Mosaddeq and the intervention of the International Bank

Published in The Middle East in London, Volume 10. Number 1, December 2013-January 2014

Homa Katouzian sheds light on a missed opportunity for averting the oil crisis in Iran some sixty years ago

The 1953 coup and failure of the Popular Movement of Iran (Nehzat-e Melli-ye Iran) were not inevitable. Mosaddeq and many of his colleagues repeatedly emphasised that the primary objective of oil nationalisation was to remove the Anglo-Iranian Oil Company from Iran, thus stopping its influence on domestic politics and achieving political independence which would allow the country to progress along the path of parliamentary democracy. The economic issue of increasing Iran’s oil revenue, though highly important, was second in the minds and public declarations of Mosaddeq and his men.

The Popular Movement would have succeeded if the government had: (1) enforced the law and stamped out plots against it by its right and left opposition; and (2) settled the oil dispute in the best ‘possible’ way.

The two earlier solutions offered by Jackson and Stokes included the establishment of an international purchasing company to act on behalf of the Iranian National Oil Company, something similar to, but better, than the Continuum Oil Agreement which was made after the coup. This was not acceptable because the political aim of the oil nationalisation was to remove a foreign company’s control of Iranian oil. However, the two later solutions offered jointly by Britain and America did not envisage this condition but demanded that compensation include the loss of business to the Company as a result of the cancellation of the remaining forty years of the 1933 concession, to be decided by the arbitration of the International Court of Justice. Iran was prepared to accept the Court’s arbitration but only if it considered  compensation for the loss of the Company’s property, not loss of business due to the cancellation of the concession. Accepting arbitration on the basis of ‘loss of business’ would have been costly, but it would have fulfilled Iran’s principal aim of controlling its own oil, becoming fully independent, and promoting political as well as economic development. The second and last solution offered by America and Britain was presented to the Iranian government in February-March 1953 and, if on that basis, the government had agreed to go to arbitration, the coup, for which preparations were being made, would not have happened.

Long before this, however, in winter 1952, when Mosaddeq had won the argument in the UN Security Council; the Popular Movement had not split; the shah publicly supported the Movement; and Iranian oil had not yet been boycotted; The International Bank for Reconstruction and Development (later the World Bank) came forward with a temporary solution. They offered to act as an intermediary for two years between the Iranian government and the Anglo-Iranian Oil Company and the British government, by taking over oil operations at their own expense, and dividing the net earnings into three parts: a part to be paid to the former company, a part to the Iranian government and a part to be divided by the two parties after they reached a final settlement.

The idea did not appeal to the Conservative government in Britain at the time, which was reluctant to deal with Mosaddeq. They had to consider America’s favourable attitude towards the Bank’s proposal, however, and they accepted it with some reluctance. Mosaddeq was at first highly open to the suggestion and, after some preparatory work, the Bank sent a high level mission to Tehran led by Robert L. Garner, a Vice President at the Bank. The Bank’s representatives had hardly set foot in Tehran when the Tudeh (communist) party led a hysterical press campaign against it, declaring treason and, inter alia, wrote in its Teaching Pamphlet No 12: ‘When … the wheeling and dealing with the International Bank proved our views about Mosaddeq and his demagogic gang, then the mask of the enemies of the people was torn apart and his [sic] treacherous face was seen by all.’ The Tudeh’s real concern was anti-American struggle in support of the Soviet Union during the cold war, which they repeated decades later during the hostage-taking of American diplomats in Iran.

The government nevertheless entered into negotiations with the Bank representatives. There were some queries about the Persian Gulf price of $1.75, and the 58 cent ‘discount for the major buyer’ (i.e. Britain). A more important difficulty was that Iran was reluctant to let the Bank employ any British technicians in its operations, but this too was not something which would have stopped the agreement.

The agreement did not succeed merely because Iran suggested that in its preamble they would write  that the Bank was acting ‘For and on behalf of the Iranian government’, which would contravene the Bank’s neutrality and would never be acceptable to Britain. It was on this petty legal wrangle that the whole scheme collapsed and the Bank delegation left Iran. But just before they left, Senators Mohammad Soruri and Abolqasem Najm al-Molk – both of them government supporters, Soruri becoming President of the Supreme Court a few months later – pleaded with Mosaddeq to accept the Bank’s intervention. Mosaddeq told them that he was personally in favour, but if he accepted it (without inserting the words ‘for and on behalf of Iran’), the people of Iran would accuse him of treason.

This was the greatest missed opportunity in the whole of the Anglo-Iranian oil dispute; it would have been tantamount to a ceasefire declaration. Oil production would have resumed and there would have been plenty of time to resolve the dispute in a peaceful atmosphere, which is likely to have been more favourable to Iran than any of the solutions later offered by Britain and America.

The failure of the Bank’s intervention led to the international boycott of Iranian oil, leaving Iran with no choice but to resort to the policy of non-oil economics. This they managed fairly well by taking appropriate, if unpopular, measures. But it could only last for a short period because the country was poor, foreign exchange scarce, the cost of running the oil industry with hardly any oil income high, and no hope for economic development. When, a year and a half after the failure of the Bank’s intervention, Mosaddeq decided to close the seventeenth Majlis by referendum, at least one of his motives was that he feared the discovery by the Majlis that he had secretly printed money to help relieve the economy in the face of the oil boycott. The measure had been sensible but would not have been necessary had the Bank’s mission not failed, resulting in the oil boycott.

Homa Katouzian is a member of the Faculty of Oriental Studies in University of Oxford and Editor of Iranian Studies. He has written extensively on Iranian history, society, economics and politics, and is winner of the SINA prize for contributions to Humanities, 2013. His latest book – Iran: Politics, History and Literature – was published by Routledge in 2013.

Pull-out Quote1: Accepting arbitration would have been costly, but it would have fulfilled Iran’s principal aim of controlling its own oil, and becoming fully independent

Pull-out Quote 2: Mosaddeq told the two Senators that he was personally in favour of the intervention, but if he accepted it (without inserting ‘for and on behalf of Iran’), people would accuse him of treason.

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