by Sir Reader Bullard
The Persian Oil Crisis
Anti-British Demonstration
In the early 1950's Iran was swept by a wave of intense nationalism which, under the Prime Minister, Dr Mohammed Mussadeq, led to the nationalization of the Anglo-Iranian Oil Company and a breach of relations with Great Britain. Dr Mussadeq figured so prominently in the oil crisis that one might suppose it began and ended with him. Certainly, events were dominated by the ruthlessness with which factors involved, in particular the reaction in Asia against domination by the West.

Just as Europeans imposed themselves upon the indigenous populations of the Americas, so in Asia they acquired great influence and in some parts sovereignty. In Persia - as Iran was then called - and the Ottoman Empire (Turkey), though these were independent countries, Europeans acquired a favoured position which was buttressed by a system of judicial and financial privileges, known as capitulations. This system - centuries old in the Middle East - was eventually imposed in the Far East, first on China, and then, in the mid-19th century, upon Japan - by European and American pressure. The Japanese, however, rapidly modernized their country, and by 1899 they were powerful enough to throw off the capitulations; and in 1905 they defeated Russia in a major war.

The Persian Oil Crisis
Anglo-Persian Oil Company
The success of the Japanese excited and encouraged the Middle East, and helped to bring about the revolutions in Persia (1906) and Turkey (1908), which were directed not only against despotism but also against the subservience of the despotic regimes to Western influence. In Persia the pressure came mainly from Russia, which had swallowed up Central Asia, and also parts of the Caucasus which had formerly been Persian; and for about a century Britain gained some credit in Persian eyes for opposing the Russian menace, even though her object was primarily the defence of India. Britain also gained some popularity by favouring the constitutionalists in the revolution of 1906. In 1907, however, the Persians were disappointed and enraged by the signature of an Anglo-Russian agreement dividing Persia into spheres of influence: Russian in the north, British in the south, with a neutral zone between. Britain had been compelled, by the growing German danger, to compose her differences with Russia in regard to Persia (and Tibet and Afghanistan), but nothing would satisfy the Persians but unconditional British support against Russia.

Great Britain steps in

The Persian Oil Crisis
It was just about this time that the oil resources of the Middle East began to be developed. In 1901 the Persian government granted to an Englishman named William D'Arcy a sixty-year oil concession over the whole of Persia except the five northern provinces, on which Russia kept a jealous eye. After much unsuccessful drilling, oil was struck at Masjid-i-Sulaiman, in south-west Persia, in 1908, and work developed rapidly under a group which in 1909 took the name of the Anglo-Persian Oil Company (APOC). The APOC built a refinery at Abadan by arrangement with the semi-autonomous Sheikh of Mohammerah, and ensured security in the oil-fields area by regular payments to the chiefs of the local tribe, the Bakhtiari. These expedients were unavoidable, because the Persian government was powerless in that region, but later on the Persians alleged that they were designed to divide the country and make it easier to exploit.

In 1914 the British government financed the company by the investment of two million pounds, and acquired fifty-one per cent of the shares and two seats on the directorate. This aroused Persian suspicions, though it was a condition of the arrangement that the veto of the two government directors should never be exercised except in questions of the highest policy.

In 1921 Persia came under the control of a remarkable soldier, Colonel Reza Khan, who became Reza Shah in 1925. After establishing order and securing the abolition of the capitulations in 1928 he began to demand a larger share in the profits of the oil industry, the more vigorously when the Depression reduced Persia's revenue from her oil; and in 1932, having failed to secure agreement, he cancelled the concession. In 1933 he granted a new concession, by which Persia secured better financial terms and a reduction of the concession area by three-quarters, to be reduced to a maximum of 100,000 sq. miles by 1938. In return the APOC secured the prolongation of its concession from 1961 to 1993, and a guarantee from the Persian government that they would not annul or alter the concession and that all differences would be referred to arbitration.


In addition, APOC now changed its name to the Anglo-Iranian Oil Company (AIOC). Under the influence of the nationalist revival, Persia was increasingly becoming known in the West as Iran, the name by which the inhabitants had always referred to their country. Iran, which means Aryan, became the official title in 1935 by a decree of the Shah who wished to emphasise the ethnographic differences between his and other Middle Eastern nations. The name Persia, however, remained in common use.

The Persian Oil Crisis
Mussadeq Time Man of Year
In September 1941 British and Russian troops invaded Persia, which was officially neutral. The United States government, traditionally anti-imperialist, not only rejected Reza Shah's appeals for help and advised him to assist the Allies, not Hitler, but also sent 30,000 troops to help convey military aid to Russia across Persian territory. The blow to Persian pride was mitigated to some extent by a treaty between Persia, Britain, and Russia in which the Allies undertook to safeguard Persian rights as far as possible, and British conduct in this respect compared very favourably with that of Russia; but invaders cannot expect to be popular, and Persian resentment may well have been extended to the AIOC as a British concern.

The circumstances of the time favoured the rise to power of a Persian landowner. Dr. Mussadeq (or Mossadegh, or Musaddiq, or Moussadek, or a variety of other spellings). This flamboyant character, whose name means 'one who has been tried and found worthy', had held office as undersecretary of finance in 1916 and as foreign minister in 1922. He had opposed the accession of Reza Shah in 1925, but had later served in various cabinet offices, though he fell into disgrace for a time. He now became a deputy in the Persian parliament (Majlis) in the first elections after the invasion. By this time Reza Shah had abdicated and been succeeded by his son, Mohammed Reza. Freed from the terrifying absolutism of Reza Shah, deputies began to talk freely, and among the most loquacious and violent was Mussadeq. He led a campaign against the AIOC, which he vilified as a bad employer - a charge not supported by an International Labour Organization inquiry in 1950. He preached the simple doctrine that the poverty of Persia was attributable to the AIOC, and could be abolished by nationalization of the oil industry.

Towards the end of the war applications for oil concessions in the south were received from Royal Dutch Shell and two American companies. These applications were going through the normal procedure when the Soviet government sent to Tehran a powerful delegation to ask for a prospecting licence over most of northern Persia and for a concession there if oil should be found. The Persian government, greatly alarmed, pleaded a cabinet decision taken, it was said, some days before, postponing the consideration of all applications for oil concessions until after the war.

The Russians rebuffed

The Soviet government attacked this decision so fiercely, both directly and through the Persian party which it supported, the Tudeh, that the Persian Prime Minister resigned. The Majlis, however, supported the government, and even went further: it passed a law in December 1944 forbidding any negotiations whatsoever about oil concessions. In a subsequent debate Mussadeq dealt neatly with the Soviet argument that the refusal of an oil concession to Russia in the north when the British had one in the south constituted unfair discrimination. The Russians, he said, wanted a positive balance, but what Persia required was a negative balance, i.e. no foreign concessions at all.

To put pressure on Persia the Soviet government disregarded the undertaking given in the treaty of 1942 about the withdrawal of British and Russian troops from Persia not later than six months after the end of the war, and kept forces in north-west Persia for some weeks after the due date, thereby extorting from the Prime Minister, Qavam al Saltaneh, an undertaking to submit to the Majlis within seven months a bill authorizing the grant of an oil concession in northern Persia, to be worked by a company in which Russia would hold fifty-one per cent of the shares for twenty-five years and fifty per cent for the next twenty-five. Qavam skilfully dragged out the elections and the bill was brought in not after seven but after seventeen months, and then it was thrown out with only two dissensions.

The Persian Oil Crisis
AIOC Cartoon
When the war was over, the AIOC entered into negotiations with the Persian government for the revision of the 1933 agreement. This was essential, not only on general grounds but in particular in order to remedy the effect on Persian oil revenue of the devaluation of the pound. The AIOC suggested a 'fifty-fifty' policy (equal division of the net profits before foreign taxation) - a situation which held, for instance, in Venezuela- but negotiations fell through because the government wanted the principle to be applied to AIOC operations everywhere, not only to those in Persia. The AIOC offered a 'supplemental' agreement which they held was far more favourable than 'fifty-fifty' in good years though perhaps not so good in bad periods, but the Persians gave the plan little attention. The AIOC offered to negotiate with the new Prime Minister, General Razmara, on the 'fifty-fifty' basis, but he kept the offer secret, planning to release it at a favourable moment, and the Persian public knew nothing about it, though aware that in January 1951 the Saudi-Arabian government had concluded a 'fifty-fifty' agreement with its concessionaire, the Arabian-American Oil Company (ARAMCO). Razmara never did announce the offer; he was assassinated in March 1951, as was his minister of education shortly afterwards. It was in this atmosphere that the Majlis passed a law nationalizing the oil industry, and that Mussadeq, the leader of the extremists, became Prime Minister.

Mussadeq at first enjoyed wide support, both from nationalists of various kinds and from the crypto-Communist Tudeh, and on two occasions the Majlis gave him full powers for six months. Until mid-1953 he could rely, on the whole, on American support, to a small extent because of American anti-colonialist feelings, but mainly because in the United States he was regarded as the sole barrier against Communism in Persia. The oil revenue diminished to a trickle, and only United States aid kept the Mussadeq regime going.

Emotional to the point of hysteria (he often fainted after a major speech), spoiled by power and adulation, and ignorant of the complexity of oil marketing, Mussadeq refused to submit the dispute to arbitration, as the 1933 agreement required, and rejected four proposals for the settlement of the dispute, all backed by America: one of them was put forward by the International Bank, the last was sponsored by President Truman and by Mr Churchill, who was now again Prime Minister.

The Persian Oil Crisis
Soviet Cartoon
The crisis set off violent anti-British demonstrations, and at Abadan three British subjects were killed. HMS Mauritius appeared off Abadan, and at various times vague military movements supposed to be related to the crisis were reported; but there was no serious expectation that a state which had granted independence to India, Pakistan, and Burma and was beginning to abandon sovereignty over its colonies would use force in this oil dispute.

The Persian Oil Crisis
AIOC Personnel
Mussadeq's naive belief that the Persian government would just take the place of the management of the AIOC and all would go on as before was found to be baseless. No employee of the AIOC would take service under the Persian government; sales of Persian oil abroad sank almost to nothing, partly because of the threat of legal proceedings by the AIOC, partly because of the solidarity of the world oil marketing organizations and the ease with which Persian oil was replaced by oil from other Middle East sources. The closing of the British consulates by Mussadeq and his rupture of diplomatic relations with Great Britain at the end of 1952 served no practical purpose.

Mussadeq's arbitrary methods, and his failure to create the promised paradise with Persia's 'own' oil, caused his right-wing following to fall away, and although he had a landlord's dislike of Communism he had to depend more and more on the Tudeh. He appeared to be aiming at dictatorship. He dismissed the Supreme Court; he compelled the Shah to dissolve the Senate; he dismissed the Majlis in virtue of a so-called referendum; he insisted on being made minister of war, and in this and other ways he seemed to threaten the Shah and his dynasty.

The final blow to Mussadeq's popularity was dealt by the discovery in mid-1953 that he had applied secretly to President Eisenhower for special financial help, and had been told that this would never be approved by the American people so long as Persia made no serious effort to settle the oil dispute.

The Shah now appointed General Zahedi Prime Minister. This was within his rights, only according to the constitution the appointment required the approval of the Majlis. Mussadeq refused to recognize Zahedi as Prime Minister, but having got rid of the Majlis he had deprived himself of the constitutional means of opposing the appointment. He had however some military support, and a state of civil war existed for several days. The result, which seems to have been influenced, by means which are still obscure, by American and British Intelligence Services, was in favour of Zahedi; the Shah, who had left the country, returned; and Mussadeq was tried.

A colourful hearing

The trial was a dramatic one. The Manchester Guardian reported: The ex-Premier, who entered the court in his grey woollen pyjamas and dressing gown, seemed weary as he took his place opposite the chief prosecutor, Brigadier Hossein Azemodeh. But he was far from a passive observer of the Court proceedings. He frequently interrupted, challenging the Court's competence to put him on trial. Once, after a fit of weeping and fist-banging, he pointed at the chief prosecutor and shouted: "This gentleman has come here illegally. You have arrested innocent people illegally." When he began his protest against the jurisdiction of the Court, the President called Dr Musaddiq to order several times on the grounds that he was quoting past history which was irrelevant to the case. The President ruled that he could protest only against the jurisdiction of the Court. "I definitely and categorically state that I do protest against its jurisdiction," replied the ex- Premier. "I protest first against the competence of the prosecutor, who is illiterate."

Brigadier Azemodeh [the prosecutor] pointed out that Dr Musaddiq had appointed him to be head of the Army Judicial Commission - a strange appointment for one considered to be illiterate, the Brigadier remarked. He added: "He's an actor, laughing and crying when he likes."

The Persian Oil Crisis
Mussadeq Trial
The court considered its verdict for seven hours. Though the prosecutor had called for the death sentence, the Shah intervened and asked that a 'not too severe' sentence should be imposed. He said in a letter read in court: 'I forgive Mussadeq because of his services during the first year of his premiership.'

But Dr Mussadeq shouted out: 'I never requested clemency, and will never seek it. I have done nothing wrong. You must give a verdict according to justice.'

Mussadeq was imprisoned for three years, after which he lived in retirement until his death in 1967.

Return to normal

Diplomatic relations between Persia and the United Kingdom were resumed, and an oil consortium was formed which concluded an agreement with the Persian government in October 1954. The shares of the various interests in the consortium were: AIOC (later named British Petroleum), forty per cent; American, forty; French, fourteen; Dutch, six. The Persian government paid the AIOC only £25 million in settlement of all claims and counter-claims, but the AIOC received from its partners in the consortium £210 million-£32 million down, the rest gradually at five cents a barrel. The 'fifty-fifty' principle was the basis of the agreement; the period of the concession was fixed at twenty-five years, with three possible extensions over a diminishing area.

The solution gave satisfaction to Persia, for a while at least, except that since then foreign concessionaires in the Middle East were wary of building refineries there, preferring to carry the crude oil away to be refined in security elsewhere. The British participants in the consortium were in a less invidious position than the AIOC used to be, in that other foreign elements too were included in the consortium. The political position of Britain in regard to Persia did indeed change though: she was no longer responsible for the defence of India, and in any case the integrity of Persia, which was an important element in that defence for a long period, was now dependent on the United States who were happy to usurp Britain's responsibilities in the region; at least until the Shah himself was overthrown!

Empire in the Middle East Maps
1922 Map of Arabian Sea and Persian Gulf
Middle East
1901 - 1909 D'Arcy Concession to Prospect for Oil in Persia
1906 Britain supports Constitutional Revolution in Persia
1907 Anglo-Russian Entente resolves differences over spheres of influence in Persia and in the Persian Gulf
1908 D'Arcy Concession Discovers Oil in Persia
1909 Anglo-Persian Oil Company Founded
1914 British Government obtains 51% share in Anglo-Persian Oil Company
1914 - 1918 Britain Goes to War with Turkey
1919 Anglo-Persian Agreement
1920 Iraq Revolt to Proposed British Mandate of Mesopotamia
1921 Reza Khan Coup d'etat in Persia
1921 Britain Receives Mandate of Iraq
1922 Anglo-Iraqi Treaty
1927 Large quantities of oil discovered in Iraq
1928 Reza Shah Negotiates End to British Capitulations in Persia
1932 Anglo-Iraqi Treaty
1935 Persia Renamed as Iran
1941 British overthrow Iraqi government by force
1941 British and Soviet forces divide and occupy Iran
1942 Battle of El Alamein secures Middle East
1946 Transjordan Becomes Independent
1948 Britain withdraws from Palestine
1951 Nationalisation of Anglo-Iranian Oil Company
1951 British Troops Attacked in Suez Canal Zone
1953Mossadegh Overthrown in Iran
1955Britain joins Baghdad Pact
1956 Suez Crisis
1968 British decide to withdraw militarily from 'East of Suez' and from the Persian Gulf by 1971
Further Reading
Britain and the Middle East from Earliest Times to 1952.
by Reader Bullard

The Camels Must Go: An Autobiography
by Reader Bullard

Britain and the Middle East in the 1930s
by Michael Cohen

The Great War for Civilisation: The Conquest of the Middle East
by Robert Fisk

The House of Saud
by David Holden

This Article Originally Appeared in the History of the 20th Century by Purnell

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