by Yunki Jo | CEO
In 2002, just one year following the 9/11 attacks, the United States branded Iran as a part of the “Axis of Evil,” alongside Iraq and North Korea. The rationale behind then-President Bush’s classification of Iran stemmed from his assertion that “certain elements of Iran are actively working to suppress democracy and obtain weapons of mass destruction.” However, the underlying reasons for Iran’s inclusion in this Axis and its alleged pursuit or possession of weapons of mass destruction can be traced back to the unfair historical context and the struggles for oil dominance dating back to the discovery of oil in Iran in 1908. (It goes without saying that the possession of weapons of mass destruction is unequivocally unjustifiable under international law.)
Over the next two weeks, I will explain why Iran became part of the Axis of Evil, why they have become antagonists who receive no help, sympathy, or empathy from the world while stubbornly opposing the United States. I am curious to know what thoughts readers will have by the end of this narrative.
Setting the Stage for Tragedy: Background to Iran’s Resource Nationalism
In 1901, British mining tycoon William Knox D’Arcy clinched a “60-year petroleum development concession” from the Iranian government. Seven years later, in 1908, he struck gold, discovering extensive oil reserves in southern Iran, leading to the establishment of the Anglo-Persian Oil Company (APOC, now BP) in 1909. APOC heralded the dawn of British petroleum endeavors in the region. Driven by strategic imperatives such as military objectives, the British government assumed majority ownership of APOC in 1913, acquiring 51% of its shares and effectively nationalizing it.
With the discovery of significant oil reserves in 1908, Iran became one of the first countries in the Middle East to awaken to the importance of oil. However, the majority of the profits from oil production went to Britain. The Iranian government, unaware of the true value of oil, sold the “60-year concession” at a low price. The promised benefits amounted to only 16% of the revenue, which was not even properly paid. No Iranian government official could participate in the AIOC (later renamed Anglo-Iranian Oil Company) board meetings, and AIOC didn’t disclose its financial situation to the Iranian government. (In 1948, while AIOC made profits of $320 million and paid only £18.03 million in taxes to the British government, the amount given to Iran as royalties was a mere £9.17 million.)
Despite the abundant resources flowing from Iran’s soil, whenever Iran pressed for equitable distribution, it was met with menacing threats of “employing all military measures.” Additionally, British employees of AIOC enjoyed opulent lifestyles in lavish residences, contrasting starkly with Iranian workers enduring deplorable conditions in communal housing lacking basic amenities like water and electricity, all while receiving a meager wage of merely 50 cents per day. (Exploitation appears to be a hallmark of colonialism.) Naturally, Iranian sentiments toward Britain could only sour.
International Movement — Resource Nationalism
Such actions by oil powers, including Britain, were not unique to Iran. Eventually, movements opposing the tyranny of oil powers emerged, and in 1938, Mexico successfully nationalized its oil industry to break free from exploitation by major oil companies. Subsequently, in 1943, Venezuela, under the domination of one of the Seven Sisters, New Jersey Standard Oil, reached an agreement for a 50:50 profit split to nationalize its oil industry.
Such movements in Latin America were also echoed in oil-rich nations of the Middle East. However, small countries created through colonialism by Britain and France, such as Kuwait, Bahrain, and Qatar, were under British dominance, making it inevitable for them to avoid exploitation of oil powers. Even Saudi Arabia, which ensured security by providing oil to the United States (?), couldn’t escape American influence at the time. (In 1950, Saudi Arabia also agreed to a 50:50 profit split with the Big Five American companies operating ARAMCO at the time.)
American oil majors were able to consent to the 50:50 profit sharing arrangement with oil-producing nations because the US government agreed to alter the revenue distribution model by remitting corporate taxes to Venezuela or Saudi Arabia instead of retaining them domestically. Conversely, the British government, which held sway over Iran’s oil sector and heavily depended on foreign currency earnings from oil, lacked the flexibility to make significant concessions akin to those of the US government.
From Iran’s perspective, which suffered from almost half a century of exploitation by the British government, strong resistance was necessary.
Iran, the emergence of a hero — Mohammad Mossadegh
The resistance in Iran was spearheaded by the nationalist figure Mohammad Mossadegh. Amidst World War II, Iran proclaimed neutrality, yet Britain unlawfully occupied southern Iran to safeguard its oil interests. (Simultaneously, the Soviet Union occupied northern Iran.) It was at this juncture that Mossadegh’s nationalist movement took root.
Mohammad Mossadegh (1882–1967) was born into nobility and obtained a Doctor of Law degree from the University of Lausanne in Switzerland before returning to Iran. He served in several governmental roles, including as a member of the Treasury Committee, Parliamentarian, Minister of Finance, Head of the Audit Office, Minister of Justice, Governor of Pars, Minister of Finance, Governor of Azerbaijan, and Minister of Foreign Affairs. As a prominent politician and nationalist leader in Iran, he spearheaded initiatives such as oil nationalization and modernization.
Opinions on Mossadegh are highly diverse. Some regard him as a champion of democracy who resisted the monarchy’s autocracy to establish a democratic rule, while others perceive him as an authoritarian figure who limited the king’s authority in the pursuit of modernization, effectively establishing a dictatorship. He has also been characterized as an unyielding opportunist or even compared to Iran’s George Washington. Nonetheless, during his time, Mossadegh garnered significant support from the Iranian populace as an Islamic nationalist leader. Despite facing immense pressure, such as the “Anglo-Iranian blockade policy” enforced by dominant powers like the United States and Britain, he was a leader capable of boldly refusing their demands.
In December 1944, under Mossadegh’s leadership, the Iranian parliament amended the law to mandate parliamentary approval for any oil negotiations with foreign nations, including Britain. They declared that the parliament would remain inactive until the withdrawal of the British and Soviet forces, which had unlawfully occupied Iran. Later, after World War II, in December 1947, the Iranian parliament resolved to conduct a thorough review of the unfair treaty with Britain, known as the “60-year petroleum development concession.” Subsequently, in April 1949, the Iranian government entered into a supplementary agreement with AIOC, agreeing to a slight increase in royalties in exchange for negotiations.
Had the supplementary agreement been faithfully executed, Iran might have avoided being branded as part of the “Axis of Evil” sixty years later. Yet, the astute British government, signatory to the supplementary pact, cunningly devalued the pound sterling in September of that year — a maneuver that inflates import costs while deflating export prices — to undermine the marginally elevated royalties stipulated in the agreement. Despite Iran’s plea to safeguard the devalued royalties, the British government declined.
Feeling deceived by Britain’s cunning scheme, Mossadegh pledged oil nationalization during the election campaign and won.
Nationalization of Iran’s Oil Resources
The process of nationalizing AIOC (Anglo-Iranian Oil Company) under Mossadegh’s victory in the election went as follows:
1. In June 1950, Mossadegh proposed oil nationalization in parliament, and the pro-British Prime Minister Ali Razmara took office.
2. In July 1950, Prime Minister Razmara expressed opposition to nationalization.
3. In December 1950, Mossadegh became chairman of the parliamentary oil committee. Britain proposed a 50:50 profit split, but Mossadegh rejected it.
4. In March 1951, Mossadegh’s Islamic forces assassinated Prime Minister Razmara, who was pro-British.
5. On April 28, 1951, the Iranian parliament passed the nationalization of oil resources. Mossadegh became Prime Minister.
This event marked the onset of Iran’s resource nationalism. For Iranians, it resembled a day of liberation, breaking free from British exploitation endured over five decades. Iran did not capriciously seize British assets; while the oil belonged to Iran, the refineries were under British government ownership. Adhering to the nationalization law — which conferred the legal authority to nationalize any company within Iranian borders — Iran committed to offering fair compensation to Britain and sustaining the prior level of oil supply to the British government post-nationalization. Furthermore, Iran vowed to retain the employment of British workers engaged with AIOC.
Despite the highly rational compensation plan proposed by the Iranian government, the overturned British government criticized Mossadegh’s administration for the nationalization of oil. With Iran’s oil nationalization putting a halt to foreign currency earnings, the UK, whose back was against the wall, had to prevent the nationalization of the world’s largest oil refinery located in Abadan, Iran, by any means necessary. However, the British government’s justification for condemning Mossadegh for nationalizing oil, arguing that they had “dirtied themselves” by nationalizing coal and steel industries and thus couldn’t criticize Mossadegh for nationalizing oil for the Iranian people, was very weak.
Between the Cold War and the Hot War
Faced with the threat of losing oil power, Britain attempted to thwart Iran’s oil nationalization. In June 1951, British warships appeared off the Iranian coast in a bid to deploy troops and seize the Abadan refinery. However, the plan was foiled by the United States.
This was because the US opposed Iran’s oil nationalization through statements and implemented measures such as prohibiting US oil companies from purchasing Iranian oil and banning American cooperation with the Iranian government, effectively blocking Iran’s ability to operate its oil industry. Despite all of Britain’s military actions, the US strongly opposed them.
The reason the US opposed Britain’s military actions was that a friendship treaty between Iran and the Soviet Union (which allowed Soviet military intervention in Iran if a foreign army invaded Iran) would have brought Soviet troops into Iran due to Britain’s military actions. Of course, Iran was not only crucial for its oil power, but also because the Middle East, especially Iran, was a strategic hotspot for protecting Western Europe from the Soviet Union. If the Soviets invaded, the US had no choice but war.
However, at the time, the US believed it had little chance of defeating the Soviet Union in outright warfare. They were already engaged in the Korean War, so dividing military forces between two regions was burdensome. The goal was to augment US military power to counter the Soviets, starting in December 1950 and aiming to complete it by the end of 1952. Therefore, until mid-1952, the Chairman of the Joint Chiefs of Staff, Omar Nelson Bradley, sought to avoid a full-scale confrontation with the Soviets.
Hence, while both the United States and Britain sought to protect their oil interests, the United States, entangled in the Cold War with the Soviet Union, needed to prevent Britain, advocating for a Hot War, from inciting a conflict to evade direct confrontation with the Soviets. Consequently, the United States endeavored to mediate between Iran and Britain, seeking to resolve the situation through dialogue.
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Next week, I’ll delve into the conclusion of Iranian resource nationalism and explore the impact of oil power on the Middle East.
Have a great day!
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