the us and mossadegh 1951 19531

8/12/2019 The Us and Mossadegh 1951 19531

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2222 David Painter Case 332, Part A, Instructor Copy

The Iranian nationalization also threatened thekey elements of U.S. foreign oil policy: an activistrole in maintaining the stability and Western orien-tation of the Middle East, opposition to economicnationalism, and public support for the private oper-ations of the major oil companies. During World WarII, the vital role of oil in modern warfare and eco-

nomic life coupled with a growing realization thatthe nations historic self-sufficiency in oil could sooncome to an end convinced leading public and pri-vate decision-makers that the United States musthave extraterritorial petroleum reserves to guardagainst the day when our steadily increasingdemand can no longer be met by our domestic sup-ply. After statist and liberal approaches wererejected because of strong political and ideologicalopposition to state involvement in corporate affairsand deep divisions within the U.S. oil industry, theUnited States turned to the major oil companies toprotect and promote the national interest in foreign

sources of petroleum. The result was a symbioticrelationship between the U.S. government and themajor oil companies based on parallel interests inprotecting and expanding control of world oilreserves by U.S. private companies, thwarting eco-nomic nationalism, and containing the SovietUnion.5

The State Department warned that the UnitedStates could not ignore the impact of a successfulnationalization in Iran on its oil interests in the Mid-dle East, Latin America, and the Far East. Any out-come in Iran that provided greater benefits for Iran

than those received by other producing countrieswould lead to demands for equal treatment, thuscreating a pattern of most favored nationdemands. Although nationalization was an unlikelyprospect in most of the Middle East because of alack of technical capacity, the Iranian nationalizationhad the potential to undermine private control ofthe world oil industry. A statement of the U.S. posi-tion, issued after talks with the leading U.S. oil com-panies, strongly opposed any unilateral cancellationof clear contractual relationships, and warned thatelimination of AIOC would deprive Iran of not onlytechnical knowledge and capital, but also the trans-

portation and marketing facilities essential for effi-cient operation. Moreover, the U.S. companies thatpossessed these capabilities had indicated . . . thatthey would not in the face of unilateral action byIran against the British company be willing to under-take operations in that country.6

Political ties as well as economic interests in-clined the United States to support the British. Closecooperation with Great Britain was a cornerstone ofU.S. foreign policy, especially in the Middle East,

which was considered an area of British political andmilitary responsibility. President Harry S. Trumanlater noted in a letter to former Ambassador HenryR. Grady: We had Israel, Egypt, Near East defense,Sudan, South Africa, Tunisia, the NATO treaties allon the fire. Britain and the Commonwealth nationswere and are absolutely essential if these things are

successful. Then on top of it all we have Korea andIndochina. Iran was only one incident.7

The United States was also well aware of theimportance of Iranian oil to the British economy.AIOCs holdings in Iran were Britains largest singleoverseas investment, and the companys operationin Iran provided Britain with more than $400 milliona year in badly needed dollar exchange. Loss ofthese dollars threatened Britain with serious balanceof payments difficulties. In addition to losing theseearnings, Britain would be forced to develop alter-ative sources of oil, particularly refined products,and the large capital outlays required would exacer-

bate the trade and payments effects of the loss ofIranian oil.8

On the other hand, some top U.S. officials ex-pressed little sympathy for the British position. Pres-ident Truman felt that Britain had dealt ineptly anddisastrously with the whole matter, and that thehead of AIOC looked like a typical nineteenth-cen-tury colonial exploiter. Secretary of State DeanAcheson later wrote that never had so few lost somuch so stupidly and so fast. More importantly,however, the United States feared that British effortsto reverse nationalization could lead to the loss of

Iran to the Soviets. A shutdown of oil operations anda boycott of Iranian oil could easily lead to economiccollapse and a communist coup; armed interventionby the British in the oil areas of southern Iran couldlead to similar action by the Soviets in the north,possibly at Irans request.9

Given these concerns, the NSC recommended onMarch 14 that the United States urge Britain toeffect an early and equitable settlement of the oildispute before the situation in Iran deteriorated toa point where a communist takeover was a possibil-ity. In conversations with the British, U.S. officialspointed out that nationalization had overwhelming

popular support in Iran and that at least a veneerof nationalization would have to be accepted toreach a settlement. Moreover, the United Statesbelieved that the shah and responsible govern-ment officials in Iran would try to reach an equita-ble settlement. An unyielding attitude on the part ofthe British, on the other hand, could create opportu-nities for the communists. Acheson warned Britishambassador Sir Oliver Franks that if Britain took ahard line against the Iranian nationalist movement,


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Case 332, Part A, Instructor Copy United States, Great Britain, and Mossadegh 3333

one risks its immediately being captured by theU.S.S.R.10

Brit ain versus Iran

The British were in no mood to compromise. Theyviewed the Iranian action as a unilateral cancellation

of clear contractual rights, which jeopardized otheroverseas investments, not only those held by Britishand U.S. oil companies in the Middle East, butinvestments all over the world. While Iranian oil wasimportant to Britain, it was not as important as allthe rest of Britains foreign oil interests. The Britishbelieved that it would be disastrous for their generalposition overseas if foreign governments came tthe conclusion that they could unilaterally repudiatecontracts with British companies, seize Britishassets, and pay only as much compensation as theythemselves decided. The British also argued thatnationalization would have a serious impact on their

economy and affect their rearmament plans. Finally,the British maintained that nationalization wouldinflict grave harm on the Iranian oil industry, and ifIran were to drift into economic chaos as a result ofthe loss of oil revenues, only the communists wouldbenefit. In view of these considerations, the Britishpreferred to stand firm on their rights until the Irani-ans came to their senses.11

The situation in Iran also rekindled U.S. concernsover the position of the shah. Since coming to thethrone in 1941, the young shah had worked hard toconvince the United States that he was the best

guarantor of Western interests in Iran. The crisisresulting from nationalization intensified this ten-dency to identify the shah and the institution of themonarchy with Iranian independence and internalstability.12

Soon after nationalization, U.S. policymakersbegan developing plans to bolster the position of theshah and other pro-Western Iranians in order to pro-mote internal stability and maintain Irans align-ment with the free world. These plans includedaccelerated and expanded military, economic, andtechnical assistance, and covert financial and otherassistance to pro-Western and anticommunist ele-

ments in Iran. The Central Intelligence Agency (CIA)had been carrying out a variety of covert activities inIran since the late 1940s. Initially focused on coun-tering Soviet influence in Iran, these activities alsoprovided a means for influencing Irans internalaffairs. Central to these efforts was a propagandaand political action program code named BEDAMN,run through a network headed by two Iranians andfunded at around $1 million a year.13

In late April, Mohammad Mossadegh, the main

force behind nationalization, became prime minis-ter. A European-educated lawyer and wealthy land-owner who had been active in Iranian politics sincethe turn of the century, Mossadegh had become thepublic and symbolic leader of Iranian nationalism.

The core of Mossadeghs support lay among intellec-tuals and young professionals, but by 1951 he had

won widespread public support. A liberal democratas well as an ardent nationalist, Mossadegh wasdetermined not only to end British control of Iransoil industry, and with it British interference in Ira-nian internal affairs, but also to recapture the goal ofthe constitutional revolution of 1906 and to assertthe primacy of the Majlis over the monarch. More-over, as Richard Cottam has noted, nationalistic Ira-nians believed that the imperialists . . . wanted toperpetuate an Iran dominated by the traditionalclass that would welcome imperial protection fortheir vested position and would agree in return toprotect the economic vested interests of Western

capitalism.14

As Iran moved to assert its control over AIOCproperties in southern Iran, the British submittedthe dispute to the International Court of Justice in

The Hague. The British also moved troops to basesin the Middle East and dispatched additional war-ships to the Persian Gulf. These moves promptedSecretary of State Acheson to warn London that theUnited States would support the use of military forceonly on invitation of the Iranian government, or inthe event of Soviet military intervention or a com-munist coup d'tat, or to rescue British nationals in

danger of attack.

15

With Britain and Iran on the brink of war, theNSC recommended that the United States bring itsinfluence to bear in an effort to effect an early settle-ment of the oil controversy between Iran and theUnited Kingdom, making clear both our recognitionof the rights of sovereign states to control their natu-ral resources and the importance we attach to inter-national contractual relationships. In an effort tomediate the dispute, President Truman dispatchedveteran statesman W. Averell Harriman to Iran to tryto find a basis for a settlement.16

The Harr iman Mission

Harriman arrived in Iran in mid-July accompaniedby oil expert Walter Levy and interpreter VernonWalters, a career army officer whose linguistic abili-ties would take him on many similar silent mis-sions in the future. Harriman and Levy informedthe Iranians that, nationalization notwithstanding,they could not expect to obtain a financial returngreater than that of other countries under compara-


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ble conditions. Irans oil industry had to be run onan efficient basis, and efficient operation, theyinsisted, could only be accomplished through a for-eign-owned operating company with freedom inday-to-day management. Moreover, whatever formthe final settlement took, the operating companywould have to receive the equivalent of 50 percent

of the net receipts.17Harriman also met with the shah and raised the

possibility of replacing Mossadegh. The shah and hisadvisers, however, explained that this option waspolitically impossible because the country was sol-idly behind Mossadegh on the oil issue. No one butMossadegh could obtain popular approval for a set-tlement with Britain, and even Mossadegh could notmake a deal that did not meet the requirements ofthe nationalization law.18

Although Harriman was able to get the Iraniansand the British to resume negotiations, a settlementproved impossible. The British were reluctant to

relinquish control of Irans oil and proposed anarrangement whereby AIOC would continue to runthe oil industry through a management contract.Mossadegh, whose concerns were more politicalthan economic, argued that the British proposalwould leave control of Irans major industry in for-eign hands and thus provide the British with boththe motivation and the means to continue to inter-fere in Irans internal affairs. In particular, Mos-sadegh was concerned about the use of AIOC as acover for British intelligence operatives. Thereforethe Iranians insisted that British oil technicians had

to be under the control of the newly createdNational Iranian Oil Company (NIOC) and thatAIOCs role be limited to handling exports to Brit-ain.19

Harriman criticized the Iranian demands as con-trary to well-known commercial methods of theinternational supply and distribution of oil. If Iranwanted to sell its oil, it would have to make arrange-ments with the large companies that controlled thenecessary transportation, distribution, and market-ing facilities. AIOC was the only company in theposition to market large quantities of Iranian oilwithout disrupting markets, so Iran would have to

deal with it. Harriman also pointed out that Irancould not expect to receive higher prices for its oilthan other producing countries because the oil com-panies could buy or produce oil elsewhere. Finally,Harriman charged that the Iranian position on com-pensation was untenable. The United States, henoted, held that seizure by any government of for-eign-owned properties without effective compensa-tion or working out new arrangements mutually

satisfactory to former owner and government, is notnationalization, but confiscation. Since Iran had nofunds to pay adequate and prompt compensation, itwas obliged to work out arrangements satisfactoryto AIOC. Negotiations were suspended on August22, and the British delegation returned home thefollowing day.20

Incr easing Tensions

The British had negotiated under pressure from theUnited States. A strong current of thought in the For-eign Office held that it was useless to negotiate withMossadegh, and that efforts should focus on replac-ing him. Foreign Secretary Herbert Morrison agreed,and in June dispatched C.M. Woodhouse, a seniorBritish intelligence officer, and Robin Zaehner, anacademic expert on Iran who had served there dur-ing World War II, to Iran with instructions to orga-nize Mossadeghs demise. The British intelligence

network in Iran included senior army and policeofficers, Majlis deputies and senators, religious lead-ers, merchants, newspaper editors, elder statesmen,and mob leaders. In addition, the British could counton the support of a number of tribal leaders in thesouth. The British were also in close contact with theshah through his Swiss tutor and had informationconcerning Mossadeghs plans through an Iranianagent who attended the weekly Council of Ministermeetings held in the prime ministers home.21

Although Harriman urged the British to let thesituation simmer, until economic conditions con-

vinced Mossadegh to compromise, the Britishstepped up their efforts to topple Mossadegh. Underpressure from the Conservatives and facing elec-tions in October, the Labour government, inresponse to Mossadeghs demand that AIOCs Brit-ish employees leave Iran if negotiations were notresumed, announced that oil negotiations were nolonger in suspense but broken off. In addition, theBritish dispatched four destroyers to the Persian Gulfto join the ten warships already stationed there; sus-pended financial and trading privileges previouslyaccorded Iran by the Bank of England, denying Iranvirtually all of its dollar exchange; and revoked

export licenses for scarce commodities destined forIran, including those for cargoes en route. Adding tothe pressure on Iran, AIOC withdrew its personnelfrom the oil fields and announced that it would insti-tute legal proceedings against any and all purchasersof stolen Iranian oil.22

Suspecting that these actions were designed toencourage the shah and the Majlis to replace himwith Sayyid Zia, a conservative politician and long-


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time British ally, Mossadegh charged that the Britishwere trying to overthrow him and sent troops tooccupy the Abadan refinery complex and expel allremaining British employees of AIOC. Although aBritish strike force was poised to seize Abadanisland, the certainty of an adverse U.S. reaction gavLondon pause. Instead of defending Abadan by

force, as previously pledged, the British withdrewtheir personnel and appealed to the UnitedNations.23

Renewed Search for a Sett lement

The expulsion of AIOC from Iran forced the UnitedStates to reexamine its policy. The major U.S. oilcompanies recommended backing the British. Meet-ing with Acheson on October 10, the top executivesof Standard Oil (New Jersey), Standard Oil of New

York, Gulf, Standard Oil of California, and the TexasCompany argued that giving Iran better terms than

those received by other producing countries wouldthreaten the international oil industry. In their opin-ion, losing Iran to the Soviets would be preferable tothe instability that successful nationalization wouldcreate. The situation transcended the oil industrywhat was at stake was the sanctity of contractualrelations upon which all U.S. investment abroaddepended. Acheson, however, countered that theU.S. government also had to keep in mind the stra-tegic and political consequences that would flowfrom the loss of Iran.24

The U.S. military argued that maintaining Irans

orientation to the West was more important thanbacking AIOC. In a report to the NSC on October 18,the Joint Chiefs of Staff (JCS) warned that Soviet con-trol of Iran would mean immediate loss of Iranianoil and eventual loss of all Middle East oil, whichwould greatly increase the Wests deficiency in oilresources. Loss of Iran would also outflank Turkeyand thus provide the Soviets with a springboard forthe domination of the entire Middle East and East-ern Mediterranean. Whereas the JCS in August hadfelt that U.S. objectives in Iran could be attainedwithout serious prejudice to British interests, theynow felt that strictly from the United States military

point of view, Irans orientation towards the UnitedStates in peacetime and maintenance of the Britishposition in the Middle East now transcend in impor-tance the desirability of supporting British oil inter-ests in Iran.25

The State Department, however, countered thatthe cooperation of the international oil industry wasessential for the efficient operation of Irans oilindustry and, hence, for Irans prosperity and stabil-

ity. Moreover, a settlement in Iran that underminedU.S. concessions and investments elsewhere in theworld was no more in the U.S. national interest thanin the British. Thus while the primary objective ofU.S. policy was maintenance of Iran as an indepen-dent country aligned with the free world, thedepartment argued that the United States should not

support a settlement that had the effect of injuringseriously the fabric of the world oil industry, whichis so vital to the whole free world.26

Taking advantage of Mossadeghs presence in theUnited States to argue Irans case before the UnitedNations, the State Department renewed its efforts tonegotiate a settlement with Iran. Two weeks of dis-cussions produced a plan whereby Iran would turnover the massive refinery complex at Abadan to aneutral foreign company while retaining control ofthe oil fields and other facilities. No agreement wasreached, however, on compensation or on the priceat which Iran would sell its oil. The U.S. position on

price was that Iran could not receive a higher pricefor its oil than other producing countries in the Mid-dle East, even though after nationalization Iranowned its own production facilities. In any event,the British refused to resume negotiations27

The British remained firm in their conviction thatit would be impossible to reach a satisfactory agree-ment with Mossadegh. Moreover, elections in lateOctober returned the Conservatives to power. Thedecline in British power and prestige had been amajor issue in the campaign, and Winston Churchillconfided to Truman in early January 1952 that had

he been in office there might have been a sputterof musquetry, but [Britain] would not have beenkicked out of Iran. Aside from wounded pride, theConservative position followed the same reasoningthat had underlain the Labour governments policyand was based on the importance of overseasinvestments to Britains economic survival. In thisview, Irans nationalization of AIOC threatened tundermine the last vestige of confidence in Britishpower and, hence, in its whole overseas position. IfBritain acquiesced in Irans action by cooperating inthe transfer of control to Iran, all of Britains over-seas holdings would be in jeopardy. Iran simply

could not receive better terms than countries thatkept their contracts.28

Acheson felt that British policy was depressinglyout of touch with the world of 1951, and explainedto the British that while the United States was willingto let existing circumstances operate to Mossadeghsdetriment, it would not let matters go so far as tothreaten seriously Irans orientation toward theWest. Acheson agreed that it was probable that no


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settlement could be reached with Mossadegh, butargued that negotiations would serve to demon-strate that there were alternatives to Mossadeghspolicies and would strengthen the shah.29

The fundamental objective of U.S. policy was toprevent the loss of Iran to the free world. Thuswhile the United States wanted a settlement of the

oil controversy that would meet legitimate Britishinterests, if such a settlement was not possible, itwould consider other means of preventing a trag-edy which would do incalculable damage to theentire West. With these goals in mind, the UnitedStates continued to provide aid to Iran, though onlyenough to prevent collapse and not so much asunduly to relieve the pressure on the Iranian gov-ernment to reach a settlement. U.S. aid to Iran,which amounted to only $1.6 million in 1951,increased to $23.4 million in 1952. Most of the aidwas Point IV (technical) and military assistance.30

While urging the British to negotiate, the United

States, in early 1952, gave Britain an additional$300 million in financial assistance to help cover thedollar costs of replacing Iranian oil. In addition, theUnited States, through the Petroleum Administra-tion for Defense (PAD), helped cushion the impact ofthe cutoff of Iranian exports by working out arrange-ments under which U.S. oil companies could coop-erate with AIOC to replace Iranian oil. Explained asbeing necessary to meet the oil needs of the non-communist world during the Korean War emer-gency, the arrangements also made it possible forAIOC, in cooperation with Shell and the major U.S.

oil companies, to protect the markets formerly sup-plied by AIOC against encroachments by outsiderand independents. AIOC was able to maintain sup-plies to its established customers by increasing itsproduction in Iraq and Kuwait and by procuring sup-plemental supplies from other oil companiesAlthough AIOCs profits before taxes fell sharplybetween 1950 and 1952, net profits declined onlyslightly as a result of much lower British incometaxes; dividend payments were maintained at the1951 level.31

After an effort by the World Bank to negotiate asettlement ground to a halt in early 1952, the United

States, believing a settlement with Mossadeghunlikely in the short term, concentrated its effortson finding a long-term solution. The U.S. Ambassa-dor to Iran, Loy W. Henderson, redoubled his effortsto convince the shah to exercise his prerogative asmonarch and replace Mossadegh with someonemore reasonable on the oil issue. Working throughHussein Ala, the shahs British-educated and West-ern-oriented minister of court, Henderson argued

that as long as Mossadegh remained in power therewas little chance of resolving the oil dispute andthat, in the absence of an oil settlement, the situa-tion in Iran would continue to deteriorate economi-cally and politically.32

In addition, the United States initiated discus-sions with the British aimed at having proposals

ready to present to a new government, or to Mos-sadegh should his attitude change. By early July, theBritish had agreed to the establishment of a multina-tional consortium, with British participation, to runthe Iranian oil industry, in principle under contractto the NIOC but with full managerial control. TheBritish also agreed in principle to U.S. plans forinterim assistance to a new government provided itgave satisfactory evidence of determination to reacha settlement on the oil issue.33

THE JULY CRISIS AND ITS AFTERMATH

Mossadegh gained a narrow majority in the Majliselected in early 1952, thus consolidating his posi-tion somewhat. Meanwhile, the British began look-ing to veteran statesman Qavam Saltaneh, who wasalso in contact with the U.S. embassy, as a replace-ment for Mossadegh. While talks with Qavam werstill in progress, Mossadegh unexpectedly resignedon July 17 after the shah refused to designate himminister of defense as well as prime minister. Theshah, with Majlis approval, then appointed Qavamprime minister. The National Front countered by

organizing massive demonstrations calling for Mos-sadeghs return. The sudden turn of events, whichcoincided with the overthrow of King Farouk inEgypt, caught both the United States and Britain bysurprise. Qavam immediately asked for, and waspromised, U.S. assistance. Before U.S. aid couldarrive, however, Qavam was forced from office afterthe shah refused to grant him extraordinary powersto deal with the demonstrations protesting hisreplacement of Mossadegh. On July 22, the shahreappointed Mossadegh prime minister with greatlyincreased powers.34

The United States tried to salvage something

from the unfavorable turn of events by offering Iranan emergency grant of $10 million (out of the $26million that had been approved for aid to Qavam).

The aid was conditioned on Irans acceptance ofinternational arbitration of the compensation issue

The British opposed the planwhich also called forAIOC to buy some of the oil Iran had in storagearguing that Mossadegh was no longer a bulwarkagainst communism. Only a coup, the British


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Department to begin a grand jury investigation ofthe major international oil companies. Utilizing adetailed report by the staff of the Federal TradeCommission entitled The International PetroleumCartel, the Justice Department charged that themajor oil companies controlled the world oil indus-try through a series of agreements to divide mar-

kets, fix prices, control production, and monopolizreserves. A special grand jury was convened to lookinto the matter.41

Antitrust considerations represented a real obsta-cle to any plans involving the major oil companiesand efforts to find a way around them seemed traise more problems than they solved. Neverthe-less, Acheson insisted that the majors would have tobe involved because only they could move Iranianoil in volume. Likewise, AIOC would have to get thelions share of the oil because it had the transporta-tion and marketing facilities to handle the largequantities involved; unless AIOC was taken care of,

the British government would not agree to a settle-ment and lift its blockade of Iranian oil; and if anyU.S. company tried to sell Iranian oil in markets pre-viously regarded as belonging to AIOC, the Britishwould take reprisals and Anglo-American relationswould be damaged.42

Despite these difficulties, the NSC approved anew statement of U.S. policy in late November.

1. It is of critical importance to the United Statesthat Iran remain an independent and sover-eign nation, not dominated by the USSR.

Because of its key strategic position, its petro-leum resources, its vulnerability to interventionor armed attack by the USSR, and its vulnera-bility to political subversion, Iran must beregarded as a continuing objective of Sovietexpansion. The loss of Iran by default or bySoviet intervention would:

a. Be a major threat to the security of the entireMiddle East, including Pakistan and India.

b. Permit communist denial to the free world ofaccess to Iranian oil and seriously threaten the

loss of other Middle Eastern oil.

c. Increase the Soviet Unions capability tthreaten important United States-United King-dom lines of communication.

d. Damage United States prestige in nearby coun-tries and, with the exception of Turkey andpossibly Pakistan, seriously weaken, if not

destroy, their will to resist communist pres-sures.

e. Set off a series of military, political and eco-nomic developments, the consequences ofwhich would seriously endanger the securityinterests of the United States.

2. Present trends in Iran are unfavorable to themaintenance of control by a noncommunistregime for an extended period of time. Inwresting the political initiative from the shah,the landlords, and other traditional holders ofpower, the National Front politicians now inpower have at least temporarily eliminatedevery alternative to their own rule except thecommunist Tudeh party. However, the abilityof the National Front to maintain control of thesituation indefinitely is uncertain. The political

upheaval which brought the nationalists topower has heightened popular desire for prom-ised economic and social betterment and hasincreased social unrest. At the same time,nationalist failure to restore the oil industry tooperation has led to near-exhaustion of thegovernments financial reserves and to deficitfinancing to meet current expenses, and islikely to produce a progressive deterioration ofthe economy at large.

3. It is now estimated that communist forces will

probably not gain control of the Iranian gov-ernment during 1953. [See NIE-75, ProbableDevelopments in Iran through 1953, pub-lished November 13, 1952.] Nevertheless, theIranian situation contains very great elementsof instability. Any U.S. policy regarding Iranmust accordingly take into account the dangerthat the communists might be enabled to gainthe ascendancy as a result of such possibledevelopments as a struggle for power withinthe National Front, more effective communistinfiltration of the government than nowappears probable, government failure to main-

tain the security forces and to take effectiveaction against communist activity, or a majorcrop failure. It is clear that the United Kingdomno longer possesses the capability unilaterallyto assure stability in the area. If present trendscontinue unchecked, Iran could be effectivelylost to the free world in advance of an actualcommunist takeover of the Iranian govern-ment. Failure to arrest present trends in Iran


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involves a serious risk to the national securityof the United States.

4. For the reasons outlined above, the majorUnited States policy objective with respect toIran is to prevent the country from comingunder communist control. The United States

should, therefore, be prepared to pursue thepolicies which would be most effective inaccomplishing this objective. In light of thepresent situation, the United States shouldadopt and pursue the following policies:

a. Continue to assist in every practicable way toeffect an early and equitable liquidation of theoil controversy.

b. Be prepared to take the necessary measure thelp Iran to start up her oil industry and tosecure markets for her oil so that Iran ma

benefit from substantial oil revenues.

c. Be prepared to provide prompt United Statesbudgetary aid to Iran if, pending restoration ofher oil industry and oil markets, such aid isnecessary to halt a serious deterioration of thefinancial and political situation in Iran.

In carrying out a, b, and c above, the UnitedStates should:

(1) Maintain full consultation with the United

Kingdom.

(2) Avoid unnecessarily sacrificing legitimateUnited Kingdom interests or unnecessarilyimpairing United States-United Kingdom rela-tions.

(3) Not permit the United Kingdom to veto anyUnited States actions which the United Statesconsiders essential to the achievement of thepolicy objectives set forth above.

(4) Be prepared to avail itself of the authority of

the president to approve voluntary agree-ments and programs under Section 708 (a)and (b) of the Defense Production Act of 1950,as amended.

d. Recognize the strength of Iranian nationalistfeeling; try to direct it into constructive chan-nels and be ready to exploit any opportunity todo so, bearing in mind the desirability of

strengthening in Iran the ability and desire ofthe Iranian people to resist communist pres-sure.

e. Continue present programs of military, eco-nomic and technical assistance to the extentthey will help to restore stability and increase

internal security, and be prepared to increasesuch assistance to support Iranian resistance tocommunist pressure.

f. Encourage the adoption by the Iranian govern-ment of necessary financial, judicial andadministrative and other reforms.

g. [portion deleted].

h. Plan now for the eventual inclusion of Iran inany regional defense arrangement which maybe developed in the Middle East if such inclu-

sion should later prove feasible. . . .43

Before going to the oil companies, Acheson metwith British Foreign Secretary Anthony Eden in New

York, and told Eden that a new and in all probabil-ity . . . determinative crisis was about to occur. TheUnited States feared the imminent loss of Iran andplanned to take action to prevent it. The British,however, still insisted that the compensation issuehad to be settled to their satisfaction before negotia-tions on purchasing Iranian oil could begin. Achesonpointed out that while the United States hoped that

a solution acceptable to Britain could be found, itwould not remain idle while the Iranian problemdrifts into a steadily worse situation. . . . In the lastanalysis, the U.S. government may have no alter-ative but to move forward in a manner bestdesigned in its opinion to save Iran. To spur theBritish along, the State Department announced inearly December that it no longer objected to U.S.companies purchasing oil from Iran.44

The British were pursuing a different track.Shortly after the British expulsion from Iran, C.M.Woodhouse traveled to Washington to enlist theUnited States in plans to oust Mossadegh. Not wish-

ing to be accused of using the United States to pullBritish chestnuts out of the fire, Woodhouse de-cided to emphasize the communist threat to Iranrather than the need to recover control of the oil in-dustry. Woodhouse claimed that it was plain be-yond doubt that there was no hope of a reasonablesettlement with Mossadegh, and that the longer heheld office the more probable it became that Iranwould pass under Soviet control. Even if a settle-


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ment of the oil dispute could be negotiated withMossadegh, which Woodhouse felt was highly doubt-ful, Mossadegh was still incapable of resisting a coupby the Communist-controlled Tudeh party, if it werebacked by Soviet support. Therefore, Mossadegh hadto go. While Woodhouse was in Washington, Britishintelligence intercepted Kermit Roosevelt, head of

CIA operations in the Middle East, who was passingthrough London on his way back to Washington, andput to him much the same argument.45

These arguments fell on receptive ears at the CIA,where Deputy Director Allen Dulles and Rooseveltwere already inclined to view the situation in Iran inEast-West terms. Roosevelt was eager to act, butDulles, while sympathetic, was concerned that Presi-dent Truman and Secretary of State Acheson mightoppose such action. Therefore, he recommendedkeeping the plans secret until after the newly electedRepublican administration of Dwight Eisenhowertook office. Dulles was slated to become director of

central intelligence, and his older brother, John Fos-ter, had been named as President-elect Eisen-howers choice for secretary of state. In addition, theState Department was in the midst of puttingtogether another settlement package and wanted togive it a chance before moving against Mossadegh.Further meetings were held in early December, buta final decision was postponed until after thechange in administration.46

THE SITUATION IN JANUARY 1953

In a January 6 report to the NSC opposing the JusticeDepartments antitrust suit against the major U.S.oil companies, the departments of state, defense,and interior outlined the Security and Interna-tional Issues Arising from the Current Situation inPetroleum.

2. Oil is vital to the United States and the rest ofthe free world both in peace and war. Thecomplex industrial economies of the Westernworld are absolutely dependent upon a con-tinuing abundance of this essential source ofenergy. And expanding economies, whether

modern and progressive, or backward andunderdeveloped, require ever-increasing quan-tities of petroleum.

3. No other nation relies upon petroleum to suchan extent as the United States. Petroleum andnatural gas supply roughly 50 percent of thevast amount of the total energy consumed in

the United States; our vital transportation sys-tem is far more heavily dependent upon oil.National consumption of petroleum is at a rateof more than 7 million barrels per day. This isover 60 percent of current world demand. By1955, United States consumption is expectedto rise to 9 million barrels per day, and by

1975, to 13.7 million barrels per day. Untilrecently the United States supplied its ownrequirements from its own indigenousresources. But this could not continue indefi-nitely. Proved crude oil reserves in the UnitedStates are now less than one-third of theworlds total. In 1948, because of the tremen-dous increase in demand, the United Statesbecame a net importer of oil. Assuming thecontinuing high level of domestic explorationand development by a vigorous and healthyUnited States petroleum industry, it is esti-mated that by 1975 the United States will be

using 2.5 million barrels daily more than itproduces and this difference will have to bedrawn from foreign sources. Without a vigor-ous and expanding domestic oil industry, theavailability of foreign oil would be even morecritical.

4. The free world is currently increasing its use ofpetroleum at an even greater relative rate thanthe United States. Since World War II foreigndemand for petroleum in the free world has in-creased at a rate of about 14 percent annually,compared with an increase of about 7 to 8 per-

cent a year in the United States. In total termsforeign demand for petroleum has doubledsince the end of World War II. The recoveryand development of the free world at its cur-rent vigorous rate would be impossible withoutpetroleum in ever increasing quantities. Al-though future increases in foreign demand arnot expected to continue at the high postwarrates, they are nevertheless estimated atroughly double the rate of increase of demandin the United States. By 1975 demand fromfree European nations alone is estimated at4.0 million barrels per day. With production ofonly about 0.3 million barrels per day,Europes deficit to be supplied from non-Euro-pean and non-United States sources willamount to 3.7 million barrels daily.

5. The total import requirements of the UnitedStates and Europe combined thus are esti-mated at 6.2 million barrels per day by 1975.


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6. In war, petroleum is absolutely vital. It is indis-pensable to every military operation. In WorldWar II, 60 percent of the total tonnage whichthe United States moved overseas consisted ofpetroleum and petroleum products. The petro-leum which remained at home and went todefense-supporting civilian activities was no

less essential to the successful prosecution ofthe war.

7. With the increase in demand that will occurunder war conditions, the successful conductof a major war by the United States and itsallies will be dependent upon continuing avail-ability of foreign petroleum supplies. Due tothe continually expanding world demand, themore extensive use of oil-powered militaryequipment, and the use of heavier oil consum-ing equipment, such as jet aircraft, the fartherin the future such a war occurs, the more criti-

cal is access to foreign petroleum. Majorsources of foreign oil are now indispensable tothe economy of Europe and in the future maybecome indispensable even to the peacetimeeconomy of the United States.

8. There are only two known areas which cansupply the import requirements for petroleumin the other countries of the free world. Theseare the Middle East and the Caribbean area,largely Venezuela.

9. The greatest known petroleum reserves in theworld are those of the Middle East. They arenow conservatively estimated at some 52 bil-lion barrels out of total world reserves of about101 billion barrels. Venezuelan oil is of specialstrategic value, due to its location behind thescreen of our Caribbean chain of defensesacross sea routes relatively easy to keep open.It is closer than Texas to our Atlantic Coastconsuming area. Venezuela alone is able tosupply most of the foreign oil essential to theUnited States in time of war. In addition to ourown import needs, Venezuela supplies sub-

stantially all of the import requirements of theWestern Hemisphere outside the United States.

10. Since the United States is today a small netimporter of petroleum, it is not now makingany contribution toward meeting crude oildemand in the rest of the world. That demand,including the United States deficit, of about 5

million barrels per day, is being supplied at therate of slightly less than 2 million barrels perday from Venezuela, slightly more than 2 mil-lion barrels per day from the Middle East, andabout 1 million barrels per day from theremainder of the free world.

11. Since Venezuela and the Middle East are theonly sources from which the free worldsimport requirements for petroleum can besupplied, these sources are necessary to con-tinue the present economic and militaryefforts of the free world. It therefore followsthat nothing can be allowed to interfere sub-stantially with the availability of oil from thosesources to the free world.

12. With the exception of Iran, the production ofoil in those areas is almost entirely in thehands of United States and United Kingdom

nationals. [United Kingdom or British inthis section includes British-Dutch interests.]

These nationals have provided the ingenuitycapital, and technology to bring forth produc-tion from those areas on the tremendous scalerequired to fulfill world requirements. As mat-ters now stand, they alone are capable ofmaintaining and expanding the production ofthose areas to meet the rising demand forpetroleum of the free world. If United Statesand United Kingdom companies were for anreason expelled from Venezuela and the Mid-

dle East, the oil from those areas would to aserious extent be lost to the free world.

13. Where areas have fallen under Soviet domina-tion, such as in Rumania, eastern Austria, Hun-gary, Czechoslovakia, and Poland, the oil hasbeen lost to the free world. Almost the sameresult has followed from the expulsion ofAmerican and British oil companies fromother countries for other reasons. The reper-cussions of this action have led to an interrup-tion in the flow of a substantial quantity of oilto the free world. While the initial interruption

in such cases is caused by negotiating difficul-ties, the longer-run factors are know-how andcapital. The record of nationalization and gov-ernmental operations in such countries asBolivia, Mexico, and Argentina has shown thatvigorous expansion of production does notoccur, despite excellent prospects.


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14. American and British oil companies thus plaa vital role in supplying one of the free worldsmost essential commodities. The mainte-nance of, and avoiding harmful interferencewith, an activity so crucial to the well-beingand security of the United States and the restof the free world must be a major objective of

United States government policy.

15. Since the United States is the greatest con-sumer of petroleum and its products in theworld (60 percent of total world consumption)now and for the foreseeable future, it is vastlyimportant that the operations of the great oilfields of the world remain as far as possible inthe hands of American-owned companies. Ware gradually increasing imports. To be assuredof these imports, and to ensure that this out-standing example of American investmentabroad continues to make its great contribu-

tion to the American economy and the econo-mies of other countries, it is essential that theAmerican companies have full opportunitiesfor profitable and expanding operations.

16. The operations of American oil companiesabroad have profound effects on the conductof American foreign relations. In the first place,oil is the principle source of wealth andincome in the Middle Eastern countries inwhich the deposits exist; their economic andpolitical existence depends upon the rate and

terms on which oil is produced. American oiloperations are, for all practical purposes,instruments of our foreign policy toward thesecountries. These oil-producing countries are onor near the borders of the Soviet Union. Forthis reason, and because of certain local condi-tions, the Middle East comprises one of themost explosive areas of the world. The oilcompanies are in a position of great influenceupon our relations with the peoples and gov-ernments of these countries. What they doand how they do it determines the strength ofour ties with the Middle Eastern countries and

our ability to resist Soviet expansion and influ-ences in the area.

17. A major corollary of this is the fact that theinternal economic development of these coun-tries depends in good measure upon the oper-ating policies of the oil companies. The UnitedStates has been pressing for economic devel-opment in the backward areas not solely for

humanitarian reasons, but also on the assump-tion that economic growth contributes to polit-ical stability. Oil operations can accelerate thatgrowth, and their cessation can block it. Therate of such growth depends to an importantdegree on the policies the oil companies fol-low. They can help or injure the political stabil-

ity we need in the area.

18. A third factor which interrelates our foreignpolicy objectives to the operations of the inter-national oil companies is their role as a sup-plier of Western Europes needs. The terms onwhich these needs are supplied are critical tothe strength and balance-of-payments posi-tion of this area which is vital to our security.47

According to a national intelligence estimatedated January 9, 1953, the Iranian situation con-tains so many elements of instability that it is

impossible to estimate with confidence for morthan a few months. Nevertheless, the estimate con-cluded: on the basis of present indications . . . itappears that a National Front government willremain in power through 1953, despite growingunrest. A State Department intelligence analysisissued the same day noted that although the Tudehparty was well-organized and controlled by the Sovi-ets and had increased its influence during the pre-ceding two years, the security forces could andwould put down any attempt by the Tudeh to seizepower. Both the army and gendarmerie (rural para-

military police) were trained, equipped, and advisedby the United States, and U.S. assistance continuedduring the Mossadegh period. Moreover, U.S. intelli-gence had penetrated the partys organization at avery high level and was intercepting all the ordersgiven to its cadres.48

Although Irans economic situation would remainprecarious in the absence of substantial oil revenues,U.S. intelligence believed that the governmentwould be able to avoid an economic breakdown.

The British boycott of Iranian oil was weakening.The British Treasurys prohibition against the use ofsterling to buy Iranian oil and the threat of legal

action deterred most prospective purchasers, andthe British were ready to use force to deal withblockade runners. For example, in the summer of1952, Royal Air Force fighters forced the oil tankerRose Mar y, carrying Iranian oil to Italy, into port inBritish-controlled Aden, where a British court ruledin January 1953 that the oil still belonged to AIOC.Soon after the Rose Mar ycase, however, Italian and

Japanese courts ruled that Iranian oil could legally


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be imported. The large number of tankers availableand low shipping rates created a strong temptationfor independent oil companies to seize the opportu-nity to cash in on Mossadeghs offer to sell Ira-nian oil at a 50 percent discount. While smallindependent Western oil companies would proba-bly not buy significant quantities of Iranian oil, and

while the major Western oil companies had plentyof crude oil of their own and would not be willing tomake an arrangement with Iran so long as the legal,economic, and political obstacles existed, the CIAnevertheless noted that some moderate-sized oilcompanies were becoming restive, and it was possi-ble that arrangements for the purchase and trans-port of substantial quantities of Iranian oil might bemade unless the U.S. government made direct andstrong objection. The British, the CIA warned,would probably regard any arrangement betweenU.S. oil companies and Iran, in the absence of Brit-ish concurrence, as a serious breach of U.S.-U.K. sol-

idarity. While Iran probably would not be able toreach the level of its former exports, it appearedpossible that it might, in time, sell enough oil tomake nationalization a qualified success and trelieve somewhat Irans precarious financial situa-tion.49

For these reasons, U.S. intelligence believed that,although the trend of developments in Iran would inthe absence of an oil settlement or large-scale U.S.financial assistance continue to be unfavorable tothe West and provide opportunities for the Tudeh, itwas unlikely that the Tudeh would gain control dur-

ing 1953. In addition, the CIA noted that the Sovietswere unlikely to take drastic action in Iran. Itwarned, however, that the Soviets had the capabilityfor greatly increasing its overt and covert involve-ment in Iran at any time.50

THE FINAL OFFER

After detailed talks with Mossadegh, the British, andthe major U.S. oil companies, AmbassadorHenderson presented Mossadegh with a joint Anglo-American package proposal in mid-January that

called for arbitration of the compensation issue; a$100 million U.S. advance to Iran against future U.S.purchases of Iranian oil; and arrangements wherebyAIOC and the major U.S. oil companies would pur-chase and market Iranian oil. In addition, to ensurthe cooperation of the major U.S. oil companiesand because of warnings from the departments ofstate, defense, and interior, and the JCS that criminalantitrust prosecution of the companies was detri-

mental to the national interest, President Trumanordered the grand jury investigation of the oil com-panies terminated.51

Negotiations went well at first, but Mossadeghbegan retreating from previous concessions as wordof the talks leaked out and the Tudeh and someformer allies charged that the deal amounted to

capitulation to U.S. oil interests. Mossadegh was alsofacing growing internal opposition because of theeconomic situation and because of his efforts toeliminate the monarch and the military from poli-tics. Moreover, the British and possibly the U.S. intel-ligence networks were involved in a variety ofactivities aimed at weakening Mossadeghs NationalFront coalition. These activities included bribes, pro-paganda, and promises of future support. Severalkey National Front leaders had deserted Mossadeghand gone over to the opposition. At the same timethat he was considering the package proposal, Mos-sadegh was involved in a struggle in the Majlis over

extension of his emergency powers. Although Aya-tollah Kashani, Mossadeghs only competitor formass popular support, broke with Mossadegh onthis issue and led the opposition, the Majlis voted591 to renew Mossadeghs powers to rule bydecree for a year.52

In these circumstances, Mossadegh was unwill-ing to risk a settlement. Moreover, Mossadeghrefused to give in to the British demand that com-pensation take into account the prospective earningslost by AIOC because of the loss of its enterprise inIran. Mossadegh considered AIOCs concession

agreement, which ran to 1993, invalid, and insistedthat compensation had to be limited to physicalproperties. The British were equally adamant on theissue. From the British standpoint, a generous com-pensation settlement was necessary not only to helpmake up for the losses caused by nationalization,but more importantly to serve as a deterrent tonationalist forces in other countries who might beconsidering nationalizing British properties. TheBritish believed that Iran had to be punished or Brit-ains entire overseas investment position would be

jeopardized.53

Meanwhile, Fazlollah Zahedi had approached sev-

eral generals about a possible coup. After the Bakh-tiari attacked army troops in southern Iran inmid-February, Mossadegh retaliated by arrestingZahedi and others. Further fueling the unrest was anannouncement by the shah that he planned to leavethe country on vacation. A large crowd, organizedby Kashani and his allies, demonstrated in favor ofthe shah and then marched on Mossadeghs homecalling for his removal. Although the coup attempt


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almost succeeded, Mossadegh escaped, and loyalarmy units restored order.54

At U.S. insistence, the package proposal wasmodified to limit compensation to twenty years, and

resubmitted on February 20. Mossadegh waswarned that it was the last offer the United Statesand Britain would make.55

NOTES

1. Lawrence Paul Elwell-Sutton, Persian Oi l: A Study inPower Politics (London: Lawrence & Wisehart, 1955);

Ronald Ferrier, The Development of the Iranian OilIndustry, in Twentieth Century I ran, ed. Hossein Amirsde-ghi (London: Heineman, 1977), 93108.

2. Mark Hamilton Lytle, The Origins of the Ira-

nian-Ameri can Alli ance, 1941-1953 (New York: Holmes &Meier, 1987).

3. U.S. Department of State, Foreign Relations of theUnited States 1951, vol. 5: 268276 (hereafter FR fol-lowed by year and volume number).

4.The Position of the United States with Respect to

Iran, NSC 107, 14 Mar. 1951, Declassifi ed Documents Ref-

erence System, 1983, doc. 1290 (hereafter DDRS, fol-lowed by year and document number).5. David S. Painter, Oil and the Ameri can Century: The

Poli ti cal Economy of U.S. Foreign Oi l Policy, 1941-1954(Bal-

timore, MD: Johns Hopkins University Press, 1986), quota-tion from p. 24.

6. Ibid., 174175.7.Truman to Henry Grady, 27 Nov. 1952, Grady

Papers, Harry S. Truman Library.8. Painter,Oil and the Ameri can Century, 174.9. Ibid., 173174; Dean Acheson, Present at the Cre-

ati on: My Years in the State Department (New York: W.W.Norton & Co., 1969), 505507.

10. Painter, Oil and the American Century, 174175:

Position Of the United States with Respect to Iran, NSC107; Acheson, MemCon, 27 Apr. 1951, DDRS 1985, 1653.11. Wm. Roger Louis, The Brit ish Empire in the Middle

East, 1945-1951: Arab Nationali sm, the United States, and

Postwar Imperialism (Oxford: Clarendon Press, 1984),

642657, 682685.12. Habib Ladjevardi, The Origins of U.S. Support for

an Autocratic Iran, Internati onal Journal of Middle EastStudies15 (May 1983): 225239; Richard W. Cottam, Iran

and the Uni ted States: A Cold War Case Study (Pittsburgh,PA: University of Pittsburgh Press, 1988), 8283, 8788;George Lenczowski, U.S. Policy toward Iran, in Iran in

the 1980, ed. Abbas Amirie and Hamilton A. Twitchell(Tehran: Institute for International Political and Economic

Studies, 1978), 360.13. Progress Report on NSC 107, 2 May 1951, DDRS

1982, 596; NSC 107/1, 6 June 1951, DDRS 1983, 1292;Kermit Roosevelt, Countercoup: The Struggle for the Con-trol of Iran (New York: McGraw-Hill, 1979), 7981; Mark J.Gasiorowski The 1953 Coup dEtat in Iran, InternationalJournal of Middle East Studies 15 (August 1987): 268269;Donald N. Wilber, Adventures in the Middle East: Excur-sions and Incursions(Princeton, NJ: Darwin, 1986), 157

158, 185.

14. Cottam Iran and the United States, 9495; James A.Bill, The Eagle and the Lion: The Tragedy of Ameri can-Ira-nian Relati ons (New Haven, CT: Yale University Press,1988), 5357; Gasiorowski, Coup in Iran, 262.

15. Louis, Bri ti sh Empi re in the Middle East, 664666;Acheson,Present at the Creation, 506507.

16. NSC 10712, 27 June 1951, FR 1952-1954, 10: 73;Painter,Oil and the Ameri can Century, 176.

17. Painter,Oil and the Ameri can Century, 176177.18. Ibid., 177.19. Ibid., 178; Cottam, Iran and the United States, 96

98.20. Painter,Oil and the Ameri can Century, 178.21.

Louis, Brit ish Empire in t he Middle East, 659661;Wm. Roger Louis, Musaddiq, Oil, and the Dilemmas ofBritish Imperialism (unpublished paper, 1985), 59; C.M.Woodhouse, Somethi ng Ventur ed(London: Granada, 1982),

108114, 118; Gasiorowski, Coup In Iran, 262265.22. Painter,Oil and the Ameri can Century, 178179.23. Gasiorowski, Coup in Iran, 264; Louis Brit ish Em-

pir e in t he Middle East, 686689; Cottam, Iran and the Unit -

ed States, 95; Painter,Oil and the Ameri can Century, 179.24. Painter,Oil and the Ameri can Century, 181.25.Yonah Alexander and Allan Nanes, eds., The United

States and Iran: A Documentary History (Frederick, MD:Aletheia Books, University Publications of America, 1980),223224.

26. Painter,Oil and the Ameri can Century, 181182.27. Ibid., 182183.28. Ibid., 183; Louis, Bri ti sh Empi re in the Middle East,

682685.29. Painter,Oil and the Ameri can Century, 183.30. Ibid., 183184, 261 n.30.31. Ibid., 179181, 261 n.30.32. Ibid., 184; David S. Painter, Oil and U.S. Policy

toward Iran, 19511954: The Political Economy of Inter-vention (unpublished paper, 1987), 1920.

33. Painter, Oil and U.S. Policy toward Iran, 20.34. Ibid., 2021; Gasiorowski, Coup in Iran, 264

265; Louis, Musaddiq, Oil, and British Imperialism, 712;Brian Lapping, End of Empire(New York: St Martins Press,

1985), 214215. According to Woodhouse, he and his CIAcounterpart were in the mountains fishing for trout whenthe crisis broke; Woodhouse, Something Ventured, 115.

35. Painter, Oil and U.S. Policy toward Iran, 21.36. Painter,Oil and the Ameri can Century, 185.37. Gasiorowski, Coup in Iran, 265266; Wood-

house, Something Ventured, 115116; Lapping, End ofEmpire, 215217.

38. Acheson, Present at the Creati on, 681682; Painter,Oil and the Ameri can Century, 185186.


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39. Walter S. Poole, The Joint Chiefs of Staff and

Nati onal Policy, 19501952, vol. 4 of The History of t heJoint Chiefs of Staff (Wilmington, DE: M. Glazer, 1979),364366.

40. Ibid., 366366A; U.S. Department of State, Officeof Intelligence Research, The British Position in the Mid-dle East, 2 Oct. 1952, DDRS 1978, 415A.

41. Painter,Oil and the Ameri can Century, 186187.42. Ibid., 186187.43. United States Policy Regarding the Present Situa-

tion in Iran, NSC 136/1, 20 Nov. 1952 (sanitized copy), FR19521954, 10: 529532. NSC 136/1 also discussed what

the U.S. response should be to either an attempted or anactual communist seizure of power, and to a Sovietattack on Iran.

44. Painter,Oil and the Ameri can Century, 188.45. Woodhouse, Something Ventured, 117120; Roose-

velt,Countercoup, 107109.46. Roosevelt, Countercoup, 114120; Woodhouse,

Someth ing Ventured, 120125.47. Report by the Departments of State, Defense, and

the Interior, NSC 13811, 6 Jan. 1953, FR 19521954, 9:637641.

48. CIA, Probable Developments in Iran through1953, NIE-75/1, 9 Jan. 1953, DDRS 1982, 1517; U.S.Department of State, Office of Intelligence Research,Irans Political and Economic Prospects, 9 Jan. 1953,Report no. 6126, National Archives; Gasiorowski, Coup in

Iran, 277278, 286 n.76.49. Painter, Oil and U.S. Policy toward Iran, 3233;

CIA, Probable Developments in Iran through 1953."50. CIA, Probable Developments in Iran through

1953"; State Department, Office of Intelligence Research,

Irans Political and Economic Prospects.51. Painter, Oil and the American Century, 186189,

193.52. Cottam, Iran and the United States, 101103; Gasi-

orowski, Coup in Iran, 269270.53. Painter,Oil and the Ameri can Century, 189.54. Gasiorowski Coup in Iran, 270.55. Painter,Oil and the Ameri can Century, 189.


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COPYRIGHTED MATERIAL

Do Not Duplicate This is Copyrighted Material for Classroom Use. Itis available only through the Institute for the Study of Diplomacy.

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16

THE SITUATION IN IRAN

Complaining that proposals to settle the oil disputeseemed to be accompanied by attempts to drivehim from office, Mossadegh, on March 20, rejectedthe revised proposals. Shortly thereafter, Ambassa-dor Henderson concluded:

Theres no use, so far as Mossadegh is concerned.

He will not agree to anything that the oil compa-nies could possibly accept or for that matter thatthe American government would accept. I amsure that the British government would notapprove of anything that would meet Mossa-deghs approval.56

The British had long since drawn a similar conclu-sion. The United States and Britain, Anthony Edenargued after Iranian rejection of the revised packageproposal, should be better occupied looking foralternatives to Mossadegh rather than trying to buyhim off.57

Top CIA officials agreed with the British that thebest course of action was to remove Mossadegh.Kermit Roosevelt argued that Mossadegh had wit-tingly or unwittingly allied himself with the Soviets,

and that the Moscow-controlled Tudeh party hadgained control of the Mossadegh movement. TheSoviet threat to Iran, he insisted, was genuine, dan-gerous, and imminent, and U.S. intervention wasnecessary to head off a Communist takeover.58

Plans to replace Mossadegh were already underway. In early February, after a British delegation trav-elled to Washington to review the situation with theDulles brothers and former CIA head W. Bedell

Smith, who had moved to the State Department, theCIA had agreed to develop in cooperation with Brit-ish intelligence a plan to overthrow Mossadegh.Roosevelt was selected to be in charge of the opera-tion, which was given the code name AJAX. In thefollowing months, Roosevelt travelled to Iran severaltimes to make preparations. In mid-May, the CIAsent a specialist on Iran to Cyprus to work with theBritish on a detailed plan of operations.59

Ambassador Henderson also believed that Iranwas slipping away from the West and would fall un-der Soviet domination if the United States did notintervene. According to Henderson, the political and

economic situation was rapidly deteriorating, andthe government was without funds to pay salaries.Moreover, the pro-Soviet Tudeh party was growingmore powerful, and Mossadegh was becoming moreand more dependent on its support. Hendersonwarned that a U.S. bail-out of Mossadegh woulddamage relations with the British and encourageother developing countries to cancel mutually ben-eficial economic arrangements with the West.Moreover, if Mossadegh succeeded in dethroning

Case 332, Part B, Instructor Copy

THE UNITED STATES, GREAT BRITAIN,

AND MOSSADEGH

David Paint er

Georgetown University

Copyright 1993 by Institute for the Study of Diplomacy.

ISBN: 1-56927-332-4

Publications, Institute for the Study of Diplomacy, School of

Foreign Service, Georgetown University, Washington, D.C.

200571025 http://data.georgetown.edu/sfs/programs/isd/
http://data.georgetown.edu/sfs/programs/isd/http://data.georgetown.edu/sfs/programs/isd/


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Case 332, Part B, Instructor Copy United States, Great Britain, and Mossadegh 11117777

the shah, he would be overthrown by the Tudeh.Shortly thereafter, Iran would become a Sovietsatellite, and the strategic situation in the wholeMiddle East . . . fundamentally alteredin a waythat would have . . . world-wide implications.60

In contrast, lower-level CIA analysts pointed outthat, despite his problems, Mossadegh still retained

considerable support among the urban lower andmiddle classes and in parts of the military. Beneaththe surface chaos and appearance of instability,there was the stability of a regime that had attractedthe support of a large segment of the population.Richard Cottam, who had just joined the CIA aftertwo years of study in Iran, warned that movingagainst Mossadegh ran the danger of driving Ira-nian nationalism into the waiting arms of the Sovi-ets. The CIA station chief in Iran also opposedmoving against Mossadegh for similar reasons 61

At the end of May, Mossadegh appealed to Presi-dent Eisenhower for U.S. assistance. Ironically echo-

ing the arguments the British and others were usingagainst him, Mossadegh warned that as a result ofactions taken by the former Company [AIOC] andthe British government, the Iranian nation is nowfacing great economic and political difficulties

There can be serious consequences, from an inter-national viewpoint as well, if this situation is permit-ted to continue. If prompt and effective aid is notgiven this country now, any steps that might betaken tomorrow to compensate for the negligencemight well be too late. Mossadegh also asked thatthe United States help remove the obstacles placed

in the way of sale of Iranian oil. If the United Stateswere unable to help in this regard, effective eco-nomic assistance to enable Iran to utilize her otherresources would be necessary.62

The Over throw Of Mossadegh

At a June 25 meeting at the State Department, Sec-retary of State Dulles gave his approval to OperationAJAX. The key elements in the plan included intensi-fied propaganda and political action against Mos-sadegh; encouraging opposition figures to createdisturbances; gaining the shahs agreement to dis-

miss Mossadegh and to appoint Fazlollah Zahediprime minister; and organizing the support of key,top-level military officers. Both the BEDAMN and theBritish networks would carry out these actions. Pre-sumably, one of the Dulles brothers also obtainedpresidential approval.63

Four days later President Eisenhower wrote Mos-sadegh that it would be unfair to U.S. taxpayers forthe U.S. government to provide Iran additional eco-

nomic assistance while Iran could have access tosufficient funds from the sale of its oil if it wouldonly reach a reasonable settlement with the British.Eisenhower also pointed out that there was consid-erable sentiment in the United States that pay-ment of compensation only for losses of physicalassets was not a reasonable settlement, and that

agreement to such terms might tend to weakenmutual trust between free nations engaged infriendly economic intercourse. Therefore, theUnited States would not extend more aid to Iran orpurchase Iranian oil. Shortly thereafter, Eisen-howers response was made public and broadcast toIran over the Voice of America.64

U.S. refusal to extend additional aid to Iran,coupled with public expressions of concern byEisenhower and Secretary of State Dulles aboutincreasing communist influence, intensified thepressures on Mossadegh. By late July, demonstra-tions by pro- and anti-Mossadegh crowds and the

Tudeh had become almost a daily occurrences. Mat-ters came to a head in early August when Mos-sadegh called for the dissolution of the Majlis andannounced a plebiscite on the issue. Under therevised 1949 constitution, dissolving the Majlis hadbecome the prerogative of the shah, though theshah had continued to respect the wishes of the Maj-lis. Mossadeghs moves provided the shah and hissupporters with quasi-legal grounds to force the pop-ular prime minister from office. On August 12, theshah, after receiving personal assurances of U.S.and British support from Roosevelt, who was in Iran

to direct the operation, issued a decree replacingMossadegh with Zahedi.65

The initial attempt to remove Mossadegh failedwhen pro-Mossadegh forces arrested the officer sentto deliver the decree. Taking no chances, the shahand his family fled the country. Mossadegh and hissupporters failed to consolidate their advantage,however. While the prime minister and his allies dis-cussed what to do, Tudeh mobs took to the streetsshouting anti-royalist slogans and smashing statuesof the shah and his father. Sensing an opportunity,the CIAs Iranian allies sent agents posing as Tudehsupporters into the streets to attack mosques and

mullahs and thus frighten people into believing thata victory for Mossadegh would be a victory for the

Tudeh, the Soviet Union, and irreligion. The decep-tion worked, and the next day, a massive demon-stration (organized and financed by the CIA and itsIranian agents) was joined by other Iranians fearfulof the possibility of a Tudeh takeover. In addition,Ambassador Henderson, who had returned to Iranafter several weeks absence, threatened to pull out


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18181818 David Painter Case 332, Part B, Instructor Copy

U.S. aid missions and personnel unless law andorder were restored. Hendersons threat apparentlyconvinced Mossadegh to order the army and policeto clear the streets. At this point, army units loyal tothe shah finally arrived in Tehran. In a brief butbloody battle, the forces loyal to Mossadegh weredefeated and Zahedi installed in power. The shah

returned in triumph on August 22, and the next dayreportedly told Roosevelt that he owed his throneto God, my people, my armyand to you.66

IRAN AND THE WORLD OIL ECONOMY

Finding an alternative to Mossadegh was only thefirst step in saving Iran. The United States also hadto find a solution to the oil controversy that wouldenable Iran to resume oil exports on a scale suffi-cient to provide the shah with the resources to builda stable political base. The main problem in this re-gard, apart from the continuing British boycott of

Iranian oil, was how to fit Iranian oil back into theworld oil economy without disruptive price wars anddestabilizing declines in revenues for oil-producingcountries. Irans oil had been completely replaced inworld markets so that a resumption of Iranian ex-ports would require other countries to reduce theirexports or at least refrain from increases so that Ira-nian oil could fill expected increases in demand.67

It soon became evident that it would be impossi-ble for AIOC to resume its former position in Iran.Involvement by the major U.S. oil companies raisedantitrust problems, however, and utilizing U.S. inde-

pendent oil companies, many of which were capa-ble of running the Iranian oil industry, presentedserious problems from the standpoint of nationalsecurity. Such companies would either have to mar-ket Iranian oil in the United States, which couldharm U.S. domestic producers, or try to force it intoEuropean markets by cutting prices, which wouldreduce revenues to producers and have a destabiliz-ing effect on the whole Middle East. In addition, theBritish were sure to object to any plan in whichAIOC was not included.68

Reintegrating Iranian oil thus seemed to requirethe cooperation of the major oil companies, includ-ing AIOC. Therefore, the United States proposed aconsortium to run the Iranian oil industry: five U.S.major oil companies (8 percent apiece, later reducedto 7 percent apiece as each gave up 1 percent tomake a 5 percent share available for a group of U.S.

independents), AIOC (40 percent), Shell (14 per-cent), and the French Compagnie Francaise dePetroles (6 percent). These companies had estab-lished markets in the Eastern Hemisphere and con-trolled production in the rest of the Middle East, andthus would be able to reduce their production inother countries in order to absorb Iranian oil. More-over, bringing in additional companies largely solvedthe problem of compensation because the nemembers would pay AIOC for the share it gave up.69

Bringing all the majors together into one com-pany also increased their ability to control the worldoil economy. Thus the proposed consortium ran up

against the civil antitrust suit the Justice Departmenthad filed in April 1953. National security concernsprevailed, however, and President Eisenhowerordered the Justice Department to give legal clear-ance to the proposed consortium and to change thefocus of its case from production control to market-ing. These decisions emasculated the cartel case. AsBurton Kaufman has pointed out, joint marketingand price-fixing agreements were only the most bur-densome and difficult to maintain of the many partsof the scaffolding by which the major oil companiescontrolled the worlds flow of oil. Such agreements

were superfluous, moreover, because once the verti-cally integrated major oil companies secured controlof foreign oil reserves, their control of productionand markets was assured. There was not enoughfree oil available to challenge their control of mar-kets and prices. As for competition with each othertheir common interests as oligopolists and theirmany joint ventures served as sufficient checks oninclinations to enlarge market shares through pricecompetition.70

NOTES

56. Painter,Oil and the Ameri can Century, 189.57. Ibid.58. Roosevelt, Countercoup, 23, 11, 114120; Allen

Welsh Dulles, The Craf t of Int elligence(New York: Harper &Row, 1963), 221, 234.

59. Roosevelt, Countercoup, 119, 120124, 163167;Wilber, Adventures in the Middle East, 187191; Gasi-orowski, Coup in Iran, 270272.

60.John J. Harter, Mr. Foreign Service on Mossadegh

and Wristonization: An Interview with Loy W. Hender-son, Foreign Service Journal, Nov. 1980: 1618.

61. Richard Cottam, The United States, Iran, and the

Cold War, Iranian Studies 3 (Winter 1970):910;Roosevelt, Countercoup16; Gasiorowski, Coup in Iran,

277278.62. Alexander and Nanes, Uni ted States and Iran, 232

233.63. Roosevelt,Countercoup, 119.


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Case 332, Part B, Instructor Copy United States, Great Britain, and Mossadegh 11119999

64. Alexander and Nanes, Unit ed States and Iran, 234235. In addition, the United States put pressure on Japanand Italy to halt imports of Iranian oil; Painter, Oil andU.S. Policy toward Iran, 3233.

65. Roosevelt, Countercoup, 167168; Gasiorowski,Coup in Iran, 273; Cottam, Iran and the United States,105107.

66. Roosevelt, Countercoup, 169185, 199; Gasiorow-ski, Coup in Iran, 273275; Cottam, Iran and the United

States, 107108; Lapping, End of Empire, 220; Jonathan

Kwitny, Endless Enemies: The Making of an UnfriendlyWorld (New York: Congdon & Weed, 1984), 164177,

prints extensive extracts from an eyewitness account by

New York Timescorrespondent Kennett Love.67. Painter,Oil and the Ameri can Century, 192193.68. Ibid., 193194.69. Ibid., 194196.70. Ibid., 193197, Burton I. Kaufman, The Oil Cartel

Case: A Documentary Study of Anti-trust Activity in Cold

War Era (Westport, CT: Greenwood Press, 1978), 5960;

Theodore H. Moran, Managing an Oligopoly of Would-BeSovereigns: The Dynamics of Joint Control and Self-Con-trol in the International Oil Industry Past, Present, and

Future, International Organization 41 (Autumn 1987):590592.


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U.S. involvement in the dispute between Great Brit-ain and the government of Iranian nationalist primeminister Mohammad Mossadegh between 1951 and1953 marks an important milestone in the evolutionof U.S. policy toward the Third World. Decisionsmade in this period influenced subsequent U.S. pol-icy toward Iran and toward Third World nationalismin general, and also accelerated the gradual processby which the United States replaced Great Britain as

the main guarantor of Western interests in the Mid-dle East. The purpose of this case is to stimulatethinking about the interrelationship of some of themost important issues in international relations:national security and geopolitical concerns; privateeconomic interests and their impact on public pol-icy; revolutionary nationalism, sovereignty, and self-determination.

The dispute culminated in an Anglo-American-sponsored coup to replace Mossadegh. James A. Bill,Richard W. Cottam, and Mark J. Gasiorowski haveargued that the coup had a decisive impact on thedevelopment of Iranian politics, if not postwar world

history. U.S. intervention, they maintain, ended theprogress Iran had been making toward a more rep-resentative form of government and toward freedomfrom foreign interference. After the coup, the United

States provided massive assistance to Iran as theshah established a royal dictatorship, and Iraniannationalism turned, if not to communism, to viru-lent anti-Americanism. Thus, the coup marked thefirst step toward the fundamental rupture of U.S.-Ira-nian relations that would come with the revolutionof 197879. (Bill, The Eagle and the Lion, 9497;Cottam, Iran and the Unit ed States, 109; Gasiorowski,The 1953 Coup dEtat in Iran, 261, 278279.)

The apparent success of the Iranian model ofcovert intervention led to subsequent less success-ful attempts by the United States to pursue foreignpolicy goals through covert means. In addition, theBritish seem to have drawn the lesson that they stillpossessed sufficient power to remove inconvenientrulers in countries traditionally under their influ-ence, and that, in the final analysis, the UnitedStates would support such policies. Such conclu-sions, one scholar has noted, played a role in start-ing the British on the slippery slope to Suez.(Lapping, End of Empire, 222223.) Defenders of thecoup, in contrast, have argued that it was necessary

to prevent a communist takeover, that it boughtthe United States twenty-five years of stability inIran, and/or that the causes of the shahs demise areto be sought in what happened after 1953.

The two parts of the case cover the period 19511953. Part A ends in early 1953 in order to give stu-dents an opportunity to recommend a course ofaction for each major participantIran, the UnitedStates, and Great Britain. Part B describes eventsfrom early 1953 through the coup and the establish-

Case 332, Teaching Notes

THE UNITED STATES, GREAT BRITAIN,

AND MOSSADEGH

David Paint er

Georgetown University

Copyright 1993 by Institute for the Study of Diplomacy.

ISBN: 1-56927-332-4

Publications, Institute for the Study of Diplomacy, School of

Foreign Service, Georgetown University, Washington, D.C.

200571025 http://data.georgetown.edu/sfs/programs/isd/
http://data.georgetown.edu/sfs/programs/isd/http://data.georgetown.edu/sfs/programs/isd/


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Case 332, Teaching Notes United States, Great Britain, and Mossadegh 22221111

ment of the Iranian consortium. Depending on theinstructors preference it can be handed out withpart A or after part A has been discussed.

U.S. involvement in Iran between 1951 and 1953reveals the tensions between the U.S. goals of main-taining the special relationship with Great Britain(especially in regard to the Middle East) containing

Soviet influence in the region, and responding effec-tively to the challenge of revolutionary nationalism.U.S. policies were further complicated by the U.S.stake in the world oil economy. The case should alsoprovide insights into British foreign policy (especiallytoward the Middle East), and should help illuminatesuch issues as the promises and pitfalls of national-ism in the Third World and the vulnerability of ThirdWorld societies to outside influence.

The study questions are designed to bring outthese points and to serve as a basis for structuringdiscussion of the case. For example, in the course ofanswering the first study question, the divisions

within the U.S. government, the competitive andcooperative relationship between the two Westernallies, and the diversity of Iranian views shouldbecome evident. In regard to the second question,the instructor might want to draw out the class onwhether or to what extent the various influences onpolicy were contradictory or mutually reinforcing.

Question three addresses the premises behindU.S. and British, and Iranian policies. For example,U.S. policymakers defined the U.S. role in the dis-pute between Britain and Iran as that of a disinter-ested mediator. How accurate was this self-

appraisal given U.S. interest and involvement inMiddle East oil? Students should also assess Britishassumptions about the importance of a firm policyin Iran and about the nature of Iranian politics. Ira-nian assumptions about the possibilities of politicaland economic independence in a bipolar yet inter-dependent world should also be examined. Ques-tion four is designed to encourage thinking aboutthe policy consequences of the previous questions

This question could be used to focus discussion ofthe case and/or as the basis of a written assignment.

As noted in part B, top CIA officials and Ambassa-dor Loy Henderson argued that intervention was

necessary to save Iran from Soviet domination.According to Henderson, Mossadegh, through hisrefusal to reach a settlement of the oil issue accept-able to Great Britain and the United States, wasresponsible for creating conditions for eventual

Tudeh party, and later Soviet, control. Thus whateverMossadeghs intentions, the United States could notstand by and risk Iran drifting into a situation inwhich the Soviets could gain control and establish

themselves on the Persian Gulf.In contrast (also as noted in part B), lower-level

CIA analysts believed that these fears were un-founded and that Mossadeghs regime had achieveda fairly high degree of legitimacy if not stability. Inaddition, it can be argued that the relative ease withwhich Iranian security forces crushed the Tudeh

casts doubt on Kermit Roosevelts claim that theSoviet threat to Iran was genuine, dangerous, andimminent.

It is probably not possible to resolve these differ-ences on the basis of the information presented inthe case. On the other hand, it can be argued on thebasis of evidence presented in part A that U.S. andBritish refusal to countenance a settlement excepton terms that left control of Irans oil in foreignhandsterms that a nationalist leader like Mos-sadegh could not acceptand U.S. and British sup-port for Mossadeghs opponents inside Iran werkey factors in polarizing and destabilizing the situa-

tion within Iran, and thus in creating conditions thatmade a communist takeover a possibility. Viewingthe case from this perspective shifts the focus fromthe unanswerable question of whether interventionwas necessary to save Iran from communism tosuch important issues as the sources and the wis-dom of the policies followed by the United States,Great Britain, and Iran.

Alternatively, the case could be taught as a simu-lation with students arguing different (assigned orself-selected) positions on the basis of the informa-tion in part A. A third possibility would be to hand

out both parts at once and ask the students to ana-lyze the sources and wisdom of U.S., British, andIranian conduct.

The case was developed for a course on the ori-gins of the Cold War, and is intended for use byupper-level undergraduates and graduates. It couldalso be used in courses on international relations inthe Middle East; the United States and the ThirdWorld; Anglo-American relations; covert action andU.S. foreign policy; energy and U.S. foreign policy.

The case can be taught alone or in combination withsimilar cases or articles. It has been taught in combi-nation with Richard H. Immerman, Guatemala as

Cold War History, Political Science Quarterly 95(Winter 19801981): 629653, as two examples ofU.S. policy toward Third World nationalism.

The case has also been used as part of a group ofreadings on U.S. policy toward Iran in a course onpower and justice in the international system. Ifused in such a context, the instructor shouldconsider assigning readings on such issues as sover-eignty and self-determination. In this regard, stu-


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22222222 David Painter Case 332, Teaching Notes

dents might be asked to assess the followingstatement by prominent oil consultant Walter J. Levyin 1952:

The question therefore arises, whether in a situa-tion where a vital power position of the UnitedStates is at stake, it can afford to apply fully the nor-mal and traditional laws of sovereign self-determina-

tion to the control of underdeveloped countries overthe oil in their soil. (Levy, quoted in Painter, Oil andthe American Century, 172.)

A third possibility would be to compare this casewith the U.S. and British response to the othermajor nationalization of this period, the Mexican oilnationalization of 1938. The Mexican nationaliza-tion did not result in covert action to overthrow theoffending government, and comparison of the twocases should reveal important similarities and dif-ferences. A good companion reading for such anexercise would be Clayton R. Koppes, The GoodNeighbor Policy and the Nationalization of Mexican

Oil, Journal of American History69 (June 1982): 6281.

The narrative portion of the case is based largelyon archival research conducted for chapter 8 of theauthors book,Oil and the Ameri can Century, and fora forthcoming study of the Mossadegh period. Thediscussion of covert action draws on participantaccounts by Kermit Roosevelt and C.M. Woodhouse,Something Ventured; and on Gasiorowski, The 1953Coup dEtat in Iran, which draws on extensiveinterviews with participants.

Although an effort was made to address the poli-

cies of Great Britain and Iran, the case is writtenlargely from the U.S. point of view. Wm. RogerLouis, The Bri ti sh Empi re in the Middle Eastand Gasi-orowski, Coup in Iran, provide insights into Brit-ish policy. The discussion of Iranian politics drawson Gasiorowski; Cottam, Iran and the Unit ed States;and Bill, The Eagle and the Lion, among othersources. For both British and Iranian policies, L.R.Elwell-Suttons classic study, Persian Oi l, remains anindispensable source.

Sample Study Quest ions, #1

1. What were the objectives of each of the mainactorsIran, Great Britain, and the UnitedStates?

2. Assess the means by which th