Syed Fazlur Rahman

Course: History MC302: World War II through Films

Final Paper
Professor: Mark Lytle
Date: May 24th, 2008

Luck Be A Lady Tonight1

In my essay I shall explore some of the reasons why the United States and Britain fought

a bitter territorial battle over oil in the Middle East and how their presence in Iran

affected the political stability of the country. This internal wrangle between the two

countries is especially interesting against the backdrop of the War, where the US and the

Britain are the closest of allies. The situation is further complicated by the Russian

involvement in Iran and the threat of communism, that adds another layer to the USs

concerns about the region. The fact that all three foreign nations, were basically in

unchartered territories when it came to engaging the politics and society of Iran, makes

the situation even more precarious.

To gain a clear understanding of the US governments interests in the Middle-Eastern

region one has to take a closer look at the private oil interests operating there. Due to the

instability of the region and the failure of normal methods of talks and diplomacy the

government came to depend upon the companies as a way of breaking through the sheath

of nationalism and bureaucracy that veiled the internal politics of the Iranian government.

It is the US governments declared policy that it tries its best to avoid depending on
1
Waiting nervously over several days in the home of one of his operatives in Tehran, Roosevelt took to
playing and replaying the song from the popular musical, Guys and Dolls. It became the theme song for the
operation [Ajax] (469, Yergin).
private entities for matters of the state and government, but during the war that line

becomes grayed out. But policies that had seemed a necessity, passed wantonly in the

immediate rush of wartime, has had implications that have shaped how the oil industry

has grown and transformed in the global sphere. Collusions happen at many levels,

incorporating the multiple hierarchies of governments and corporations. There is no

linear way of telling this story but to understand how all these different elements come

together one has to analyze the methods of collusions, so as to understand the individual

motivations of each actor in the game. I will also take a close look at the workings of the

Anglo-Iranian Company not only because they shed a light on what the interests of the

British were in Iran, but also because of the close nature of their relationship with the

Iranian government.

The initial reason for the Allied presence in Iran had been the increased German activity

in the region. At the outbreak of the war the German presence loomed over Iran causing

concern to the Allied forces. This concern grew when the Nazis invaded the Soviet Union

in June 1941. The Germans wanted Iran because the Allies supply route to the Soviets ran

through the territory. Another concern of the Allied forces was the safety of the Abadan

refinery, which would be a valuable acquisition for the Germans to support their war, at a

time when fuel requirements were high and sources of oil were scarce. It was also no

secret that the shah sympathised with the Nazi cause. When the shah ignored the British

and Russian requests demanding the expulsion of the Germans, the Allies decided it was

time to take action. In August 1941, two months after the German Invasion of the Soviet
Union, the British and Russians moved their forces into Iran and abdicated the Shah,

from the throne, who went into exile and later, died in 1944. (464, Yergin).

OLD FRIENDS, BITTER ENEMIES

In 1943, the British had controlled 81% of Middle East Production as compared with

14% of American control. Analyzing the graph on page 2 shows that Iran was the by far

the largest oil producing country in the Middle East. This was mainly due to the huge

Abidjan refinery in Iran owned by Anglo-Iranian. The Middle East had been the oil

territory of the British, and it was not until the second War had already begun that the US

began to show interest in the region. However, with nearly 75% of the worlds crude oil

production and also 70% of available refinery capacity the US had been by default the

major supplier of oil for the Allied efforts of WW2 (100, Stoff). As of October 1943 the

Middle East was not yet an important source of oil for the U.S. even this late into the

War. But bearing the brunt of the wars oil demands woke the Roosevelt administration

up to the needs of the future.

MIDDLE EAST CRUDE PETROLEUM - 1943 PRODUCTION AND

OWNERSHIP2
[Barrels]

Country and Production American British Other

Company
Iraq: Iraq 25,270,000 6, 002, 000 13, 267, 000 6, 001, 000
Petroleum
Bahrain: Bahrain 6, 561, 000 6, 561, 000 --- ---
Petroleum
2
From Multinational Oil Corporations and US Foreign and U.S. Foreign Policy
REPORT. Page 8.
Arabia: California 4, 866, 000 54, 866, 000 --- ---
Arabian Standard
Egypt: Anglo- 8, 953, 000 --- 8, 953, 000 ---
Egyptian
Iran: Anglo-Iranian 75,323,000 --- 75,323,000 ---
Total (barrels) 120,973,000 17, 429, 000 97,543,000 6, 001, 000
Percent 100 14.41 80.63 4.96

The US motivations in the Middle East were quite noble. In the 1920s it had gone into

Mesopotamia advocating the Open Door Policy, and was even outraged at Lord Curzon

when he questioned the US reasons for their involvement in Mesopotamia. The US

governments envisioned a world of free trade in which nations collaborated to prevent

wars by guaranteeing equal access to raw materials and to commerce (119, Stoff). But

when it came down to oil they considered it too important to leave it up to the private

sector to decide. Oil was a matter of national security and they realized they had to find

practical solutions to overcome the abstract principles of the Open Door policy so

although they could not openly provide approval of the private arrangements that the US

oil companies were making with each other in the Middle East they overlooked the

antitrust infringements, thereby giving it their tacit approval. Thus, even the governments

high-minded principles were deemed trivial by their hypocritical approach to the Middle

East. According to the Federal Trade Commission, The "open door" policy which had

been so strongly advanced was discarded in subsequent years without a single test of its

adequacy as a practical operating principle (Blair). Even the famous Red Line

agreement in 1926, which covered the oil-rich region of what had been the Ottoman

Empire, merely replaced the earlier TPC monopoly with a much stronger collusion. The
"open door," as Calouste Gulbenkian put it, had been "bolted, barred, and hermetically

sealed" (Blair).

Within the Red Line, the American side were still under very restrictive terms, and

Harold Ickes on the eve of the new Anglo-Iranian Agreement is quoted as saying, Now,

whatever else this Red Line may be, it certainly is not competitive cartel practices

which we hope, and expect, to consign to oblivion though the operations of the Anglo-

Iranian Agreement (9, Subcommittee). The irony of this statement is rather blatant when

considering that this was the middle of the World War II, and although neither Germany,

Japan or Italy had any oil interests in the Middle East, it did not stop the Americans and

the British from engaging in a bitter commercial battle over territorial dominance.

The British motivation expressed righteous indignation. To them the Middle-East was not

only a strategic middle ground for the defense of the Empire but, also, Iraq to them had a

historical significance for Iraq had cost the British many millions of pounds and

thousands of lives, first to conquer from the Turks and then to hold and administer (228,

Shwadran). So when in 1926 they found that the Turks were trying to take back Mosul

from them, it was not only a matter of politics, but of pride. Oil was also important but

the British denied this accusation. The British were rather sensitive about this topic

because they felt that they had been misrepresented in the public concerning their foreign

oil policy matters. To this effect, Sir Austin Chamberlain testified in 1926, in front of the

House of Commons, that a Turkish representative had approached him a year earlier and

had offered the British side concessionary terms to the oil in Mosul if Turkey could retain
claims on the territory itself. Sir Austin point of course was that out of obligation to the

League of Nations and their promise to King Feisal that Iraq would retain Mosul, they

had been forced to decline the offer (229, Shwadran). This Sir Austin said was proof

enough of Britains noble intentions. It was actually the convergence of a various factors

that favored the British that allowed them to lay claims on Mosul, and thereby, its oil.

Firstly, it had already been dictated in the terms of the Anglo-Iraqi Treaty. Second, a year

before Sir Austins statement Britain had already announced in front of the whole world

at the Lausanne Conference that it was treaty bound to Iraq. Sir Austin may have been

telling the truth but it was a moot point considering past events. It was just another

example of how far the British would go to disprove any claims that their presence in the

Middle East meant that they were after oil. The bitter Anglo-American correspondence

that followed did not leave any doubt about the seriousness of the British intent to retain

its dominance in the Middle East.

THE THIN RED LINE

The San Remo Agreement divided the oil of Mesopotamia between the French and the

British to the exclusion of the Americans. This started a bitter struggle for territorial

dominance between the two nations. In 1920 the United States insisted that the

concession had no legal validity, whereas the British would insist in return that the United

States owned 82 percent of world production and their argument based upon free

competition was not reasonable. In truth, the US had spent itself providing fuel for the

World War I, and although it produced much more than the British it had had only one-
twelfth of the worlds petroleum resources (220, Shwadran). As the primary provider for

the War it felt that it was entitled to its shares of the spoils of war.

On July 31, 1928 all the participants of the Turkish Petroleum Company, including he

US, signed the Group Agreement that limited the activities of each participant in a

specified region of the Middle East. This agreement came to be known as the Red Line

Agreement since the areas allotted to each party were divided by a red line. The

percentage shares in the Turkish Petroleum Company were: Anglo-Iranian Oil Company

(at that time Anglo-Persian), Royal Dutch Shell Company, Compaigne Francaise des

Petroles, and the American Group, each 23 per cent, and S.C. Gulbenkian, 5 per cent

(238, Shwadran). Even with the inclusion of the US the end the result was the same, one

oligopoly in exchange for another, with the collusion of TPC, in effect, being one more

stronger with the addition of the US. As one writer commented, the Red Line

Agreement is an outstanding example of a restrictive combination for the control of a

large portion of the world's supply by a group of companies which together dominate the

world market for this commodity (Blair). In a confidential memorandum, the

Compagnie Franoise des Petroles in the agreement described the objectives of the

agreement: "The execution of the Red Line Agreement marked the beginning of a long-

term plan for the world control and distribution of oil in the Near East." The note also

mentions that the operations of the IPC were operated in secrecy so as "to avoid any

publicity which might jeopardize the long-term plan of the private interests of the

group" and thus prevent any outside interests being able to compromise the TPCs

collusion (Blair). Thus, the Red Line demarcated a boundary that no other companies
could trespass and it formed a cocoon where only these handful of companies could build

up an impenetrable industrial matrix, via which they could siphoning out the resources of

the Middle East.

THE ROAD TO IRAN

With the outset of World War II it seemed that the British and the Americans would have

to finally shake hands and put past differences behind them. Roosevelt realized this early

on, and he made up his mind that Anglo-American cooperation was the only way to put

up a solid resistance to the German onslaught. Logistically, America was separated from

the ongoing war by the expanse of an ocean and so it had to fight the war using Britain as

a proxy. Since the US had the resources and Britain did not it basically had to supply the

Britishs war efforts. Roosevelt knew that if Britain fell it would mean that the Germans

could recuperate and replenish their army before attacking the US. This would place

America in a very dangerous position and this is the reason why Roosevelt had advocated

Lend Lease so strongly. However, he faced a great deal of resistance from his own

government and the public. Anti-British sentiments were rife, especially given, that as the

War went on it seemed more and more that the US was basically acting like a crutch for

Britain, providing the resources and supplies that it lacked.

In November 1942, the British Army rode into some American oil installations in Iraq,

and started plugging wells and dismantling drilling equipment (91, Stoff). When the
State Department complained about this the British officials basically gave them

roundabout explanations saying that it was a security measure to protect the oil

deployments from falling into enemy hands. Although a small event separate from the

larger war it revealed the tension that existed underneath the surface beneath the

appearance of amicability that both countries put up on the international diplomatic front.

The altercation showed how the relationship between the two sides had been strained, and

it appeared reconciling them was not going to be an easy task.

In the end it took a man outside both the US and the British administrations to finally

take the initiative to bring the sides together. The Anglo-Iranian representative in the US

governments Petroleum Administration for War at that time had been a man named Basil

Jackson. Jackson realized the time to act was now, or never. He had kept his eyes open

and noticed the subtle changes on the US oil front. The first reason for his concern had

been that the US governments involvement in the financing of a refinery in Arabia

without informing the British. The second reason was the Petroleum Reserves

Corporation (PRC), which had been shrouded in secrecy since its inception, and had

recently been trying to get ownership of a foreign oil company (96). His intuition was

well placed since the mastermind of the PRC was none other than Harold Ickes, a self-

proclaimed megalomaniac, who never let anything stop him from getting at what he

wanted. When Herbert Feis, a State Department advisor, wanted to go to Britain, to

approach the British on their own turf, and perhaps informally set the ground for future

talks, it was Ickes, who had convinced Roosevelt not to let Feis go on the trip. Ickes had

wanted any international agreement to have his stamp and represent an extension of his
public stewardship (119). Ickes in an effort to remain in control of oil policy matters had

basically given up the crucial chance to open the way to a formal dialogue between the

two sides. (Stoff).

However, Jackson realized, for the first time, both sides had a common enemy and that

meant it would finally be possible to convince them to see eye to eye, and sit down for

talks. In a war the need for secrecy creates a situation where even allies stop talking to

each other. This is where diplomacy can avoid heavy political costs and curtail the

obstinacy of bureaucracy. At first the feedback from London was disheartening but

Wilkinson, the British petroleum representative, joined Jacksons cause because living in

Washington he had talked to many of the oil men stationed in the Middle East, and their

words had put in him the same doubts that Jackson had felt. He realized, the only solid

basis to a real and lasting United Nations oil policy was to bring the two sides together

(98, Stoff). Till now bitterness on both sides had prevented them from listening to each

other. But Wilkinson and Jackson saw that it was in Britains interest to cooperate with

the U.S. since a Washington Santa Claus bidding for concessions with lush bags of

money from Fort Knox and the Treasury would only lead to the political and economic

evils of unbridled competition (98, Stoff). As Stoff explains that unless a peaceful

agreement could be reached the two sides, and unless ways of rationalizing development

could be maintained, the very abundance that promised riches would bring instead

overproduction and price wars (120, Stoff). Thus, a cartel would have to be formed,

however grudgingly, so as to not create any unnecessary ripples on the surface.

COLLUSION AND CRISIS

The Middle Eastern oil deals had far reaching consequences that would ultimately help to

establish the Persian Gulf as the base of world price structure for petroleum. As Stoff

explains, the oil deals had opened the way for increased development by removing

restrictions on production allowing the companies to tighten their grip on the region by

building up a series of interconnected agreements that essentially guaranteed the safety of

the oil companies investments (206, Stoff). The story of the US government along with it

allies, the British and the Russians had been one of constant frustration and diplomatic

nightmares. However, the oil companies had basically succeeded whereas the government

had failed. The US governments goals of rationalizing oil production in the Middle

Eastern region had been achieved, and the barriers to US oil production in the region had

been significantly reduced. Thus, as a matter of political feasibility the government

decided to look the other way when it came down to the question of collusive practices.

In the long run, the private unregulated arrangements that public representatives

determined as national interest, during wartime, might incur a high cost to the public over

time. Let us look at some of the economic reasons as to how monopolies hurt the

economy. When a cartel is formed with the intention of eliminating competition between

rivals it basically creates market failure by rendering the pull of demand negligible thus

creating an artificial barrier to affect price mechanism. Even in an oligopoly there is an

element of rivalry but when these oil giants come together they basically control the

markets supply and thus have complete control over the consumer. This leads to a

situation of stagnation and the slowing down of production. Basically, a cartel acts like a

glut in the market, creating a false reservoir to raise prices and make supernormal profits.

But this aggravates price volatility. Collusions suffer from the diseconomies of scale, and

for reasons of bureaucratic inefficiency caused by their large size, their rate of output

cannot be changed to match changing market conditions and thus causes or magnifies

swings in the supply and the price of oil. This creates havoc in the market not only for

consumers, but also for small producers who are not able to react to such sharp

fluctuations and are only able to absorb so much damage before they go under. Thus,

even entry into the oil market becomes difficult and precarious..

In 1952, the Truman administration began the process of bringing criminal indictments

against the seven Majors Jersey, Socony, Socal, Texaco, Gulf, BP and Anglo-Iranian.

However, the Russian threat and Communism looming over the shoulders of their

administration, both Truman and then Eisenhower had to back off and narrow the scope

of their antitrust proceedings. The scoped of the proceedings that ensued did nothing

more than propose marketing and distribution changes so that the companies were able to

protect their monopolistic hold of the crude oil supply in the Middle East.

While studying an earlier case concerning Jersey the Justice Department stumbled upon

information about an arrangement between Jersey and Royal Dutch Shell. What was

intriguing about this marketing arrangement was it was actually a pact made as part of the
As Is agreement. A confiscated letter from a Czechoslovakian subsidiary blatantly made a

reference to the current marketing position of Shell under As Is. The As Is Agreement

signed in 1928 by the heads of Standard Oil of New Jersey, Anglo-Persian, Gulf, and

Standard of Indiana as a formal treaty to bring order, divide markets, stabilize the

industry and defend profitability for these giants of the oil industry. This led to the

indictments of the other partners of the original 1928 agreement that included Socony,

Socal, Anglo-Iranian Oil, Gulf and Texaco. However, the case never left the ground.

Insufficient evidence was sighted as the reason for this, however, it was more in part to

the peculiar role that the oil industry played in the US economy. As Attorney General

Graham Morrison said of the case, distribution of oil both foreign and domestic is in fact

a quasi-public utility business although not usually recognized as such and is innately

[sic] by nature of a monopolistic character (38, Kaufman). Oil, given how closely it was

tied into the US economy was basically a public good, in nature, but was operated

through private channels. It seemed that as long as the interests of the government and the

private corporations continued to coincide, the government appeared to lose interest in

the cartel case, as a matter of political feasibility using the excuse that antitrust might

later be applied to make requisite adjustments (208, Stoff).

This was also the same line of reasoning given behind the suppression of the FTC oil

industry investigation report of 1949. Funkhouser points out that the NSC did not find

anything wrong with the report but only recommended that it would not be wise to make

it public since it would, hinder the achievement of U.S. foreign policy objectives,

particularly in the Near and Middle East (1, Funkhouser). Eventually, when the public
learnt about the report and the evidence of an international cartel began to pile up Truman

was forced to order a grand jury investigation. Then in 1951 the Iranian Crisis turned

everything over on its head. Truman now in need of the support of the oil companies

called of the grand jury investigation. In doing so, he not only bought the oil companies

more time to build up a defense but the fact that he was forced to reverse his decision he

had made the Justice Department look bad, and now if the case was to be resumed at a

later date the oil companies would more or less call them out on the fact that this case had

already been dropped once. Trumans recommendation of a civil suit was also a mere

formal gesture on his part, a triviality that held no weight, since he knew, the lengthy

investigations would take too long to mount up a strong case. When the case finally did

resume under the next administration it was already too late because Eisenhower caught

up in the Iranian debacle had already promised the oil companies that they would not be

bothered by antitrust. The case against the oil was further weakened when the

administration allowed the formation of the Iranian Consortium. Again the administration

had placed the Justice Department in a difficult position. Trying the majors case was not

an option any more since the government had seemingly advocated collusive agreements

in Iran and it would mean prosecuting the very actions that it had just encouraged and

sanctioned in the name of the national interest (47).

In the eyes of the Iranian public the Anglo-Iranian Company was the epitome of greed

and Western despotism. Dean Acheson sums this up in his memoir rather grimly,

Throughout the near east lay rare tinder for anti-western propaganda: a Moslem culture

and history, bitter Arab nationalism galled by Jewish immigration under British
protection with massive American financial support, the remnants of colonial status, and

a sense of grievance that a vast natural resource was being extracted by foreigners

thought unfair to those living on the surface (60, Lilja). It became a symbol of Irans

continued domination by foreign powers and lack of control over its own natural

resources. The Company had, in earlier times, kept close ties to the Iranian government to

safeguard its investment. During the 1930s John Cadman then director of Anglo-Iranian

acted as the Shahs representative in the government, promoting the Shahs goal in

Britain as a way to secure his relationship with the Shah (31, Lilja). But when the crisis

occurred they no longer had this safety measure to fall back on. The company knew how

to deal with the prime ministers, who could simply be cajoled with more lucrative

concessionary terms, but Mossadeq, who came back from exile after the Shads

abdication to become a mahjli, was a different case altogether, and seemed to only care

about the cause of nationalization. To him the Anglo-Iranian Company represented

everything that was wrong with his country. More importantly, Mossadeqs stance was

influenced by the leader of an extreme religious faction, by the name of Kashani, who

had a deep-set hatred for the British (411, Bamberg).

When the British imposed their embargo on Iran after Anglo-Iranian was nationalized

they basically put a cork in the lid of Irans oil production. No oil was flowing out of Iran.

Since Iran was the main oil producer from the Middle East it meant that, world oil

demand would exceed supply by the end of 1951 (464, Yergin). But mainly due to the

vigilance of the Anglo-Iranian companies, and its legal advisors, it was able to scare any

large global oil companies from engaging in business with the Iranians. The company
took stringent measures to make its policy on hot Iranian oil clear, and had placed

notices in all the worlds major newspapers. However, it was generally regarded as

normal etiquette amongst multinationals when dealing with each other that, for example,

a corporation with it own concessions in countries around the world is very unlikely to

purchase oil from the nationalized concession of another company for fear of setting a

precedent lest others in the foreign oil market would then start to encroach on the

boundaries of its oil territories (22, Subcommittee).

The US companies although interested in Saudi Arabia and Iraq, had for so long ignored

Iran because its unstable state was not a good prospect for investments. However, the US

government with constant assurances of antitrust exemption to the Oil Majors managed to

form a Consortium that would allow Iranian oil production to resume, and stabilize the

price of world oil. However, the US had dual goals and the latter reason was to keep an

eye on Soviet and Communist influences in the Country.

Although, the Iranian crisis had been resolved the episode had revealed the volatility of

the political situation in the Middle East, and despite the efforts of government and

multinationals, Iran was far beyond their understanding, and would not be tamed as easily

as they would have liked. Funkhouser also adds that nationalism is hard to predict by

saying that To think that the Arab masses will learn a lesson from the Iranian debacle

may be unrealistic. This was a warning towards the spill over effects of the Iranian

uprising on the mindset of the Saudis whom the US company ARAMCO had a

concession with.
With the formation of the consortium, The United States was now the major player in

the oil, and the volatile politics, of the Middle East (477, Yergin). Americas stake in

Iran was to prevent communist influences from overriding the region. For this matter it

was at odds with both its allies in the war against Germany. It was odds with Russia

because of communism and it was at odds with the British not only because of the Red

Line agreements but also because it saw Britains involvement in Iran as outdated

imperialism that made the Iranian government weak through its methods of patronization.

A weak government the US feared would fall prey very easily to the communist

influences of Russia.

In January 1942, Great Britain, Iran and the Soviet Union signed an alliance guaranteeing

to protect Iran from invasion by the Nazis and to withdraw their troops within six

months after the wars end (105, Keddie). The Russians, however, had a hidden agenda.

By positioning their troops all along the northern border of Iran the Russians were trying

to impose their presence upon the Iranian government, and had hoped to pressurize the

Iranians into handing over an oil concession to Russia. The first time the Russians

approached the Iranian about oil things did not go to well. The Soviet envoy tactlessly

insisted on an answer, yes or no. This did not please the Iranian government who were

already resentful of foreign involvement within their borders. As Sir Clarmont Skrine, the

British Consul in Mashad explained, this was not a tactic that was likely to further the

Soviet cause. As Skrine commented: 'In Persia it is not good manners to say no to a

friend; you make vague promises and verbose excuses and do nothing until he gets tired
and goes away (Blair). The Russians made the mistake of trying to force their demands

upon the Iranian government, and this only served to increase the resentment that the

Iranians had for foreigners.

The initial attempts by Russians to break through the barrier of the complicated

bureaucracy, failed mainly due to the experience of the Said Muhsin, the Iranian Prime

Minister at that time, who refused to bow down to Soviet pressure. His successor,

Murtiza Quli Bayat, also followed Saids example and deftly avoided giving

commitments to any deadlines by telling the Soviet Ambassador in Iran that the matter of

the oil would have to await the end of the War and the departure of foreign troops.

In the Majlis, the leader of Iranian resistance to Soviet oil demands was the nationalistic

Musaddiq and on 2 December 1944, he introduced a Bill to prevent the Iranian

government from entering into negotiations or signing oil concessions with foreign

interests without the assent of the Majlis. It was passed by 80 votes to 7. However, after

the War was over and all the allied troops moved out by their deadline of March 2 1942,

the Soviet forces remained stationary in their position within the borders of Iran. The

Soviets also tried helping launch a separatist movement in Azerbaijan to topple the

government but the Iranian army crushed the movement before it could pose any threat to

the government.

However, the unpredictable pendulum of Iranian politics swayed favorably towards the

Russians in 1946. The post of Irans Prime Minister changed ten times between the period
of August 1941 to December 1947 due to the tumultuous politics created by the different

political factions within Irans internal political structure. When the Hakimi government

fell on January 26 1946, Qavam al-Saltana, who was more well disposed towards the

Russians, was again appointed Prime Minister (252, Bamberg). They approached him

with a proposal to obtain a concession in exchange for troop withdrawal and he agreed.

However, recent political problems with the separatists had forced the elections of the

Mahjlis to be postponed. When, the new Mahjlis were appointed they refused to

recognize the Russian concession, and purported that Qavam had stepped out of his

bounds when he had made that agreement. That signaled the end of Russian involvement

in Iran and served to establish that Iranian nationalism was a force to be reckoned with.

The American solution to the problem of Communism was simple, that is to say the

establishment of a strong autocratic government that would be able to stand its own

against a perceived soviet challenge. By creating a government that could stand up to the

Soviets the US had not realized it was also creating a government that would be able to

oppose their presence inside Iran. The Americans had taken for granted what worked in

Saudi Arabia could be repeated here but they had not accounted for the strong religious

element within the country that would oppose intervention from a foreign culture. In fact,

Iran was a far more diverse and complicated case. The existence of a middle class and the

and it history of protest and social activism set it apart from other regimes that had a

similar history of suffering under sustained periods of autocratic rule. With little outlet for

their intellectual growth young Iranians began to sympathize with the plight of their
countrymen and took part in many social movements in the early 1940s hinting at their

hunger for more political freedom.

In her book, Modern Iran, Nikki Keddie explains the growing unrest in Iran as the

culmination of many factors such as the [foreign] occupation, the abdication of Reza

Shah, and new economic and social problems that all merged together to create a

politically unstable situation. The existence of government sponsored monopolies made

the economy inefficient. Keddie explains this vicious economic cycle by saying, the

government was the instrument of the upper classes, and regressive taxes and other

policies continued to hit the majority. This subjugated the masses and created a

demoralized state where corruption festered and spread in society. A famine in 1942 led

to inflation. This was made worse by unscrupulous speculators who brought up all the

scarce staples, and forced prices to rise indiscriminately. According to Keddie, This

included the upper bureaucracy, those who profited from the peasants, and some traders

who profited from the underdeveloped distribution system to buy cheap and sell dear.

The Trans-Iranian Railroad was also redirected to send supplies to the Soviets. This

slowed down and disrupted internal trade in Iran. The Iranian government, in its nascent

state, was not able to react to the increasing demands of wartime, and took little

regulatory measures to fix these economic problems. According to the Iranian National

Bank, the cost of living index rose from 100 in 1939 to 757 in 1944, increasing eight

fold within the war period. (106-108, Keddie)

The fall of Reza Shah in 1941 had heralded the end of an age of autocratic rule. Iran had

several major minority groups with varying degrees of political organization and

independent tendencies. Those minorities that had been subdued by the stern autocratic

power that the Shah had established, now resurfaced because the new king, the Shahs

son was still in the early stages of his reign and not in full control of his cabinet yet. This

re-emergence meant that there were many political parties in Iranian politics at that time.

The Farsi speaking majority was represented by the Iranian nationalist party. They were

opposed by the communist party who enjoyed the support of the Turkish speaking Azeris

and Kurds, who were still trying to establish the freedom of their unity and language.

Such was the dichotomy of the Iranian political scene that there was even a political party

to represent the urban middle class intellectuals, which is surprising given the influence

of Islam over the public and political sphere. Then there were the extreme left,

represented by the Tudeh Party, and the right wing National Will Party who shared a

mutual rivalry with each other. There was also the re-emergence of Religious leaders

such as Ayatullah Abul Wasim Kashani, who opposed not only the British, but also the

Shah (250, Bamberg).

This diversity of political factions and allegiances created problems in reaching a single

definable goal that all parties involved can agree upon. Even in the case, that the best

possible solution is reached, the presence of multiple minority factions means that there

will always be those who feel as if they were left out, and thus would rebel and try to

cause a disturbance so as to prevent a unified goal being reached. This complicated

matters for the American government who had tried very hard to build up diplomatic

relations with the Iranians.

The jarring naivety of the US when it came to Irans politic embarassed the US over and

over again. The American oil company in Saudi Arabia had been having smooth

negotiations with Ibn Sauds absolute monarchy compared to the rocky relationship

between the AIOC and the Iranian parliament. This gave them the feeling that it was the

Britishs own fault that they were having problems and that the British were stalling to

avoid giving more concessions to the Americans. The Anglo-Iranian company had,

however, been successful in negotiating with the executive powers in the Iranian

government but it was the confounding existence of a separate legislative branch which

made their position so difficult (65, Lilja) Thus, as the AIOC kept getting held up by the

Iranian parliament the Americans obtusely went on putting more and more pressure on

the British Foreign Office for further concessions.

This episode, and their short temper with the British, revealed why the had had so much

trouble with Mossadeq. Iran greatest fear was of being colonized by the British and the

Russians. When the two countries signed an agreement dividing the country into spheres

of influence it had been the Iranians worst fears for it was as if the British Empire

seemed to have materialized. (12, Lilja) Thus, in creating Great Britain and the Anglo-

Iranian Oil Company as an enemy to define the Iranian people against Mossadeq

certainly did not have to stray far from history. However, it was not out of some personal

vendetta, rather the British were the most applicable as scapegoats for the misery and
plight of the Iranian masses. His main intention had been to promote unity and the

realization of the Iranian people as a free nation. They did not realize Mossadeq did not

see nationalization in terms of pure economics and instead placed a higher value on the

political symbolism and political benefits of nationalization (10, Lilja). This failure to

understand the true meaning of the rise of Mossadeq was the reason why it took the U.S.

so long to truly cope with the nationalization crisis. Mossadeqs religious connections,

who supported him and were the essential backing to his campaign, should have also

indicated to the US that his political life had been contingent upon his ability to stir

feelings of hatred amongst his countrymen for the foreign influences that were present in

Iran. It took the U.S. many years to realize the reactionary nature of his politics before

they got tired of fruitlessly negotiating with him, and finally overthrowing him.

CONCLUSION

The Cold War and the threat of Russian Expansionism created a internal tension in the

administration and a bifurcation of policy on the one hand, prosecuting violators of the

antitrust laws while, on the other even encouraging violations when they were conceived

to be in the interests of national defense and security (55, Kaufman). During a meeting

to discuss the Korean situation in late June, 1950 Truman went over to the globe in his

office and putting his finger on Iran, [his adviser] Elsey noted, the president said Here
is where they [the communists] will start trouble if we are not careful if we just stand

by, they will move into Iran and they will take over the whole Middle East(Pg 38, fn 9,

Funkhouser). All of Trumans advisor had told him that the oil industry was to be

considered of value to national security, and thus he tried to avoid any investigations into

the companies internal affairs. In Eisenhowers administration, it was no secret that those

in the Department of Interior shared a good rapport with some high-ups in the major oil

companies. They would take the side of the oil companies and defended the companies

actions in the Middle-east going as far as refusing to make available to the Justice

Department requested documents on oil operations abroad (44, Kaufman). The only

reason they got away with this was because Eisenhower himself had many powerful

friends in the oil business. In fact, with the history of the whole International Petroleum

Cartel case it has been the pattern that every time it seemed possible that there would be

breakthroughs made and, at least try to address the problem at its source, which was oil

companies colluding vertically to exercise full control over international reserves of

crude oil, the prosecution would find it lawsuit suddenly brought to halt by external

factors beyond their control. Yes, there were small victories Gulf and Jersey but these

were mere cosmetic changes and did not put a real dent on the cartels Middle-Eastern

stranglehold. Perhaps, the White House was not serious about the cartels. After all, what

harm could a cartel do if it was just trying to do the best business it could in a cutthroat

business?

The formation of OPEC in 1960 was an indicator of how much the international

petroleum cartel evolved since World War II. The OPEC cartel, which controls 70 percent
of the worlds known oil reserves and restricts how much oil reaches consumers. OPEC is

inefficient. according to the Joint Economic Committee findings on OPEC in November

2005, OPEC today barely produces more crude oil than it did in 1977 (1, JEC).

According to the OECD, OPEC and the reserve-rich producers in the Middle East have

incentives to exploit [their] cost advantage by trading off market share for a higher price.

(18, JEC). It is poignant to mention at this point the words of the US ambassador to

Tehran who, in 1954, upon the formation of the Iranian consortium had observed that it

seems almost inevitable that in some time in the future the Middle Eastern countries

will come together to decide upon unified policies which might have a disastrous effect

upon the operation of the companies , in effect overwhelming the US companies and

leading to the establishment of their own internal collusions within the Middle East (477,

Yergin).

In his article, The Oil Cartel Case and the Cold War, Professor Kaufman accuses the

Justice Department efforts of not being able to tackle the energy giants head-on. He

points out, Joint marketing and price-fixing agreements were only the most burdensome

and difficult to maintain of the many parts of a scaffolding they had achieved the

stability of flow [supply], and hence prices, that had been the purpose of the original As

Is Agreements (55, Kaufman). Thus, the fundamental weakness of the government suit

against the cartels had been that it did not do much to incorporate into their case about the

international control of the production of crude oil. By merely trying to prevent price-

collusion they had not really affected the companies grapple hold on the supply of oil in

the world market. According to David I Hagerman of the Public Counsel and Legislative
Section of the Justice Department, the real key to the economic power wielded overseas

by the Cartel case defendants together with British petroleum and Shell at least since

World War II, has resided in the complex of closely interlocked joint ventures which they

control at some of the very industrial levels [that] we have been foreclosed from

challenging, viz., crude production and refining. The Federal Trade Commission

findings, which had not been allowed to be published, concluded that concentration in

the form of jointly owned subsidiaries and affiliated companies was probably more

widespread in the international petroleum industry than in any other field of enterprise

(39, Kaufman). This was in 1949. The story is the same today.

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