Carroll Quigley - Tragedy and Hope - A History of the World in Our Time

In this division within Iran, control of the situation gradually moved from the older elite to the newer nationalist groups for a variety of reasons. The years of the world depression, the financial crisis, and the Second World War greatly intensified all the objectionable features of the AIOC system and, at the same time, seemed to show that no new agreement with the company could remedy these objections. Such a new agreement had been made in 1933, but the situation became worse (from the Iranian nationalist point of view). Accordingly, when the government in 1950 tried to obtain a new supplemental agreement, nationalist feeling rose quickly against it and demanded complete nationalization of the oil business instead. In June 1950, the shah put in as prime minister his man. General Ali Razmara, formerly chief of the General Staff, to force through the supplemental agreement. Opposing groups introduced nationalization bills in opposition to the government.

Gradually the nationalization forces began to coalesce about a strange figure, Dr. Muhammad Mossadegh of an old, wealthy, landed family which had served the Qajar dynasty as ministers of finance since the eighteenth century. Mossadegh was a Westernizer with an earned doctorate in economics from a Swiss university, a man of great personal courage and few personal ambitions or desires, who was convinced that national independence could be established and the obvious corruption of Iranian political life eliminated only by the recovery of Iranian control of its own economic life by nationalization of AIOC. Politically he was a moderate, but his strong emotional appeal to Iranian nationalism encouraged extremist reactions among his followers.

Long and fruitless discussions between AIOC and the Iranian government, with constant interference by the British government led to stalemate. The company insisted that its status was based on a contractual agreement which could not be modified without its consent, while the British government maintained that the agreement was a matter of international public law, like a treaty, which it had a right to enforce. The Iranian government declared that it had the right as a sovereign state to nationalize an Iranian corporation operating under its law on its territory, subject only to adequate compensation and assumption of its contractual obligations.

The Iranian nationalist arguments against the company were numerous and detailed:

1. It had promised to train Iranians for all positions possible, but instead had used these only in menial tasks, trained few natives, and employed many foreigners.

2. It had reduced its payments to Iran, which were based on its profits, by reducing the amount of its profits by bookkeeping tricks. For example, it sold oil at very low prices to wholly owned subsidiaries outside Iran or to the British Navy, allowing the former to resell at world prices so that AIOC made small profits, while the subsidiaries made very large profits not subject to Iranian royalty obligations. Iran believed that the profits of such wholly owned subsidiaries were really part of AIOC and should fall under the consolidated balance sheet of AIOC and thus make payments to Iran, but as late as 1950 AIOC admitted that the accounts of 59 such dummy corporations were not included in the AIOC accounts.

3. AIOC generally refused to pay Iranian taxes, especially income tax, but paid such taxes to Britain; at the same time, it calculated the Iranian profit royalties after such taxes, so that the higher British taxes went, the less the Iranian payment became. In effect, thus, Iran paid income tax to Britain. In 1933 AIOC paid £ 305,418 in British taxation and £ 274,412 in Iranian taxes; in 1948 the two figures were £ 28,310,353 and £ 1,369,328.

4. The payment to Iran was also reduced by putting profits into reserves or into company investments outside Iran, often in subsidiaries,

and calculating the Iranian share only on the profits distributed as dividends. Thus in 1947, when profits were really £ 40.5 million, almost £ 14.9 million went to British income tax, £ 11.5 million went to reserves, over £ 7.1 million went to stockholders (of which £ 3.3 million to the British government), and only £ 7.1 million to Iran. If the payment to Iran had been calculated before taxes and reserves, it would have been at least £ 6 million more that year.

5. Moreover, AIOC was exempt from Iranian customs tariffs on goods necessary to its operation brought into the country. Since it considered everything it brought in, whatever it was, to be necessary, it deprived Iran of about £ 6 million a year by this.

6. The company paid only a very small portion of the social costs of its opertions in Persia, drawing many persons to arid and uninhabited portions of the country and then providing very little of the costs of housing, education, or health.

7. The AIOC, as a member of the international petroleum cartel, reduced its oil production in Iran and thus reduced Iran’s royalties.

8. The AIOC continued to calculate its payments to Iran in gold at £ 8.10 s per ounce for years after the world gold price had risen to £ 13 an ounce, while the American corporation, Aramco, in Saudi Arabia raised its gold price on demand.

9. The AIOC’s monopoly on oil export from Iran prevented development of other Iranian oil fields in areas outside the AIOC concession.

As a consequence of all these activities, the Iranian nationalists of 1952 felt angered to think that Iran had given up 300 million tons of oil over fifty years and received £ 105 million, while Britain had invested only £ 20 million and obtained about £ 800 million in profits.

The Iranian opposition to nationalization was broken in March 1951, when the prime minister, Ali Razmara, and his minister of education were assassinated within a space of two weeks. The nationalization law was passed the following month and, at the same time, at the request of the Majlis, the shah appointed Mossadegh prime minister to carry it out. This was done with considerable turmoil, which included strikes by AIOC workers against mistimed British wage cuts, anti-British street riots, and the arrival of British gunboats at the head of the Persian Gulf. Rather than give up the enterprise or operate it for the Iranian government, AIOC began to curtail operations and ship home its engineers. On May 25, 1951, it appealed to the International Court of Justice in spite of Iranian protests that the case was a domestic one, not international. Only on July 22, 1952, did the court’s decision uphold Iran’s contention by refusing jurisdiction.

At first the United States, and especially its ambassador in Tehran, supported the Iranian position. It feared that British recalcitrance would drive Iran toward Russia, and was especially alarmed at the possibility of any landing of British forces, since this would allow the Soviet Union to invade the North Iranian provinces as provided in the Soviet-Iran Treaty of 1921. However, it soon became evident that the Soviet Union, while supporting Iran’s position, was not going to interfere. The American position then became increasingly pro-British and anti-Mossadegh. This was intensified by the shift in administration from Truman to Eisenhower early in 1953, and by the pressures on the American government by the international petroleum cartel. At the same time, the American oil companies, which had briefly hoped that they might replace AIOC in the Persian area, decided that their united front with AIOC in the world cartel was more valuable to them.

This world oil cartel had developed from a tripartite agreement signed on September 17, 1928 by Royal Dutch-Shell, Anglo-Iranian, and Standard Oil. The three signers were Sir Henri Deterding of Shell, Sir John (later Lord) Cadman of AIOC, and Walter C. Teagle of Esso. These agreed to manage oil prices on the world market by charging an agreed fixed price plus freight costs, and to store surplus oil which might weaken the fixed price level. By 1949 the cartel had as members the seven greatest oil companies of the world (Anglo-Iranian, Royal Dutch-Shell, Esso, Calso, Socony-Vacuum, Gulf, and Texaco). Excluding the United States domestic market, the Soviet Union, and Mexico, it controlled 92 percent of the world’s reserves of oil, 88 percent of the world’s production, 77 percent of the world’s refining capacity, and 70 percent of the world’s tonnage in ocean tankers.