Modernizing Cold War Ally in the Gulf

Across the Persian Gulf from Saudi Arabia lay IRAN, the great Shiite power of the Middle East where the United States sought stability in the 1960s and achieved it. Each country of the region was unique in some way but, as the core of the once great Persian Empire, Iran stood apart. It was never conquered by the Ottoman Turks, and like Turkey, Iran was the only other power in the region since ancient times with an imperial past. Iran differed also because it was emphatically Persian, not Arab; Shiite, not Sunni.

Geographically it stood as a crossroads of many worlds. Unlike an Iraq, a Lebanon, or a Syria that were embedded irrevocably in the Middle East, modern Iran stood on the edge of it, facing east to India. At the same time, it was a major player in the Persian Gulf with the Saudis in the south, yet important as well to the Russians and central Asia in the north. Perhaps Iran’s final distinction was that it was never quite a European colony or protectorate in the manner of Egypt, Lebanon, or Iraq. It was, nevertheless, an area of influence and intrusive attention from European Great Powers until the 1950s; its sovereignty compromised repeatedly. Its success in breaking out of this pattern was key to the stable 1960s and 1970s.

Before the calm 1960s came the stormy 1950s which were kind of a climax of previous decades. Throughout the nineteenth century, Iran was a focus of geopolitical intrigue – and, along with Afghanistan, central to the British defense of India against Russia. During World War II, both Russia and Britain occupied Iran on the plea of strategic necessity. Each evacuated by 1946 but in the spirit of decolonization pervading the postwar world, Iran experienced a restlessness for self-determination and opposition to things foreign. For decades, concessions to foreign companies in such industries as mining, railways, the telegraph, and tobacco had excited hostility. But nothing matched the animus created by the existence of the Anglo-Iranian Oil Company which had a monopoly on Iran’s proven oil reserves, controlled the largest part of Iran’s national income, and in which the British government had a substantial investment because of the need for reliable oil supplies for the British fleet since before the First World War. For better or worse, these foreign concessions began to be seen as political rather than economic players in Iranian affairs and connected with a populist movement for domestic control.

Shortly after the Second World War, the Iranian shah, Muhammad Reza Pahlavi (who succeeded his father in 1941) was suspicious of Soviet intentions in his country. He asked for American arms, got them, and signed an agreement with the Anglo-Iranian Oil Company, preserving its concession and increasing his government’s income. In 1951, the Parliament of Iran (the Majlis) appointed the charismatic, popular, rich, and eccentrically hypochondriacal Muhammad Musaddiq as prime minister who tapped into an ardent Iranian nationalism. His support came from a kind of mob populism that interpreted arrangements with foreign companies, however beneficial, as imperialist and the selling out of Iranian interests. He opposed the Shah who wanted to continue what he considered the fruitful relationship with the West and particularly British-owned oil giant, Anglo-Iranian. Musaddiq had other ideas, however, including close ties to the pro-Soviet Tudah Party within Iran; and, shortly after his appointment, he nationalized the country’s oil industry, expropriated the British company, and created a new Iranian company to takes its place. This caused an international crisis centered on the huge British refinery at Abadan, at the time the largest oil facility of its kind in the world.

The nationalization of Anglo-Iranian posed a dilemma. Britain viewed Musaddiq as a distasteful character – a communist sympathizer with little regard for the rule of law. The Abadan refinery complex was the British government’s largest single overseas investment, and it feared that to acquiesce in what it viewed as an illegal seizure would invite the expropriation of British assets around the world. For the new American president, events in Iran overlapped with Nasser’s takeover in Egypt. With Egypt an open question, Eisenhower viewed instability in Iran as undesirable, and erratic Iran leadership as an opportunity for Russia to move into Iran. To British foreign secretary, Anthony Eden, Eisenhower “seemed obsessed with a Communist Iran and the need to find alternatives to Musaddiq.”[1]

Several attempts at negotiations with Tehran failed and in August 1953, British and American intelligence services staged a successful coup (Operation Ajax) against Musaddiq using pro-Shah Iranian operatives. The Shah returned and stayed for twenty five years. The nationalization of 1951 held, though it was modified. Iranian ownership was joined with new agreements with a consortium of eight foreign companies for management of Iranian oil, and gave the country half of all profits. British-Iranian relations were restored in 1954. Musaddiq spent the next two years in jail.

For the British in the 1950s, Iran and Musaddiq were part of its strategic framework for South Asian defense dating from the 19th century – the so-called “Great Game.” Musaddiq was also part of the intensely legal question of nationalization. The Iranian experience, after all, provided the precedent for Gamal Abdul Nasser to nationalize a major foreign asset, and set up the imperial clash that took place in 1956 over the Suez Canal. In turn, the two nationalizations in Iran and Egypt were part of a larger pattern of Britain’s retreat from imperial influence in a changing world. The Musaddiq coup was, after all, the last time a hatched in London determined who should be head of state of a major country in the Middle East.[2]

The Abadan seizure and the restoration of the Shah in 1954 marked the end of British dominance in Iran and the start of a relationship with the United States which the Shah firmly embraced as a way to keep both the British and the Russians at arm’s length. For the United States, which replaced Great Britain as the paramount Western power in the world after 1945 – the only “Great Game” was the Cold War. Iran was an important piece in the large Cold War puzzle, and after 1954 the Shah provided stability as an indispensable ally to the West amidst regional turmoil.

In Shah Pahlavi’s Iran of the 1960s, the source of power lay beneath the surface of his kingdom. Oil was first discovered in Iran’s southwestern deserts in 1908 and these discoveries led the way to the Middle East’s oil boom. At first, Iran sold concessions on its oil wealth to Western companies as we have seen, but, as the industry grew, so did Iranian control. By 1971 she earned a billion dollars a year from oil, and further income from selling natural gas to Russia. The Shah realized, and expressed publically, that though Iran’s oil was a blessing, it was not infinite. He believed it would run out in a matter of decades, and it was for that reason that he hastened to use the supply he had to advance Persian interests. The 1960s were boom times as he put petroleum wealth to work to build a modern nation.

At the heart of the Shah’s plans was a package of social and economic reforms he introduced in 1962 called the “White Revolution” designed to legitimize his leadership, modernize the country, and offset unrest among Iran’s mainly left-leaning opposition. For the next 15 years, the White Revolution included land reform, privatization of government enterprises, a massive school building program, literacy initiatives, nationalizing forests and wilderness, extending voting rights to women, and allowing western standards of dress. To diversify Iran’s economy away from agriculture, the Shah invited foreign industrial companies, such as America’s General Motors and United Technologies, to set up operations. New industry required power, and new dams were built in the 1960s with European (oftentimes French) expertise. The electricity powered the industrializing cities and the grids of the rural countrywide.   Floating on plentiful oil, these various initiatives of the White Revolution yielded aggregate growth rates in Iran so rapid in the 1960s that she rivaled Japan and the East Asian Tigers.

With growing wealth, Iran tilted westward in the 1960s, but tended to “play it both ways” in Soviet-American relations. In the material abundance of its great cities, it leaned economically more West than East. The Shah also tilted a bit westward politically. In the early 1950s he had indeed accepted American aid, and joined the anti-Soviet security organization CENTO (as the Baghdad Pact became) in 1955. He visited London in 1959 and received President Eisenhower in Tehran the same year. On the other hand, he welcomed Soviet President Brezhnev on a grand state visit in 1963 aware that Iran had a long northern border with USSR ripe for trade. In these years of explosive growth, the Shah preferred quasi-non alignment by which he positioned himself as a sort of “crowned entrepreneur” in world politics – ever pragmatic – picking and choosing the best ways to increase Iranian influence and prestige as he saw fit (Calvo, 453). In 1971, Iran officially celebrated 2500 years of Persian greatness with a dazzling display of splendor worthy of an emperor and his queen; and it seemed that Iran was on its way to restoring its imperial past – certainly the indisputable economic and military power in the Middle East.

Prospects for Iranian leadership – even dominance – in the Persian Gulf looked even brighter after the British departed their commitments there in 1970-71. The Shah pressed for growth at all costs, with oil and gas the drivers, and the diversification of Iran’s economic base the goal. The 1973 war in the Middle East gave oil producers the chance to raise prices, and despite the reservations of the more cautious Saudis and other members of OPEC, the Shah pushed hard for maximum price increases discounting the damage that might occur to the western democracies. In the year after the oil price rises of 1973, revenue to the Iranian treasury spiked 800% and GNP rose a preternatural 43%. Many Iranians, rightly or wrongly, were prepared to attribute it all to the Shah, whose portrait graced many a shop and house window in such cities as Tehran, Tabriz, and Shiraz.

But all was not happy. Sparkling economic development without political advance bred trouble. Conspicuous growth created the impression of a dynamic people moving dynamically into a prosperous future. This was partially true. But the Shah had estranged many along the road to reform, and with greatly increased revenue and spending came inflation, along with waste and corruption. His “White Revolution” had dealt roughly with the aristocracy in the early 1960s over land reform, undercutting its long-held power. The cities teamed with hastily-built structures, housing millions of workers with low wages that allowed them to access little of the shining economy known to the outside world. The mullahs objected to the school and literacy initiatives which loosened clerical control of education. Many Shiites opposed women’s suffrage initiatives, and the increasing of the marriageable age for girls to fifteen.

Iran continued its dizzying drive to modernize into the 1970s, including heavy military expenditures. By 1975, Iran had an enormous army, and spent a larger proportion of GNP on defense than any country except Israel. Impressive as this was internationally, the Shah was increasingly unwilling to listen to others about the state of his own country. He appeared blind and isolated from the fierce opposition to his policies from radical students and conservative mullahs that even one of the most savage secret police apparatuses, SAVAK, with thousands of arrests and imprisonments, could not mute.

Between 1953 and 1979 (the 1960s at the core), Shah Pahlavi used oil revenue to create prosperity and strength, but the intensity and inhumanity of this revolution united opposition against him and generated a counter-revolution. The Shah’s government collapsed after widespread uprisings in 1978. Mohammed Pahlavi fled the country seeking medical treatment for cancer in several countries, including the United States, and died in 1979 after settling with his family as a guest of Anwar Sadat in Egypt. When the Shah left, Iran became an Islamic republic under Ayatollah Ruhollah Khomeini who returned from exile after fifteen years, and who had commented disapprovingly throughout this time on the incompatibility of strict Shi’sm and Iran’s modernization.  In November 1979, radicals in Tehran invaded the American embassy and took 53 hostages, an event unheard of in the stable pro-Western Iran of the 1960s – or, for that matter, in the stable world of Faud’s Saudi Arabia.

                  [1] Divine, 74.

                  [2] Lapping, End of Empire, 222.

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