pressure and persuasion” towards the shah.113

111 RG 59 888.00/10-2158, Economic Review, October 21, 1958; 888.00/1-659, Economic Review, January 6, 1959; 888.00/2-1756, Economic Assessment, February 17, 1959; RAC Ford Foundation Grant 58-158 R-0812, Report on Economic Bureau (undated); Lilienthal, Road to Change, 316-317; Baldwin, Planning and Development in Iran, 44-45. 112 RG 59 788.00/2-2058, Chapin to State, No. 12183, February 20, 1958, 788.00/2-2758, Chapin to State, No. 1637, February 27, 1958; Gasiorowski, U.S. Foreign Policy and the Shah, 166-75, and “The Qarani Affairs and Iranian Politics,” International Journal of Middle East Studies 25, no. 4 (Nov., 1993): 625–44. 113 CIA, Office of National Estimates, August 15, 1958, “Outlook for the Shah of Iran,” Accessed via CIA Crest Computer Online Reading Room https://www.cia.gov/library/readingroom/search/ [Accessed February 13, 2017], FRUS 1958- 335

The July Revolution in Baghdad threw the entire premise of the Seven Year Plan into doubt. Large-scale irrigation projects funded by oil revenues had done nothing to bolster the

Hashemite regime’s legitimacy.114 Despite the U.S. beliefs that the shah was secure for the time being, Iran appeared to be on the same course as the Hashemite monarchy. Four years after its commencement, the Second Plan had become, in the words of the British ambassador, “[a] symbol of governmental wastefulness.”115 Hansen and Farmānfarmāʼiyān concluded that the

Plan had failed to satisfy rising expectations, and warned that further spending without commensurate increases in revenue would lead to spiraling inflation, drains on foreign exchange and a potential recession.116 The shah had already been directing more financial resources towards his own private development projects, including the Crown Lands program and investment bank, out of his impatience with the Plan Organization.117 In late 1958 the Plan’s budget was cut: it would now receive only 55% of oil revenue, the remainder split between

NIOC and the general budget. Massively unpopular inside the government, Ebtehāj had become vocal on the matter of limiting Iran’s defense spending, insisting to one U.S. military advisor that a “strong defense could only be built upon the back of a strong economy.” This position put him

1960, Vol. XII, No. 243, Telegram from State Dept to US Embassy Iran, July 19, 1958, No. 248, Editorial Note regarding August 15, 1958 376th NSC Meeting, and No. 257, NSC 58/21, “Statement of US Policy Toward Iran,” November 15, 1958. 114 For Iraq’s economic development project, see Kingston, Britain and the Politics of Modernization, 94-122. 115 FO 371/133023, J.W. Russell, UK Embassy, Tehran, to Foreign Office, September 10, 1958; RG 59 888.00 SEVEN YEAR/2-458, Progress Report on Plan Organization’s Social Improvement Program, February 4, 1958. 116 Review of the Second Seven Year Plan, 1, 9, 17-18. 117 FO 371/133022, Sir Roger Stevens (Amb.) UK Embassy, Tehran to Foreign Office, 7 August 1958.

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at odds with the shah and proved his undoing.118 On February 15, the Majlis voted on a bill proposing a transfer of all Plan projects from the Plan Organization to the prime minister, an office effectively controlled by the shah. The current occupant of that office, Jaʻfar Sharīf Imāmī, was a strong supporter of the shah and a bitter enemy of Ebtehāj, who was forced to resign several days later. 119

The American response to Ebtehāj’s removal varied. John Bowling at the U.S. Embassy believed the Plan Organization leader had been “too European…he had forgotten how to think and feel as an Iranian.”120 Lilienthal felt that an “accommodation” with a new managing director would be possible, so long as the shah remained in support of KDS. Inside the HAG team,

Hansen believed that the “ignominious ouster” was carried out “with very little thought as to the consequences.” Hansen worried that without Ebtehāj’s leadership, more of the oil money would be diverted towards government expenses and military hardware: “economic development…has lost a significant battle,” as well as its “leading exponent and advocate.” Without support from the Plan Organization executive, the “Ebtehāj men” inside the Economic Bureau would lack influence over the course of the planning effort, which was now being directed by the shah and his direct supporters.121 Though ultimately a poor administrator, Ebtehāj had been the key

118 FISDS, Barnāmeh rīz-i, Part 2, Interview with Farmānfarmāʼiyān [Accessed March 21, 2017]. 119 Imāmī, Khāṭirāt-i Jaʻfar Sharīf Imāmī, 185-189. In his memoirs, Ebtehāj blames his ouster on political enemies in government, particularly Imāmī, the prime minister and an opponent of the Plan Organization. Ebtehāj, Khāṭirāt, 445-451. 120 RG 59 888.00 SEVEN YEAR/2-2159, “Fall of Plan Organization Director Ebtehāj,” February 21, 1959. 121 Lilienthal, Road to Change, 311-312.RAC Ford Foundation Grant 58-158 R-0812, Hansen to Mason, February 15 and 16, 1959, RG 59 888.00/4-1859, Quarterly Economic Summary, August 18, 1959.

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advocate for a central development program funded through oil revenues. With him gone, the future of oil-driven development was unclear.

Equally fuzzy was the fate of those Second Plan projects, such as the KDS and the

Economic Bureau, which Ebtehāj had championed. Farmānfarmāʼiyān told Lilienthal that a

World Bank loan would be needed to fund the Dez Dam, the KDS center-piece. Hansen, skeptical of the dam’s viability, argued it be postponed several years, suggesting instead that

D&R focus on “village improvement.”122 Three years and $40 million had generated few positive improvements; only the Abadan-Ahwaz transmission line was finished, while construction on the Dez Dam, designed to be the sixth-highest dam on earth, had not yet begun.

Lilienthal argued the KDS was necessary, citing its “intangible value as a symbol of progress and as proof of Iran’s ability to meet the challenge of a great material achievement.” It was, in other words, valuable as a propaganda tool, and its failure would have a significantly negative political impact.123 Whether it would bring tangible benefits to the people of Khuzestan seemed something of an afterthought. The World Bank agreed to provide $42 million for the completion of the Dez Dam. The KDS did not emerge unscathed, however: the irrigation project was reduced by 80%, while the PVC plant, fertilizer factory and additional dams were all cut from the budget. The Bank also demanded that a new government agency, the Khuzestan Water and

Power Authority (KWPA), be formed to take over for the KDS. This ensured that D&R’s unparalleled autonomy was coming to an end.124

122 Lilienthal, Road to Change, 316-324. 123 PDL, Series 18, Subseries 18D: 1959-1961, Box 413, Lilienthal-Clapp to Hedayat, March 10, 1959, Clapp to Hedayat, April 9, 1959, Memo of Discussion, July 23, 1959 124 Ānsāri,The Shah’s Iran, 118-119; FISDS, ʻUmrān-i Khūzistān, Part 2, Interview with Shahmīrzādī [Accessed February 15, 2017]; PDL Series 18, Subseries 18D: 1959-1961, Box 426, Lilienthal to Clapp, March 8, 1961

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As KDS struggled to stay afloat, the Ford Foundation’s effort at fostering better economic planning within the Plan Organization yielded mixed results. Ebtehāj’s departure had left more power in the hands of government ministries hostile to central planning; the shah was too distracted by military issues after 1958 to take an active role. After $505 million, it was difficult to measure what the Plan Organization had achieved, while the Economic Bureau was chiefly tasked with preparing applications for more foreign loans, which would free up oil revenues for the growing budget deficit.125 Advice from the Economic Bureau was routinely ignored by the cabinet and the shah. While Hansen drove the Iranian staff “very hard and very effectively,” in practice there was “relatively little participation” by non-Westerners in the completion of major reports. Some Iranians expressed dissatisfaction at the “high-handed” attitude of the Western members of the HAG team.126

Preparing to depart the country in early 1961, Hansen met with the shah and urged him to seriously consider the country’s economic situation. The shah argued that the military was the priority, that if he failed to increase spending army officers would rebel against him. Inflation caused by un-checked spending, countered Hansen, “was just as dangerous as having 5,000 disgruntled officers on the streets of Tehran…every penny spent on the Army meant a penny less for development.” The U.S. government, now led by President John F. Kennedy, would view the situation in similar terms: Hansen warned the shah that military aid would only be granted if serious economic and political reforms were undertaken. Hansen repeated Ebtehāj’s oft-used

125 RG 59 888.00/5-659, “Economic Assessment,” May 6, 1959, 888.00/8-1059, “Assessment of Second Seven Year Development Program,” August 10, 1959, 888.00 SEVEN YEAR/12-2259, “Proposed Revisions of the Iranian Development Program,” December 22, 1959. 126 RAC Ford Foundation Grant 58-158 R-0813, Hansen to Mason, January 1961; R- 0812, Report on Plan Organization, Gus Papanek, 22 May 1959, Hansen to Mason, 20 December 1959, Bertsch to Ward, 6 April and 28 May 1960, Mason to Ward, 4 May 1960.

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argument: the Ministries, he said, lacked financial competence to handle the country’s development program responsibly. The Plan Organization needed to remain independent.

Otherwise, the entire development effort would collapse and Iran’s oil riches would be wasted.127

The shah’s response to the growing economic turmoil was to appoint Ahmed Ārāmish as the Plan Organization director. To the Americans and staff of the Economic Bureau, the appointment was a retrograde step, as Ārāmish was reportedly “corrupt, venal and highly anti-

American.”128 Ārāmish, the brother-in-law of the prime minister, was a court lackey who functioned as the shah’s attack dog: the Plan and its foreign advisors became scapegoats for the country’s problems. Ārāmish denounced the entire KDS project, proclaiming that it could be delayed “10 or 15 years,” or simply cancelled outright. The Plan, he said, was marked by

“extravagance and indecision,” particularly in the case of the KDS, which had been paid $78 million without any proper accounting.129 The morale within the Economic Bureau plummeted, with Farmānfarmāʼiyān and the senior Iranian staff resigning in protest to the deteriorating political support in early 1961, though most promptly returned to their jobs.130 Before a packed hall in San Francisco, the unemployed Ebtehāj railed against the failures of the U.S.-Iranian bilateral aid relationship, which he believed “delays internal pressure toward reform by

127 RAC Ford Foundation Grant 58-158 R-0813, Hansen Interview with Shah, February 15, 1961; FO 371/157624, F.C. Mason, Minutes of Meeting with K. Hansen, March 9, 1961. 128 RG 59 888.00/2-2861, “Preparation of the Third Economic Development Plan,” February 28, 1961; FISDS, Barnāmeh rīz-i, Part 1, Interview with Gūdarzī [Accessed February 1, 2017]. 129 Ansari, The Shah’s Iran, 114-115. DRC Box 494, George Baker to John Oliver, April 9, 1961; FO 371/157624 Geoffrey Harrison (Amb) UK Embassy, Tehran to Foreign Office, April 27, 1961. 130 RAC Ford Foundation Grant 58-158 R-0813, Hansen to Ward, February 26, 1961, Mason to Ward, May 2, 1961; PDL, Subseries 18D: 1959-1961, Box 426: Iran, Lilienthal to Clapp, 8 March 1961; FIS, Interview with Manūchehr Gūdarzī, 42-45.

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providing considerable material resources to corrupt regimes…America is neither loved nor respected; she is distrusted by most people and hated by many.”131

5.3 The Amīnī Experiment

When the administration of President John F. Kennedy assumed power in early 1961,

American policy underwent a major review. Advisors to the president, as well as Kennedy himself, illustrated an understanding of and a commitment to the concept of modernization theory. Unlike Eisenhower, Kennedy was skeptical of offering aid to authoritarian governments without applying pressure for political reforms. Iran seemed a perfect example of the inadequacies of the Eisenhower approach. The country had received hundreds of millions of dollars, yet after seven years its government was mired in crisis and faced a growing budget deficit, stalled development program, and growing public dissatisfaction. According to social scientist Leonard Binder, Iran had embraced authoritarian development, not as a way of transitioning to democracy, but rather “to seek greater security for the throne…it is not surprising that many remain unconvinced that development is being seriously pursued.”132 Key policy- makers in the Kennedy Administration shared Binder’s view. The shah would be encouraged to transition into a role of constitutional monarch so that a reform-minded government could take over. The country’s military would be brought into closer balance with its economic and social program, and a “strong push” would be made through support of a new, comprehensive Third

Plan, which the HAG team and Economic Bureau were already formulating.133

131 Quoted in Bostock and Jones, Planning and Power, 160-161. 132 Binder, Iran: Political Development in a Changing Society, 312-313. 133 JFKPL Robert W. Komer Papers (RWKP), Box 424, Iran: 1/63-11/63, Memo for Komer, May 7, 1963; Popp, “Benign Intervention? The Kennedy Administration’s Push for 341

After five years of a booming economy, Iran slipped into a recession. By 1960 inflation was rising, costs were spiraling out of control, and the government faced a persistent budget deficit. Spending on development had increased from 7.7 billion rials in 1956 to 15.6 billion rials in 1959, but the state budget had grown as well, expanding from 19.8 billion rials to 31.2 billion rials over the same period. Oil couldn’t cover such expenditures, nor was it sufficient to cover Iran’s trade deficit, which in 1958 reached $284.4 million.134 Politically, the shah was at his most vulnerable point since 1953: having ruled “through the security forces” for years, he was now facing a growing wave of popular and political discontent.135 The fiasco of the 1960

Majlis elections illustrated the shah’s weakening position: widely rigged and protested by opposition groups on the right and left, the elections exposed the shah’s “democratic” system as a fraud. After considerable dissent the shah ordered the elections cancelled and a new vote was scheduled for the following year.136 Protests over the elections and the worsening economy continued into 1961. Oil workers went on strike in Khuzestan, protesting the lack of opposition candidates in the elections.137 The Second National Front had emerged as a prominent voice for change, under the leadership of Allāhyār Sāleh.138 The signs of “revolution and chaos” growing

Reform in Iran,” in Berg and Etges, eds., 197–219, V.V. Nemchenok, “In Search of Stability Amid Chaos,” 341–369, Goode, “Reforming Iran during the Kennedy Years,” 13-29. 134 Review of the Second Seven Year Plan, 12-13. 135 JFKPL NSF Box 115a, Iran: 3/21-3/31/61, John Bowling, “Current Internal Political Situation in Iran,” February 11, 1961. 136 RG 59 788.00/8-2560, Wailes to State, No. 472, August 25, 1960, 788.00/9-360, US Embassy Tehran No. 112, September 3, 1960, 788.00/9-360, Wailes to State, No. 559, September 3, 1960, 788.00/9-2460, US Embassy No. 150, September 24 ,1960. 137 RG 59 788.00/4-2961, US Consul, Khorramshahr No. 53, April 29, 1961 138 Sāleh had served as Mosaddeq’s Minister of the Interior and Ambassador to the US. After 1953, he had acted as the head of the “second” National Front, yet he lacked the parliamentary skill of Mosaddeq or the charisma of Mozaffar Baqā’i. A detailed report on Sāleh in late 1960 noted his main attractive qualities were his honesty and his reputation “as a highly 342

in Iran alarmed the U.S., which noted that many of the opposition forces now arrayed against the shah supported a neutralist position and were in favor of ending Iran’s pro-U.S. strategic alignment.139 In May 1961, a strike of public school teachers turned deadly, with the shah’s troops opening fire on demonstrators. Under U.S. pressure, the shah agreed to dismiss his loyal but ineffectual prime minster Jaʻfar Sharīf Imāmī and appointed ‘Ali Amīnī as the new premier.

Upon taking office in May, Amīnī suspended the Majlis and ruled by decree; he promised election reform laws, an anti-corruption campaign and a renewed effort to improve the economy and balance the budget, all measures that were sure to have U.S. support.140

As ambassador to the U.S. in the late 1950s, Amīnī had ingratiated himself with government figures and burnished his reputation as a moderate alternative to the shah’s heavy- handed authoritarianism. A close friend of Ebtehāj, during 1960-1961 Amīnī had emerged as private critic of the shah, whom he felt mismanaged the economy. He had declared the Majlis elections “unfree” and proposed a new, “Liberal Party,” for the middle-class of the country.

While a dedicated reformer, Amīnī was no Moṣaddeq: he never sought to incite popular anger and never seriously questioned the existing regime. Rather, Amīnī was an ambitious and skilled politician who made “no attempt to conceal his ambition to become prime minister.” He talked up Iran’s need for reform in order to win over his American interlocutors. His predictions that the country was “headed to ruin” without “prompt and effective reform” showed the U.S. his sincerity, while his reputation as a technocrat convinced them that he could instill the necessary

competent administrator.” See RG 59 788.00/12-2160, US Embassy Tehran No. 353, December 21, 1960; on the formation of the Second National Front, see Bakhtiyār, Khāṭirāt, 40-44. 139 RG 59 788.00/5-1661, Recommendations of the Iran Task Force, May 16, 1951. 140 RG 59 788.00/5-261, Wailes to State, No. 1351, May 2, 1961, 788.00/5-461, Wailes to State, No. 1358, May 4 1961, 788.00/5-861, Wailes to State, No. 1369, May 8, 1961; Amīnī, Khātirāt, 90-96.

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administrative discipline on the unrestrained Pahlavi state. 141 Though the shah was uncomfortable with Amīnī and disliked him personally, he felt compelled to appoint Amīnī as prime minister in order to retain U.S. support.142

Officials in the Kennedy Administration argued that Amīnī was Iran’s “last chance” to resolve its problems and escape “corruption, incompetence and social injustice.”143 A vigorous reform campaign, including a re-vivified Plan and land reform measures, would be crucial to strengthen Iran and maintain its pro-Western alignment. Kenneth Hansen, now assistant director of the Office of the Budget and member of Kenndy’s Iran Task Force, argued that the U.S. was openly identified with “economic ineffectiveness…[and] the perpetuation of an unsatisfactory status quo.”144 Other Kennedy officials, collectively known as the “New Frontiersmen,” echoed

Hansen. Kennedy advisor Robert Komer felt active involvement by the U.S. was needed “to get a real development program going.” T. Cuyler Young, a Princeton university professor and expert on modern Iran, urged a policy that supported Iran’s “young technocrats,” particularly

141 RG 59 788.00/6-2160 US Embassy Tehran N0. 205, June 21, 1960, 788.00/9-1960, US Embassy Tehran No. 109, September 1, 1960, 788.00/1-3061, US Embassy No. 414, January 30, 1961. 142 Milani, The Shah, 255-258. The U.S. did not instruct the shah to appoint Amīnī. David Collier argues that the shah would not have selected Amīnī, whom he disliked, without pressure from the United States, though Collier does not indicate precisely how this pressure was exerted. James Goode and Victor Nemchenok argue that the United States supported Amīnī, but do not imply the United States forced his hand. It would appear that the shah chose Amīnī, despite his misgivings, because he knew Amīnī to be acceptable to the Americans. See Collier, ‘To Prevent a Revolution: John F. Kennedy and the Promotion of Democracy in Iran,” Diplomacy and Statecraft 24, no. 3 (Sept., 2013): 461–2; Nemchenok, “In Search of Stability,” 349; Goode, “Reforming Iran,” 19–20; 143 RG 59 888.00/6-561, Economic Assessment, June 5, 1961. For the view of the Kennedy Administration as focused on the reform of Iran, see Popp, ‘Benign Intervention?” 197–219, Nemchenok, “In Search of Stability,” 341–369, Goode, “Reforming Iran,” 13-29. 144 JFKPL NSF Box 115a, Iran, 3/1-3/20/61, Kenneth Hansen, “Some Notes on the Situation in Iran,” March 21, 1961.

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those in the Economic Bureau. The Iran Task Force, which included Hansen and Komer, recommended that the U.S. “seize this opportunity,” and take “vigorous action” to assist Amīnī in his program of “moderate reform.” Aid could be used as a lever to move the shah away from his reliance on the military and SAVAK, and pressure applied to convince him to put his trust in

Amīnī: “we ourselves can no longer afford to rely so heavily on the shah.”145

Yet opposition emerged from a group within the State Department, “traditionalists” who remained deeply skeptical of Iranian civil society. John Bowling, now the Department’s eminent

Iran expert, thought the psychology of the Iranian middle-class entirely unsuited to government: their political views, heavily informed by the nationalism of the Mossadegh era, were “inchoate, contradictory and emotional,” while their Westernization made them targets for attack by other social classes, particularly the Shi’a clergy and rural peasantry. The U.S. Ambassador to Iran

Julius Holmes advocated a similar policy, recommending the U.S. back the shah as the country’s only source of stability. The experienced Holmes had a close, almost paternal relationship with the shah, and regarded the second National Front as Moṣaddeq partisans with no clear vision for the future of the country.146 The divisions between traditionalists and New Frontiersmen paralyzed U.S. policy-making: consequently, support for reform in Iran during the Kennedy

145 JFKPL NSF Box 115a, Iran: 4/61, Memo for Rostow, Conversation with Prof. T.C. Young, April 3, 1961; Letter from T.C. Young to Rostow, April 29, 1961; Box 116, Iran: 8/1- 8/14/16, Robert W. Komer, “Deepening Crisis in Iran,” August 4, 1961; RG 59 788.00/5-1661, Recommendations of the Iran Task Force, May 16, 1951. 146 JFKPL NSF Box 115a, Iran: 3/21-3/31/61, John Bowling, “Current Internal Political Situation in Iran,” and “Policy Implications of the Iranian Urban Middle Class and Implications Thereof for US Policy,” February 11, 1961; Box 116, Iran: 8/15-9/9/61, Julius Holmes, August 27, 1961. Holmes personally disliked Komer, whom he felt knew nothing about Iran. He also disagreed with Hansen’s attempt to “preach” to the shah. According to the financial counselor in the embassy, Holmes would frequently ignore his instructions from Washington or appeal directly to Secretary Rusk or President Kennedy for clarification; he opposed any measures that placed too much pressure on the shah. FIS, Interview with Theodore Eliot, 13-14, 29 [Accessed March 7, 2018].

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years was mostly rhetorical, while calls for more substantive backing of Amīnī’s reform agenda were drowned out by Holmes, Bowling and other advocates of the pro-shah policy.

As the Amīnī cabinet was assembled, the shah made a public withdrawal from state service, appearing to yield before his new premier: Amīnī would enjoy a freer hand than any prime minister since Zāhidī in shaping official policy. The prime minister intended to launch a far-ranging reform program, “to establish among the people the impression that the government was working for the interests of the people as a whole.”147 He went so far as to cite the first administration of President Franklin Delano Roosevelt as inspiration for what his government meant to accomplish, saying that “steps had now to be taken to put the country on its feet.”148 He announced Iran’s first comprehensive land reform project, which was energetically endorsed by the Minister of Agriculture, Hasan Arsanjānī. A journalist, self-identified social democrat and a co-conspirator with General Qaranī in 1958, Arsanjānī was openly critical of the shah and he envisioned a transformative system of land distribution that would break apart all of Iran’s major estates. Arsanjānī’s ideas were enough to alarm the U.S. embassy, which wanted a “controlled revolution” from Amīnī and not a sweeping socialist revolution: the prime minister assured them that Arsanjānī had been added to the cabinet as a concession to the National Front.149

Amīnī’s stated land reform program was limited in scope, and would initially proceed

“on an experimental and pilot-plan basis,” since Amīnī was conscious of how economically disruptive large-scale land distribution would be in the short term.150 Hansen supported the

147 RG 59 788.00/6-2160 US Embassy Tehran NO. 205, June 21, 1960. 148 FO 371/157625 Report on a speech by A. Amīnī to Social Science Institute of Tehran University, June 7, 1961. 149 MIlani, The Shah, 259. 150 RG 59 888.16/9-2861, Holmes to State, No. 80, September 28, 1961.

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renewed interest in land reform, noting that the shah’s efforts under the Crown Lands initiative had been of “questionable political and economic value,” due to their limited scope and the inadequate size of the land allotments.151 Along with land reform, Amīnī hoped to reduce corruption, enact administrative reforms and stabilize the economy after the downturn of 1960-

1961. His ultimate goal was to draw the discontented urban middle class towards the government and away from the second National Front, which had become much more politically active under the leadership of Allāhyār Sāleh, labor leader Shāpūr Bakhtiyār, and former Moṣaddeq advisor

Karīm Sanjābī.152

Amīnī also signaled a renewed interest from the government in central planning, replacing Ārāmish with Ṣāfī Asfiyā, an experienced technocrat.153 The Plan Organization pivoted away from its anti-American rhetoric, and even issued an official clarification of its views in the paper Kayhan, distancing itself from Ārāmish’s speeches from April. The HAG team, now led by Robert McLeod, felt that Amīnī’s appointment was “100% change for the better,” while

Lilienthal applauded Amīnī after the bitter attacks of Ārāmish.154 Under Amīnī, the Plan

Organization received a new lease on life, as the new prime minister indicated his strong support

151 JFKPL NSF Box 115a, Iran: 6/61 Hansen to Rostow, June 13, 1961. 152 Ansari, “White Revolution,” 4-5; Bakhtiyār, Khāṭirāt, 44-48; HIOHP, Interview with Karim Sanjābī, No. 17, 1-14. 153 HIOHP, Interview with Bahman Ābādiyān, No. 1, 1-18, Interview with Āli-Naqī Ālikhani, No. 6, -1 17. 154 RAC Ford Foundation Grant 58-158 R-0813, Hall to Records, Memo of Conversation with E. Mason, May 12, 1961; Mason to Ward, May 21, 1961; HIOHP, Interview with Farmānfarmāʼiyān, Tape No. 2, 22-23; David E. Lilienthal, The Journals of David E. Lilienthal: The Harvest Years, 1959-1963 (New York: Harper & Row, 1969), 203, 221; FISDS, Barnāmeh rīz-i, Part 3, Interview with Majīdī [Accessed February 15, 2017]; Majīdī, Khāṭirāt-i ʻAbd al- Majīd Majīdī, 99-100, 105.

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for central oil-driven development and pressed for the rapid completion of the Third Plan, set to begin in September 1962.

Unlike the “shopping list” approach of the rushed Second Plan, Hansen and

Farmānfarmāʼiyān intended the Third Plan to be detailed, comprehensive and embracing all aspects of the Iranian economy. The focus would be shifted away from ad hoc infrastructure and construction projects towards agricultural development. 155 The goal was to average six percent growth national product (GNP) growth for five years, while attracting private investment into

Iran’s industrial sector, so that wealth from productivity could “trickle down to other levels.”

Increasing agricultural productivity would be a major objective of the Third Plan.156

Expectations for the Third Plan were high, with officials in the U.S. government praising its scope and the skill with which it had been organized. Hansen and Farmānfarmāʼiyān presented the shah with a Plan outline in February 1961, and during his final audience Hansen advised the shah to proceed with the Plan, which would bring about changes in “institutions and social patterns,” breaking bottlenecks and creating a climate “for the operation of initiative with the least amount of government intervention.”157 The Third Plan was to be a panacea for Iran’s perceived inadequate culture of management. While the Second Plan had been designed to stabilize the country, the Third Plan would vault it towards the “take-off” stage of development.

155 RAC Ford Foundation Grant 58-158 R-081, Report by Paul Adler, June 25, 1957; RG 59 888.00 SEVEN YEAR/3-3158, Memo with Hansen, HAG Leader, March 13, 1958; 888.00- A/12-259, Economic Review, December 31, 1959; 888.00/1-2160, “Present Status and Outlook of the Iranian Economic Development Program,” January 21, 1960; 888.00/2-1960, Discussion with K. Hidāyat, K. Farmānfarmāʼiyān, February 19, 1960. 156 HIOHP, Interview with Farmānfarmāʼiyān, Tape No. 2, 22; RAC Ford Foundation Grant 58-158 R-0813, Hansen Interview with Shah, February 15, 1961. 157 RAC Ford Foundation Grant 58-158 R-0813, Interview with the Shah, February 15, 1961.

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Yet after only a few months in office, Amīnī began to stumble. His support within the government was faltering by the fall of 1962 and rumors were spreading of a military coup, supported by the shah, that would remove him from power. President Kennedy, acting on advice from Robert W. Komer and Walt W. Rostow, suggested that efforts be made to “glamorize” the

Plan Organization and shift public attention towards the Third Plan, which could act as Iran’s

“big push” towards sustained economic growth.158 Instead, the Amīnī government attempted to earn public support through an anti-corruption drive, specifically targeting Abul’hasan Ebtehāj.

After resigning from public service in early 1959, the former Plan Organization director had committed himself to golfing, private banking, and public speaking. At a gathering in

November 1960 at Stanford University, Ebtehāj had denounced both the U.S. aid campaign and the shah’s policies as corrupt and ineffective. The speech infuriated the shah, as did Ebtehāj’s continual resistance to Iran’s military build-up. He was arrested in November 1961 and accused with financial malfeasance: his contracts with Lilienthal were cited as evidence of inappropriate preference, though no direct charges were made. Abdolrezā Ānsāri and others within the development effort were detained and questioned.159 The attack on Ebtehāj, well-known for his honesty and financial probity, appeared wholly spurious, and figures such as George C. McGhee and Dean Acheson petitioned to have him released. Amīnī, clearly uncomfortable with Ebtehāj’s arrest, indicated his actions were motivated primarily by political concerns, casting blame on

Ebtehāj for the failure of the Second Plan in order to prepare public opinion for the Third Plan.160

158 RG 59 788.00/8-761, Memo from Bundy to Rusk, August 7, 1961. 159 RG 59 788.00/12-961, Holmes to McGhee, December 9, 1961; Ansari, The Shah’s Iran, 120-123; MIlani, The Shah, 262. 160 RG 59 Records of the Iranian Affairs Desk, 1958-1963, Box 7, McGhee to Holmes, January 25, 1962, Ebtehāj to McGhee, December 10, 1961, Memo by Miklos, “The Ebtehāj Case,” January 3, 1962; RG 59 788.00/2-1462, Minor to Acheson, February 14, 1962, 788.00/3- 349

Though Amīnī and the shah continued to express support for the Third Plan, HAG director McLeod wrote to Mason that the arrest meant Ebtehāj’s entire philosophy was now under attack: “Planning, Plan Organization, development schemes and foreigners are all under suspicion.”161 Farmānfarmāʼiyān and Sīrūs Samīʻī of the Economic Bureau presented the Third

Plan frame in early 1962, and the shah gave it an enthusiastic, if somewhat vague endorsement: he insisted that under no circumstances could military expenditures be reduced to pay it.162 A stark division emerged between the Plan Organization dominated by “Massachusetts’ men” and the rest of the shah’s ministers, who refused to support further support for the Plan

Organization.163 McLeod thought the Third Plan “the best crafted piece of legislation” to ever come out of Iran, but it was trapped within a budget “vortex,” and there was no knowing if the budget for the new year (1341) would be able to accommodate the Plan.164

The shah had publicly announced his support of the Third Plan, expressing “high praise for its formulators,” but his support was contingent on the Plan co-existing with “higher military expenditure.”165 Amīnī was being forced into a corner: he could fund the Third Plan or the shah’s military, but not both. He cast around for options, telling one U.S. official that the Plan

Organization might be shut down for a year and oil revenues diverted to the budget. Ambassador

Holmes urged the shah to bring his authority “fully into play.” There would be no financial aid:

“What the U.S. seeks is evidence of responsible fiscal management. If this condition is not met,

2062, Holmes to State, No. 743, March 20, 1962, 788.00/4-162, Holmes to State, No. 787, April 1, 1962. 161 RAC Ford Foundation Grant 58-158 R-0813, McLeod to Mason, 3 December 1961. 162 R813 Part 2 65-80, also RG 59 Box 2831 Folder5-6 70-71 163Majīdī, Khāṭirāt-i ʻAbd al-Majīd Majīdī, 92. 164 RAC Ford Foundation Grant 58-158 R-0813, McLeod to Mason, January 16 and February 17, 1962. 165 RG 59 888.00/1-862, US Embassy Tehran No. 183, January 8, 1962.

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increased foreign assistance does not more than postpone the inevitable day of reckoning.”

Under-secretary George Ball emphasized this sentiment when he met the shah: the U.S. could not help Iran “if it is unable to help itself.”166

The NGO community grew uneasy over the rising tensions. Lilienthal fretted to George

C. McGhee, a friend in the State Department, and complained that a “paralysis” had set in at the

Plan Organization.167 In January, paratroopers were called in to break up student protests, and

Amīnī complained of a conspiracy between the National Front and the conservative aristocrats.

“We don’t have a government,” Farmānfarmāʼiyān told McLeod. “The Shah doesn’t control the state. The Prime Minister doesn’t. We have about 3000 men, each with places of authority, and nobody can make them work together.”168 While visiting Iran, Mason found Amīnī “exhausted” and paralyzed over the budget problem. Mason accused Amīnī of an “almost complete failure to assert control over the Government.” Only the shah, he concluded, possessed “sufficient power and authority to take necessary actions.”169

In July Amīnī made his final bid for fiscal compromise. He attempted to convince the shah that the “psychological effect” of cuts to civilian and military branches of government would rally middle class opinion to his side. Amīnī expressed confidence that he had “educated the shah” regarding budgetary matters, convincing him that funding the Third Plan was more

166 JFKPL NSF Box 116 Iran: 3/1-3/26/62, Komer Note, March 24, 1962, Iran: 5/22- 6/30/62, Rockwell Memo, Meeting with Amīnī, May 23, 1962, Rusk to Holmes, June 15, 1962, Ball to Holmes, June 19, 1962. 167 PDL Series 18, Subseries 18E: 1962-1963, Box 433, Memo of Conversation, Lilienthal and McGhee, April 4, 1962. 168 DRC Box 537, Memo of Conversation, Haldore Hansen and Farmānfarmāʼiyān, April 16, 1962. 169 JFKPL NSF Box 116 Iran: 5/22-6/30/62, Mason Report, June 16, 1962; RAC Ford Foundation Grant 58-158 R-0813, Mason to Ward, June 8, 1962.

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important than the army, which regularly consumed nearly 40% of the state budget.170 It was a colossal miscalculation. The shah refused to allow any cuts to the military, and Amīnī resigned in frustration at the end of July.171 The new prime minister, Asad Allāh ‘Alam, was a close friend of the shah and an “obedient servant;” it was believed he would govern as the shah’s

“mouthpiece,” and that for all practical purposes the shah would act as prime minister himself.172

The Amīnī experiment was over. The Kennedy Administration, while disappointed at the failure, stuck to its position and refused to offer ‘Alam economic assistance, though Dean Rusk was prepared to support Iranian plans to divert oil revenues away from the Third Plan in order to resolve the budget deficit.173 The shah, holding the reins of power once again, opted for a major change in policy: government attention would be shifted en masse away from the Third Plan and re-directed entirely to land reform: the shah’s White Revolution, as it was known, replaced the

Third Plan as the key to Iran’s development program.

5.4 The White Revolution and the End of Development

The White Revolution, initiated by the shah’s decree (firman) of November 15, 1961 and confirmed by a state-sponsored referendum in early 1963, was Iran’s first comprehensive land reform program. Following Amīnī’s resignation, the shah embraced the cause of land distribution and made it the center of government policy, which he would now control through

170 JFKPL NSF Box 116 Iran: 7/1-7/17/62, Holmes to State, July 2, 1962; Review of the Second Seven Year Plan, Annex III, “Expenditures of Government Ministries 1335-1338.” 171 RG 59 888.10/7-262, Telegram to Rusk, 2 July 1962; 888.00/7-1862, Economic Review, July 18, 1962; JFKPL, RWKP, Box 322, Staff Memoranda, Memorandum for the Record, October 11m 1962. 172 JFKPL NSF Box 116 Iran: 7/1-7/17/62, CIA Report, July 26, 1962. 173 JFKPL NSF Box 116 Iran: 7/1-7/17/62, Note from Rusk, July 18, 1962.

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‘Alam. On January 6, 1963 he announced the “Shah and People’s Revolution” (Enqelāb-e Shāh va Mardom), also known as the White Revolution Included in the reform program were measures including women’s suffrage, the nationalization of the forests, sale of state factories and profit-sharing for factory workers. Land reform was the crux of the program: the shah’s program would make it illegal for any individual to own more than a single village, and all large estates were to be immediately broken up and the land distributed to the peasants. The shah initially partnered with the charismatic Arsanjānī, but forced him out in March 1963. The shah would suffer no rivals; henceforth, the program would be closely associated with the Pahlavi monarchy and Mohammed Rezā Shah, the “revolutionary monarch.”174

Before 1963, the shah had relied on support from classes of Iranian society traditionally tied to the monarchy: the landed aristocracy, bazaar merchants, the religious leadership, rural peasantry, the state bureaucracy, and the army. The aristocracy had not always been fully supportive of either the shah or his father, yet its dominance of the Majlis and large parts of

Iran’s agrarian economy made it a difficult class to oppose directly. The Shi’a leadership, who also owned large areas of land and had in the past acted to mobilize the peasantry and urban poor, was in a similar position, though it had frequently opposed the Pahlavi regime’s modernization programs and endured repression at the hands of Rezā Shah. After the Mordad

Coup, these two groups provided support for the shah yet continued to oppose the meaningful expansion of state power into areas where they had long been dominant. Resistance from these groups to the expansion of the Pahlavi state emerged just as the political power of the urban

174 JFKPL NSF Box 116a, Iran: 3/63, Holmes to State, No. 758, March 14, 1963; Ansari, “ White Revolution,”1–24; Abrahamian, Iran Between Two Revolutions, 423-424; Amīnī, Khāṭirāt, 96-97; Ann Lambton, Persian Land Reform, 1962-1966 (Oxford: Clarendon Press, 1969), 60-69.

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middle class appeared to be rising. The shah worried more about this middle-class nationalist opposition than he did about a revolution of the left or right: the National Front was “100% more dangerous than the Tudeh,” and in the early 1960s worked to imprison or silence prominent

Moṣaddeqists like Allāhyār Sāleh.175 Yet repression would work only the short term, and ultimately the Pahlavi regime sought to co-opt the Westernized, educated urban middle class through an expansion of the state and the transformation of the economy into one that favored industry over agriculture.

Finally, the rural peasantry, who had traditionally supported the monarchy yet were subject to the political and economic domination of the aristocracy, were to be turned into a powerful new constituency, one upon which both the economy and regime could depend.

Arsanjānī, who had authored the original land reform legislation passed in January 1962, had imagined autonomous rural communities run through cooperative village councils: this would be paired with modernization to increase productivity, something American rural advisors had worried about for years. If land was distributed too quickly, productivity would plummet and the peasants would incapable of raising their standards of living.176 But Arsanjānī’s program was altered to reflect the shah’s political aims. The landlords were deprived of their political and social significance, and the system of landlord and overseer (khadkhoda) replaced by state- sponsored rural development councils: “by removing the power of the landlords the government has succeeded in moving into the villages,” replacing the power of the aristocracy with that of the state.177

175 RG 59 888.00/1-2663, Holmes to State, No. 636, January 26, 1963. 176 Lambton, Persian Land Reform, 64; Baldwin, Planning and Development, 71-73. 177 RAC Ford Foundation Grant 62-465 R-0814, Hossein Mahdavy, “Iran’s Land Reform: Its Problems and Prospects,” Forwarded from Foundation Field Office, India, January 12, 1965.

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Asad Allāh ‘Alam explained it in detail to a British diplomat in 1958: to preserve the monarchy and modernize the country, the shah had to lead a “popular and national crusade” against the existing socio-economic system in the countryside.178 In this way, he could co-opt

Iranian nationalism, tie the peasantry to himself through the elimination of the landlord class, and represent himself as the only figure who could lead Iran towards progress. The threat of another

Moṣaddeq, an aristocrat-turned-nationalist who could rally popular support and undermine the monarchy, would vanish. Eliminating the power of the landed elites while co-opting the urban middle class and rural peasantry went hand-in-hand with the strengthening of the shah’s two other power bases: the army and the state bureaucracy, both of which would continue to grow thanks to state expansion fueled by oil revenues.

The shah implemented his program with break-neck speed. By 1965 out of forty-eight thousand villages, thirty-nine thousand had either been transferred to individual ownership or undergone reorganization in landlord-tenant relations.179 The program acted as a potent propaganda tool for the monarchy, as the shah toured the countryside personally distributing land deeds.180 The movement, perhaps by design, inspired opposition from all those who were not its direct beneficiaries. The Second National Front, following a brief period of negotiations with the

‘Alam government, united with the religious opposition, who rallied against the shah’s other

1963 reforms (including the granting of female suffrage). The death of Ayatollah Burūjirdī in

178 Quoted in Ansari, Modern Iran, 189-190. 179 J. Price Gittinger, “Planning and Agricultural Policy in Iran: Program Effects and Indirect Effects,” Economic Development and Cultural Changes 16, no. 1 (1967): 107-117. 180 The U.S. vice-consul in Tabriz, Archie Bolster, later described an instance where the shah attended a land distribution ceremony. One after another, farmers would collect their deeds and subsequently kiss the shah’s feet, grasp and kiss his hands, “and grovel before the great man.” The shah was later seen in the men’s lavatory with an attendant “swabbing down his arms with alcohol…[to] clean off the germs he might have gotten from these peasants.” FIS, Interview with Archie Bolster, 33 [Accessed March 7, 2018].

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1961 paved the way for a new generation of Shi’a leaders who did not share his quietist views on politics, and who felt compelled to take a more active stance against the government; chief among them was a fiery cleric named Rūh Allāh Khomeinī, who led demonstrations against the

White Revolution in June 1963. The protests were put down by the security forces, at the cost of several hundred lives. The shah moved to crush the Second National Front, whom he regarded as

“an ill-assorted mixture of malcontents who had no real purpose or program.”181 Allāhyār Sāleh was arrested in January 1963, as were other prominent National Front figures, and another rigged election was held in the summer. The Majlis, which had been closed during the Amīnī period, reopened but was reduced to a rubber-stamp committee: deputies who had once represented powerful landed families now owed their positions entirely to the largesse of the Pahlavi state and the support of the shah.182

The first objective of the White Revolution, the consolidation of the shah’s power in the countryside and the marginalization of the aristocracy and religious leadership, was successful: the Pahlavi state emerged as the single most powerful institution and enjoyed a new power base which rested on the rural peasantry, state bureaucracy, and armed forces. The second objective pertained to the shah’s foreign policy: the White Revolution was designed to convince the world, particularly the United States government, that his desires to reform Iran’s socio-economic system were genuine. In that, he achieved an almost total success. Ambassador Holmes reported that the shah was a “revolutionary monarch;” thanks to his rule Iran was now “the most stable country in the Middle East.” When the White Revolution referendum passed with 99.9% support

181 JFKPL NSF Box 116a, Iran: 2/63, Holmes to State, No. 670, February 5, 1963. 182 Bakhtiyār, Khāṭirāt, 60, 70; Abrahamian, Iran Between Two Revolutions, 425-426. For a description of the opposition to land reform, see HIOHP, Interview with Muḥammad Bāhirī, No. 3, 1-18.

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in February 1963, President Kennedy sent the shah a congratulatory letter. Protests against the

White Revolution were the work of reactionaries “to block your reform program.”183 A memo prepared for Kennedy emphasized land reform as a basis “for basic social change in Iran and an evolutionary solution for Iran’s social, political and economic problems,” pushed with “boldness and determination” by the shah.184

From his prison cell, Abu’l-Hasan Ebtehāj denounced the White Revolution. Freely distributing land through “sequestration” while limiting the amount each individual could own would discourage “a capitalist system of free enterprise” from emerging; the state would control all landed wealth and use it to distribute political largesse, something Ebtehāj had resisted throughout his entire career.185 Hansen worried that the shah’s “revolution from the top” would run into problems, particularly if the land allotments proved too small to raise productivity; he felt the change in policy would remove any American ability to pressure the shah to take substantive reforms in the future.186 Warnings that land reform was proceeding far too quickly went unheeded, as did Komer’s complaints that Holmes was depicting the shah too favorably.187

Pressure on the shah to retire, to become a constitutional monarch and make way for an elected government, disappeared amidst the excitement. Aided by his advocates inside the U.S. government, particularly Holmes in the embassy, the shah had defeated the Kennedy

Administration’s threat to withdraw its support. Eventually, Komer admitted that the U.S. would

183 JFKPL NSF Box 116a, Iran: 11/62, Holmes, 26 November 1962, Komer, November 13 and November 20, 1/63, Kennedy to Shah, January 29, 1963. 184 JFKPL NSF Box 116a, Iran: 1/63, Memo for Bundy, “Recent Changes and Opportunities in Iran,” January 21, 1963. 185 Ebtehāj, Khātirāt, Vol. II, 853-857; see also Milani, The Shah, 263. 186 JFKPL RWKP Box 424, Iran 19 1/63-11/63, Hansen to Komer, May 7, 1963. 187 FRUS 1961-1963, Vol. XVIII, No. 387, Memo from William R. Polk to Rostow, December 17, 1963.

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have to “ride this tiger,” noting that the shah would be continuing his reform program “without

U.S. advice.”188 Military aid would be continued; the ultimate success of the shah’s reform campaign “will rest heavily on armed forces support of the present regime.”189 The traditionalists had triumphed over the New Frontiersmen.

With the shah’s attentions fixed on the White Revolution and the maintenance of Iran’s military, central economic planning was de-emphasized. Funding for the Third Plan was reduced from 190 billion rials to 140 billion rials, the better “to fit Iran’s cloth,” according to the new prime minister.190 The shah did not abandon the Third Plan entirely, though the U.S. embassy guessed that he supported the plan chiefly so that the “right words” would be heard by

“American ears,” and as evidence of “a sound approach to economic development” which could be presented in loan applications to the World Bank.191 The Plan Organization, later re-branded the Plan and Budget Organization, was downgraded to a technical and advisory bureau.

Politically the development effort had exhausted itself, with the Second Plan period synonymous with extravagance, waste and mismanagement.

The new government made it clear that large development projects by independent agencies would no longer be tolerated, nor would foreign experts be permitted to play such a

188 JFKPL NSF Box 116a, Iran:1/63, Komer to Bundy, January 15, 1963 and January 29, 1963. 189 JFKPL NSF Box 116a, Iran: 4/20/63 Dean Rusk, Memo for the President, “Report on the US Strategy for Iran,” April 20, 1963, Memo for NSC, Proposed Approach to the Shah, March 8, 1963, Gaud to Administrator, Memo, “Country Assistance Strategy for Iran,” March 2, 1963. 190 JFKPL NSF Box 116, Iran: 8/12-8/31/62, Holmes, August 21, 1962. 191 RG 59 888.00/9-2962, “Politico-Economic Assessment,” September 29, 1962, 888.00 FIVE YEAR/9-1862, “Third Plan Law and Prospects for Economic Development,” September 18, 1962.

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large role in Iran’s economic development going forward.192 The hallmarks of the Ebtehāj years, reliance on foreign advisors and independence from the central government, were to be eliminated from the development program. The U.S. government accepted the new status quo. A review completed in September 1963 argued that the shah’s new agenda would effectively minimize the effect of any further aid missions, “unless their activities are in tune with his political objectives.” Continuing efforts at fostering economic development must be “carefully tailored to the desires of the Iranian government,” and must not intrude into the land reform program, “as to create the impression among especially among the peasantry that it is an

American and not their program.”193

It was clear that both the HAG team and the D&R staff were no longer welcome.

Lilienthal and Clapp succeeded in negotiating a final contract for D&R in September 1962, one which stipulated a full handover of all KDS duties to the Iranian-led KWPA by June 1963.

Political opposition was not enough to kill the Dez Dam, which was finished in March 1963. Re- named the Mohammed Rezā Pahlavi Dam, the massive structure was commemorated by several speeches, none of which mentioned KDS or Lilienthal.194 Lilienthal admitted later to Ānsāri that many obstacles had arisen to delay the final completion of the Dam, “not all of which were economic,” but the experience did not dull his interests nor his enthusiasm for the White

Revolution, which he felt was bringing a “new independence, a new vitality” to Khuzestan.

While he would remain active in Iranian affairs, actively sponsoring agri-business in the late

192 JFKPL NSF Box 116, Iran: 7/24-7/31/62, CIA Report, July 26, 1962. 193 RG 59 E 12 Iran, “Land Reform in Iran: A Status Report,” September 30, 1963; JFK NSF Box 116a Iran: 4/1-4/19/63, SNIE 34-63, “The Iranian Situation” April 10, 1963. 194 PDL Subseries 18E: 1962-1963, Box 439: Iran, Memorandum, April 3, 1963.

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1960s, Lilienthal brought major D&R operations in Iran to a close, confident that “a deliberate conscious social revolution set off at the top” had taken place.195

The feelings at the Ford Foundation and among the Harvard team members were more sour. “The Economic Bureau of Plan Organization after five years, $1.5 million…is a hollow shell. An effective institution did not develop; its potential leaders are scattered.”196 Former

HAG members like George Baldwin and J. Price Gittinger reflected on their experiences. While

Gittinger believed comprehensive planning had left a lasting mark on Iran, Baldwin was much less optimistic: “Iran today is no more ready to support comprehensive economic planning than it was ready to support an independent development program” They left feeling their job only half- done. The White Revolution, in Baldwin’s opinion, was likely to succeed only if the shah permitted greater political reforms “than have yet occurred.”197 In the opinion of the

Foundation’s agricultural experts, improving the quality of life for Iran’s peasant population remained critical to the country’s long-term stability, as eventually the “pressures from the rural element will ultimately compel a recognition of the economic and social rightness of their cause, or force a basic change in government.” The Foundation predicted the temporary quiescence of the rural population would inevitably make way for a return to the instability of the 1950s, unless an “emerging group of responsible leaders” from Iran’s educated middle-class succeeded in

195 DRC Box 458, Folder 3, Lilienthal to Ansari, January 29, 1964, Lilienthal, The Harvest Years, 451-453. 196 RAC Ford Foundation Grant 58-158 R-0813, Hill to Ward, December 18, 1962. 197 J. Price Gittinger, Planning for Agricultural Development: the Iranian Experience (Washington DC: National Planning Association, 1965), 1-28, Baldwin, Planning and Development in Iran, 51, 98.

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seizing the reins of power. The general pessimism pervading the Foundation’s departure from the country indicated few thought this a likely outcome. 198

McLeod, fed up after months of administrative and political deadlock, told the HAG staff that Iran “had learned nothing,” and that the Third Plan, “prepared by foreigners,” could not be implemented: “It is too much for them.”199 The government, he wrote, “is continuously at war with itself,” and the central bureaucracy was less “an organizational structure…[than] a series of political arrangements and accommodations.” The staff of the Economic Bureau were “too western” and distant from the conditions of their country: “They were cast in the role of representative of cultural patters which they imperfectly understood and to which they were but partially assimilated.” This weakness affected the entire HAG team: “we were woefully lacking in any fundamental knowledge of the country itself—its history, its tradition, its culture, and particularly, its religion.” His conclusions were a stinging rebuke of the very core of the development mission and the applicability of modernization theory:

“We became increasingly convinced that the traditional society (of which Iran is

the epitome) must follow its own unique and probably tortuous path to

development and progress. Its ills do not lend themselves to ready cure by the

nostrums which are the patents of developed western communities. Any concept

of change must be founded on forces which are indigenous to the country

198 RAC Ford Foundation Grant 62-465, R-0814, “Final Report on Iran: A Possible Basis for Re-Entry,” July 11, 1964. See Nemchenok, “That So Fair a Thing Should Be So Frail,” 282- 283. 199 PDL Subseries 18E: 1962-1963, Box 433: Iran, Blumenthal to D&R, August 2, 1962.

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itself…there are few, if any, universal forces at work on which the development

planner can readily or effectively capitalize.”200

The warnings of McLeod and others within the Ford Foundation were echoed by another, even more prophetic figure. Husayn Mahdavī, a young Iranian economist and former member of the Economic Bureau, penned a report on the White Revolution for the Ford Foundation. The land distribution parcels were too small, he concluded, to allow for an increase in productivity, with the new land-owners facing a shortage of credit and issues with “sheer subsistence.” The initial enthusiasm among peasants had dissipated, as the tyranny of the landlords had been replaced by the tyranny of the state. “No real democratic force was allowed to fill the vacuum created by the big landlords’ departure,” concluded Mahdavī, and few improvements to local agricultural practice had been carried out, chiefly due to the “lack of a genuine desire on the part of the government…the basic socio-economic problems of Iran are likely to remain unresolved as before.” The difference now, however, was that a decade of oil-drenched development had awakened the Iranian peasant “to see the unacceptability of [his] miserable conditions.” The nation’s riches were being hoarded by those at the very top of the regime. Inequality would endure; it was unlikely that the rural population would remain at peace forever.201

Iran did not abandon economic development plans after 1963. The shah’s government spent $9.5 billion between 1963 and 1970 on industrial and construction projects, including a number of new hydroelectric dams. The Third Plan, according to some estimates, was a success.

200 RAC Ford Foundation Records, Box 287, T. McLeod, “National Planning in Iran, Vol. I” December 31, 1964, 76–80, 114–121. 201 RAC Ford Foundation Grant 62-465, R-0814, Hossein Mahdavy, “Iran’s Land Reform: Its Problems and Prospects,” Forwarded from Foundation Field Office, India, January 12, 1965.

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Iran’s GNP grew by over 6% per year between 1962 and 1967. A new Ministry of the Economy was formed in 1963 to steer investment into industrial growth, though political opposition forced it to hand over its duties to institutions closer to the shah’s court, including the Pahlavi

Foundation.202 The Plan Organization (re-named the Plan and Budget Organization) remained an advisory institution until 1974, when the colossal increase in oil revenues following the OPEC price increases facilitated greater public investment. Oil revenues drove a rapid expansion in industry, which reached an annual growth of 15.2% by the 1970s, far surpassing projections.

While spending on development increased with oil revenues, spending on Iran’s military positively exploded, rising from $577 million to $1.9 billion in 1970 and $10 billion by 1976.203

The development schemes of the 1950s were left behind as agriculture was collected into privately owned agri-businesses in the late 1960s: by 1970, most of the land distributed in 1962-

1964 had been re-distributed to agri-businesses. Agricultural growth, which American specialists had emphasized under the First and Second Plans averaged 2.1% per year and failed to keep up with consumption: by 1968, Iran was importing wheat to prevent starvation. By 1970, amidst

Iran’s accelerating economic growth, two-thirds of all Iranians lacked access to medical care, unemployment was steadily increasing, and income inequality remained acute. While conditions in many of Iran’s cities had improved, the inhabitants of the Dezful region, including those who

202 Nasr, “Politics Within the Late Pahlavi State,” 114-115. 203 Daftary, “Development Planning in Iran,” 189-216, Razavi and Vakil, The Political Environment of Economic Planning in Iran, 25-31, 32-59. See also Amuzegar, Iran: An Economic Profile (Washington DC: Middle East Institute, 1977), 31-50, and J.P.C. Carey and A.G. Carey, “Industrial Growth and Development Planning in Iran,” Middle East Journal 29, no. 1 (1975): 1-15; Gittinger, ‘Planning and Agricultural Policy’, 107–117.

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lived on land irrigated by the Dez Dam, remained in destitution and were closely monitored in government-sponsored “model villages.”204

Jahangir Āmūzgār, Minister of Finance in the last months of the Amīnī government, admitted that Iran had not yet developed its own market economy: at best, it was “private enterprise assisted by the state,” which could eventually push Iran towards take-off provided the country enjoyed “political stability and benevolent, pragmatic leadership.”205 In 1970, Husayn

Mahdavī found the Iranian economy in a precarious state. “The mass of the Iranian people are hardly touched by the so-called development programs.” Growth was sustained by ever-growing state expenditure fueled by annual increases in oil revenue. Mahdavī, no doubt still bitter from his experiences at the Economic Bureau years before, coined a new term for Iran’s new oil- soaked status: the rentier state, where oil-backed prosperity is achieved for some while the mass of people “remain in a backward state and the most important factors for long-run growth…receive little or no attention at all.”206 The progress of the country was tied to the

Pahlavi government, and ultimately the shah; without authoritarian rule, and access to steady oil revenues, the house of cards would crumble.

The concrete achievements of the decade-long U.S. effort to assist Iran’s economic development effort were small. Political interference and constant budget deficits had caused much of the oil wealth ear-marked for development to be diverted elsewhere: only about 54% of

Iran’s oil revenues between 1955 and 1962 were spent on the Second Plan, with the remaining

204 G.E. Goodell, The Elementary Structures of Political Life: Rural Development in Pahlavi Iran (New York: Oxford University Press, 1986); Bill, The Eagle and the Lion, 168-169. 205 Amuzegar, Iran: An Economic Profile, 264. 206 Mahdavy, “The Patterns and Problems of Economic Development in Rentier States: the Case of Iran,” ’’in M.A. Cook, ed., Studies in the Economic History, 428, 437, 465-67.

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funds provided by loans from the World Bank or grants from the United States.207 While Iran’s economic performance in the 1960s and early 1970s was outwardly impressive, it failed to accomplish what so many Iranian and Western developmentalists had hoped for: the stabilization of Iran’s society. Rather than build a politically-active middle class, economic development was used to consolidate the shah’s hold on power. The immense U.S. assistance to Iran during the period of the Seven Year Plan attached the United States to the Pahlavi regime, “together with responsibility for what that regime has done, or failed to do,” according to T. Cuyler Young.208

The conclusion of a controversial status of forces agreement in 1964, which gave U.S. military personnel freedom from prosecution inside Iran, generated further opposition to the shah’s major foreign ally; the profile of prominent anti-Western critics of the shah, particularly Ayatollah

Khomeinī, increased over the years.209 Anger at the United States, according to Mahdavī, fueled further discontent in the urban middle class and peasantry, who were doomed to be left behind amidst Iran’s “take-off” in the late 1960s. This would lead to a violent confrontation “as the only way to bring about a solution to Iran’s ills.”210 His prediction would take fourteen years to come true.

Yet from the point of view of the United States, the strategic goal had been achieved. Iran in 1963 was outwardly secure against communism, and the shah’s government appeared sturdier than it had been ten years before. These changes satisfied American policy-makers, who were content after 1963 to give the shah free rein over the pace of Iran’s development. Local

207 Katouzian, Political Economy of Modern Iran, 205 208 T. Cuyler Young, “Iran in Continuing Crisis,” Foreign Affairs 40, no. 2 (January, 1962): 291. 209 Bill, The Eagle and the Lion, 156-161. 210 Hossein Mahdavy, “The Coming Crisis in Iran,” Foreign Affairs 44, no. 1 (October 1965): 146.

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integration had not occurred as planned; given Iran’s rapid economic growth after 1964 and shah’s increasingly confident rule, it hardly seemed to matter. Yet for many developmentalists, the potential of central planning, funded through oil revenues and aimed squarely at improving the lot of the average Iranian peasant, had not been realized.

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CHAPTER SIX: PRESERVING THE ‘FAÇADE OF NATIONALIZATION:’ THE SHAH,

THE CONSORTIUM AND THE RISE OF OPEC, 1954-1964

Kermit Roosevelt, chief architect of the Mordad Coup, left the CIA shortly after his work in Iran was complete. Employed by Gulf Oil as a “vice president for governmental relations,”

Roosevelt parlayed his close personal friendships with Mohammed Rezā Pahlavi into a second career as a professional lobbyist. The shah trusted Roosevelt, and confided in him on matters relating to his two favorite topics: high diplomacy and international oil. In May 1962, the two men were chatting over a private dinner in San Francisco, and talk turned to the Organization of the Petroleum Exporting Countries (OPEC), the oil producers cartel formed in 1960 of which

Iran was a founding member. The shah seemed skeptical, admitting to Roosevelt “with a wry smile” that some of the more radical ideas bandied about by OPEC leaders Juan Pablo Pérez

Alfonso and ‘Abdullah al-Tāriqī did not interest him: “his country would benefit more from a world market for petroleum which was completely free.”1 More than a year later, in December

1963 Roosevelt visited Iran, ostensibly to write an article about the shah’s White Revolution. In reality, he was there to discuss matters of international oil with the shah. After two years of back- and-forth negotiations, the dove had turned hawk: the shah, against the advice of some of his closest councilors, was pushing the companies to the brink, letting OPEC edge closer to taking punitive action unless his demands for more revenue were met. “Some firm talk and cautionary advice” from Roosevelt would, it was thought, break the shah from his stubborn stance. But he still refused to consider any deal that would not immediately increase Iran’s oil revenues. The consortium in control of Iran’s oil industry would have to grow used to the idea of meeting his

1 FO 371/164606 UES 1037/11 Rose to Eagers, May 11, 1962.

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demands: “bargaining is what the companies and governments will have to live with for a number of years to come,” he told Roosevelt.2

In the aftermath of the nationalization crisis, Iran and its ruler occupied a unique place among the major oil-producing states. Reliance on oil revenues tied the Pahlavi regime to the international energy system, while Iran’s status as a Western ally and the fresh memory of the nationalization crisis deterred it from challenging the prevailing order. Yet the shah, dissatisfied with the 1954 Consortium Agreement and eager to both increase Iran’s revenues and emphasize its nominal independence, rarely missed an opportunity to symbolically undermine the oligopoly.

His relationship with the companies came to mirror that of his father in the aftermath of the 1933

Concession: the regime depended on oil and the shah was disinclined to revive the issue of oil nationalism after the crises of the Moṣaddeq years, yet his government could gain prestige and profit by placing pressure on the companies, utilizing Iran’s significance in international politics and the energy system to leverage a better deal from the companies.

In the midst a changing international energy system, the dynamic between the Pahlavi regime and the oligopoly underwent a period of intense strain. As the posted price system, the original basis for dual integration, began to fall apart in the late 1950s and early 1960s, discontent among oil producers and Third World nationalists gave rise to OPEC, which sought to use collective action to force the oligopoly to surrender more money and, potentially, control over the international energy system. The Pahlavi regime faced a choice: either to side with the rebels and pressure the companies into yielding a greater share of control, or work to preserve the system, to abandon the common front, and to milk even greater revenues from the oligopoly.

2 FO 371/172530 EUS 1037/94, Powell to Rose, December 4, 1963; FRUS 1961-1963 Vol. XVIII Near East 1962-1963, No. 381, Memo of Conversation, December 6, 1963.

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The shah chose the latter course. While the posted price system crumbled and individual states won a larger “take” from the companies, the central edifice of the system, namely the oligopoly’s control over price and production, remained intact and survived for another decade, thanks in large part to the durability of the alliance between Iran and the Consortium and the desire to maintain the dual integration of Iranian oil.

6.1 Iran and the Consortium, 1954-1960

From 1950 to 1973, the world enjoyed a “golden age of oil.” Demand grew from 11 million barrels per day (bpd) in 1950 to 57 million bpd twenty years later. Over seventeen- hundred new tankers were launched, 2.5 billion motor vehicles built. Between 1951 and 1961, the growth in the world oil trade was 75% greater than the aggregate increase in movements of all other commodities: by a wide margin, oil was the most valuable traded good on earth.3 As a share of world energy consumption, oil increased from 24% in 1949 to 43% in 1971: it supplied

57% of the energy consumed in Western Europe, while oil consumption in the Far East increased from 330 thousand bpd to 7 million bpd between 1948 and 1972.4 The period saw the local integration of oil across the industrialized West, the birth of what Daniel Yergin has called

“Hydrocarbon Man,” and a new phase of human evolution where every facet of daily life revolved around the consumption of fossil fuels, particularly oil, unfettered by concerns over the ecological impact of energy use and limited only by the capacities of society to consume and the companies’ ability, and desire, to supply.5 Amidst this abundance the international oligopoly maintained its dominance. The eight majors controlled 84% of production, 90% of reserves and

3 BP 100334 The Price of Oil, Trade Relations, July 13, 1962. 4 Jacoby, Multinational Oil, 49-55 5 Yergin, The Prize, 523-42.

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65% of refining capacity in the Eastern Hemisphere in 1959.6 Though they faced steadily rising competition from “newcomers” and a persistent downward trend in global prices, the oligopoly formed in the 1930s and solidified in the 1950s was unassailable.

The key to their success was the abundance of cheap Middle Eastern oil, sold at the inflated posted price. In 1960, total fixed assets of the majors in the Middle East totaled $900 million, yet profits per year regularly exceeded this figure. While making up 42% of the total increase in global production, the Middle East accounted for only 4% of exploration costs.

Reserves were conservatively estimated at 78 billion barrels in 1953, 2.5 times greater than the reserves of the United States. Middle East oil truly was “manna from heaven.”7 The fifty-fifty concessions signed in the 1950s facilitated an even split of profits based on the production of oil, and funded a dramatic increase in the wealth accumulation of oil producing states. Tiny states like Kuwait grew fantastically rich. Larger states like Iraq, Venezuela and Saudi Arabia used their new wealth to expand state power and facilitate economic development. The Pahlavi regime of Iran, which returned to the international energy system after three years of embargo and isolation, funded an ambitious economic development program, made possible by the large annual payments it received from the Consortium, the group of Western oil companies which had controlled its industry since October 1954.

The Consortium Agreement facilitated the smooth return of Iranian oil to the international energy system. Between 1954 and 1960 Iran’s oil production increased from

330,000 to 1.19 million barrels per day (bpd). From 1954 to 1970, growth averaged 14.2% annually. Revenues to the Iranian government increased from $99 million in 1955 to $285

6 Issawi and Yeganah, Economics of Middle Eastern Oil, 61. 7 Parra, Oil Politics, 33-40.

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million in 1960. Before 1954, oil never accounted for more than 15% of the state budget. After the Consortium Agreement, oil was the bedrock of the Iranian government and covered 41.8% of total state expenditure.8 The Consortium boasted that Iran received “4.5 times as much money for each barrel of oil as before nationalization.”9 Without oil, the expansion of the Iranian state and the solidification of the shah’s hold on power after 1953 would have proven impossible.

The Consortium managed the operations and export of Iran’s oil through two operating companies: Iranian Oil Exploration and Producing Company, and Iranian Oil Refining

Company. These companies employed about 46,000 workers in Abadan and the oil fields, with

600 foreigners in supervisory, managerial or senior engineering capacities. The Consortium purchased oil owned by the National Iranian Oil Company (NIOC), and ran oil operations within the concession area. The Consortium itself, “a hydrocephalic…sometimes frustrating mechanism,” operated according to the cooperation of its members, who made up the board of the Iranian Oil Participants (IOP), a holding company headquartered in London.10 Once a year, a delegation from London would come to Tehran to meet with NIOC and government officials, in order to review operations and discuss relevant items including labor management and the transfer of non-basic services to NIOC.11 The shah, who took a particular interest in the oil industry, insisted that Iran be returned to its pre-1951 status as the top Middle Eastern producer,

8 F.S. Smithers and Co, International Oil Industry (New York: F.S. Smithers and Co, September 1962), 51; Wall, Growth in a Changing Environment, 599; Karshenas, Oil, State and Industrialization, 135; Schwadran, The Middle East, Oil and the Great Powers, 161. 9 In 1950, Iran received £15 million from AIOC for 31 million tons of oil. In 1957, the government received £70 million in royalties and income taxes for 35 million tons. See RG 59 888.2553/8-1358, US Embassy Tehran No. 123, Ambassador Briefed by Oil Consortium, August 13, 1958. 10 RG 59 888.2553/3-3158, US Embassy No. 868, March 31, 1958. 11 “Non-basic” referred to all aspects of managing the industry that did not pertain directly to producing, refining or transporting oil: housing, health services, labor, etc.

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with one-third of regional production. The companies, conscious of keeping the shah happy and aware of how closely he monitored the off-takes of Iraq, Kuwait and Saudi Arabia, steadily increased Iranian production. Non-basic services were gradually handed to NIOC, which resisted taking on any duties that would drain its meager resources: with the bulk of oil revenues going towards the Seven Year Plan and the state budget, NIOC spent most of the 1950s under-funded and handicapped by a lack of manpower.12

Despite the efforts of Amīnī and others to promote it, the Consortium Agreement was not popular among educated Iranians. Officials within NIOC bristled at their diminished status following the freedom of the nationalization period. While Iranian directors sat on the board of the operating companies and ostensibly had some say in setting policy, in reality all they did was vote on directives issued from the Consortium partners in London, “and had no role in the decision.”13 The companies were eager to ensure that Iranian production was kept at a stable level, one which would not create over-supply or compete with alternative sources in which they all had a stake. The system agreed upon was one of aggregated program quantity, or APQ.

According to the Participants Agreement signed in secret in 1954, each company would submit their requirements for crude and refined products to the IOP, which would then list in descending order each company’s suggested “off-take.” The final figure would correspond to the lowest figure nominated by at least 70% of the total shareholders. Each participant would then take a

12 POWE 33/2121 Oil Report No. 12, Khorramshahr Consul, December 4, 1955; RG 59 888.2553/7-2855, US Consulate Khorramshahr, No. 1, Effort of Consortium Oil Operating Companies to Reduce Services to Non Industry Users, July 28, 1955,888.2553/11-1255, US Embassy Tehran, No. 341, “First Year of Activity of the Iranian Oil Operating Companies,” November 12, 1955, 888.2553/1-1558, US Embassy Tehran No. 628, Semi-Annual Petroleum Report, January 15, 1958; FISDS, Tahavvul-i san`at-i naft-i iran, Interview with Parvīz Mīnā [Accessed April 19, 2017]. 13 FISDS, Tahavvul-i san`at-i naft-i iran, Interview with Mīnā [Accessed April 19, 2017].

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percentage of the total figure corresponding to their stake in the Consortium. The system punished any company that bought more oil than was needed, ensuring Iranian output would not increase too rapidly and thus displace production elsewhere.14

Economist Edith Penrose, who uncovered some details of the Participants Agreement during the 1960s, guessed it was meant to “retard the expansion of capacity.”15 Herbert Hoover

Jr., the U.S. oil advisor and Under-Secretary of State, argued that to reveal the details of the APQ would undermine the stability of the agreement, opening up “old wounds” and giving rise to

“misinterpretations as to which party in the dispute had made the greater concession.” Officials in the U.S. government were anxious to keep the agreement a secret, for fear it would inspire

Iranian backlash.16 It is argued that without the APQ, Iran’s production would have been higher, and that keeping it suppressed was a quid pro quo for U.S. companies which had joined the

Consortium reluctantly in 1954.17

Yet an examination of the APQ figures from 1957 to 1974 paints a different picture.

Generally, the highest “bidders” on the APQ were BP (40%), CFP (6%), Shell (14%) and Iricon

(5%). 18 When joined by Socony-Mobil (7%), a U.S. major with large market outlets but less access to cheap crude (crude-short), the high-bidders commanded 72% of the Consortium, which

14 See Shafiee, “Cracking Petroleum with Politics,” 429-432; Blair, Control of Oil, 104- 105; Text of Participants Agreement, The International Petroleum Cartel, 95-117. 15 Edith Penrose, “Vertical Integration with Joint Control of Raw-Material Production: Crude Oil in the Middle East,” Journal of Development Studies 1 (April 1965): 251-268. 16 RG 59 891.2553/6-2755 Memo of Conversation, June 27, 1955, 888.2553/6-2855 Dulles to Celler, July 13, 1955, 891.2553/11-955, Ralph K. Davies to Celler, December 17, 1955. See also Wall, Growth in a Changing Environment, 593-594. 17 Shafiee, “Cracking Politics with Petroleum," 417, Blair, Control of Oil, 105-107, Heiss, Empire, 215. 18 In 1955 the US majors agreed to sell 1% each, allowing a group of US independents to join the consortium; the nine companies were henceforth known as Iricon Agency Ltd. and they received 5% of the consortium’s output.

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brought the APQ up, rather than down. This grew more pronounced by the early 1960s, when the high-bidders became adept at coordinating their nominations. The companies did not have to increase Iranian production in this way: that they did was down to the interest of those

Consortium members who were eager to market Iranian oil as their cheapest source. BP, CFP, and Iricon all fell into this category. Despite losing 60% of its former concession, BP continued to hold considerable sway over how much Iran could produce in a given year. Iran’s production remained lower than that of Saudi Arabia and Kuwait (where production costs were the lowest in the world), yet it rose higher than Iraq, where company-government relations turned sour after

1961. The system represented the participation of all Consortium members, yet was skewed to favor those who wanted Iranian production to increase and remain competitive.

Table 6.1 The APQ in Action: Consortium Nominations (Thousands bpd) 1957-1966 19

2500

1945 2000 1836 1680 1521 1342 1500 1192 911 850 1000 787 690

500

0 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966

BP Shell Exxon Socal Mobil Texaco Gulf CFP Iricon APQ

19 Multinational Corporations and United States Foreign Policy: Report Together with Individual Views to the Committee on Foreign Relations, United States Senate, Part 7 (Washington DC: U.S. Government Printing Office, 1975), 255.

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Table 6.2 Middle East Oil Production, 1951-196120

Iraq Saudi Arabia Iran Kuwait

1800 1600 1400 1200 1000 800 600 400 200 0 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961

Table 6.3 Revenues from Oil (Millions of US$) 1948-196021

Iran Iraq Kuwait Qatar Saudi Arabia

450 400 350 300 250 200 150 100 50 0 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960

The consortium offered Iran a version of the standard fifty-fifty profit-sharing agreement which had been secured in Iraq, Kuwait, and Saudi Arabia between 1950 and 1952. The figure from which “profits” was measured was the sale of oil from NIOC to the Consortium. The unit

20 Smithers, International Oil Industry, 51. 21 Issawi and Yeganah, Economics of Middle Eastern Oil, 129.

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of measurement was the “posted price,” a publicly announced price based on the net-back formula that the different companies started publishing in the early 1950s.22 For Iran this price was $1.97/barrel until June 1957, when it was increased to $2.12/barrel. Against production costs, this yielded $.75-.80/barrel in revenue.23 The consortium regularly informed NIOC how much oil it planned to produce (“off-take”), allowing the Pahlavi government to predict its annual revenues and budget accordingly. The shah always argued that revenues were too low, but the system permitted transparency and eliminated the obfuscation and suspicion which had poisoned relations before 1951. Iran could expect no money from the consortium participant’s refining or marketing operations.

After the conclusion of the fifty-fifty agreements, the posted price was designed to act as a realistic basis upon which international transactions in oil could take place: the market price, or realized price. As one BP internal report argued, the posted price had been introduced and incorporated into the fifty-fifty profit-sharing system “precisely because [it] could be regarded as genuinely representative of going market prices.”24 Yet that correlation weakened over time.

Because each major company was vertically integrated, and chiefly sold crude oil to its own affiliates, posted price had little connection to the price used in third-party, “arms-length” transactions. As Penrose pointed out, sales of oil at posted price to affiliates was not really an issue of sales or profit, but of accounting: “the profits so calculated have little economic meaning.” The companies sold large amounts of crude to each other at a discounted rate below

22 The first posted price was for Iraqi crude and was posted by Socony-Mobil in October 1950; Arabian light produced from Saudi Arabia was posted in November 1950, and Kuwaiti oil was posted in April 1953. The final posted price was for Iran and followed the October 1954 Concession Agreement. Parra, Oil Politics, 20, 62. 23 Ruhāni, A History of OPEC, 190. 24 BP 100334 “Middle East Concession and Tax-Paying Arrangements: Posted Prices,” August 13, 1962.

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the posted price. The posted price existed as a fiction, with no basis in how the market actually functioned: it was “an arbitrary, though convenient, bit of economic make-believe.”25

Despite its status as an economic fiction, the posted price served an immensely useful purpose within the realm of establishing equitability between companies and producer states. A set price for oil produced at the wellhead allowed companies to share production profits with concessionary states, separating production from refining, transportation, and marketing, where competition remained and where profit margins were often very narrow. “Unless the major companies wanted explicitly to give the producing countries a share in the total profits on their integrated operations,” wrote Penrose, “some means would have to be devised of attributing a profit to crude operation alone. The posted price of oil provided the means.”26 By acting as a basis for fifty-fifty profit-sharing calculation, the price allowed producing states to perceive how their annual revenues were being generated. Francisco Parra, a critic of the companies and a founding member of OPEC, noted that the fifty-fifty formula based on the posted price “was a smash hit…it did not much matter whether it had a basic economic rationale or not: it worked.”27

The companies never discussed the nature of the posted price, and instead argued the system functioned according to competition inside the marketplace. Outside the work of a handful of experts, including Penrose, Paul Frankel, and Walter Levy, few understand the true nature of posted price; it was a system shrouded in mystery.28 This would inevitably create problems for

25 Penrose, “Middle East Oil,” 203-213; “Middle East Oil: Report by a Working Party of Officials,” A.L.P Burdett, OPEC Origins & Strategy, 1947-1973, 2004, Vol. 1 Developments and Events Leading to the Creation of OPEC (Slough, UK: Archive Editions, 2004), 267-349. 26 Penrose, “Middle East Oil,” 208. 27 Parra, Oil Politics, 21. 28 Hartshorn, Politics and World Oil Economics, 127-128; Parra, Oil Politics, 64-65.

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the companies, as the price drifted from the true market value of oil, growing more and more artificial as the decade wore on.

Table 6.4 Posted Prices, 1951-1961 29

Year 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961

Iran 1.69 N/A N/A 1.91 1.91 1.91 1.97 2.04 1.88 1.84 1.78

Iraq 1.73 1.73 1.80 1.90 1.90 1.85 1.93 1.98 1.82 1.78 1.72

Iraq

(Med) 2.41 2.41 2.41 2.41 2.41 2.41 2.67 2.51 2.33 2.28 2.21

Kuwait 1.50 1.5 1.67 1.72 1.72 1.72 1.80 1.85 1.69 1.65 1.59

Saudi

Arabia 1.71 1.71 1.81 1.93 1.93 1.93 1.99 2.06 1.90 1.87 1.8

Saudi

Arabia

(Med) 2.37 2.37 2.37 2.37 2.37 2.46 2.63 2.47 2.29 2.24 2.17

US Gulf 2.68 2.68 2.98 2.98 2.98 2.98 3.38 3.28 3.28 3.28 3.28

Venezuela 2.65 2.65 2.90 2.90 2.90 2.84 3.05 3.05 2.84 2.80 2.80

Global political changes, derived in part from rising Third World nationalism, threatened to upset the balance in international oil. Many of these developments worked to the advantage of the Pahlavi regime. The closure of the Suez Canal by Egyptian President Abdul Gamel Nasser

29 Issawi and Yeganah, Economics of Middle Eastern Oil, 68; Federal Trade Commission, International Petroleum Cartel (Washington, 1952).

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illustrated the enduring threat of Third World resource nationalism, and the uncertain security of

Middle East oil supplies; it also allowed Iran to produce more oil, and highlighted the shah’s security from Arab nationalism, which emerged as a potential threat to the position of the oligopoly. Support for pro-Western oil producers remained a key aspect of U.S. foreign policy in the Middle East, defined in the late 1950s by an emphasis on regional security and economic development. This model met a major set-back when the pro-West Hashemite monarch of Iraq was toppled in July 1958, replaced by the pro-Soviet military dictatorship of General Abdul

Karim Qassim. The rise of Arab nationalism and the threat it posed to energy security encouraged a view of Iran as a secure source of energy. The shah’s regime, along with other

Baghdad Pact members, constituted “one of the best political assets the United States has in the area,” according to Secretary Dulles.30 Iran, out of every major Middle East oil producer, was the most secure and reliable source of oil for the West, a point further emphasized by the shah’s character as an ardent production hawk.31

While the 1954 Agreement could not be abrogated, the shah frequently attempted to subvert the agreement, displaying Iran’s ostensible freedom from the oligopoly and its rights to develop its oil resources independently. NIOC undertook extensive explorations of non- consortium areas. These efforts were thoroughly publicized in the press, and when a major find was made in the Alborz Mountains near Qom in 1956, the shah immediately began making plans for pipelines to carry the oil to foreign ports and a new refinery to be built near Tehran.32 Hopes

30 FRUS 1955-57, Vol. XII, No. 373, Memo to Director of ICA, December 7, 1956. 31 For the Suez Crisis, Arab nationalism, international oil and U.S. foreign policy, see Bamberg, Vol. III, 75-99, Citino, From Arab Nationalism to OPEC, 87-117, Salim Yaqub, Containing Arab Nationalism: the Eisenhower Doctrine and the Middle East (Chapel Hill, NC: University of North Carolina Press, 2004), 1-9, 31-34. 32 FO 371/127212 ES 1171/264 Note on Shah’s Speech, October 9, 1957; RG 59 888.2553/9-1956, Hoover to Chapin, No. 538, September 19, 1956, 888.2553/9-2556, Chapin to 379

were high that Qom would prove as rich as the huge fields at Agha Jari and Gach Saran in

Khuzestan, and the shah talked eagerly of building a pipeline, the “Met-Line,” from Tehran to the Mediterranean, so that Alborz oil could be marketed to Europe.33 Meanwhile, agents of the shah, including his “oil advisor” Ahmed Maybud, worked to drum up support for new oil agreements with independent oil companies.34 In 1957, the pro-shah Majlis passed a new national oil bill. Authored by NIOC oil experts Fuād Ruhāni and Fathallāh Nafīsī at the shah’s instructions, the bill directed NIOC to seek new oil agreements and mandated that all new deals required Iranian ownership of at least 50% and an immediate cash bonus.35 According to ‘Abd- allāh Entezām, the chairman of NIOC, Iran would develop its own oil “and thereby receive a greater share of the revenue,” rather than rely solely on the rents collected from the companies.36

Iran’s ultimate ambition was “to build up our markets and set up our own refineries abroad,” in time matching the size and scale of the majors themselves.37

The first agreement was made with AGIP-Mineria, an affiliate of the Italian firm ENI, led by Enrico Mattei. The deal, “better than all other existing oil contracts in the world,” split profits

State, No. 476, September 25, 1956, 888.2553/10-156, Chapin to State, No. 509, October 1, 1956; FISDS, San`at-i petroshimi-i iran Part 2, Interview with Mustawfī, [Accessed March 23, 2017]; FIS, Interview with Houshang Farkhān, 3-7. 33 RG 59 888.2553/1-1556, US Embassy Tehran, No. 628, Semi-Annual Petroleum Report, January 15, 1958. Though it attractd some attention in the aftermath of the Suez Crisis, the U.S. companies ultimately determined the Met-Line would be too costly to pursue. See Gregory Brew, ‘“Our Most Dependable Allies:' Iraq, Saudi Arabia, and the Eisenhower Doctrine, 1956–1958," Mediterranean Quarterly 26, no. 4 (2015): 89-109, for Met-Line see 102- 104; John Bowlus, “Connecting Midstream: The Politics and Economics of Oil Transportation in the Middle East,” (PhD Dissertation, Georgetown University 2013), 51-55. 34 Amīnī, Khātirāt, 84 35 Fu’ād Rūhānī, Ṣanʻat-i naft-i Īrān: 20 sāl pas az millī shudan (Tehran: Kitābhā-yi Jībī, 1977), 49-61; FRUS 1955-57, Vol. XII, No. 379, Chapin to State, No. 1086, January 17, 1957. 36 FO 371/127210 UES 1171/217 Russell to FO, No. 87, August 2, 1957. 37 Petroleum Week, March 15, 1957.

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75-25 in Iran’s favor, with ENI covering the initial investment and providing Iran a cash bonus.38

A second agreement was made with a Japanese firm. The most significant of the new oil deals was the shah’s agreement with PanAmerican Oil, a subsidiary of Standard Oil of Indiana.

PanAm represented a medium-sized American oil company, with more established markets and significantly more capital than smaller independents. The shah believed the PanAm agreement,

“the most important achievement of his reign,” would allow him to pressure more revenue from the consortium while increasing revenue from other domestic sources.39

Observers worried the shah might let “his greed to get the better of his judgement,” and allow companies without sufficient marketing or refining capabilities to gain access to cheap

Iranian crude. Should Iran succeed in producing oil independently, it would naturally seek markets of its own, undermining prices. Unless independent Iranian oil exploration proceeded in an “orderly” fashion, there was a chance that the existing system would be replaced “by a cut throat struggle,” with destructive competition sending prices plunging and production soaring.40

Amīnī and the NIOC leadership argued against taking any action “which would unfavorably affect the Consortium’s operations,” and worried that an attempt to undermine the 1954 agreement would be met with retributions 41 The U.S. ambassador attempted to dissuade the shah from offering new concessions, warning him that expectations of higher revenues from new

38 FIS, Interview with Houshang Farkhān, 3-4. 39 RG 59 888.2553/5-658, Chapin to State, No. 2056, May 6, 1958. 40 RG 59 888.2553/5-756, US Embassy Tehran No. 944, Additional Oil Developments in Iran, May 7, 1956; FO 371/120742 EP 1536/3 FO to Stevens, No. 516, April 18, 1956. 41 RG 59 888.2553/5-456, Memo of Conversation, May 4, 1956.

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concessions were “exaggerated,” and the finance minister threatened to resign in 1957 if the new oil legislation was allowed to pass.42

But for the shah, the risk seemed minimal. Self-taught in oil matters, the shah “paid just as much attention to oil…as he paid to military equipment.”43 His mind, “like a computer,” could retain facts and figures from his NIOC briefings, and late in his reign he illustrated a deep knowledge of the international oil industry.44 As he told the Majlis in July 1957, Iran would comply with the “equitable demands of oil policies” and the fifty-fifty principle, but would never surrender to the “oil magnates” of the major companies: the country was “determined to maximize her oil revenues” and execute her sovereign rights.45

The deals as signed, while technically breaking fifty-fifty, in reality did not award Iran a greater share of potential profits. Rather than a complete break, the new deals constituted “an extension of the 50-50 regime,” tweaking but not overturning the existing revenue-sharing paradigm.46 The newcomers, if they discovered oil, would have to spend millions to build up productive capacity before turning a profit, seventy-five percent of which would then have to be turned over to the government.47 None of the partnership ventures proved particularly lucrative.

Standard of Indiana, for instance, spent $50 million through its PanAm subsidiary by May 1961 without showing any results.48 Neither the independents nor NIOC came close to competing with

42 RG 59 888.2553/1-1757, Dulles to Chapin, No. 1401, January 17, 1957; FRUS 1955- 57, Vol. XII, No. 379, Chapin to State, No. 1086, January 17, 1957, No. 383, Chapin to State, No. 1133, January 24, 1957. 43 FIS, Interview with Theodore Eliot, 58. 44 FIS, Interview with Houshang Farkhān, 59. 45 FO 371/127210 UES 1171/210 Russell to FO, No. 459, July 31, 1957. 46 Ruhāni, History of OPEC, 53. 47 RG 59 888.2553/8-2358, US Consulate Khorramshahr No. 12, August 23, 1958. 48 RG 888.2553/5-661, US Embassy Tehran No. 593, May 6, 1961.

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the consortium in terms of production.49 NIOC depended on a share of oil revenues to meet its budget, and this share declined between 1957-1960 as more funds were siphoned from NIOC and the Plan Organization to fill the budget gap. While NIOC engineer Houshang Farkhān noted that exploration in new concession areas was paid for by the newcomers, thereby saving NIOC the cost, Parvīz Mīnā, a NIOC official, observed that exploiting Qom and other fields required capital, manpower and technological skill, “none of which were available at that time to

NIOC.”50 Exploiting oil outside the Consortium zone may have been a useful propaganda exercise, and it enhanced the technical skill of NIOC, but it did not appreciably add to Iran’s oil revenues in the 1954-1964 period.

The consortium talked down the significance of the deals in public and continued to defend the legitimacy of the fifty-fifty concession, “not so much a formula as a basic principle,” and the “most equitable and most advantageous rate for all concerned.”51 Ultimately, what the shah was interested in was money, and how oil could be made to yield more and more revenue.

The new concessions could pressure the companies to maintain cordial relations with the Pahlavi regime, but did not go far enough to break the system completely; the shah needed the

Consortium more than the oligopoly needed Iran.

Āli-Naqī Ālikhani, a SAVAK officer who would later serve as Minister of Finance, noted that NIOC could provide Iran with better information on global oil than any other oil-producing

49 In 1962, the consortium produced 1.3 million barrels per day (bpd) compared to 18,000 bpd from third parties. By 1971, these figures were 4.14 million and 392,000 bpd, respectively. See Jane Perry Clark Carey, “Iran and Control of Its Oil Resources,” Political Science Quarterly 89, no. 1 (March. 1974): 160. 50 FISDS, Tahavvul-i san`at-i naft-i iran, Interview with Mīnā [Accessed April 19, 2017]; FIS, Interview with Houshang Farkhān, 4, 5-7. 51 POWE 33/2200 “Fair Shares in Oil” M.J. Rathbone; ExxonMobil Collection, Box 2.207/E183, Folder 5, “Nationalism and Business Prospects in the Middle East,” Siegel, Director, Socony-Mobil, September 30, 1958.

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country. Had it been charged with running the industry, there is little question NIOC would have performed admirably.52 The Consortium maintained a façade of nationalization, but carried on much as AIOC had done: it was an inorganic, artificial element, “a foreign-owned enclave” and a constant reminder of the defeat of Iran’s nationalization effort.53 Even for Amīnī, NIOC’s leadership and other Iranians who had disagreed with Moṣaddeq or thought his nationalization campaign a disaster, the return of the companies was a bitter pill to swallow. The shah could pressure the Consortium indirectly; he emphasized Iran’s need for oil revenues, “[which] will be used more wisely” than other Middle East producers.54 The British and U.S. governments, eager to preserve the shah as an ally, indicated to the Consortium that the shah’s revenues should remain “steady” with a “regular annual increment” to keep him satisfied.55 Under this pressure and conscious of maintaining good relations, the oligopoly felt obliged to accommodate the shah, much as AIOC had done for his father. The Consortium “has a practical and selfish concern in the ability of the present Iranian government to improve general economic, political and social conditions in the country.” For this reason, one IOP advisor recommended the companies

“encourage…genuine social reform,” and continue to preserve the shah’s government with oil revenues, which along with foreign loans “are keeping the country from economic bankruptcy.”56 The relationship between Iran’s monarch and the oil oligopoly may not have been

52 ʻĀlīkhānī, Iqtiṣād va amnīyat, 56-57. 53 FO 371/140857 EP 1533/5 British Consul, Khorramshahr December 9, 1958 54 RG 59 888.2553/3-1358, US Embassy No. 811, March 13, 1958, Grove to Robert Siegel, March 11, 1958. 55 FO 371/149805 EP 1531/2, Embassy Tehran No. 15E, February 2, 1960. 56 RG 59 888.2553/7-1158, US Embassy No. 54, July 17, 1958, “The Impact of Pertinent Iranian Social, Economic and Political Factors Upon the Operating Companies,” Adnan Mazarei, Economic Advisor to Consortium.

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ideal, but it served each party’s mutual benefit, and in that sense could be considered equitable as long as conditions in global oil remained consistent.

6.2 “The Horrors of Peace:” Changes in Oil, 1954-1960

After the successful resolution of the Iranian nationalization and the Suez crisis of 1956, the companies assumed an “aura of unassailable power.”57 Middle East oil was a crucial component in the global economic order and supplied two-thirds of European requirements: some estimates had Middle Eastern oil supplying eighty percent of global demand by 1970. 58

Producer states saw earnings from oil double between 1954 and 1960, rising to over $400 million for Kuwait, $350 million for Saudi Arabia and $280 million for Iran annually.59 Critics of the companies, of which there were many, accused the international energy system of operating as a cartel. Yet as oil scholar Paul Frankel noted in 1957, to call the prevailing system a cartel was

“disingenuous…such reasonably stable equilibrium made a cartel unnecessary.”60 There were the much-maligned “secret agreements” between the companies, such as the APQ system in Iran, yet the bed-rock of the oligopoly was shared interest in keeping out newcomers and limiting production, and shared investment in the fifty-fifty concession system. As Parra noted years later, if the “carrot” of high revenues based on fifty-fifty agreements served to keep the producers satisfied, “the defeat of Iran was the big stick that threatened anyone who got too far

57 Bamberg, Vol. III, 143. 58 Burdett, OPEC Origins & Strategy, Vol. 1, “Middle East Oil: Report by a Working Party of Officials,” 267-349. 59 Issawi and Yeganah, Economics of Middle Eastern Oil, 129. 60 Paul Frankel, “A Turning Point,” October 1957, in Paul Frankel: Common Carrier of Common Sense, ed. Ian Skeet, 88.

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out of line.”61 The oligopoly were confident that “Moṣaddeq madness” would not spread to other producers.62

Yet the dominance of the oligopoly and the long-term viability of fifty-fifty as a basis for dual integration was already coming undone. The enormous investment in production caught up with world demand by 1958: the end of the war in Korea, the conclusion of the Suez Crisis and a slight global recession had created over-flowing stocks of oil and oil products, what Paul Frankel dubbed the “Horrors of Peace.”63 In the United States, concerns over the rising tide of cheap foreign oil drove a lobbying effort by independent U.S. companies to protect the American market from imports. There had been considerable concern in 1954 over the re-integration of

Iran: Texas oil-men, represented in the U.S. Senate by majority leader Lyndon B. Johnson, were worried about a flood of cheap Iranian crude. Rising prices during the Suez Crisis galvanized further political opposition to imports. In March 1959 President Eisenhower instituted mandatory import quotas: henceforth, only 9% percent of U.S. oil could be imported from overseas, and only a fraction of that would come from the Middle East.64 At the same time Soviet oil exports were increasing. Despite U.S.-led resistance, Soviet oil found a market in Western Europe, where it could out-compete most other sources. Italy, which had sought to obtain cheap Iranian crude during the nationalization period, embraced Soviet oil imports as a way to save on foreign exchange: Enrico Mattei, ENI’s president, was a notable foe of the oligopoly and hoped to undermine its dominance of the Italy import market by obtaining oil from sources outside the

61 Parra, Oil Politics, 30. 62 Dietrich, “Mossadegh Madness: Oil and Anti-Colonialism, 1951 to 1970,” 63-78. 63 Paul Frankel, “A Turning Point,” October 1957, in Paul Frankel: Common Carrier of Common Sense, ed. Ian Skeet, 90. 64 Ruhāni, A History of OPEC, 188; Moran, “Oligopoly of Would-Be Sovereigns,” 590- 91.

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oligopoly’s control.65 Soviet exports, U.S. import quotas and rising production from the Middle

East and Latin America created glut conditions.66 Finally, the dominance of the oligopoly over production had been undermined by the appearance of innumerable independents securing concessions in Iran, Libya, Nigeria, and offshore areas. As former oil executive James Terry

Duce noted in Foreign Affairs, competition had arisen “from every corner,” placing greater pressure on the existing system.67 Frankel warned that this new glut of production from newcomers outside the oligopoly, including independents, national firms like ENI, and producer states like Iran could place pressure on the existing system: “this different type of competition,” he mused, “may result in prices which could no longer be rationalized by world-market-price theories.”68

The changing state of global oil was placing pressure on the posted price system, the foundation of the fifty-fifty concession and the dual integration achieved in the early 1950s. The original link between Western Hemisphere prices and the Middle East was severed: import quotas resulted in a stable U.S. price of $3.28/barrel, while Middle East was being traded in third-party deals at a market price close to $1.84/barrel.69 While affiliate sales continued to make up the bulk (80-90%) of total transactions, the oligopoly was undercutting the posted price through discounting sales to third parties. From the companies’ point of view, the inflated posted price meant that more was now being paid in taxes to producing governments: the fifty-fifty

65 Elisabetta Bini, “A Challenge to Cold War Energy Politics? The US and Italy’s Relations with the Soviet Union, 1958-1969,” in Cold War Energy, ed., Perovic, 201-230. 66 Wall, Growth in a Changing Environment, 600-601. 67 James Terry Duce, “The Changing Oil Industry,” Foreign Affairs 40, no. 4 (1962): 627-634. 68 Paul Frankel, “A Turning Point,” in Paul Frankel: Common Carrier of Common Sense, ed. Ian Skeet, 92. 69 Seymour, OPEC: Instrument of Change, 12; Ruhāni, A History of OPEC, 189-190.

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division was now closer to sixty-forty, and the companies’ profit margins were being increasingly squeezed by the declining price.70

Table 6.5 Eastern Hemisphere Profits and Payments (Millions of US$) 71

Year 1953 1954 1955 1956 1957 1958 1959 1960

Earnings (Eastern 766.9 862.0 948.2 996.8 1059.3 962.9 987.8 1102.6

Hemisphere)

Payments to 602.1 697.1 898.1 958.3 1026 1175.8 1299.9 1396.6

Governments

Non-Producing Income 164.8 164.9 50.1 38.5 33.3 -212.9 -312.1 -294

The artificiality of the posted price gave rise to confusion regarding the true value of oil and the definition of equitability. The companies grew increasingly concerned that the fall in market prices, coupled with the fixed posted price, would lead to an imbalance in profits versus tax payments to countries. By contrast, producing governments felt that the companies, by withholding profits from marketing, distribution and refining, were not granting a “full partnership” in the industry. They regarded the companies as hugely-profitable enterprises that

70 Francesco Petrini, “Public Interest, Private Profits: Multinationals, Governments and the Coming of the First Oil Crisis,” Business and Economic History 12 (Jan., 2014): 8-9. The decline in profitability would continue through the 1960s: according to Joseph Stork, in 1969 the majors earned the same profit ($1.6 billion) on twice the output, indicating a 50% in profits per barrel. See Joseph Stork, Middle East Oil and the Energy Crisis (New York: Monthly Review Press, 1975): 120. 71 FO 371/164220 EP 1532/20 Comments on OPEC Explanatory Memoranda, October 1, 1962.

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were purposefully withholding monies owed to producing states.72 The discontent among oil producing states mirrored the rise of post-colonial nationalism that spread in the wake of the

Bandung Conference in April 1955, where Indonesian President Sukarno denounced the modern political economy as colonialism in “modern dress.”73 The increased importance of oil in the global economy helped spur along a rhetoric of oil as an issue of national sovereignty and Third

World economic rights. The oligopoly’s control was decried as tyrannical by critics from the producing world, including oil ministers like Venezuela’s Juan Pablo Pérez Alfonso and Saudi

Arabia’s ‘Abdullah al-Tāriqī. Anger at the companies was compounded by a belief that consuming countries in the West, by levelling high taxes on imported goods and petroleum products, were realizing far more from the value of oil than the producing countries.74

Yet in a more immediate sense, the grievances of oil-producing states stemmed from their integration into the international energy system. Oil contributed between 57% and 80% of major producers’ foreign exchange balances, as well as 53% of the state budget in Iraq, 97% in Kuwait and 71% in Saudi Arabia.75 Changes to the price of oil came at a time when all the major producers were planning programs of economic and social development.76 The more

72 Edith Penrose, “Middle East Oil: The International Distribution of Profits and Income Taxes,” Economica 27, no. 107 (August 1960): 203-213 73 Simpson, Economists with Guns, 18. 74 Dietrich, Oil Revolution, 67-77; Seymour, OPEC: Instrument of Change, 15-16; 75 Issawi and Yeganah, The Economics of Middle East Oil, 146, 170; Burdett, OPEC Origins & Strategy, 1947-1973, Vol. I The Origins of OPEC, “British Working Group Report,” 335. 76 FISDS, Gholāmrez̤ ā Tājbakhsh and Farokh Najmabadi, eds., Yādʹdāshtʹhā-yi Fuʼād Rūḥānī, nukhustīn Dabīr-i Kull-i Sāzmān-i Kishvarʹhā-yi Ṣādirʹkunandah-yi Naft (Ūpik) va Nāʹguftahʹhāyī darbārah-yi siyāsat-i naftī-i Īrān dar dahah-yi pas az millī shudan [The Diaries of Fuʼād Rūḥānī, First Secretary General of the Organization of the Petroleum Exporting Countries (OPEC), and Understanding the Oil Policy of Iran in the Age After Nationalization] (Published on-line by the Foundation for Iranian Studies, 2013), 36.

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governments came to rely on the operations of the oligopoly, the more they came to resent the degree of control exercised by the companies and the opacity of the system “designed first and foremost for the convenience of the companies themselves.”77 Faced with the threat of falling posted prices, strong incentives emerged to increase the governments’ share of available profit: a larger, more equitable piece of the pie.

Actions undertaken by producing states, such as the shah’s “75-25” concessions, were ploys to pressure the companies into yielding a larger share of profits. A Japanese company signed a deal with Saudi Arabia to exploit oil in the Saudi-Kuwaiti neutral zone, splitting profits

56-44. Saudi Arabia, after years of allowing ARAMCO free rein, pressed in May 1959 to have two Saudi nationals appointed to the company’s board of directors. Iraq under the regime of

General Qassim was openly hostile to the companies and talked openly of mass expropriation of company assets. Venezuela passed a new income tax law in 1958 mandating at least 57% of profits be paid by the companies. The Venezuelans, who were to be the most vocal advocates of keeping posted prices from falling, were motivated by more than just nationalism. The American import quotas had restricted Venezuelan access to the U.S. market. The new tax law increased the cost of Venezuelan oil (already significantly more expensive to produce than Middle Eastern oil). It was thus in Venezuelan interest to see Middle Eastern oil increase in cost, so as to make its own oil more competitive.78

The increasing importance of oil simultaneously bred a new, sophisticated understanding of how the international energy system operated, one that was unifying oil-producers into collectives such as the Arab Petroleum Congress. Central the emerging critique of the oligopoly

77 Seymour, OPEC: Instrument of Change, 15. 78 Galpern, Money, Oil and Empire in the Middle East, 233, Parra, Oil Politics, 47-48, Leeman, Price of Middle East Oil, 189, Yergin, The Prize, 503-508.

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was the issue of price. In 1945-1950, when the companies in cooperation with the ECA and the

U.S. government first erected the net-back pricing system, they did so with little concern as to how producing governments would respond: royalties were paid per-ton “regardless of price.”79

The fifty-fifty agreements, with their close connection to the posted price system, changed this entirely. The producer states were now extremely sensitive to alterations in the posted price, and would protest unilateral action by the companies to change the price without prior consultations.

They were developing their own indigenous oil industries, with national oil companies springing up across the developing world, led by Iran and NIOC. Arguments that market changes required prices to change, along with complaints that company profits were in decline, fell on deaf ears.

Tāriqī argued that the world surplus was merely “oil company propaganda,” and the posted price system an “irrational device by which big companies pull wool over their eyes.” The current situation could easily have been remedied “through more deliberate production policies.”80 It was not just that the companies were greedy; their failure to preserve a basis for equitability was evidence of a dereliction of duty.

The companies were not blind to the changes occurring around them. Howard Page,

Jersey Standard’s chief Middle East negotiator, acknowledged inn 1958 that the “facts of life…were constantly changing,” and that a rigid attitude towards existing concessions would only lead to confrontation.81 Paul Frankel guessed that posted price would eventually decline, to the point that revenues for producing governments would fall year to year, rather than rise: “the wheel may turn full circle and the producer countries might…call for an international order…as

79 Seymour, OPEC: Instrument of Change, 11. 80 RG 59 888.2553/8-460, Heath to State No. 87, August 8, 1960. 81 Wall, Growth in a Changing Environment, 587.

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a means of securing for themselves an ‘equitable’ share in the markets.”82 Wanda Jablonski, a widely-read oil journalist, felt that the existing concessionary system was “short-lived,” and that the only solution was to bring back free competition between major firms, dismantling the joint production agreements and ending the oligopoly.83 For Robert Siegel of Socony-Vacuum, nationalism “is here to stay.” Middle Eastern governments had reached “a new threshold in expectations…a development which we in the West should welcome,” since it indicated how dependent the producing states had become on oil production: “it makes sense for them to continue their mutually advantageous business dealings uninterrupted.”84

This outlook was a component in the companies’ public relations strategy. They downplayed the threat of resource nationalism and emphasized their on-going partnership with producing states. Yet while the companies were aware of the changing conditions around them, differing interests prevented a concerted approach. Royal Dutch/Shell and Jersey Standard

(Exxon), the largest and oldest of the oligopoly, both argued that posted prices be reduced to match realized price.85 Paradoxically, the two companies shared Venezuelan output and were interested in ensuring South American oil could compete with Middle Eastern crude.86 BP, with major shares in three different Middle Eastern countries and a third of total regional output, had

82 Paul Frankel, “A Turning Point,” in Paul Frankel: Common Carrier of Common Sense, ed. Ian Skeet, 92 83 POWE 33/2200 Williams to Stock, Interview with W. Jablonski, June 23, 1958. 84 ExxonMobil, Box 2.207/E183, Folder 5, “Nationalism and Business Prospects in the Middle East,” Siegel, Director, Socony-Mobil, September 30, 1958. 85 BP 100334 “The Case for ‘Flexibility’ of Posted Price of Crude in the ME,” August 9, 1962, Shell Memo, “Middle East Concession and Tax-Paying Arrangements” August 16, 1962. 86 In 1957, Shell drew 51.8 million tons against 10.2 million from the Middle East (including 4.2 million from Iran). Jersey drew 53.6 million from Venezuela and other South American countries, compared to 21.6 million from the Middle East. See Burdett, OPEC Origins & Strategy, 1947-1973, Vol. I, “British Working Group Report,” 317,

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the most to lose if Middle East oil stayed over-priced: cutting the posted price appeared a necessary step, though it would have to come with suitable measures to mollify producer governments, who were sure to react badly. CFP, partially owned by the French government and dependent on Middle East supply, generally sided with BP. Gulf, Socal, Socony-Mobil and

Texaco were interested in preserving relations with Saudi Arabia and Kuwait. They cared less about Iran, where some U.S. companies chose to take only small amounts of crude.87 The

American companies were under pressure from the U.S. government, which tended to focus on the threat of Soviet oil and the danger of Arab nationalism.88

The companies faced a stark choice: either cut the posted price to bring it closer in line with the market and risk angering the producer states; or keep things as they were and watch their profits diminish. Rising assertiveness by producer governments, the threat that some or all would restrict output, threw the durability of the international energy system into doubt. The

British oil working group in early 1959 believed that it was “impossible to maintain the existing concessionary arrangements.” A refusal to acknowledge this fact would only provoke oil- producing states to take action. A new basis for equitability would be necessary to satisfy the opposition now growing against the international energy system.89 How the oligopoly resolved

87 According to the terms of the Consortium Participants’ Agreement, the five U.S. companies were permitted to take 7.5% of total output. For 1958, Jersey and Socony-Mobil took 7.4% and 7.35%, while Texaco took 7.11%, Socal 6.85% and Gulf 4.42%. See RG 59 888.2553/2-2959, US Embassy Tehran, No. 781, April 29 1959. 88 Wall, Growth in a Changing Environment, 600-601. By the early 1960s, the U.S. seemed so “tied up” with political and geostrategic problems, executives at BP complained that Washington would “completely lose sight” of the companies’ importance to the Western world “if we get into a Hot War.” BP 58934 Whiteford to Bridgeman, October 25, 1961. 89 Burdett, OPEC Origins & Strategy, 1947-1973, Vol. I The Origins of OPEC, “British Working Group Report,” 267-349.

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the crisis would depend heavily on the support of one nation: Iran, which in a single decade had turned from global integration’s greatest obstacle to its single greatest defender.

6.3 “Wild Men” Arrive: The Birth of OPEC

The major companies cut the posted price of Middle East oil in February 1959. BP was the first to do so, though the others followed suit fairly quickly. The price of Persian Gulf and

Mediterranean crude (most of which was delivered from Iraq and Saudi Arabia via pipeline) was reduced by 18c per barrel, cutting revenues for oil producers by 10c or about 10%. The effect on

Iran was a drop in oil revenues, though the Consortium promised to boost production to compensate for the lost funds. The shah, perturbed that cuts were made without his consent, instructed the companies to consult with the government before making further cuts, but the impact was significant: in 1959 and 1960, price cuts cost Iran $50 million, accelerating the onset of fiscal crisis and increasing pressure on the struggling Second Plan (see Chapter 5).90 At the

First Arab Petroleum Congress held in Cairo in April 1959, representatives from major oil- producing states railed against the unilateral action undertaken by the companies.91 The

“problem of price” was of paramount importance to oil ministers like Tāriqī of Saudi Arabia, who argued that producers were receiving less than their equitable share. Tāriqī, educated in

Texas, expressed the increasingly-sophisticated critique of the oligopoly that was emerging among the producer states: a call for collective action, the formation of a “producers association” to counter the manipulations of price by the companies, and the threat of pro-rationing

90 FO 371/140858 EP 1533/13, Notes of a Meeting, 8 March 1959; Tājbakhsh and Najmabadi, Yādʹdāshtʹhā-yi Fuʼād Rūḥānī, 36. 91 Quoted in Leeman, Price of Middle East Oil, 190.

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production or even outright control of oil resources in the name of national sovereignty.92 Along with Venezuelan oil minister Juan Pablo Pérez Alfonso, Tāriqī and four other oil ministers signed a secret agreement, known as the Mahdi Pact, promising to oppose the companies should they attempt to unilaterally change prices a second time.93 According to Iranian oil man

Manūchehr Farmānfarmāʼiyān, who attended the meeting as an observer, the Arab producers were determined to get Iran, “the oldest producer of us all,” to join their cause.

Farmānfarmāʼiyān was hesitant, insisting he lacked the authority of his government.94

The cut did not reverse the trend separating posted prices from realized prices. An analysis from BP pointed to the massive increase in production since 1950, declining transportation costs, and increased Soviet exports as the primary reasons for downstream discounting and the eroding price of oil.95 The company’s senior management, led by Chairman

Maurice Bridgeman, opposed further cuts, which would only inflame opposition from producing governments. Bridgeman was an oil man in the mold of John Cadman: he had served the chairman as private secretary during a trip to Tehran in 1926. A businessman and a diplomat,

Bridgeman was highly conscious of how policies in the Middle East might affect production elsewhere and sensitive to the interests of the producer states.96 Yet this attitude was not shared by other companies. The objections of Jersey’s Middle East specialist Howard Page was not enough to dissuade chairman Monroe J. Rathbone from deciding to cut posted prices once more.

92 Dietrich, Oil Revolution, 93-94; Ruhāni, A History of OPEC, 177-178 93 Bamberg, Vol. III, 148. 94 Farmānfarmāʼiyān, Blood and Oil, 341-342. For another account of this meeting, see Tājbakhsh and Najmabadi, Yādʹdāshtʹhā-yi Fuʼād Rūḥānī, 32-36. 95 FO 371/140857 EP 1533/12, Foreign Office to Bahrain No. 253, February 12, 1959; RG 59 888.2553/4-3060 Wailes to State, No. 2611, April 30, 1960; BP 100334 “The Price of Oil,” Trade Relations, July 13, 1962/. 96 Bamberg, Vol. III, 50-62.

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In August 1960, Jersey reduced the Persian Gulf posted price again, and the other companies did the same to avoid being undercut. The posted price had fallen from $2.05/barrel in January 1959 to $1.80 in August 1960: the total cost to oil producers was estimated to be $270 million. In response, Tāriqī, Pérez Alfonso and three other oil ministers, including Iran’s, signed the

Baghdad Agreement in September 1960 creating the Organization of Petroleum Exporting

Countries (OPEC). The group originally consisted of Iraq, Iran, Saudi Arabia, Kuwait, and

Venezuela.97

Initial reactions to OPEC were relatively muted. A report from Petroleum Week noted that “no joint policies have emerged yet from Baghdad,” that OPEC’s formation functioned only as a warning that the government may band together “in the future if the oil companies ever anger them sufficiently again.”98 One Socony executive regarded the organization of producer interests as a positive development, reflecting the “growing knowledge and sophistication” that governments had developed: “they are increasingly aware of the value of a good contract and thereby inclined to respect it.”99 In reality, OPEC contained several different agendas, reflecting its diverse membership. Men like Tāriqī and Pérez Alfonso, along with intellectual oil-men like

Dr. Francisco Parra, were looking to dramatically change the structure of the international energy system. An economic analyst for Creole Petroleum, Jersey Standard’s Venezuelan subsidiary,

Dr. Parra joined the firm Arthur D. Little in 1960 and OPEC in 1962. Speaking in 1963, he denounced the companies’ arguments for a price system managed by private capital as

97 Bamberg, Vol. III, 147-151; Wall, Growth in a Changing Environment, 603-605; Ruhāni, A History of OPEC, 75-77; Seymour, OPEC: Instrument of Change, 25. 98 Quoted in Skeet, OPEC: Twenty-Five Years of Prices and Politics, 22. 99 ExxonMobil, Box 2.207/E183, Folder 5, “The Middle East From An Oilman’s Viewpoint,” W.E. Lindenmuth, Regional VP Middle East, Mobil International Oil Company, October 14, 1960.

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“completely unrealistic.” The price had to remain at a level which guaranteed surplus in low-cost areas while providing some return for production in high-cost areas: “not exactly the sort of job a competitively-set price is designed to do, but precisely the sort of job an administered price should do.” The management of a resource as important as oil “cannot be entrusted indefinitely to a handful of international oil companies whose primary motivation is commercial.”100

By setting up a dedicated secretariat and committing substantial resources to studying the global industry, OPEC grew into a credible source of statistics and intelligence on the oil operations throughout the world. Dr. Parra, Pérez Alfonso, Tāriqī, and OPEC’s first Secretary

General Fu’ād Ruhāni, himself a former employee of AIOC, brought professional expertise and decades of experience in the oil world to the organization. Gone were the days where international oil men like Cadman, Neville Gass, Walter Levy, and Herbert Hoover Jr. would fly to foreign capitals to “educate” government officials on the laws of supply and demand.101 Still,

OPEC represented a set-back for those who would use the “oil weapon” to pressure the West or encourage the distribution of oil wealth throughout the Arab world. As Nathan Citino argues, the formation of the producers’ cartel “deprived Arab nationalism of its most potentially radical implications.”102 The group constituted a challenge to the status quo, but one defined by a vocabulary borrowed from the oligopoly.

To be effective, OPEC had to overcome its internal divisions, which were substantial.

Members were divided into two camps. Saudi Arabia and Kuwait favored a gradual improvement in producer-company terms, with participation in the industry coming slowly over

100 BP 6133 Levy “OPEC—Further Developments, July 1963 to September 1964.” 101 In time, monographs by OPEC officials appeared that illustrated the growing understanding of oil beyond the realms of the oligopoly. See Rifai, The Pricing of Crude Oil. 102 Citino, From Arab Nationalism to OPEC, 155.

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time. These “gradualists” were opposed by “insurrectionists,” led by Iraq, Indonesia (which joined OPEC in 1962) and Venezuela, who pushed for production controls and pro-rationing as a way of seizing control from the companies. The non-Middle East producers were also motivated by the desire to see the cost of Middle East oil increase, thus making their own oil more competitive. At the center of the divide was Iran, the oldest Middle East oil producer with the most developed, mature independent national oil company in the region.103

The August 1960 price cut met a muted response in Tehran, reflecting the shah’s conflicted position. He told journalist Wanda Jablonski in late November that Iran was categorically opposed to pro-rationing or any kind of production cuts: the U.S. embassy believed the shah’s stance to be calculated, as Iran hoped for “preferential treatment by the oil companies.”104 According to Parvīz Mīnā, “the shah did not want to show that he was opposed to the creation and formation of OPEC,” though he expressed his skepticism of pro-rationing schemes, which he felt would only harm Iran by cutting into its oil exports.105 Though the oil- men in NIOC protested Iran’s membership in OPEC, which they felt was being used by the

Venezuelans to drive up the cost of Middle Eastern oil, the shah saw the group as a tool in his disputes with the companies over revenues and production. “Iran’s cooperation with other exporting countries was not only imperative but necessary,” though the shah maintained a fierce dislike of the Arab producers, whom he felt had unjustly deposed Iran from its status as the region’s major producer and taken advantage of the 1951-1954 embargo to raise their own

103 Dietrich, Oil Revolution, 110-111, Bamberg, Vol. III, 151. 104 RG 59 888.2553/12-560 US Embassy Tehran no. 158, December 5, 1960, 888.2553/9- 2960 US Embassy Tehran No. 96, September 29, 1950; 888.2553/11-1360 US Consul Khorramshahr No. 8, November 13, 1960; 888.2553/11-1660 US Embassy Tehran No. 267, Consortium Increases Refinery ‘Uplift’ Payment, November 16, 1960. 105 FISDS, Tahavvul-i san`at-i naft-i iran, Part 1, Interview with Parvīz Mīnā [Accessed April 19, 2017].

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production levels.106 The shah was no radical; he wanted more money and higher production from the companies, and in this he was to prove consistent through to the end of his reign.

Most of the regime reflected his position. Prime ministers ‘Ali Amīnī (1961-1962) and

Asad Allāh ‘Alam (1962-1964) were not overly hostile to the companies; the former had considerable experience in international oil, while the latter forged close relationships with company executives and the British embassy. The senior leadership of NIOC was dominated by pro-Western technocrats, many of whom had been trained by AIOC. Rezā Fāllah, the former headmaster of the Abadan Technical Institute, emerged in the early 1960s as a key advisor to the shah on oil matters. NIOC men like ʿAbd-Allāh Entezām, Manūchehr Farmānfarmāʼiyān, and

Fathallāh Nafīsī shared the shah’s view, or at least reiterated it in public, and regarded Iran’s share of Middle Eastern oil as inappropriately small.107 They argued that Iran, as the most populous Middle Eastern oil-producer, deserved more revenue for its economic development projects. Prime Minister Amīnī in his “moderate and conciliatory” speech at the opening of the

OPEC conference on October 23, 1961 declared the old ways finished. In the age of the D’Arcy

Concession, companies had exploited natural resources “without regard to justice and equity…The world must realize it needs our oil and it must be appreciated that supply can only be maintained if stability in producing countries prevails.” Amīnī nevertheless continued to defend the agreement he had reached with the companies in 1954: “Iran could not run the oil industry alone.”108 Like the façade of nationalization, Iran’s support for OPEC was an important guise for the Pahlavi regime to assume, without actually contemplating a direct confrontation

106 Tājbakhsh and Najmabadi, Yādʹdāshtʹhā-yi Fuʼād Rūḥānī, 40. 107 FIS, Interview with Houshang Farkhān, 22-28. 108 RG 59 888.2553/6-1361, US Embassy No. 662 Views of M. Farmānfarmāʼiyān, June 13, 1961, 888.2553/11-161,US Embassy to State No. 113, November 1, 1961, 888.2553/12- 2761, US Embassy to State No. 15, December 27, 1961

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with the companies. With plenty of spare capacity in the Middle East, no one wished for a repeat of the nationalization crisis.

Though the Pahlavi regime did not wish to see the international energy system dismantled, it was ready to use OPEC to place pressure on the consortium. Tensions had been rising in Iran’s oil fields. Iranian administrators complained of a certain “Suez Canal mentality” among the Consortium officials. Westerners in Abadan and the oil fields tended to treat their

Iranian counterparts as “tiresome children” and “second-class citizens.” Despite the much-touted reduction in foreign staff after nationalization, the number of expatriates employed in the oil industry had risen since 1954, from 400 to nearly 750. The Foreign Office advised Shell and BP to accelerate the transfer of non-basic services to NIOC, to extend Iranianization and put in place new mechanisms for cooperation between Iran and the companies.109 Some within the

Consortium, including the IOP Chairman Joseph Addison, felt the companies were fighting a prolonged “rear-guard action” against the forces of resource nationalism; a total take-over of production by national oil companies was inevitable, and should be smoothly facilitated in order to avoid expropriations and preserve oligopoly control of transportation and marketing. The chief obstacle to a peaceful transition was traditionalism within the industry: obstinate, short-sighted companies who failed to change with the times. The Consortium partners, particularly BP and

Shell, recognized the need for closer cooperation with NIOC. They were under some pressure from the Foreign Office, which hoped to retain favorable access to Iranian oil. Britain depended on Iranian and Kuwaiti oil, which could be produced and sold in sterling within the United

109 FO 371/157649 EP 1532/1 Harrison to Home, No. 9, January 10, 1961; FO 371/157651 EP 1535/1 Hiller, The Iranian Oil Consortium, January 25, 1961.

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Kingdom at a far lower cost than other sources (while netting profits for BP and Shell, the two

British companies).110

Late in 1961, the two sides reached a preliminary agreement: the Consortium offered to hand over all non-basic services, covering all associated costs with a loan repayable over ten years, and in addition increased refinery uplifts in order to bring total Iranian revenues for 1961 to $300 million. Amīnī, in the midst of a financial crisis, placed “extreme pressure” on the IOP, which agreed to an infusion of £10 million to settle refinery claims. Addison received some assurances from the shah that no further demands would be made, subject to changes in the marketplace. Though some worried that talks indicated a hardening of Iranian attitudes, British

Ambassador Geoffrey Harrison was circumspect. “What the shah and the government want,” he wrote, “is an absolute increase in oil revenue year by year, and their only concern with relative statistics is in their aim to restore Iran to the position of premier producer.” Efforts by the

Consortium to improve relations would have a positive effect on Iranian behavior. The Iranian government were being made to feel like “partners, and not subordinates,” while they were conscious that in the Consortium, “they have a goose it would be unwise to kill off.”111

BP’s Chairman Bridgeman felt that monetary concessions were important “to keep Iran solvent,” and promised a rapid increase in Iran’s production level.112 The Consortium

110 FO 371/157651 EP 1535/3 Harrison Note of a Conversation, Undated; FO 371/157652 EP 1537/3, Note by Hiller, February 15, 1961, EP 1537/5, Record of Meeting, February 28, 1961; Burdett, OPEC Origins & Strategy, 1947-1973, Vol. I The Origins of OPEC, “British Working Group Report,” 281-284. 111 BP 46193 Notes of Discussion with NIOC Representatives, September 25, 1961; RG 59 888.2553/10-761 US Embassy Tehran, No. 174,October 7, 1961; FO 371/157651 EP 1535/3, Harrison to Crawford, March 22, 1961; Harrison, un-dated note of conversation with Hulton; FO 371/164220 EP 1532/2, Harrison to FO, No. 11, January 10, 1962, EP 1532/7 Harrison to FO, March 20, 1962. 112 FO 371/164220 EP 1532/5 Note from Stevens, March 13, 1962, EP 1532/7 Harrison to Crawford, March 20, 1962.

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representatives were pleased with NIOC, with whom discussions were held “on a straight business-like basis;” the shah, properly briefed by his advisors, showed a “detailed knowledge” of oil issues.113 The 1960-1962 discussions illustrated the working relationship between the

Pahlavi regime and the Consortium, yet they also served to demonstrate the power the shah had in forcing the companies to make concessions under pressure. The most important aspect of the relationship was the tacit understanding that Iran’s chief interest was not control, but money; any deal which increased revenue and guaranteed higher production, for both the purposes of prestige and profit, was bound to meet with the shah’s favor. Security for the Consortium, and the on- going friendship of the shah, seemed a worthwhile trade.

While Iran and the Consortium reaffirmed their cooperative relationship, OPEC struggled to find its footing. Initially, the organization was distracted by internal affairs, its resources focused on the production of reports and statistics. Considerable difficulties emerged after the threatened Iraqi invasion of Kuwait in June 1961, a crisis which brought a British military response, an Arab League expeditionary force to Kuwait and the temporary isolation of Qassim’s

Iraq from both the League and OPEC. Oil companies were disturbed by Public Law 80, passed by Qassim’s government in December 1961, which expropriated IPC from all lands not currently producing oil: in practice, around 99.5% of the existing concessionary area. Joining Iraq in taking a hard, uncompromising attitude was Indonesia and Venezuela, neither of which had been affected by the cuts to the Persian Gulf posted price. At a conference in Caracas in 1962, Tāriqī and others proposed a new 70-30 division of profits in favor of OPEC. Other producers, however, remained cautious and were generally divided on what sort of action could be taken against the companies. Suggestions by Pérez Alfonso that pro-rationing measures be adopted met

113 RG 59 888.2553/3-2862, US Consul Khorramshahr No. 40, March 28, 1962.

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with resistance, with the Kuwaiti representative arguing that governments had no role to play in marketing, “a commercial matter.” That OPEC did not fall apart entirely was attributed primarily to its first Secretary General, Fu’ād Ruhāni, whose “skillful handling” prevented divisions from tearing the organization apart. 114

A “first-rate lawyer” with thirty years of experience in oil affairs, Ruhāni had risen to the top of the shah’s government through a skillful combination of intellect and political acumen.

One of the first Iranians to study in England through an AIOC scholarship, Ruhāni worked for the company for twenty years, serving as a translator (he was fluent in English, French, Italian and Arabic). In 1951 he assisted Moṣaddeq’s government in oil negotiations, though he later said he found the prime minister’s approach to the oil question “flawed.”115 Serving as Amīnī’s assistant during the 1954 consortium negotiations, Ruhāni thereafter rose through the ranks of the shah’s administration. At a time when most inside NIOC were against the idea of OPEC,

Ruhāni emerged as the group’s fiercest champion; the shah’s decision to join OPEC against the advice of NIOC was in part due to Ruhāni’s persuasion.116 Unlike some of the shah’s other oil counselors, men like Rezā Fāllah and Ahmed Maybud, who parlayed their positions into immense personal fortunes, Ruhāni was renowned for his probity and fiscal honest; he was a scholar first, a politician second.117

114 Bamberg, Vol. III, 151-152; BP 46193 Addison to Lourd, November 10, 1961; FO 371/158052 UES 1037/26, Kuwait Embassy to FO, November 25, 1961, UES 1037/22, Harrison to FO, No. 42, November 6, 1961. 115 Milani, Eminent Persians, Vol. I, 273-275; Ian Skeet, OPEC: Twenty-Five Years of Prices and Politics (New York: Cambridge University Press, 1988), 19. 116 Skeet, OPEC: Twenty-Five Years of Prices and Politics, 19-20. 117 See Ruhāni, Tārīkh-i millī shudan-i ṣanʻat-i naft-i Irān, as well as Ṣanʻat-l naft-i Īrān and The History of OPEC. Ruhāni also wrote a biography of Mosaddeq, Zindagī-i sīyāsī-i Muṣaddiq: dar matn-i nahz̤ at-i millī-i Īrān [The Political Life of Musaddiq: In the Context of the National Front] (London: Nahz̤ at-i Muqāvamat-i Millī-i Īrān, 1988).

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As OPEC Secretary General, Ruhāni expressed the belief that producing states should seize a greater degree of control over price and production. He worked with other oil scholars like Francisco Parra to build a view of the international energy system as imbalanced and unfairly skewed towards the interests of the companies. Yet he was torn between his loyalty to

Iran and his allegiance to OPEC, between national interests and the collective good. While he imagined that global oil could be transformed, with a greater stake and greater wealth for the oil producers, he was confident that Iran should play a leading role in bringing about that transformation.118 Research by OPEC had indicated that the companies were earning “a disproportionately high return” from their investments in Middle Eastern oil. The objective of

OPEC was to achieve “a more equitable division of profits,” and to secure a more stable oil price, one that perhaps could be tied to the index for manufactured goods.119 Ruhāni wanted to squeeze greater concessions from the companies, but he did not wish to compromise Iran’s good relationship with the Consortium in the process. Iran was crucial, he said, as a moderating influence that could keep OPEC demands within “reasonable limits,” preventing the Arab nations from banding together and pressing the companies for larger concessions. This was a common argument the OPEC secretary general would use throughout discussions: without Iran’s guidance, OPEC would be lost to the “wild men” from Iraq, Venezuela and Indonesia.120

In May 1962, he told Howard Page of Jersey Standard that Pérez Alfonso was demanding profit division of 70-30 or higher. Ruhāni thought this a needlessly-extreme demand: the member states “would not benefit from serious conflict with the companies.” He suggested a new scheme

118 FISDS, Tahavvul-i san`at-i naft-i iran, Part 1, Interview with Parvīz Mīnā [Accessed April 19, 2017]; Dietrich, Oil Revolution, 106-108. 119 RG 59 888.2553/5-1262, US Embassy Tehran No. 521, March 12, 1962. 120 BP 100334 Bridgeman to Mitchell, June 5, 1962, Memorandum for the Record, Conversation with Ruhāni, March 12, 1962.

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whereby royalty was no longer credited against tax but was instead treated as a separate expense.

He had discussed royalty expensing with the shah and Prime Minister Amīnī, and together they would increase Iran’s take by about 12c/barrel, while changing the fifty-fifty division to a 57-43 split. Page told Ruhāni in blunt terms that the companies could not yield more money per barrel.

The force of Page’s response stunned Ruhāni.121

Table 6.6 Royalty Crediting vs. Royalty Expensing (US$ per barrel, 1960)122

Posted Price $1.76

Cost -$0.20

Price for Taxes $1.56

50/50 Division $0.78

Total $0.78/barrel

Posted Price $1.76

Royalty (expensed from price) -$0.22

Cost -$0.20

Price for Taxes $1.34

50/50 Division $0.67

Producer Total (royalty added) $0.89/barrel

Company Take $0.67/barrel

121 BP 100334 Mitchell to Bridgeman, Unnumbered, May 29, 1962, Note on Page’s Meeting with Ruhāni, June 1962. 122 BP 44796 Oil Companies New Royalty Reckoner, December 31, 1964, Tājbakhsh and Najmabadi, Yādʹdāshtʹhā-yi Fuʼād Rūḥānī, 371, 373.

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In June 1962, OPEC met for the fourth time. First on the agenda was a discussion of a new report from a consulting firm, Arthur D. Little, commissioned by OPEC to study the profitability of the industry. The Little Report, written by Dr. Francisco Parra, determined that in

1956-1960 profitability on net assets in the Middle East averaged 66% per year, and that the posted price lacked a “reasonable and substantial economic basis.”123 Anti-company rhetoric dominated the proceedings and for the first time, OPEC succeeded in offering a serious challenge to the status quo by adopting a series of resolutions. Resolutions 32, 33 and 34 were recommendations to member states and carried with them the implicit threat of unilateral action against the companies, potentially including pro-rationing and cuts to production. Resolution 34 dealt with marketing expenses, which the companies deducted from royalties. Resolution 33 called for royalty expensing, what Ruhāni had suggested to Page: the 12.5% royalty included in most concessions was to be treated as an expense rather than credited to income tax, effectively increasing the countries’ take to 61%.124

But it was with Resolution 32 that OPEC made its most powerful arguments. While mandating that posted prices would return to their pre-August 1960 level, Resolution 32 made the case for a new price mechanism divorced from the companies’ policies. The arguments put forward by OPEC used the language of international oil, rather than anti-imperialism or resource nationalism, to argue that the oligopoly had mismanaged the international energy system and jeopardized the social and economic development of the producer states. It was the role of governments “to channel competition into courses most productive for the long-run,” yet the

123 Tājbakhsh and Najmabadi, Yādʹdāshtʹhā-yi Fuʼād Rūḥānī, 49-50; Dietrich, Oil Revolution, 102. 124 BP 100334 OPEC Resolutions, Ruhāni Press Conference, July 3, 1962; Tājbakhsh and Najmabadi, Yādʹdāshtʹhā-yi Fuʼād Rūḥānī, 50; BP 100338 Some Facts Bearing on the Issues Between Governments and Oil Companies, BP Memo, October 18, 1963.

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absence of such safe-guards for international oil had affected the economic security of the oil- producing states. It would be “the height of irresponsibility” for the OPEC members to sit idly by, “arms folded,” as “unbridled competition” cut into price and drained the value from oil. At the same time, the costs of European and American manufactured goods and other imports were constantly increasing, placing an unnecessary burden on oil-producing states. “It is no longer possible,” OPEC concluded, “to live in peace in a world where the rich are getting richer and the poor poorer…an equitable balance between the two groups of nations [oil producers and oil consumers] must be established.” The companies’ arguments that higher annual production yielded higher revenues were rejected: “Oil is a non-renewable natural resource which, once used, cannot be replaced.” It was the only available means for oil-producing states “[to] lever themselves into a sustained period of economic development.” Cutting prices unilaterally at a time when industrial goods and imports were becoming more expensive was tantamount to economic warfare and a return of coercive imperialism.125

In his press statement regarding the OPEC resolutions, Ruhāni couched his argument in the language of dual integration. Higher oil revenues were needed for “projects of reform” and the “betterment of social conditions.” Discussions with the companies would focus on “fixing oil revenues…on a stable and guaranteed basis in conformity with the principles of equity and reason.” Just as in the days of Rezā Shah, Iran wanted security from drops in the price of oil and assurances that revenues would never decline.126 As every major company was a member of the

Consortium, it became the natural vehicle for considering an industry-wide approach to the

125 FO 371/164220 EP 1532/10 NO. 1696 Amuzegar for Velders, July 11, 1962, BP 100334 Memorandum: Government Revenues and the Price of Crude Oil in the Middle East; Ruhāni, A History of OPEC, 197; Tājbakhsh and Najmabadi, Yādʹdāshtʹhā-yi Fuʼād Rūḥānī, 51. 126 BP 100334 Note for Bridgeman, OPEC, July 3, 1962; FO 371/164220 EP 1532/14, Press Communique issued by F. Ruhāni, July 2 1962.

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OPEC challenge. The idea of negotiating with Iran, regarded both as OPEC’s most moderate member and the most “mature” oil producer, was appealing to the companies, since any agreement reached with the shah’s government stood a good chance of being accepted by other moderate OPEC members. With the political situation in Iran still uncertain (Amīnī had just resigned, and the White Revolution was still some months away), the shah had little to gain from pushing bilateral talks to the brink. Ruhāni publicly indicated that the 1954 agreement itself was not in question, and freely admitted to Harrison that OPEC “did not expect that all its requirements would be met.”127 During a private dinner in San Francisco the shah told Kermit

Roosevelt that the more confrontational ideas of OPEC were not “in the interests of Iran.”128

Ambassador Harrison was confident that the shah and other “serious oil people” within his government would pursue reasonable negotiations: “[he] certainly remembers the events of

1953-54 all too well.” Asad Allāh ‘Alam, the new prime minister and a close confidant of the shah, had a good working relationship with Harrison, who advised him to remain wary of

Ruhāni, “a snake in the grass,” who would prioritize loyalty to OPEC before the shah. Harrison hoped that the Resolutions might serve as a wake-up call for the companies “out of tune with the realities of oil world today.” OPEC, which Bridgeman had confidently predicted in 1960 would either die a “natural death or remain ineffectual,” had proven its viability. The oil company heads would have to make concessions or risk “becoming the Willie Fraser of the sixties,” repeating

AIOC’s mistakes in 1951 and losing face in the process.129 The Consortium was coming around

127 RG 59 888.2553/10-1062, Memo of Conversation, October 10, 1962, 888.2553/10- 2562, Memo of Conversation, October 25, 1962, 888.2553/9-2062, Memo of Conversation, September 20, 1962; BP 100334 OPEC Resolutions, July 3, 1962, Note for the Chairman, July 3, 1962. 128 FO 371/164606 UES 1037/11 Rose to Eagers, May 11, 1962. 129 FO 371/164220 EP 1532/16 Harrison to Reilly, August 20, 1962, EP 1532/18 Harrison to Reilly, August 23, 1962.

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to the idea of altering existing terms to preserve the overall status quo. The old basis for equitability had disappeared: the formal preservation of fifty-fifty “has now worn so thin as to deceive nobody, least of all the host governments.”130

6.4 Coming to Terms: The OPEC Negotiations, 1962-1963

The Consortium partners were deeply divided over how to respond to OPEC’s resolutions. Jersey and Socony-Mobil were opposed to any changes in the posted price formula.

Howard Page of Jersey had been suggesting for years that companies could set payments at a defined level, utilizing make-up installments to pay the producer states more when the prices were low and relatively less when they were high. Jersey and Socony both pushed this idea, which they called their “guaranteed value plan;” it was reminiscent of Teymūrtāsh’s old insistence on a guaranteed annual minimum, something that would pay out to Iran in good times as well as bad. BP worried that such a course would threaten the company’s ability to credit payments against domestic taxes. “Our ability to pay to Middle East Governments as much as we do,” wrote Bridgeman, “depends largely on the earning of tax credit in this country.” In 1961, the company had earned £325 million from Middle East production, nearly forty percent of the regional total for the whole oligopoly. Altering payments in the manner proposed by Page would increase BP’s obligation to Middle East producers by £19.6 million and force a further 41c cut to the posted price.131

130 BP 100334 Approach to OPEC Resolutions 32, 33 and 34, Pattinson to Bridgeman, August 23, 1962, OPEC Resolutions, August 30, 1962. 131 BP 100334 Stockwell to Mitchell, August 30, 1962, Bridgeman to Whiteford, August 30, 1962, Socony-Mobil, “Assured Value Plan: A Response to Recent OPEC Demands,” August 20, 1962; “1961 Gross Income at Wellhead,” August 28, 1962, Adam to Bridgeman, July 2, 1962, Adam to Down, Profit Sharing in the Middle East, June 22, 1962, Memorandum for the Record, March 12, 1962, Bridgeman to Mitchell, June 5, 1962, Stockwell to Male, June 8, 1962.

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The four Aramco partners (Jersey, Socony-Mobil, Texaco and Socal) were confident they could satisfy Middle Eastern requirements through negotiations with the Saudi government, with whom they remained on very good terms, despite Tāriqī’s nationalism and Crown Prince Faisal’s flirtations with Arab nationalism. Aramco-Saudi discussions were held shortly before those of the consortium, and the American companies held to a very firm line, refusing Saudi requests for additional revenue in light of the market glut.132 The American, still conscious of anti-trust issues, refused to discuss issues of price and claimed to the State Department that their profit margins were 8-9% and couldn’t be squeezed any further.133 While suggesting that oil prices could be tied to manufactured goods, oil expert Walter Levy thought the best course was to reach a “side deal” with the shah and disrupt OPEC’s fragile unity. Iran was, in his opinion, the most

“sophisticated” oil producer and the one most in need of funds for economic development.

Levy’s suggestion was disputed by the U.S. companies, who saw little need to negotiate with

Iran: there was ample spare capacity, and if need be they could decrease Consortium production and let the shah sweat it out. Discussions grew so heated that Howard Page declared Jersey would make its own arrangements with the OPEC members, bypassing the Consortium entirely.

Though he quickly walked back his assertions, which had shocked the oil men present, Page vented his frustrations in an interview with Jablonski, casually revealing the time and location of the “secret” consortium discussions with Iran scheduled to be held in Paris in early October.134

132 BP 100219 Dharan Cable, September 27, 1962. 133 RG 59 888.2553/8-362, Memo of Conversation, August 3, 1962. This was disingenuous; while refining and marketing margins were tight, the companies continued to sell Middle Eastern crude for far more than it was worth, realizing margins of 80-90c per barrel. See Seymour, OPEC: Instrument of Change, 14. 134 BP 100219 OPEC, September 3, 1962, Notes of Meeting of the Steering Group, September 12, 1962, Stockwell to Bridgeman, September 19, 1962, Stockwell to Mitchell, September 20, 1962, Stockwell for Bridgeman, September 21, 1962, Meeting at IOP, September 25, 1962.

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The Paris talks were an almost complete failure, from the point of view of the companies.

Meeting a delegation led by Finance Minister ‘Abd al-Husayn Behniā, Ruhāni, and Rezā Fāllah, the companies presented their rebuttal memos to the OPEC resolutions. While they were sympathetic to Iranian “anxieties” over further cuts to posted prices, the companies stated that market conditions made it impossible to increase the producer countries’ take. They emphasized the impact of Soviet oil exports, increased competition due to over-supply, and the need to preserve the value of Iranian oil, which they claimed was the most expensive in the whole region. Producers still enjoyed rising revenues despite the fall in prices; they could hope for more money per barrel once the glut subsided.135 Ruhāni and his staff penned “counter-rebuttals” in response. They argued that the posted price, “a major determinant of total government revenue,” was not set by market forces but by an arbitrary method of calculation controlled by the companies. The Iranians insisted that the price could not be allowed to fall again. Ruhāni’s argument rested on the interpretation of equitability offered in the agreement’s preamble. It was not “equality of profit,” but rather “an equitable sharing of profits” that was the goal of the agreement; the fifty-fifty computation was “the means to an end,” rather than the true standard of equitability. The rising prices of manufactured goods were reducing the relative value of Iran’s oil revenues, “essential to Iran’s economic development,” and the Pahlavi government needed an increase in the value of its oil to match the rising cost of imports. “[The] day of the big companies ruling the world” was over: “OPEC was here to stay.” If Iran’s demands were not met it would cease to act as a moderating influence, allowing the “wild men” to take over and pursue

135 BP 100369 “Comments on OPEC Explanatory Memoranda,” October 2, 1962.

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pro-rationing: “if the companies realized Iran had cause for anxiety,” they must in turn “do something about it,” or risk OPEC’s wrath.136

The Consortium partners were frustrated by the tone of the meetings. Minister Behniā, who had chaired the Iranian delegation, displayed a poor grasp of English, and his tone had been confrontational. It would have been unthinkable, huffed one BP official, for an Iran oil delegation “to conduct itself in this way” under the leadership of Amīnī or another experienced oil-man.137 Despite its rhetorical stance, the Pahlavi government had not adopted a radical line just yet. There were divisions on the Iranian side, with oil-men like Entezām and Fāllah expressing dissatisfaction with the hard line being pushed by Behniā and Ruhāni. Behniā, discussing the Paris talks with the Tehran press, insisted that no revision of the 1954 Agreement was being considered, calling the idea “repugnant.” The government’s goal was to focus public discussion on the OPEC resolutions, steering away from Iran’s own oil industry and the risk of re-opening the oil question.138

In truth, the shah’s government was in an awkward position. To accept mild terms from the Consortium would preserve Iran’s badly-needed development funds and its comfortable place in the international energy system; but Iran could not afford to appear a “stooge” of the

West or a tool of the companies. NIOC, according to Entezām, was divided between supporters

136 BP 77987 OPEC Subjects, Note from Addison, October 8, 1962; BP 100369 Attachment No. 4, Note by Mr. Ruhāni for Meeting of October 4, 1962, Attachment No. 6, Summary and Conclusions, Report on Meetings in Paris, October 8, 1962. 137 FO 371/164221 EP 1532/21 Discussion in Paris between Consortium and the Iranian Government, October 11, 1962, EP 1532/21 Cope to Kellas, October 12, 1962. Manūchehr Farmānfarmāʼiyān noted in his memoir that Behniā “knew no English and had never been in the oil business,” and thus proved susceptible to Ruhāni’s influence. See Farmānfarmāʼiyān, Blood and Oil, 345. 138 RG 59 888.2553/10-1362, USE Embassy Tehran No. 202, October 13, 1962; BP 77987 Tehran Press Conference by Minister of Finance, October 22, 1962, Visit to Tehran of Mr. H.W. Page, October 22, 1962.

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of Ruhāni who wanted more aggressive action from OPEC and moderates who hoped to preserve good relations with the Consortium.139 Ruhāni was interested in using OPEC as a platform for serving Iran’s interests, but Iran’s senior statesmen were wary of pushing oil politics too far and risking a popular reaction. The shah, with his characteristic indecision, was somewhere in the middle. It was clear that he wanted higher revenues: the focus on royalty expensing, which would immediately increase Iran’s take without altering the 1954 Concession, was proof of that.

On price, all the shah desired was the right to consultation with the consortium in case further cuts were necessary. None of the Iranian ministers, including Ruhāni, insisted that Resolution 32

(which called for a return to the pre-August 1960 posted price) be forced upon the companies.

The goal was thus to preserve the façade of nationalization, thereby earning Iran more revenue, without sabotaging the regime’s mutually beneficial relationship with the companies.

While Jersey and Socony-Mobil continued to push their guaranteed value plan,

Bridgeman of BP felt they should delay, “reduce the temperature and pace of OPEC negotiations” and stall in order to avoid a “collision.” “It may be necessary,” wrote one BP executive, “to give the Middle East governments a better take, but [we] are convinced that at this moment we cannot afford it.”140 Texaco and Socal felt that Iran was chiefly interested in revenue and could be made to adopt a moderate position if it was offered larger financial concession; a sweetener to soothe the shah’s desire for money would defuse tensions over the resolutions and buy time for the market to improve.141 Ruhāni, setting expectations with the companies, claimed

139 BP 100369 Page, Talk with Entezām, October 22, 1962. 140 BP 100369 Stockwell to Drake, OPEC October 9, 1962, Note for Pattinson, OPEC, October 10, 1962. 141 RG 888.2553/10-1062, Memo of Conversation, October 10, 1962, 888.2553/10-2562, Memo of Conversation, October 25, 1962, 888.2553/11-1362, Memo of Conversation, November 13, 1962.

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Iran did not expect the full acceptance of the OPEC resolutions, “just something…that would improve their income per barrel.” The interests of OPEC and the companies was one and the same: an increase in costs could be passed along to consumers.142 Visiting Tehran in late

October, Howard Page argued that increasing costs would reduce the competitiveness of Middle

Eastern oil, paving the way for the development of cheaper nuclear power, “an even bigger threat than Russian oil to the long-term growth in outlets.” In private, he urged Entezām, the chairman of NIOC, to consider the consequences: only Venezuela stood to profit, he said, from higher payments to Middle East governments. His arguments were well-received by Entezām and

‘Alam, who claimed he was working hard to restrain “hot-heads” like Ruhāni. 143

An OPEC skeptic, BP’s Maurice Bridgeman was sure that in time the organization’s cohesion would deteriorate, and that once the over-supplied market disappeared the offer of more money would placate its moderate members. BP had the most influence within the Consortium; the nationalization had not entirely destroyed Britain’s connection to Iranian oil, and Bridgeman

(encouraged by Ambassador Harrison) felt he could appeal directly to the shah and his more moderate ministers. He undertook a trip to Tehran in November 1962, the purpose of which harkened back to the visits by Cadman, Gass, Levy, Harriman, and Hoover: Bridgeman hoped to

“spell out” to the Pahlavi regime the potential consequences of OPEC action, which Iran was in the “best position to slow down.” While the Foreign Office was informed of the visit, Harrison chose to keep it a secret from ‘Alam, who assured him in late October that Iran was only interested “in gaining more money,” and that if he could secure this, “he would be perfectly

142 BP 100369 Conversation with Ruhāni and Fāllah, October 11, 1962. 143 BP 100369 Talk by H.W. Page, Competitive Position of Middle East Oil, October 22, 1962, Meeting with the Prime Minister and Entezām.

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prepared to let OPEC and Ruhāni go hang.”144 Entezām, considered the Consortium’s “friend at court,” was sympathetic but powerless to overrule Ruhāni. Bridgeman appealed to Prime

Minister ‘Alam, one of the shah’s closest advisors and the man hand-picked to lead the cabinet after the Amīnī government collapsed in July 1962. Bridgeman assured ‘Alam that Iran’s oil production would continue to increase, and offered a concession on marketing expenses, which would yield a few more cents per-barrel to Iran’s annual take. If posted prices were cut again, the companies would make sure Iran was not harmed. The “gentlemen’s agreement” reached by

‘Alam and Bridgeman was endorsed by the shah, who told the chairman that the age of “ultra- nationalism” was over in Iran, allowing the government to “behave reasonably.” 145

Having outmaneuvered Ruhāni, Bridgeman advised the shah and ‘Alam to delay OPEC’s decisions on the Resolutions. This was done, against Ruhāni’s objections. The OPEC secretary general met with Behniā and Saudi Arabia’s new oil minister Ahmed Zaki Yamāni, a more moderate figure than Tāriqī, to discuss OPEC’s next strategy. The three men were acutely aware of how weak OPEC’s bargaining position really was; should the companies refuse to accept the resolutions and OPEC took punitive action, the oligopoly could acquire oil from new areas like

Libya, Algeria and Nigeria. Their position, noted Yamāni, was akin to that of Kuwait during

Moṣaddeq’s nationalization crisis: the temptation of the Libyans to increase production would be too great to resist. A wrong move would spell the end of OPEC: “not only would the

144 FO 371/164221 EP 1532/24, Harrison to FO, No. 1168, October 24, 1962, EP 1532/26, Harrison to FO, NO. 909, October 26, 1962. 145 BP 100369 Details of Bridgeman’s Trip to Tehran, November 8, 1962; FO 371/164221 EP 1532/26, Note by Lamb, November 8, 1962, EP 1532/27, Kellas to Cope, October 22, 1962, EP 1532/32, Negotiations Between the Iran Government and the Consortium, November 7, 1962, Behniā to Pattinson, November 8, 1962, EP 1532/34, Harrison to Crawford, November 3, 1962, EP 1532/36, Harrison to Crawford, November 9, 1962; Bamberg, Vol. III, 154;

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organization disappear,” wrote Ruhāni in his diary, “but the individual countries will no longer have any ability to pressure the companies.” Yamāni and Ruhāni agreed that talks with the

Consortium would continue, and they would use the threat of sanctions to squeeze concessions from the companies, “though we know we aren’t in a position…to make real demands.”146

Ruhāni and Yamāni successfully delayed OPEC action at the conference in Riyadh, over- ruling the insurrectionists and postponing a decision on the resolutions till March. The insurrectionists warned that if no agreement was reached, OPEC would vote on unilateral action, including a 7c tax on all oil tankers permitted to leave member ports. Iraq, Venezuela and

Indonesia remained militant, while Kuwait sat on the fence. ‘Alam, satisfied with the gentleman’s agreement, suggested that Iran leave OPEC. The shah suggested a new delaying tactic, submitting the idea of tying oil prices to manufactured goods to a third party for study; doing so would tie up the group in research for months, perhaps even years, allowing tensions over the Resolutions to diminish. The idea was one with a strong pedigree in the insurrectionist community, but the shah was suggesting it for tactical reasons; like Bridgeman, he hoped to delay OPEC while reaching a more permanent, profitable compact with the Consortium.147 He was against capitulating to Iraq and Indonesia, “run by madmen,” but didn’t want to leave

OPEC, as doing so would both remove a potential source of leverage against the companies and open up his government to attacks from nationalists. His position would improve if he could show some victory in negotiations with the Consortium.148

146 Tājbakhsh and Najmabadi, Yādʹdāshtʹhā-yi Fuʼād Rūḥānī, 313-320. 147 Dietrich, Oil Revolution, 56, 78, 205, 114. 148 FO 371/164222 EP 1532/45, Harrison to Crawford, December 3, 1962, EP 1532/45, Memo on Iran and OPEC, December 12, 1962, EP 1532/48, No. 1443, FO to Harrison December 18, 1962, EP 1532/45 (C) Harrison to FO, December 7, 1962, EP 1532/49 Harrison to FO, No. 1076, December 23, 1962; RG 59 PET 3 IRAN US Embassy to State A-501, February 7, 1963, 416

In early 1963, the shah used Bridgeman’s gentleman’s agreement to squeeze financial concessions out of the companies for projects designed to increase Iran’s export capacity. The shah was most interested in constructing a new products exports terminal at Khor Musa and a refinery for Tehran, fed by oil from the Alborz field near Qom.149 Concern that Iran needed new oil projects for political reasons compelled the consortium to reach a compromise solution.

While assisting Iran in seeking financial assistance for the Tehran refinery, the Consortium agreed to fund a products terminal near Bandur Mashur and an expanded crude terminal on

Kharg Island, which the shah noted would become the largest crude export terminal in the world.150 With these concessions in hand, the shah once again instructed Ruhani to delay the

OPEC vote on punitive action: the March OPEC meeting, with its accompanying deadline, was delayed to the summer and eventually re-scheduled for the end of the year. Tensions had been eased slightly following the Baathist coup against General Qassim in February. The new oil minister Sayed Abdul-Aziz Wattari, a graduate of the University of Texas, seemed intent on softening Iraq’s position in oil talks.151 The gradualists had, gradually, gained the upper hand,

US Embassy to State A-559, March 12, 1963, PET 17 IRAN Memo of Conversation, February 12, 1963. 149 RG 59 PET 3 IRAN US Embassy to State A-567, March 13, 1963; BP 100372 Memo from Pattinson, “Tehran Refinery,” March 6, 1963, Addison to Luard, March 18, 1963, Draft: Conversation with Behniā, March 21, 1963, Addison to Pattinson, “Financial Assistance-Iran,” March 22, 1963, Addison to Pattinson, Aril 2, 1963, Stockwell to Mitchell, April 2, 1963; FO 170415 EP 1532/30, Phillips to Hiller, March 5, 1963, EP 1532/31, Phillips to Hiller, March 5, 1963. 150 BP 100372 Danner Report of Meeting with Behniā, May 15, 1963, “Financial Assistance to Iran Through the Oil Consortium,” Undated; BP 100330 Note for the Chairman, July 1, 1963, Note from Sutcliffe, “OPEC,” July 24, 1963, Discussion with L.E.J. Brouwer, July 25, 1963, Meeting with the Iranian Prime Minister, Audience with the Shah, August 11, 1963; FO 371/170415 EP 1532/40, Wright to FO, No. 19 June 5, 1963. 151 BP 100372 Record Note from Stockwell, Metz Meeting with Wattari, April 22, 1963; Brandon Wolfe-Hunnicutt, “Embracing Regime Change in Iraq: American Foreign Policy and the 1963 Coup d’etat in Baghdad,” Diplomatic History 39:1 (2015): 121-122.

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though Ruhāni continued to threaten the companies with a tanker tax if they did not meet his demands on royalty expensing. Both Tāriqī and Pérez Alfonso had left the scene; the former lost favor with King Faisal while the latter, disillusioned with the slow pace of OPEC’s progress against the companies, had resigned his post in 1963.152

Yet while the tone within OPEC grew more moderate, the shah’s attitude toward the companies stiffened. The rapid execution of his White Revolution land reform initiative, along with the successful suppression of dissent in June 1963, had enhanced his prestige and bolstered his confidence. The project would require new sources of revenue, which the shah could only secure through oil. The companies had given in to pressure in 1961 and in early 1963 over development projects. The shah chose to push them again later that year. In June he warned that

Iran may cease to be a “moderating influence” unless it received adequate support from the companies. It was clear by the late summer that the “gentlemen’s agreement” had run its course, and in late 1963 the Consortium returned to the Iranian negotiating table.153

In July OPEC granted Ruhāni the power to negotiate on behalf of all members; he would focus his attention on Resolution 33, royalty expensing, which would significantly increase member states’ takes. Ruhāni personally thought the companies over-confident: “they tend to listen only to those who confirm their own wishes and expectations, even if such support proves baseless.”154 The shah, meanwhile, warned the consortium that Iran would respect whatever

152 BP 100383 Briefing Note, August 28, 1963, Note on the June 1963 OPEC Conference, August 30, 1953; Tājbakhsh and Najmabadi, Yādʹdāshtʹhā-yi Fuʼād Rūḥānī, 97-110; Bamberg, Vol. III, 155. 153 BP 100330 Note on Conversation with the Shah, June 1, 1963, Sutcliffe to Pattinson, August 16, 1963. 154 Tājbakhsh and Najmabadi, Yādʹdāshtʹhā-yi Fuʼād Rūḥānī, 348-349, Ruhāni’s Letter to Behniā, August 16, 1963.

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decision OPEC made regarding sanctions; he urged them to “move with the times.”155 In

September, Ruhāni met with the consortium negotiators: Howard Page of Jersey, George

Parkhurst of Socal and John Pattinson of BP, collectively referred to as the “Three P’s.” Pointing to specific, obscure elements of the 1954 Agreement, Ruhāni argued that 50% calculation of profits was “not a reality,” but instead a “mathematical operation.” In the United States and

Canada royalties were paid separately from relevant taxes, and Ruhāni argued that uniformity should be the norm in all oil agreements, regardless of where they were made. He also noted that the precedent for altering the means by which royalties were paid did in fact exist: the shift from per-ton royalty to the fifty-fifty formula which took place in most oil-producing states in the

1950s. Finally, Ruhāni made it clear that Iran was motivated “solely by a desire to obtain…a higher share of income from its most valuable asset in order to meet its well-known and urgent need for additional funds to implement development projects.”156 When the companies suggested that royalty expensing could be accepted “on principle” provided that it did not increase the government’s take, Ruhāni refused, stating he had strict instructions from the shah to secure more revenues and a “final solution” that he could take to OPEC in November.157

Averaged over the whole Middle East, full expensing of the royalty would increase the countries’ take by 11c/barrel, at the companies’ expense. Surrendering the principle seemed fairly painless (it was already law in the United States and Venezuela), but some “mechanism”

155 BP 103300 Sutcliffe to Pattinson, August 16, 1963, Note on OPEC, August 29, 1963. 156 BP 100331 “Memorandum Concerning the Expensing of Royalties” Handed out by Ruhāni, September 16, 1963; BP 100383 Exploratory Discussions with Ruhāni, September 2, 1963, Note for Pattinson, September 25, 1963. 157 BP 100383 Second Round of Discussion with Rouhani, September 26, 1963, Notes from Meeting, September 16, 1963, Notes on Discussion of OPEC Resolution 33, September 30, 1963.

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would be needed to soften the financial blow.158 Page suggested a partial discount on the posted price, nearly equal to the royalty once it was expensed. Despite strong resistance from the U.S. companies, the idea won the acceptance of all the consortium participants and was presented to

Ruhāni in early November 1963, during the last round of talks before OPEC convened in Beirut to vote on sanctions.159 The consortium was prepared to allow the expensing of royalties with an

8.5% discount applied, increasing Iran’s take by 3.5c per barrel and awarded it an additional $18 million, as well as a diminished marketing expense. The companies would reserve the right to reduce posted prices, all OPEC resolutions would be considered resolved and all prior claims settled.160 Ruhāni resisted, and demanded instead that the full royalty be expensed without a discount. Pattinson felt that Ruhāni’s ego was clouding his judgement: “The impression that he conveys that he is, in fact, saying the last word for the whole of the Middle East is inescapable.”

The two sides closed the meeting in disagreement.161

The consortium, along with the Foreign Office, believed that Ruhāni would be over-ruled by the shah and his ministers. But Ruhāni was not intimidated by their posturing at the negotiating table. He wrote to ‘Alam and the shah, firmly stating his argument that the royalty should be considered separate from income tax, and not subject to the fifty-fifty division. The

158 BP 100331 “Suggested Methods for Use in Expensing Stated Payments with no Increase in Government ‘Take,” September 23, 1963; BP 100383 Middle East Government ‘Take,’ July 25, 1963, Iran/Consortium Negotiations—Meeting, October 16, 1963; Seymour, OPEC: Instrument of Change, 43. 159 BP 100383 “Mechanics,” October 4, 1963, Adam to Pattinson, August 29, 1963, Sutcliffe to Pattinson, October 15, 1963, Sutcliffe to Stockwell, Iran—OPEC, October 18, 1963, Note on Meeting of Parkhurst, Page and Pattinson, October 21, 1963, Stockwell to Waller, October 28, 1963. 160 Tājbakhsh and Najmabadi, Yādʹdāshtʹhā-yi Fuʼād Rūḥānī, 366-367, Pattinson to Behniā, November 5, 1963. 161 BP 100553 Record of the Meeting, November 11, 1963.

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companies, who complained that their share of profits was in decline, would only offer 4c more per barrel: [which] does not fit into the expectations of the OPEC members.” In previous discussions, consortium representatives had implied that Iran would receive the full amount of

11c gradually, with an immediate increase of 7c, “and I believed it,” he wrote in his diary. This offer was not just unsatisfactory; it was a betrayal of trust.162 The shah was won over, and decided to turn down the consortium offer, much to the dismay of ‘Alam and Entezām, who were eager to put the matter to rest. ‘Alam managed to preserve his close relationship to the shah, but the embattled NIOC chairman was less fortunate; out of step on oil policy and increasingly upset at the shah’s consolidation of autocratic power, Entezām was detached from the Pahlavi regime and dismissed from his post in November 1963.163

Despite Ruhāni’s success, a coalition within the Pahlavi regime was rallying to the company’s side. ‘Alam, in a remarkable display of confidence, passed along a bout de papier to

British Ambassador Denis Wright, illustrating how Ruhāni had represented the consortium offer to himself and the shah. Wright believed that Ruhāni was willfully misleading ‘Alam and the shah, and was maneuvering either for a better deal or for a gridlock that would force OPEC to take punitive action. ‘Alam was concerned that a rejection of the consortium deal would isolate

Iran and expose it to attacks within OPEC. Saudi Arabia was reportedly near a deal with Aramco on a partial discount on the royalty, and Saudi oil minister Yamāni wrote to the shah in late 1963, explaining the benefits of a moderate compromise with the companies.164 He felt that Resolution

32 and the issue of price should be “put aside for the time being:” a settlement which awarded

162 Tājbakhsh and Najmabadi, Yādʹdāshtʹhā-yi Fuʼād Rūḥānī, 370-378, Rūḥānī to ‘Alam, November 9, 1963. 163 “Entezām, ʿAbd-Allāh and Naṣr-Allāh,” Encyclopaedia Iranica http://www.iranicaonline.org/articles/entezam [Accessed April 7, 2018]. 164 Tājbakhsh and Najmabadi, Yādʹdāshtʹhā-yi Fuʼād Rūḥānī, 137-147.

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slightly higher revenues and granted OPEC the moral victory of royalty expensing was enough for him. Crown Prince Faisal, extremely conscious of how Arab nationalists would respond to any company settlement, felt the problem was primarily political and hoped to avoid actions

“distasteful to both themselves and the Company.”165 Indecisive as ever, the shah lost his nerve, and dispatched Ruhāni to the OPEC meeting in Beirut with instructions to accept the consortium offer.166 He had already done this before his meeting with Kermit Roosevelt in early December; though combative, the shah appeared willing to accept a deal that would immediately raise Iran’s oil revenues by $20 million.167

The long-anticipated Beirut meeting on December 4 should have been the denouement of the two-year drama surrounding the OPEC Resolutions. Instead, the consortium offer was rejected, as Iraqi oil minister Wattari accused Ruhāni of being “too soft” on the companies: “it was clear that none of the representatives thought the companies’ offer was acceptable.”168

Ruhāni wrote to Pattinson of BP, declaring the offer unacceptable “as written” and refusing the idea of further discussions. The companies could either offer full royalty expensing or prepare for OPEC sanctions.169 The announcement caught the British, the Americans, and the companies completely by surprise, since both Iran and Saudi Arabia had been prepared to accept the deal.

165 BP 100553 Cable Sent to Esso London from Aramco, Conversation with Crown Prince Faisal, December 4, 1963. 166 BP 100553 Copy of Wright Cable to FO, November 14, 1963, Page to IOP, November 14, 1963, Note for Pattinson, November 25, 1963; Burdett, OPEC Origins & Strategy, 1947- 1973, 2004, Vol 3: the Middle Period, 1963-1966, 78-90. 167 FRUS 1961-1963 Vol. XVIII Near East 1962-1963, No. 381, Memo of Conversation, December 6, 1963. 168 Tājbakhsh and Najmabadi, Yādʹdāshtʹhā-yi Fuʼād Rūḥānī, 147; BP 100553 Account of OPEC Meeting in Beirut, December 9, 1963, Lamb to Stockwell, December 10, 1963. 169 FO 371/172530 UES 1037/95, Note by Lamb, December 6, 1963, FO to Tehran, No. 1520, December 5, 1963

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What happened during the Beirut meeting is not entirely clear, but it would appear that Ruhāni, having been overruled by ‘Alam and the other moderates within the Pahlavi government, failed to defend the consortium deal with the necessary zeal. The companies’ offer, which would have increased the take by 4c per barrel, did not meet the expectations of Iraq, Qatar, and Indonesia, while Kuwait (usually a moderate, pro-British member) seemed unsure of the offer. Ruhāni wrote to ‘Alam (who then immediately forwarded it to Ambassador Wright) and claimed to have taken a moderate position that was “shouted down” by Wattari. The shah could accept nothing without looking weak, and the companies had no intention of making a new offer. Both sides were at an impasse, “confused as to what they do next.” The next OPEC meeting, scheduled for

December 24 in Riyadh, could not be delayed again; if the companies’ offer was turned down yet again, the OPEC members were prepared to vote on laws that would immediately expense all royalties. There was a real chance of an open break between the companies and oil-producing countries, something that the oligopoly, the Anglo-American governments, and moderates within the Pahlavi regime were anxious to avoid.170

6.5 The Inside-Man: Reza Fāllah to the Rescue

An unexpected savior emerged to rescue both the companies and Iran from the impasse in

December. Rezā Fāllah, a senior NIOC official and chief oil advisor to the shah, was selected by

‘Alam to act as an intermediary and dispatched to London, in order to hold secret talks with the

Consortium and find a way through the log-jam. Fāllah had been trained by AIOC, spoke perfect

170 Burdett, OPEC Origins & Strategy, Vol. 3, 106-148; BP 100553 Belgrave to Fraser, December 9, 1963, Note for Pattinson, December 9, 1963, Note on U.S. Ambassadors in Tripoli and Jedda. For a copy of the Rūḥānī-‘Alam letter, see Tājbakhsh and Najmabadi, Yādʹdāshtʹhā-yi Fuʼād Rūḥānī, 147-148.

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English, and assured the British he would be talking “as an oil man,” not an insurrectionist or nationalist. Few were aware at the time that he maintained consistent, close contact with John

Addison, the chairman of the IOP, and informed Addison of almost all his private meetings with

Iranian government officials and OPEC. Fāllah was an employee of NIOC, and he had the full support of the company’s new chairman Manūcehr Eqbāl; the oil-men were pleased NIOC was finally being consulted regarding the OPEC resolutions, after years of being sidelined by Ruhāni.

‘Alam was also delighted that a potential solution had been found: he was eager for the

Consortium and Fāllah to work together “[and] help extract Iran from her present mess.”171

During his discussions with the consortium, Fāllah argued that the shah only wanted

“more money.” He hinted that the shah was opposed to OPEC now that the group was issuing instructions to members to pass legislation; it irritated the shah that OPEC should assume supra- national powers. If the shah could demonstrate to the Iranian people “that he can get better returns from the oil industry through his own efforts,” explained Fāllah, “he was prepared to vote against sanctions being taken by OPEC.” If the companies were willing to “camouflage” the discounts on posted price, the shah could represent the deal as a victory and overrule Ruhāni’s pro-OPEC arguments. Pattinson, Page, and Parkhurst passed along a series of memos that Fāllah was to share with the shah. They emphasized how much Venezuela stood to gain if Middle

Eastern payments increased, reducing oil’s competitiveness against nuclear power, and forcing the companies to shift away from Persian Gulf oil towards cheaper sources. Partial discounting would increase Iran’s share from fifty-fifty to 57-58%, and there would be no need to pass a new law or change the 1954 Consortium Agreement. Fāllah asked that Resolution 32 and the issue of

171 BP 100553 Message from FO, December 13, 1963, Warder to Addison, December 15, 1963; Burdett, OPEC Origins & Strategy, Vol. 3, 149-168.

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control over price not be abandoned entirely, for political reasons. Rather than a “public funeral,” the consortium was preparing to draft a letter meeting Iran on the issue of posted price, “but at the same time stopping the Iranian Government from ever raising it again in the future.” The final offer toned down the language of Resolution 32 and awarded Iran 6c per barrel for the first few years; in 1964, this would amount to $33 million more.172

Fāllah returned to Iran with the terms in hand. The shah had grown annoyed at Ruhāni’s apparent misdirection; he resented OPEC’s push for pan-national oil legislation, and regarded its suggestions of pro-rationing as troublesome. He did worry, however, about exposing himself to the “full blast of Arab propaganda,” should Iran accept the companies’ terms alone. Such isolation in the oil world could very well aggravate the political situation within Iran, creating a

“second Moṣaddeq in a fairly short space of time.” But Iran was in a secure position. Its economic situation had improved: March 1964 was the first time in ten years that the government did not request an advance on the year’s consortium payment. The violence of 1963 had passed, the shah’s White Revolution seemed secure, and Iran’s friendship with the United

States was once again on a solid footing. The Consortium deal negotiated by Fāllah appeared eminently satisfactory, and the shah gave instructions that it be accepted at the December 24 meeting in Riyadh.

This time, both Saudi Arabia and Kuwait also supported the terms. The meeting ended in a victory for the gradualists: a further three months of negotiations were to be permitted so that the Consortium offer could be put to the other OPEC members in bilateral talks. Ruhāni, defeated by his opponents inside the shah’s government, would step down as OPEC secretary-

172BP 100553 Three P’s Meeting With Fāllah, December 17, 1963, Memo #3 “Effect of Small Increases in Costs on Outlets for Persian Gulf Oil;” Burdett OPEC Origins & Strategy, Vol. 3, 184-189; Tājbakhsh and Najmabadi, Yādʹdāshtʹhā-yi Fuʼād Rūḥānī, 187-194.

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general: the shah would no longer be supporting him and his name wasn’t even submitted as a potential candidate for the post. Fāllah retained a special position as an advisor on the bilateral talks, in order to ensure that no country got a better deal and “stop any nonsense” to get in the way of a settlement; he continued to feed information from the OPEC side to the Consortium whenever possible.173

Table 6.7 Royalty Expense Compromise, 1964 174

Posted Price $1.76

Discount $0.15 in 1964, $0.13 in 1965, $0.11

Cost $0.20

Royalty (Expensed) $0.22

Price Before Taxes $1.19

50/50 Result (Company Take) $0.595

Producer Take $0.815

Iran’s decision to accept the deal had effectively settled the issue. In May 1964 OPEC’s common front fell apart, with further negotiations devolving to the individual members: U.S.

Secretary of State Dean Rusk felt this constituted “an appreciable weakening in OPEC

173 BP 126538 Sutcliffe to Pattinson, Report of Wright Conversation with Fāllah, January 7, 1963, Note on Talk with Dr. Fāllah, January 4, 1964, Note on Shah’s Message Through Fāllah, January 7, 1964; FO 371/178153 UES 1037/26A, FO to Representatives, No. 99, February 5, 1964, UES 1037/40, Wright to FO, NO. 153, February 25, 1964, UES 1037/55, Note on OPEC, March 4,1964. 174 BP 44796 Oil Companies New Royalty Reckoner, December 31, 1964; Wall, Growth in a Changing Environment, 609.

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strength.”175 The group accepted the Consortium’s offer of partial royalty expensing, with a gradually declining discount. Fāllah communicated this to Addison, who felt that a crisis had been averted “thanks to the stand taken by Iran.” The companies would pay each country slightly more in 1964 and the two years following, with a re-examination of prices in 1966. The shah no longer discussed leaving OPEC, which suited both the companies and the British government:

Iran could do the most good inside OPEC, exercising a consistent, pro-company moderating influence. Though some U.S. companies continued to resist the idea of royalty expensing, the principle was surrendered, a casualty in the fight to stave off OPEC, and one that the companies could afford to give up so long as production costs remained as low as they were.176

In May, the new Iranian prime minister ‘Alī Manṣūr delivered a speech designed to explain the government’s position. Oil, he said, had “completely lost its political aspect for us…[it] is no longer a subject for demagogy and political platform.” The shah, who had signed oil deals with the major companies “without parallel in the world,” was intent on serving the country’s interest above all else; Arab politicians hoping to sway public opinion away from moderation “should keep their preachings on patriotism for their own people.”177 The shah was able to use Iran’s position to win even more concessions from the companies late in 1964, pushing demands on the 1954 arbitration clause and other features, in order to win an even larger financial return. The companies, anxious as ever to stay on his good side, continued to make

175 FRUS 1964-1968 Vol. XXXIV, No. 180, Circular Telegram, May 1, 1964. 176 FO 371/178153 UES 1037/92, Record of a Meeting, June 29, 1964, UES 1037/97, Note by Lamb, July 3, 1964; Burdett, OPEC Origins & Strategy, Vol. 3, 470-472, 479, 480-481, 496, 497-500. 177 BP 126186 70: 1 April, Addison for Pattinson; FO 371/178153 UES 1037/67, Wright to FO, No. 281, April 9, 1964,UES 1037/71, Proposed Procedure after Geneva OPEC Meeting, April 14, 1964, UES 1037/71, Wright to FO, No. 293, April 13, 1964, UES 1037/67, Wright to FO, No. 281, April 9, 1964, UES 1037/80, Wright to FO, No. 7, May 6, 1964.

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concessions, awarding more and more money to Iran and fueling the rapid expansion of the

Iranian state and economy after 1963.178

The crippled insurrectionist faction, meanwhile, decried OPEC’s agreement with the companies as a surrender of sovereign rights, proof that the Arab World remained “under foreign domination.” Ex-oil minister Tāriqī railed against the shah, calling out his “appeasement of the monopolistic companies” and equating Iran’s acceptance of the consortium offer with treachery.

Without a united front, OPEC was doomed to become “a toy in the hands of the companies.”

“Why is it,” he wrote in Al-Anwar in April 1964, “that Iran…should be the differing partner in

OPEC? Imperialism is the real winner from our differences….Let the imperialists go and let the

Arabs and Iranians stay, for they are the owners of the Arab Gulf and its natural resources.”179

Tāriqī was wasting his time: short of demanding more money, there was nothing to compel the shah to force out the consortium. The imperialists were here to stay, at least for the time being.

As many within the industry had feared, the 1960s constituted a slow retreat on taxes and profit-sharing. The royalty expensing negotiations resulted in higher takes for the countries. Iran,

Saudi Arabia, and Kuwait earned an additional 3.5-5.5c/barrel through partial royalty expensing in 1964, and marginally more in 1965 and 1966 as the discount on the posted price was reduced.180 The principle of royalty expensing had been conceded, and the negotiations had been successful for OPEC insofar as they had realized higher returns, though the increase “was far less

178 FO 371/178153 UES 1037/71, Wright to State, No. 293, April 13, 1964, UES 1037/88, Powell to Wright, June 12, 1964, FO to Wright, No. 645, June 18, 1964, “Middle East Oil,” June 20, 1964; 129: Gandy to FO, No. 184, June 22, 1964,Minute by Lamb, June 25, 1964, UES 10376/91, Note by Crawford June 26, 1964. 179 Quoted in Dietrich, Oil Revolution, 113-115; Al-Anwar, April 30, 1964, re-printed in BP 44796. 180 Wyant, OPEC and Multinational Oil, 69.

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than what was demanded in 1962,”and had been achieved through individual negotiations with producer states rather than with the common front of OPEC.181 Government takes gradually increased, from $0.70/barrel to $0.86/barrel, as company profits from production fell appreciably

(though not to the point that Middle Eastern oil became unprofitable).182 The oligopoly retained control over production, yet were required to hand over a larger share of profits than ever before.

Both the posted price system and the fifty-fifty standard of equitability gradually disappeared. The process was slow but inexorable, and some observers regarded it as inevitable.

Yet as long as OPEC’s members were content, as Iran was, “to wring financial advantage…without disturbing the present structure of the industry,” the companies could work to delay total state ownership of the oil industry, permitting the gradual nationalization of the industry by pro-Western governments “without provoking the worse anti-Western reactions.” In a fundamental sense, even the most extreme Arab governments “do not wish to destroy the present structure…as long as its organization is essential to move the quantities of oil required to maintain their income levels.”183 OPEC was divided over policy, split between its gradualists and insurrectionist parties: it would likely take a “pragmatic approach,” working to increase near term revenues and “less likely to raise major issues of principle.”184 As Geoffrey Harrison, former Ambassador to Iran, noted in January 1964, “the Arabs cannot drink their oil and must

181 BP 44796 The Royalty Negotiations in a Different Perspective, June 25, 1965. 182 Petrini, “Public Interest, Private Profits,” 9. According to Shell, revenues from the seven majors in the Eastern Hemisphere declined from $0.565/barrel in 1960 to $0.327/barrel in 1970, though the volume of production had increased enough to prevent an overall decline in profitability. 183 FO 371/178149 UES 1031/30, British Oil Interest in the Context of HMG Policy in the Middle East, Final Version, 16 October 1964. 184 BP 6133 “OPEC—Further Developments I: July, 1963 to September, 1964,” October 1964.

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sell it.” Barring the forced unification of two or more major oil-producers, it was unlikely that

OPEC would succeed in forcing the companies to surrender meaningful concessions. Harrison credited the “special relationship” which the British government and the Consortium had forged with the Iranian government, and the shah’s efforts to block OPEC sanctions, for the preservation of the status quo.185 The shah continued to place pressure on the Consortium: his annual requests for ever-greater production, with ever-greater revenues, became a perennial issue for the companies. The Pahlavi government filled the press in 1964-1967 with anti-company rhetoric, continually rejecting Consortium payments as too small, production levels too low.186

While the companies did not surrender control, they never again cut the posted price.187

With some small changes, the international energy system continued in this modified form until the 1970s. In the short term, the companies recognized that producing-state grievances could be satisfied through constant re-negotiation of tax payments, and that such negotiations effectively delayed confrontation over key issues which pro-Western monarchies like Iran,

Kuwait, and Saudi Arabia were wary of broaching. In a speech to the American Petroleum

Institute in November 1963, BP Chairman Maurice Bridgeman summed up the key problem:

“How much oil can we sell annually without contributing to a fall in prices…[one that would] reduce the revenue of many of the principal exporting countries to a point which is politically insupportable?”188 It was the old problem of dual integration: how to balance the needs of the international energy system with the desire of oil producers for more revenue. Despite the

185 FRUS 1964-1968 Vol. XXXIV, No. 176, Memo of Conversation, January 29, 1964. 186 Wall, Growth in a Changing Environment, 613-633; Bamberg, Vol. III, 171-184. 187 M.A. Adelman, The Genie Out of the Bottle: World Oil Situation Since 1970 (Cambridge MA, 1996): 54. 188 Maurice Bridgeman, “World-Wide Production: Its Prospects and Problems,” November 1963, American Petroleum Institute, from Parra, Oil Politics, 39.

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continued hostility of many in the oil producing world, the Anglo-American powers and the oligopoly were confident that with Iran’s help the status quo could be maintained: “The moderation of Iran’s oil policies under the present regime…offer some comfort against the possibility of actions by Arab states to withhold or restrict oil supplies.”189

The Pahlavi regime owed its survival to the continued operations of the companies; moreover, the specter of oil-based nationalism was enough to push the shah consistently towards the company’s side. Ruhāni’s arguments and the potential to use OPEC as a lever with which to squeeze concession from the companies had influenced the shah for a time, but eventually fear of an open break compelled his advisors to appeal for moderation. The shah needed the companies, just as they needed him; neither could do without the other. The abundance of oil, the inability of the producers to form a united front, and the interest of leaders like the shah to serve national interests rather than the collective interest of the group doomed OPEC in its early years and preserved the international energy system from serious disruption. The companies found in the

Pahlavi government not just allies but willing co-conspirators in the campaign to neuter OPEC.

189 FO 371/178149 UES 1031/17 Oil Aspects of Middle East Defence Policy, July 10, 1964.

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EPILOGUE

In February 1973, representatives from the world’s largest oil companies crowded into a room in the ski resort town of St. Moritz, Switzerland. They were shortly met by a team of

Iranian negotiators, led by the shah, Mohammed Rezā Pahlavi. Since 1954, the eight major oil companies had exercised complete control over Iran’s oil industry, but their era was coming to an end. At the height of his power, both a key U.S. ally and an authoritarian monarch in total control over Iran’s government, the shah could afford to make demands. He got what he wanted: the Consortium announced the 1954 agreement finished and agreed to a new contract, one that identified the National Iranian Oil Company (NIOC) as the “owners and operators of assets and activities in the oil concession area.” The shah hailed it is a triumph. “Seventy-two years of foreign control,” he declared, “was ended.”1 Tehran’s pro-regime papers celebrated the shah’s triumph of personal diplomacy; yet again, they cried, Iran’s leader had out-witted the companies.

The shah, ecstatic at his triumph, spent the following months describing to his American allies plans for Iran’s future: irrigation initiatives, infrastructure, village councils “to build democracy,” compulsory military service “to inculcate principles of discipline,” and birth control to cap population growth to 50 million people. Iran had achieved what no other country had done:

“stability in the oil negotiations,” through a “brilliant breakthrough” that would endure “for the next twenty years.”2

The dominance of the oligopoly over price and production began to decline in the late

1960s: a series of developments, beginning with the Libyan Revolution of 1969 and continuing

1 Quoted in Daniel Yergin, The Prize, 567. 2 FRUS, 1969-1976, Vol. XXVII, Memo from Kenneth Rush to Nixon, March 1, 1973, No. 10, Helms to State, No. 2166, April 7, 1973, No. 12, Rush to State, April 27, 1973, No. 14, Memo for President’s File, Meeting with the Shah, Undated, No. 25, Memo of Conversation, July 24, 1973, No. 26.

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through the Tehran and Tripoli Agreements of 1971, together with a tightening of the supply/demand balance shifted the balance of power towards the oil-producing states. Though their dominance of price would vanish amidst the October War, the OAPEC oil embargo and

“energy shock” of 1973-1974, the companies continued to market Iranian oil internationally. The

St. Moritz agreement represented a victory for the shah, but it did not substantively alter the arrangement reached in 1954. “It was really more window dressing than reality,” recalled one

U.S. official, “If a little ego salving and massaging was necessary, I’m sure it didn’t cause [the companies] very much pain.”3 After 1973, as most oil-producing states began buying out the companies of their concessions through participation deals, the shah maintained his relationship with the consortium: he could not turn oil into money without their assistance, and as he often remarked, “Iran needs money…one can make a lot of money with oil.”4 The companies, meanwhile, rode the wave of resource nationalism in the late 1960s and 1970s and emerged in varying states of profitability. The conditions of concentration, vertical and horizontal integration and over-supply which had prevailed between 1925 and 1964 gradually changed, to reflect the growing importance of national producers in OPEC.5 Though the literature of oil history has gone out of its way to emphasize the companies’ powerlessness, and even victimhood, in reality many oil executives had known for years that the era of fifty-fifty was coming to an end, and they adapted to it as best they could.6 The shah’s desire to increase prices meant little to the

3 Interview with William W. Lehfeldt, April 29, 1987, Association for Diplomatic Studies and Training, Foreign Affairs Oral History Project, Columbia University: 27. 2 4 Halliday, Iran: Dictatorship and Development, 144-45; quote from Oriana Fallaci, “The Shah of Iran: An Interview with Mohammad Reza Pahlevi,” The New Republic December 1, 1973. 5 Jacoby, Multinational Oil, 120-149. 6 This argument is made quite persuasively by Francesco Petrini. See Petrini, “Public Interest, Private Profits: Multinationals, Governments and the Coming of the First Oil Crisis,” Business and Economic History 12 (Jan., 2014): 1-18, and “Eight Squeezed Sisters: The Oil 433

companies, said oil consultant Walter Levy, “as long as they are sure they can pass them on to customers,” and, as U.S. Secretary of State Henry Kissinger (himself a confessed oil neophyte) saw it, “maintain their access to oil at almost any price.”7 The threats of Moṣaddeq to “leave it in the ground,” later use by Muammar al-Qaddāfi and other OPEC nationalists, were not carried out; indeed, the OPEC states emerged from the 1970s utterly dependent on oil and committed to maintaining the international energy system. Dual integration, by which oil-producers relied on the international oil market to turn petroleum into wealth and, hence, into progress through economic development, remained intact, albeit in a different form after the energy shocks, nationalizations, and participation agreements of the 1970s.

After the St. Moritz agreement and OPEC’s price hikes of late 1973, largely engineered by the group’s most avid production hawk, the shah of Iran, oil revenues tripled for the Pahlavi regime. Countermanding the advice of the economists in the Plan and Budget Organization

(formerly the Plan Organization, or Sāzmān-i Barnāmeh), the shah doubled the budget of the country’s Fifth Plan. Warnings of rapid inflation, bottlenecks for investment and labor, fell on deaf ears as the shah’s Iran became ever more “petrolic” in nature: oil constituted 38% of GNP in 1977, 77% of government revenue, 87% of foreign exchange earnings.8 The shah’s push to turn Iran into a modern “petro-state” did not go unopposed. Abū al-Ḥasan Banī Ṣadr, an Iranian economist living in exile in Paris, had written a number of articles decrying the shah’s oil policies. His writings were collected and published as a book in August 1977. Oil had become

“the curse of Iran’s soul,” he wrote. Years before, the rights to Iran’s greatest natural resource

Majors and the Coming of the 1973 Oil Crisis,” in Oil Shock: Th 1973 Crisis and Its Economic Legacy, Elisabetta Bini and Giuliano Garavini, eds. (New York: IB Tauris, 2016): 60-73. 7 Quoted in Petrini, “Public Interest, Private Profits,” 15. 8 Halliday, Iran: Dictatorship and Development,138; Maloney, Iran’s Political Economy, 70-72

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had been signed away by Iran’s ruling class, to satisfy their desire revenues, “without which it would not have been feasible for them to retain class dominance.”9 In return, the capitalist nations of the industrial West had gained access to Iran’s immense oil reserves. Local authoritarian rule and global imperialism had worked hand in hand: “oil became a factor for sabotaging and destroying the foundations of Iran’s independent economy,” by keeping a corrupt elite in power and subordinating Iran to an unjust exploitative international economic system.

The nominal independence exercised by the shah was simply a screen for his slavish dependence on the Consortium, which each year tightened its grip and drained away the finite wealth of

Iran’s oil.10

Critics of the shah felt this situation was untenable: “If the flow of oil is cut off…this regime will have no choice but to disappear.”11 As a young advisor to the shah’s development program in the early 1960s, economic Husayn Mahdavī had worked closely with American developmentalists eager to apply oil to economic reforms. He left the program embittered and skeptical of the shah’s oil-driven modernization and the regime’s top-down “controlled revolution.” Mahdavī coined a new term that he used to describe the shah’s perilous, oil-based authoritarian model: the rentier state.12 Sooner or later, the state’s dependence on oil rents and its independence from the popular will of the people would bring about a political crisis linked to

Iran’s pro-Western strategic alignment and the shah’s close connection to the United States.“The

9 Banī Ṣadr, Naft va Solteh, 3-4. See also Paule Vieille and Abū al-Ḥasan Banī Ṣadr, Pétrole et violence; terreur blanche et résistance en Iran [Oil and Violence: the White Revolution and the Opposition in Iran] (Paris: Editions Anthropos, 1974). 10 Banī Ṣadr, Naft va Solteh, 4-5, 13, 21. 11 News Bulletin of the National Front, No. 28, August 1972, “Naft va Khun,” [Oil and Blood], in Naft va Solteh, 13. 12 Mahdavy, “The Patterns and Problems of Economic Development in Rentier States,” 428-429.

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urge for political freedom,” wrote Mahdavī, “is likely to be reinforced by an attempt to free Iran from all foreign domination.”13

Between 1925 and 1964, Iranian oil underwent a process of dual integration: the effort to integrate Iran into the wider world of oil occurred at the same time oil revenues were integrated locally through state-supported and internationally-sponsored programs of economic development. The phenomenon of oil-based development and the consolidation of an authoritarian U.S.-backed regime in Iran were closely linked to the formation and evolution of an international energy system dominated by an oligopoly of vertically-integrated oil companies.

The process was messy, fraught with conflict, and subject to the differing ideas and intentions of disparate actors. Iranian nationalists disputed the companies’ right to control Iranian oil, while the Pahlavi regime constantly pushed for a larger share of profits. Local integration was the site of bitter battles between rival developmentalists, where the priorities of U.S. Cold War strategy clashed with the desires of development groups more interested in bringing socio-economic change to Iran’s countryside. Belief in Iran’s capacity for change was offset by doubts, tinged with cultural and racial prejudice, which encouraged developmentalists and U.S. policy-makers to look to the shah as the key to Iran’s future stability and eventual economic prosperity. The shah’s own drive to expand his power and the monarchy’s dominance of state and society was woven through the discourse of development. While the shah’s position was strengthened as more oil revenues poured into state coffers, dual integration led to revolution: the socio- economic improvements anticipated by developmentalists failed to materialize, oil boom led to bust, and the shah’s regime collapsed.

13 Mahdavy, “The Coming Crisis in Iran,” 145-146.

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Dual integration served as the foundation upon which the modern U.S.-Iranian relationship was built: the assumption that oil and development were closely linked, that there could be no progress without petroleum, and that without the global integration of Iranian oil through the oligopoly, a stable Iran shaped through oil-driven development could not be realized.

The notion that Iran must eventually embrace democratic middle-class politics was tempered by skepticism regarding the readiness of Iran to embrace modernity. These attitudes remained prevalent in the aftermath of the Islamic Revolution. Jack Miklos, a former embassy official, argued that it was not the shah’s modernization programs that caused the revolution, but rather the Iranian “national character” and rejection of modernity itself. “The Persians resemble the pre-

Hobbesian man,” Miklos concluded, and could not form communities necessary for modern society to function.14 These comments mirrored prior criticisms from Arthur Millspaugh, Max

Thornburg, Robert M. Carr, Loy Henderson, John Bowling and Julius Holmes, as well as the consistent critiques of Iranian administrative incompetence that colored the views of countless foreign developmentalists. Reluctance to push for political reforms was in part due to strategic constraints, yet it also reflected a persistence ambivalence towards Iran’s capacity to “put its own house in order,” without U.S. guidance or a strong-man government.

Dual integration, as an aspect of U.S. foreign policy, ultimately failed. Oil-rich and authoritarian, Iran’s regime did not achieve the stability and legitimacy many in Washington had long hoped for, but was instead replaced by a new regime characterized by a deep suspicion of

U.S. motives and antipathy towards Western models of economic development. The “tragedy” of

U.S.-Iranian relations, as James Bill describes, was that the wrong choices were made; had the

14 Jack C. Miklos, The Iranian Revolution and Modernization: Way Stations to Anarchy (Washington, D.C.: National Defense University Press, 1983), 47.

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U.S. backed the Moṣaddeq government or forced the shah to take more practical steps towards political reform, the outcome could have been different. David Collier, in his study of U.S. influence in Iran, contends that an important factor in the failure of Iran’s internal democratic movement was “American interference;” without that interference, progressive forces in Iran might have countered the authoritarian tendencies of the shah.15 Yet while mistakes were surely made, they did not emerge from a vacuum. The Mordad Coup and subsequent decisions to back the shah were conditioned by a specific perspective. American policy-makers did not believe

Iran capable of stability without oil revenues; to obtain those revenues, Iran would have to be integrated into the international energy system by the oil oligopoly. Moṣaddeq was removed from power in order to facilitate this process. Iran’s stability, prosperity and preservation from communism was the long-term goal, serving the U.S. interest in containing the Soviet Union and protecting access to Middle Eastern oil. During the 1954-1964 period, oil-based development utilizing American expertise proved a costly, embarrassing failure. Faced with a second crisis in the early 1960s, the U.S. again backed the shah’s rule as the best way to preserve Iran from communism: only he could “deliver the goods,” and even the reform-minded Kennedy

Administration proved hesitant to push him too far.

The Mordad Coup had preserved the international energy system. In the aftermath of the coup, Iran was integrated into the system through a fifty-fifty concession and its oil placed in the hands of a multi-national oil Consortium. Yet while global integration was successful, conditions in global oil began to change almost immediately, weakening the original bases of the system. At the same time the shah, driven by a constant desire for money and prestige, placed constant pressure on the companies to raise production and increase his revenues. Their relationship,

15 Collier, Democracy, 299.

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pushed to the brink during the early 1960s, proved strong enough to weather the storm of OPEC and the royalty expensing debate. As he consolidated power, the shah sought to turn Iran into a petro-state, using oil revenues as a source of power and patronage. This left him dependent on the Consortium, just as they depended on his support to keep OPEC divided and incapable of unilateral action. Iran’s transformation under the shah would not have been possible without the active support of the Consortium.

The shah’s oil-based development strategy continued after the White Revolution. The

Third and Fourth Plans (1963-1972) focused on increasing investment into industrialization and rapid economic growth. As agricultural production stagnated and the state budget ballooned in size, Iran became dependent upon ever-increasing oil revenues. Social scientists like Grace

Goodell and Farhad Kazemi presented exhaustive research illustrating the poor results of decades of oil-driven development. “Considering the vast oil wealth,” wrote Kazemi, “the official performance in low-income housing has been abysmal,” as development funds went towards building luxury high-rises rather.16 Goodell noted that in the Dez Region, which Lilienthal’s

KDS had been meant to transform, peasants had been herded into “model villages;” locals were largely landless and worked for agribusinesses in conditions similar to those which had prevailed in the 1940s. “Economic development” had not rationalized life in the countryside, where relationships were “clear and predictable.” Instead, the expanding power of the state, centered on the “shining Mecca of all bureaucracies, the Plan Organization,” had brought “murkiness and uncertainty” to life in the Dez Region.17

16 Farhad Kazemi, Poverty and Revolution in Iran: The Migrant Poor, Urban Marginality and Politics (New York: New York University Press, 1985), 52. 17 Goodell, Elementary Structures of Political Life, 4-5.

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American academics like T. Cuyler Young, James Bill, and Richard Cottam warned that without political reforms and serious measures to correct the widening economic inequality, the

Pahlavi regime would return to its former instability. Yet these warnings were drowned out by the regime’s advocates.18 The shah’s outward strength and support from a powerful coterie of

“Pahlavists” inside the United States, including influential figures like Richard M. Nixon, Henry

Kissinger, David Rockefeller and David C. Lilienthal, encouraged an acceptance of his authoritarianism and discouraged serious attempts to press it to reform.19 The shah grew into a reliable U.S. ally: he maintained Iran’s pro-Western strategic alignment, provided a barrier to

Arab nationalism, maintained ties with Israel (an excellent customer for Iranian oil) and even offered diplomatic support for the U.S. during the Vietnam War. Iran’s economic performance improved, so much so that the U.S. ended all assistance programs in 1967. Before popular demonstrations, triggered in part by spiraling inflation and economic dislocation in 1976, few in the United States felt the days of the Pahlavi monarchy were numbered.

Mahdavī’s prediction, that an oil-soaked Iran would eventually collapse under its own weight, was proven true by the events of the 1978-1979 Islamic Revolution. “The shah handed this nation over to foreigners,” declared Ayatollah Rūh Allāh Khomeinī in 1979, “and we came under the economic, military and cultural domination of America.” Banī Ṣadr, the Republic’s first president, preached “self-sufficiency in food production,” economic independence from the

West and the reduction of oil production. “The word ‘consortium’ will, with Allah’s help, be eliminated from Iran’s oil vocabulary,” one revolutionary official proclaimed. The companies

18 Shannon, “Reading Iran: American Academics and the Last Shah,” 294-295. 19 Claudia Castiglioni, “No Longer a Client, Not Yet a Partner: the US-Iranian Alliance in the Johnson Years,” Cold War History 15, no. 4 (Oct., 2015): 18-19; Bill, The Eagle and the Lion, 319-379.

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would be expropriated, and full control given to NIOC. The economic policies pursued by the shah would be changed to “revolutionary economics” focused on self-sufficiency. It was to be de-integration, writ large.20

But the Islamic Republic could not shake itself free of oil; it remains both a crucial ingredient of Iran’s national economy and a factor in its place in global politics. In the wake of the 2015 nuclear deal between Iran and the international community, increasing oil production took on new significance. “The progress of our oil industry in just a few months,” declared president Hasan Rūhānī, “has surprised the world…The residents of oil-rich regions should profit from this industry by creating employment opportunities and developing education and health care systems.”21 Iran’s status as a major oil producer remains linked to state promises of greater economic opportunity and an equitable society. The local and the global have remained intertwined, an unexpected yet unavoidable consequence of the Pahlavi period. Oil remains a contradictory element in Iran, as it is throughout the world: both a blessing and a curse, a source of freedom and of dependence, of tremendous potential and slow, inevitable environmental degradation; and as Banī Ṣadr noted, both the life-blood of the nation and “a calamity and plague” that afflicts the nation forty-years after the shah’s departure in January 1979.22

20 The Washington Post, “Western Oil Consortium is Cut Loose by Tehran,” March 1, 1979; CIA Intelligence Memo, “Banī Ṣadr’s Foreign Policy Views,” February 5, 1980, CIA Crest Computer [Accessed February 9, 2018]. https://www.cia.gov/library/readingroom/document/cia-rdp81b00401r000500100012-5 21 Al Monitor, “Rouhani Inaugurates Production at New Oil Fields,” November 14, 2016. 22 Banī Ṣadr, Naft va Solteh, 3.

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