From “Oil Nationalisation and Managerial Disclosure: The Case of Anglo-Iranian Oil Company, 1933-1951”
Chapter 2: AIOC History, oil and Iranian politics.
AUTHOR: NEVEEN ABDELREHIM | THE UNIVERSITY OF YORK
As mentioned earlier, the problem between the Iranian government and the AIOC mainly arose in 1931 because of the decline in prices and again in 1948 because of dividend limitations which effectively reduced the payments made to the Iranian government. Not only that, but the question of evaluation of the price of gold and the limiting of production presented two common problems which needed to be addressed. As a result, the mood of the Iranian Majlis became increasingly nationalistic and the resentments became greater. The AIOC was therefore obviously faced with a rising tide of nationalism and growing resentment by the Iranians towards the company‟s existence in Iran because of the company‟s resistance to change. Thus, a conflict arose between the Iranian government and the AIOC because the Iranians were seeking their political and economic independence. Iranians shared a common perception of the evil of British imperialism and a sense of facing an insensitive imperial power. Iranian nationalists brought to bear an emotional anti-imperialism and “carried with them a moral sense of righteousness that appealed to Iranians of all social and economic classes”. Taking a negative view, we can say with some confidence that the wave of economic nationalism and exploitation of oil in Iran by the AIOC demonstrated Britain which was willing to receive the benefits of another country by exploiting its resources. Important events relating to the nationalisation crisis are set out in Table (1).
An important reason for these events and shifts in the political landscape, aside from wider cold war and Middle East geo-political considerations, was the perceived unfairness associated with the AIOC‟s operations, in terms of the share of oil wealth received by Iran and of the discrimination by the AIOC against Iranians. It is important to know the AIOC and British government officials involved during this time period. First, the AIOC officials included Ernest G. Northcroft (1896-1976), the AIOC‟s Chief Representative in Tehran, 1945-51, and Basil R. Jackson (1892-1957), Deputy Chairman. Second, the British government officials included the Lord Privy Seal, Richard R. Stokes (1897-1956). These officials dealt with a succession of Iranian Prime Ministers, beginning with Ali Razmara (1901-1951) June 1950 – 7th March 1951, Mirza H.K. Ala (1882-1964), 8th March – 28th April, and most significantly, from 28th April, the leader of the National Front coalition, Muhammad Musaddiq (1882-1967). In the US, the Truman administration increasingly became drawn into negotiations from a relatively neutral position, wishing above all to reinforce Iranian governments of whatever nationalist hue against the Soviet Union. W. Averell Harriman (1891-1986) was appointed by Truman as his special envoy to Iran in the August 1951 diplomatic round, and subsequent negotiations involved Truman himself and Secretary of State Dean, Acheson (1893-1971).
Table (1) below illustrates that the years preceding nationalisation witnessed a
series of failed proposals on the one hand, and a succession of Iranian governments and institutional changes on the other, reflecting the increasing influence of political organisations opposed to the AIOC. Clearly, with the collapse of the authoritarian regime of Reza Shah, the post-war period witnessed fundamental changes in the international economy and nationalisation of the oil industry became a central issue on the political agenda.
As illustrated above, in Table (1), the political landscape had changed
considerably and new nationalisms started to emerge in May 1951 because Iran wanted to develop policies with which the country could earn higher returns from its oil production. As we have already noted, this kind of ambition naturally generated conflict with the British government which had its own regime. However, the way the conflict evolved and the kind of actions the Iranian government took were determined by each type of regime. Reza Shah was the commander-in-chief of the newly created national army and exerted his authority throughout Iran. The Shah reminded the Iranians of his dictatorial father and his dependence on America for military advisers, hardware and economic aid for his Seven Year Plan. Iranians did not enjoy economic prosperity during the era of the Reza Shah because of his bureaucracy and administration. During the reign of Reza Shah, “the landlords relinquished total control over the state machinery to the Shah and the government did not intervene to control such actions”. Reza Shah managed to replace the parliamentary majority of the conservative forces “who increasingly opposed his policies and challenged the consolidation of his political power by a working majority of his supporters”. Economic policy during Reza Shah‟s era was characterised by a trial and error approach rather than systematic economic calculations. It was during the Shah‟s administration that Britain maintained control over the Iranian oil industry and became dominant oil producers and this was clearly because of a weak government and also because of Reza Shah. The Shah‟s regime was deficient and was driven largely by the Iranian nationalist view of dealing with institutional and economic concerns that seemed urgent such as establishing order and promoting education, health care and infrastructure. As a consequence, Reza Shah was forced to resign and Iran reached its peak in nationalist policies after the opposition of the Reza Shah‟s rule and the overthrow of his regime. After Reza Shah‟s rule came to an end, there were no more talks about land reform which had been an important aspect of political discourse during his era, which enhanced power for Britain to intervene in the Iranian economy.
The departure of Reza Shah created a variety of groups willing to participate in the political process to attain independence and halt the process of exploitation and imperialism of AIOC. Therefore, a chorus of different opposition voices arose, ranging from the Communists (Tudeh) who opposed the economic treatment of Iranian employees by the AIOC and the secular nationalists (National Front Party), ultimately led by Musaddiq, who favoured a fairer share of oil resources for the Iranian people. Thus, in the growing Iranian sentiment towards nationalisation, political conditions had changed considerably and new nationalist movements started to emerge. This happened because the Iranian government wanted to develop policies with which the country could earn higher returns from its oil production. Musaddiq believed that Iran should begin profiting from its vast oil reserves because the Supplemental Agreement was of marginal benefit to the Iranians. Musaddiq “stressed that no oil concessions should be given to foreigners either during or after war”.
Therefore, Musaddiq submitted a bill calling for nationalisation in February 1951 but it was refused by the Shah for one and half months. Following the refusal of the Shah, there were strikes and anti-British violence in Iran and the Majlis elected Musaddiq as the Iranian Prime Minister.
Amid the growing demands for nationalisation, the Foreign Office acted to try and avert the event and held a meeting on 20 March 1951 to argue the need to intervene in AIOC‟s relations with Iran and to arrange for talks with the US to build unity and avoid nationalisation from taking place. Meanwhile, on 7 March 1951, Razmara‟s broadcast to the Iranians, seemed to be telling the nation to support AIOC operations in their country and continue to produce handicrafts rather than trying to run an oil industry. After arguing against nationalisation to the Majlis Oil Committee and following a call from Ayatollah Kashani “to all sincere Muslims and patriotic citizens to fight against the enemies of Islam and Iran and join the nationalisation struggle”, Razmara was assassinated on 7th March 1951 amid an upsurge of nationalist sentiment. It was against this backdrop that Musaddiq succeeded as Prime Minister and pushed forward the bill for nationalisation.
The Nationalisation Law was approved by the Iranian Parliament on 30 April and signed by the Shah the next day. On 1st of May 1951, against a national background of strong anti-British sentiment, the Iranian Prime Minister nationalised all of Iranian assets of the AIOC with the promise of restoring Iran‟s honour and dignity by eliminating the AIOC concession. Obviously, nationalisation did not emerge overnight but the company was seen as a British sphere of influence which had helped to bolster the autocratic rule of Reza Shah who had enabled the company to undertake exploration throughout the period. Given the above, it was clear that the historiography of the industry dominated Iranian culture which was tightly bound up with the imperialistic British Empire. The company appeared to the Iranians to be imperialistic because it was both British-owned and managed despite the use of Iran in its name. The AIOC was seen as a symbol of informal British Empire that remained mostly resistant to change and unwilling to improve the Iranian concessions. Therefore, resentment against the AIOC grew because of its British sovereignty. More than this, Iranians felt desperate about the company‟s exploitation of their oil resources claiming that the company was not safeguarding Iranian rights and that the Iranian government should nationalise the oil industry. Bucheli described companies investing in mining or oil as targets of political violence pointing out that they are more vulnerable to nationalist policies than those operating in the manufacturing or service sector. This is due to their vertically integrated structure which affects local polities. In similar vein, White asserted that “nationalisation appeared a distinct possibility in a number of Britain‟s decolonizing territories because many of the anti-colonial movements taking shape by the 1950s espoused some form of socialism”. More to the point, Bostock and Jones stated that the virulent Iranian economic nationalism “cannot be treated solely as an endogenous factor to British business. Iranian policies were a reaction to the close relations between British business in Iran and the British government”.
Ferrier was more explicit in his statement that the Iranian nationalists were aware that “AIOC was acting as an agent of the British government in depriving the Iranian government of the revenues to which it was entitled”. However, in contradiction, AIOC executives blamed the Treasury in London for being inflexible in royalty and dividend payments to Iran which was the main trigger for the company‟s nationalisation. From a broader perspective, the dependency theory explains that the world consists of a “core” of dominant nations and a “periphery” of dependent ones. Friedmann and Wayne argued that the main relationship between societies has been an exploitative one because wealth is created at one of its poles and poverty is created at the other. Thus, this may explain how rich and powerful countries have monopolistic power and how they are allowed to exploit weak and poor countries through economic and political methods, resulting in unfairness in income distribution, discrimination and political repression. Given this hypothesis it was predictable that major British businesses were founded on the basis of monopoly concessions, secured at a time when British political power was strong and Iranian political power weak. Within this context, Iranian nationalists were well aware of the fact that the AIOC‟s strategy was shaped not only by the policies of the company, but also by the prevailing political economy of the British government. The AIOC was “acting as an agent of the British government in depriving the Iranian government of the revenues to which it was entitled”. Accordingly, the AIOC was seen as a prime example of domination in its economic power over Iran, resulting in unfairness in income distribution, as well as discrimination and political repression. To return to the direct question of nationalisation, we shall now examine its implications for the performance of the AIOC. The main implication of the Iranian government‟s nationalisation of the oil resources was to prevent foreign oil exploitation on its territory. Nationalisation was considered to be the first movement which emerged out of Iran‟s expropriation of the Anglo-Iranian Oil Company‟s interests in 1951 . Nationalisation of the AIOC angered the British and affected their imperial power because it led to the loss of the company‟s entire status, rights, and assets in the territory. Following the nationalisation of the AIOC by Musaddiq, an unclear relationship between Iran and the British government was established because of British attempts to exercise imperial power. The serious nature of the dispute between Iran and the AIOC in the 1950s was mostly due to Musaddiq‟s persuasion that the problem was more one of principle and politics than of money. Tignor reinforces this view with the assertion that “Political economies, like all human constructions, emerge through the visions of usually powerfully placed individuals”. Thus, Musaddiq‟s nationalisation made Britain lose its previous advantages of maintaining control because the Iranians consolidated their power and were eager to change former policies and agreements. It is clear that the promulgation of nationalisation represented the culmination of a
rising tide of nationalism that overwhelmed the efforts of the AIOC to negotiate a new concession. The British government feared that the existing political situation in Iran would negatively affect the production and exports of the AIOC. Obviously, the Iranians refused to export oil under the terms of the old agreement and refused to allow British tankers to ship their oil from their refinery. That meant that the flow of crude oil would come to an end and the refinery forced to close.
Nationalisation was therefore considered by the British government as a potential threat from several points of view, not least commercial, and the government therefore aimed to fight for the control of Iran without destroying its industry. To this end the AIOC undertook “advocacy advertising” during the nationalisation crisis which took place in 1951 to present a point of view about a major public issue in a way that is favourable to the sponsor (i.e. the AIOC), thus making otherwise onesided viewpoints appear more objective. Indeed generally, since Musaddiq‟s nationalisation, the company had become more aggressive in buying advertising space (as shown in The Times, The Manchester Guardian and The Daily Mirror) to respond to the crisis. This activity was felt to be crucial to the image presented of the company‟s performance and was also used to counter sources of public and political concern (other than making a profit) of an ethical nature. Simply, the reasons that the AIOC undertook advocacy advertising were firstly to widely disseminate a public message and to clearly set the agenda for its preferred policies. To sum up, the events that took place in Iran in 1951 were dramatic because Musaddiq nationalised the AIOC‟s assets, including the largest refinery in Abadan. Musaddiq promoted nationalisation in order to secure more profits and rewards for his own country. Musaddiq was not a radical but a reformist because he was keen to fight against the imperial power of the AIOC which was dominating Iran. To achieve his aims he saw that it was necessary to first attain political independence for his country. Musaddiq criticised the existence of the company because it had not done enough to advance and promote Iranians in its employment. Musaddiq believed that the company had contributed insufficiently to Iran‟s economic and social progress and was aware of the fact that the AIOC had profited greatly from Iranian oil and had thereby dominated Iranian economic life. Iran‟s loss of sovereignty and the desire to defeat British imperialistic power were the main motives for nationalisation, and also because there was no sense that the AIOC was in a quest for equality. From the foregoing it is easy to see how the growth of nationalism was driven by historic antiIranian prejudices which were born out by the manner of the AIOC‟s operations in Iran. On the other hand British officials believed that British firms should dominate external transactions to protect the home country‟s uncertain balance of payments, since Iranian oil supplies were “a major source of soft currency generation and tax revenue for the British government”. Not surprisingly, for the British themselves, the company was seen as a model of commercial behaviour and an example of ethical qualities lacking in the Iranian national life.
As illustrated above, various scholars have different views and interpretations of AIOC operations in Iran and the nationalisation by Musaddiq. For example, Bamberg has studied Iranian nationalism and the development of the AIOC in Iran and explained that the AIOC contributed to the Iranian economy through its exploration activities in Iran and the discovery of oil resources. However, Elm had the view that the AIOC did not contribute fairly to the Iranian economy because non-Iranian subsidiaries were not consolidated by the AIOC thereby depriving the Iranian government of profits generating from overseas operations. Furthermore, he explained that the AIOC should not contend the Iranian claims that the AIOC‟s worldwide business “had been built up on Persian oil”. In fact Elm‟s view supports Keddie‟s suggestion that the company was an untouchable foreign enclave within Iran which exploited the Iranian resources to contribute a significant amount of royalty to the British government. As discussed above, much has been written on the AIOC by various scholars in the secondary literature about the role of the AIOC at a macro level. Notwithstanding the differing views on the above issues, the literature has not examined the attitudes of senior AIOC management to their Iranian employees, how the profits of the company were divided between the main stakeholders, or whether Musaddiq and Iranian nationalism represented a serious political threat to the wealth of AIOC investors. These issues are crucial for a detailed understanding of the events before and after nationalisation, which had such important long term impact on Middle Eastern politics and will be explored further in the empirical chapters that follow.
Notes & References
177. Sampson, The Seven Sisters: The Great Oil Companies and the world they made, 117.
178. Bill and Louis, Musaddiq, Iranian nationalism, and oil, 2.
179. Musaddiq led the National Front coalition from its formation in 1949; Bamberg, The History of the British Petroleum Company, 605-606.
180. Bamberg, The History of the British Petroleum Company, biographies, 593-610.
181. Karshenas, Oil, State and Industrialization in Iran, 65.
182. Abrahamian, Iran Between two revolutions, 251.
183. Ibid, 68.
184. Ibid, 65.
185. Esfahani and Pesaran, Iranian Economy in the Twentieth Century: A global perspective, 5.
187. Karshenas, Oil, State and Industrialization in Iran, 233.
188. Esfahani and Pesaran, Iranian Economy in the Twentieth Century: A global perspective, 5.
189. Tudeh led protests against bad housing and low wages in the oil industry and mobilised mass meetings against the government‟s procrastination in implementing the nationalisation law;
Abrahamian, Iran Between two revolutions, 266.
190. Ibid, 47.
191. Mansoor, State-Centered vs. Class-Centered Perspectives on International Politics: The case of U.S. and British Participation in the 1953 coup against premier Mosaddeq in Iran.
192. Sampson, The Seven Sisters: The Great Oil Companies and the world they made, p.118.
193. Elm, Oil, Power, and principle: Iran’s oil nationalisation and its aftermath, 83.
194. Ibid, 80.
195. Ansari, Modern Iran since 1921, 111-112.
196. Longrigg, Oil in the Middle East.
197. Brumberg and Ahram, The National Iranian Oil Company in Iranian Politics.
198. Marsh, Anglo-American Crude Diplomacy: Multinational Oil and the Iranian Oil Crisis, 19511953.
199. Bucheli, Multinational corporations, totalitarian regimes and economic nationalism: United Fruit Company in Central America, 1899-1975, 436.
200. White, The Business and the politics of decolonization: the British experience in the Twentieth century, 551.
201. Bostock and Jones, British business in Iran, 1860s- 1970s, 66.
202. Ferrier, The Anglo Iranian oil dispute: a triangular relationship, 170.
203. Seers, Dependency theory: a critical reassessment, 15.
204. Friedmann and Wayne, Dependency theory: a critique, 401.
205. For unfairness in income distribution review Keddie, Modern Iran, 124; For discrimination and political repression review Abrahamian, The 1953 coup in Iran.
206. Bostock and Jones, British business in Iran, 1860s- 1970s, 66.
207. AIOC executives blamed the Treasury in London for being inflexible in royalty and dividend payments to Iran which resulted in the company‟s nationalisation; Ferrier, The Anglo Iranian oil dispute: a triangular relationship, 170.
208. Elm, Oil, Power, and Principle: Iran’s oil nationalisation and its aftermath, 48.
209. Odell, The significance of oil.
210. Penrose, The large International firm in developing countries, 211.
211. Tignor, Capitalism and nationalism at the end of empire: state and business in decolonizing Egypt, Nigeria, and Kenya, 1945-1963, 23.
212. Onslow, Battlelines for Suez: The Abadan Crisis of 1951 and the formation of the Suez Group.
213. 1950 reports of AIOC Annual General Meetings, at which the chairman presented the published statement, appeared in different local newspapers such as the Economist and the Times. The AIOC 1950 statement for instance appeared in The Economist December 1st 1951, 59-65; The Times, November 28, 1951, 8(A), Issue 52170.published in full in various newspapers.
214. Ferrier, The History of the British Petroleum Company: Volume 1, the Developing Years 19011932, 180.
215. Tignor, Capitalism and nationalism at the end of empire: state and business in decolonizing Egypt, Nigeria, and Kenya, 1945-1963; Bostock and Jones, British business in Iran, 1860s- 1970s.
216. Marsh, Anglo-American Crude Diplomacy: Multinational Oil and the Iranian Oil Crisis, 19511953, 28.
217. Bamberg, The History of the British Petroleum Company; Bamberg, British petroleum and global oil, 1950-1975.
218. Elm, Oil, Power and Principle: Iran’s oil nationalisation and its aftermath, 53.
219. Ibid, 107.
220. Keddie, The Iranian power structure and social change 1800-1969: an overview, 11.