Iran 1953: when the CIA launched a coup against the secular, democratic government of Iran working in the interests of global companies

Takeaways

- Global corporations have relations with one another that affect their relations with individual states. In this case, they could boycott Iranian oil putting financial and psychological pressure on Iranian leadership.

- Britain was able to use its close relations with its global corporations to resist postwar American dominance.

- Covert action can operate in surprising ways. In this instance, it meant working with religious extremists against a democratically elected secular government.

Transnational corporations can work together in many ways. This can be seen by the relations between the largest American and British oil companies from the 1930s to the 1950s. The role of the oil majors is comparable to that Bull advocated for great powers. They respected each other’s spheres of influence, most clearly in the Red Line agreement, but also in the market share agreements of As Is. The reverse side was that they unilaterally exploited their local preponderance based on established marketing positions to keep out smaller players, or to integrate them into local cartel arrangements not at variance with the general rules. Also, they managed their relations to preserve a general balance of power by allowing greater American participation in Middle East oil. Furthermore, they tried to avoid crises in their relations, for instance, through establishing diplomatic contacts and legal provisions to generate consensus around expectations. Moreover, if wars occurred they were limited by the desire to limit or contain them. The agreements they reached in the 1920s developed through the 1930s until they were affected by the events of World War II (1939–1945) but less than one might assume. This is because the management of oil supply was sub-contracted to the companies who used their privileged position to minimise disruption to the pre-war agreements. What we see in the Iranian nationalisation crisis is the formation of a great power condominium where joint action is taken against a perceived threat to all of them.[1]

There is a link between the joint action of the companies and the psychological dimensions of foreign policy during crisis. The corporate joint action secured Anglo-Iranian’s market position and made them reluctant to offer concessions. At the same time, from the perspective of American policymakers the dire economic effects of the boycott seemed to presage a communist takeover and the British would use this bogey to involve the Americans in a coup. The boycott also affected Musaddiq’s responses. In his mind the boycott was organised by the same imperialist power which penetrated the political system. To allow the company back would be to invite political slavery. Hence the return of the company was non — negotiable and the only issue to be decided was the compensation package.

Even when the Western states finally agreed to the exclusion of the company, he began to insist on a negotiated compensation package rather than international arbitration, since he feared that he would be removed by the British and the Iranian cause would not be properly represented. His failure to agree eventually alienated the Americans and they together with the British jointly executed a coup to remove him from office. Taking account of the dangers of hindsight and self-justification, his Memoirs are an important source as his psychological inflexibility was a major factor in the crisis.[2]

Musaddiq nationalised the Anglo-Iranian Oil Company to secure better terms for his country. He had calculated that if the 1933 concession were cancelled, the concession agreement contained clauses which would lead to international arbitration which Iran might well lose. However, nationalisation was an act of sovereign immunity recognised in public international law. He, therefore, proposed nationalisation with compensation.[3] The passage of the Nationalisation Law by the Iranian parliament, the Majlis and Senate, and ratified by the Shah set up mechanisms for the implementation of nationalisation. The British Government responded by instituting proceedings before the International Court of Justice (ICJ) at the Hague.

On 29 May Musaddiq met British Ambassador Shepherd and the American Ambassador Grady. He wished them to understand that the nationalisation could not be legally challenged as it was the act of a sovereign nation. This essentially political point was central. What his guests saw was his apparent economic delusion. He seemed to think that it would be possible to sell oil directly to countries, without any marketing organisation; that specialist British technicians could be easily replaced by Iranians; and that financial losses caused by the shutting down of production could be borne by Iran.[4] But Iran was making attempts to attract new technicians and markets. For instance, 2,500 American technicians working for Lee Factors, Inc. were interested in going to Iran, but nothing came of the plan.[5]

It was later agreed that the British Government would conduct the negotiations with Iran guided by a Working Party. “In London, Government officials and Company representatives joined in the Working Party.”[6] Even in Washington the company had some influence. Burrows, the Counsellor in Washington had formerly been the Head of Middle East Section in the Eastern Department of the Foreign Office. A senior director at the company commented, “naturally we have seen a lot of him in that capacity. He has worked very hard to help us to solve some of our difficult problems in that part of the world.”[7]

A mission led by another senior director, Basil Jackson, was sent to Iran. He indicated that the nationalisation would be acceptable provided that the company would continue to manage the operations. At this point his views coincided with those of the Foreign Office and State Department.[8] His American connections may have been useful as in mid-May representatives of the American majors informed the State Department of their depth of opposition to the Iranian nationalisation and ‘concession-jumping’. “Following their representations, on 18 May the State Department issued an official statement opposing the unilateral cancellation of contractual relationships.”[9] On the 5 July, the ICJ upheld the British request for interim measures.[10]

The Iranians rejected the Jackson mission as it did not accept nationalisation. The Americans still thought that negotiation was possible and offered the ‘Harriman formula’. Through this the British would accept the nationalisation as defined in the law of 20 March 1951 — “all operations for exploration, extraction and exploitation shall be in the hands of the Government.”[11] United States special envoy, Averall Harriman, landed in Tehran on 15 July and was met by anti-western crowds. He realised that Musaddiq blamed the British and had little interest in discussion.[12]

However, Musaddiq was not regarded as the only major personality impeding a solution; a variety of individuals including the permanent secretary at the British Ministry of Fuel and Power and President Truman’s special envoy to Iran, Averell Harriman, wanted the removal of Fraser.[13] Hostility to Fraser continued through the year. Referring to the view held by sections of both the United Kingdom and United States Governments that either Musaddiq or Fraser would have to be replaced for a settlement to be reached, Bamberg informs us that, “for a time it was by no means a foregone conclusion that Fraser would not be the first to go.”[14]

Herbert Morrison, the British Foreign Secretary decided that there should not be any compromise on three issues — the purchasing company should be British, it should be owned by Anglo-Iranian and controlled from London, and Iran should not receive more than fifty per cent of the profits.[15] The proposals were designed so that control of Iranian production would remain in the hands of Anglo-Iranian.[16] Meanwhile, the British Government informed the Shah that unless Musaddiq was replaced economic measures to hurt Iran would be implemented.[17] The State Department did not object to Britain taking such measures.[18] On 10 September the British introduced measures which blocked sterling balances held by Iranians and the export to Iran of scarce commodities.[19] The United States decided to refuse a loan from the Export Import Bank on the basis that the Iranians could not service the loan, and Musaddiq accused the Americans of applying sanctions.[20]

Musaddiq announced that the British staff must leave Iran by October 4.[21] The staff left the office.[22] The British decided that this order involved a breach of the interim ruling of the International Court of Justice and brought the matter before the Security Council. The Council agreed to take up the issue immediately but the Iranian Ambassador to the UN achieved a ten day delay during which time Musaddiq could come to the United States to defend the Iranian action himself.[23] While in the United States, George McGhee, Assistant Secretary of State for Near Eastern, South Asian and African affairs had eighty hours of talks with Musaddiq.[24] They agreed that Anglo-Iranian would acquire oil under a long-term contract on a cost-plus basis and the Iranians could not sell the oil where it might prejudice Anglo-Iranian sales. The terms were similar to many of the contractual joint ventures already developed by the companies themselves in the Middle East. In the Working Party meeting on 6 November, the company again slowed down the pace of American-inspired concessions to Musaddiq. His basic objection was put plainly:

Other Mossadeqs would arise and what would be left of the fabric of the oil industry to which the Americans professed to attach so much importance if the Mossadeqs were to be allowed to get their way and kick their Concessionaire Companies out…[25]

The British refusal to accept the United States brokered deal demonstrates how the United States could not impose its will on the ‘weaker’ British poweer contradicting the over-generalised accounts of American postwar dominance. The Americans felt that Musaddiq remained the only alternative to communism. In August, they suggested that Anglo-American joint proposals should be made and their terms were conciliatory. “It was an indication of the lengths to which the Americans were prepared to go to reach agreement with Musaddiq that these proposals were, to all intents and purposes, the same as Musaddiq had put on 25 July.”[26] Churchill pushed for altered terms and a text was agreed on 26 August. In these joint Truman-Churchill proposals, the Iranians would have control over their industry and would enjoy a long term sale of oil contract with Anglo-Iranian. Compensation would be settled by international arbitration. Musaddiq responded to the proposals by insisting that compensation would only be paid for the value of the company’s physical assets, and the arbitral tribunal would also examine counter-claims from British prevention of sales of Iranian oil.[27]

The Americans now proposed to advance one hundred million dollars rather than the ten millions in the Truman-Churchill proposals, and in December Musaddiq agreed that compensation could be settled on the basis of any English law of nationalisation. The British accepted that the sale of oil contract would be with a consortium, not just Anglo-Iranian.[28] Musaddiq preferred an American company with the possibility of some British participation. He “would not grant the tremendous power to AIOC over the economic life of Iran which would be possessed by the company if it had long-term contractual rights to buy the bulk of Iran’s oil production.”[29]

The UK Coal Nationalisation Act was discussed in connection with the issue of compensation. For the Anglo-Iranian wanted compensation to include loss of future profits. Therefore, they insisted on a claim for “property, rights and interests.” Dean Acheson, the American Secretary of State, tried to alter the wording to “losses sustained” as this might make it easier to put across in Tehran, but the ambiguity might cause the Tribunal setting compensation some difficulty and, therefore, the wording was not changed.[30] The proposed arbitration by the International Court of Justice would be based upon any English law nationalising any industry in the United Kingdom specificed by the company.[31] Anglo-Iranian were unwilling not to have an international settlement, because an Iranian agreement could in future be repudiated as a dictatorial imposition.[32] However, Musaddiq refused to countenance unlimited compensation and the State Department were sympathetic.

A formula was agreed with the British under which the International Court of Justice would set the amount which Iran would pay, but the maximum cash payments were a quarter of the proceeds from oil sales for twenty years, after which any remaining balance would be paid in free oil.[33] These proposals were put to Musaddiq on 20 February but he remained sceptical of the International Court. His reasoning was that the I.C.J. had already denied the British claim for compulsory jurisdiction, so why should he accept the jurisdiction of the court voluntarily? Iran had been successful in the Hague since its case had been properly defended. Once it had voluntarily accepted jurisdiction, the British “could use its facilities to overthrow the government [sic]and replace it with another which would not genuinely defend Iran’s case.”[34]

As Musaddiq continued to stall in the negotiations the American became increasingly concerned about the threat of an economically impoverished Iran turning to the Soviet Union and in the event, the Central Intelligence Agency (CIA) worked with religious hardliners to remove this democratic, secular government. They worked with Ayatollah Kashani, the mentor of Ayatollah Khomeini. In the study of President Eisenhower’s foreign policy there has been an assumption that Secretary of State John Foster Dulles was the prime mover, but this view became untenable after the presidential papers were made available for public inspection. In particular, it became clear that Eisenhower asserted his leadership during foreign policy crises. However, even this revisionist view has given way to what may be termed ‘Eisenhower postrevisionism’.[35] Given his military background it is perhaps not surprising that such management often involved the threat or use of military power. For instance, during the first few months of 1953 he thought aloud about the use of atomic weapons against the North Koreans and the Chinese. “These twelfth hour schemes seem to be evidence of an almost subconscious desire by Eisenhower for one final try for an easy solution to the Korean deadlock.”[36]

In both the case of the Korean War and the tension with China, Eisenhower has been credited with making peace. The same assessment holds for the Suez crisis of 1956 when Eisenhower rather than Dulles controlled the policy and opposed the British, French, and Israeli invasion of Egypt. But his objective was containment of the Soviet Union rather than satisfaction of Egyptian aspirations. Eisenhower consistently confused Third World nationalism with communism. Failing to distinguish between them he backed authoritarian regimes suppressing desire for change.[37] Eisenhower was the driving force for the coup which overturned democratically elected Jacobo Arbenz Guzman of Guatemala in 1954. Covert actions became used more routinely.[38] The CIA coup against Musaddiq was no aberration of United States foreign policy in the Eisenhower administration. Musaddiq did not understand the nature of this anti-communism. He continued to argue that, “if the British government [sic] had not enjoyed the assistance of the internal opposition there would not have been a coup d’etat, and, for fear of a Soviet oil deal with Iran, western governments [sic] would eventually have had to buy Iranian oil.”[39]

What was the role of the company in the coup? Operation Boot was promoted by Colonel Monty Woodhouse to the CIA. Together MI6 and the CIA organised the coup against Mussadiq.[40] Colonel Woodhouse argued that the coup was necessary to prevent a communist takeover. He recalls that: “When we knew what the prejudices of our collaborators were, we played all the more on these prejudices.”[41] Commenting on the role of the CIA, Allen Dulles argued that Musaddiq originally concealed “creating a Communist state.” But after his true intention became clearer “support from outside was given to loyal anti-Communist elements…to the Shah’s supporters.”[42] Something should here be said about allegations of the direct role of Anglo-Iranian in the coup. In the original edition of Counter Coup, Kermit Roosevelt had stated that Anglo-Iranian were involved, yet after this edition was withdrawn following protests from British Petroleum, the second edition did not repeat the account. While Bamberg concedes that individual employees of the company might have been involved, “possibly marginally”, this does not reflect on the company.[43]

[1]Hedley Bull, The Anarchical Society: A Study of Order in World Politics (New York: Columbia University Press, 1977), 207.

[2]Dr Muhammad Musaddiq, Musaddiq’s Memoirs: The End of the British Empire in Iran, trans. Homa Katouzian (London: Jebhe, 1988). [‘Musaddiq’ is sometimes transliterated ‘Mossadegh’.] Jim Bamberg also suggests that Musaddiq’s inflexibility was the main factor in the failure of the negotiations. Jim Bamberg, The History of the British Petroleum Company, vol. 2, The Anglo-Iranian Years, 1928–1954, (Cambridge: Cambridge University Press, 1994), 489.

[3]BP 101116, Tehran/London Inward Cable 8386, E.G.D. Northcroft to L.C.Rice, 21 February 1951.

[4]Jim Bamberg, History of British Petroleum, 422.

[5]BP 112232, Sir Oliver Franks to Foreign Office, 12 July 1951.

[6]Jim Bamberg, History of British Petroleum, 417.

[7]BP 8658, Gass to Heath Eves, 2 January 1950.

[8]BP 100557, Foreign Office to Tehran, 16 June 1951.

[9]Bamberg, History of British Petroleum, 420.

[10]BP 116916 for detailed records of the application.

[11]BP 66232, Persian Constitutional Background Affecting Oil Negotiations, Oil Nationalisation Law of 20 March 1951, Appendix C.

[12]BP 112232, Shepherd to Foreign Office, 16 July 1951; BP 112232, Shepherd to Foreign Office, 17 July 1951.

[13]Jim Bamberg, History of the British Petroleum Company, 451–452.

[14]Ibid., 460.

[15]BP 100387, Foreign Office to Tehran, 13 August 1951.

[16]BP 100387, Stokes to London, telegram 1085, 12 August 1951.

[17]BP 100387, Foreign Office to Shepherd, 30 August 1951.

[18]BP 100652, Morrison to Foreign Office, 11 September 1951.

[19]BP 100652, London to Rangoon, 10 September 1951.

[20]BP 100652, Washington to London, 12 September 1951.

[21]BP 100652, Shepherd to Foreign Office, 25 September 1951; BP 43859, Northcroft diary, 26 September 1951.

[22]BP 101108, Inward Telegram, Green to Jessop, 2 October 1951.

[23]Benjamin Shwadran, The Middle East, Oil and the Great Powers, 104.

[24] George C. McGhee, “Recollections of Dr Muhammed Musaddiq” in Musaddiq, Iranian Nationalism and Oil ed. James A.Bill and William Roger Louis (London: I.B. Tauris, 1988), 296.

[25]Jim Bamberg, History of British Petroleum, 464.

[26]Jim Bamberg, History of British Petroleum, 474.

[27]BP 46596, Tehran to London, 17 September 1952.

[28]BP 100570, Henderson to State Department, 6 January 1953; London to Washington, 14 January 1953.

[29]BP 100570, Henderson to State Department reporting a conversation with Musaddiq on 2 January 1953.

[30]BP 101911, Minutes of Persia Official Committee meeting on 13 January 1953.

[31]BP 59256, Persian Oil: Outline of Settlement with Musaddiq, 9 January 1953.

[32] BP 101911, Minutes of Persia Official Committee meeting on 30 January 1953.

[33] BP 100570, London to Washington, 18 February 1953.

[34] Musaddiq, Memoirs, 368, 322–5.

[35]Stephen G. Rabe, “Eisenhower Revisionism: A Decade of Scholarship,” 17.1 Diplomatic History (Winter 1993): 114.

[36]Edward C. Keefer, “President Dwight D. Eisenhower and the End of the Korean War,” Diplomatic History 10 (Summer 1986): 277.

[37]McMahon, “Eisenhower and Third World Nationalism: A Critique of the Revisionists,” Political Science Quarterly 15 (Summer 1985): 457.

[38]B. Rubin, Paved With Good Intentions: The American Experience and Iran (Oxford: Oxford University Press, 1980), 55–56. Stephen G. Rabe, “Eisenhower and the Overthrow of Rafael Trujilo,” Conflict Quarterly 6 (Winter 1986): 33–44.

[39]Musaddiq, Memoirs, 291.

[40]M. Gasiriowski, “The 1953 Coup d’Etat in Iran,” International Journal of Middle East Studies 19 (August 1987): 261–286; C.M. Woodhouse, Something Ventured (London, Grenada, 1982); Kermit Roosevelt, Countercoup: The Struggle for Control of Iran (New York: McGraw-Hill, 1979); Richard Crockatt, The Fifty Years War: The United States and the Soviet Union in World Politics, 1941–1991 (London: Routledge, 1995), 176–178.

[41]Robert Fisk, “With Sten guns and sovereigns Britain and US saved Iran’s throne for the Shah,” The Times, Saturday 15 March 1997.

[42] Allen Dulles, “The Role of Intelligence in the Cold War” in The Invisible Government ed. David Wise and Thomas B.Ross, 110–113.

[43]BP 112228, Jim Bamberg to Mustafa Elm, 20 August 1992. Elm had referred to Geoffrey Keating who was Anglo-Iranian’s public relations manager. M. Elm, Oil, Power, and Principle: Iran’s Oil Nationalization and Its Aftermath (Syracuse, NY: Syracuse University Press, 1992), 171–172. Keating’s efforts had also been noted by the United States embassy. L.W. Qaimmaqami, “The Catalyst of Nationalization: Max Thornburg and the Failure of Private Sector Developmentalism in Iran, 1947–1951,” Diplomatic History 19.1 (Winter 1995): footnote 79.