Economic Sovereignty in Iran vis-à-vis the Soviet Union, 1921-1946 by Mary Yoshinari A thesis submitted in conformity with the requirements for the degree of Doctor of Philosophy Graduate Department of History University of Toronto © Copyright by Mary Yoshinari (2018) Economic Sovereignty in Iran vis-à-vis the Soviet Union, 1921-1946 Mary Ann Hiloko Yoshinari Doctor of Philosophy Graduate Department of History University of Toronto 2018 Abstract My dissertation analyzes Iran’s national economy vis-à-vis the Soviet Union and global conditions. In Chapter I, I elucidate the importance of legislation enacted by the Iranian Parliament in preparation for studies of the country’s economy and subsequent measures for the establishment of state economic institutions during the second half of the 1920s. At the same time, I discuss ongoing trade relations with the Soviet Union and their impact on Iran’s economy. In Chapter II, I link the formation of domestic monopolies and other enterprises with state banking institutions and corporations. Moreover, I show how fundamental shifts in trade relations with the Soviet Union had shaped these developments in the early 1930s. In Chapter III, I demonstrate that changes in the Iranian government’s political landscape and the further capitalization of national banks resulted in the expansion of industrialization from 1934 onwards, as well as the fusion of the trade monopoly system with the corporations, and the increasing centralization of domestic capital. Finally, in Chapter IV, I explain how the foreign occupation of Iran, including that of the USSR, had been preceded by the consolidation of state institutions, and then led to increasing cooperation between disparate Iranian statesmen in an effort to regain autonomy over the country’s economic affairs in 1941-46. Conversely, there were a promising signs of regeneration during this tumultuous period, particularly with regard to Iranian industry and the monopoly system, which were both indicative of future developments in the postwar period. ii Acknowledgements I am indebted to Professor Mohamad Tavakoli-Targhi, my Dissertation Supervisor, as well as my other Committee Members, Professor Jennifer Jenkins and Professor Thomas Lahusen. Likewise, I would like to express my sincere appreciation to my External Examiners, Professor Hadi Salehi Esfahani at the University of Illinois at Urbana-Champaign, and Professor James Reilly and Professor Lynne Viola at the University of Toronto. Also, my special thanks to the Late Professor Amir Hassanpour and Professor Victor Ostapchuk in the University of Toronto’s Department of Near and Middle Eastern Civilizations, as well as Askari Husain, Hormoz Khakpour, Lari Langford, Anne-Marie Crotty, Lyle Davis, Dylan Ryske, and other staff at Robarts Library. Moreover, I am extremely grateful to Dr. Ali Tatari at the Library, Museum and Document Center of the Iranian Parliament, Mr. Mahmoud Esmaeilnia at the Center for Documents and the History of Diplomacy of the Ministry of Foreign Affairs of Iran, and Ms. Hoorieh Saeidi at the National Library and Archives of Iran, as well as the Russian State Archives of the Economy, and Socio- Political History, and the State Archive of the Russian Federation. My doctoral research has been funded by the Social Sciences and Humanities Research Council of Canada, as well as the Department of History and the School of Graduate Studies at the University of Toronto. iii Table of Contents Abstract ........................................................................................................................................... ii Acknowledgements ........................................................................................................................ iii Introduction: Summary of the Argument and Historiography .........................................................1 Chapter I: Organization, Preparation, and Legislation, 1920s .......................................................22 Chapter II: Monopolization, Commercialization, and Financialization, 1920s-30s ......................65 Chapter III: Industrialization, Corporatization, and Centralization, 1930s .................................107 Chapter IV: Consolidation, Cooperation, and Regeneration, 1940s ............................................149 Conclusion: Reflections on Iran’s National Economy, 1921-46 .................................................191 Selected Primary Sources ............................................................................................................196 Bibliography ................................................................................................................................197 iv 1 Introduction This dissertation analyzes the establishment of Iran’s national economy from 1921 to 1946, which spanned the challenging, yet opportune, years of the interwar period and the Second World War. Most notably, it demonstrates that such economic development, particularly of Iran’s foreign trade monopoly and state corporations, was shaped in many ways by interactions with the Soviet Union. This corporate-monopoly system that arose in this period was also concrete evidence of the Iranian government’s increasing centralization of political power, economic resources, and domestic capital, as well as a broadening of the state’s partnerships with trusted economic actors, including local merchants and other entrepreneurs from the Chambers of Commerce. Moreover, the Iranian government looked increasingly outward for new export markets and sources of imports for its growing industries during the interwar period. The dissertation argues that these advances were largely driven by a small group of Iranian statesmen, especially Reza Shah Pahlavi, but also by those in his inner circle: Abdolhossein Teymurtash, and ʿAli Akbar Davar, who rose to prominence in the second half of the 1920s—in tandem with the Iranian Parliament (Majlis). As shown in the following study, the structure proved durable. Even without these drivers of modernization, Iran’s economic infrastructure remained more or less intact during the early 1940s and the Second World War. The last chapter of the dissertation shows how it withstood the pressures of the Allied occupation while being expanded by these same forces. Likewise, its institutional apparatus was gradually revived during and after the war thanks to the coordinated efforts of disparate Iranian politicians, such as Ahmad Qavam, Mohammad Saʿid, Abolhassan Ebtehaj, Hossein ʿAlaʾ, and Mohammad Mossadegh. Summary of the Argument As illustrated in Chapter I, “Organization, Preparation, and Legislation,” the relationship with the Soviet Union was fundamentally important to Iran’s economic development from the start. The 1921 Friendship Treaty with the Soviets set the wheels into motion for the emergence of Iran’s national economy. Nonetheless, the necessary political consensus for development did not coalesce within the Iranian government until late 1924, when the Economics Commission was formed. Prior to its formation, discord had hampered the conclusion of a commercial agreement with the Soviet government, and the scramble to exploit the northern oil concession had proven to be a pipe-dream. Unlike these false starts, important legislation ratified by the Majlis in 1925 marked the beginning of tangible developments, just as the American overhaul of Iran’s taxation 2 and financial systems was nearing completion. Important state structures and projects emerged. Most significantly, the Tea, Lump Sugar, and Sugar Monopoly was established in May 1925 to finance the Trans-Iranian Railway, arguably the country’s most important industrial project. Moreover, Reza Khan’s influence on Iran’s economy, already evident in his role as Prime Minister, was intensified by his rise to monarchical power later in the year. However, state power was not limited to the person of Reza Shah. Equally crucial was the appointment of his loyal supporter Davar as Minister of Public Works, who prepared the groundwork for the Railway’s construction. Having been convinced of its potential to mobilize the country’s agricultural resources in service to the expansion of foreign trade, industry, and domestic commerce—the north-south railway line was overwhelmingly approved by the Majlis in February 1927. As argued in Chapter I, during this initial phase, Iran’s economy was largely dependent on its complex trade relationship with the Soviet Union, frequently entailing a battle of wits and wills between the two countries. In the absence of a formal agreement, Iranian merchants traded more or less freely at the annual Nizhny Novgorod and Baku fairs from 1922 onwards. Compared to other Eastern countries, Iran dominated these fairs, shifting the balance of trade with the USSR in its favor. However, in 1926, the Soviet government sought to reverse this trend by imposing restrictions on Iranian exports, and securing an advantageous Commercial Agreement in October 1927. Correspondingly, the Iranian government ventured to raise customs rates on imports, including those from the USSR, and a complex dynamic emerged. Just as the Soviet government prepared for a massive industrialization drive by increasing its foreign exchange reserves, the Iranian government started to restrict gold and silver exports in advance of the Bank-i Melli’s founding in 1927. Along with this cornerstone of Iran’s economy, the future establishment of the Agricultural Bank and an iron-smelting factory were to be financed