Iran's Oil Nationalization and Mossadegh's Involvement with the World Bank

Abstract

The first encounter between the World Bank and Iran over Iran's oil dispute with Great Britain took place in Washington, DC. The World Bank's Vice President, Robert Garner, met with Iranian Prime Minister Dr. Mohammad Mossadegh, who was in the United States to address a British resolution pending before the United Nations Security Council. In three Bank missions to Iran between January and March 1952, several features of the Bank's proposed temporary management of the recently nationalized Iranian oil company were discussed. The Iranian government refused to approve the employment of British nationals under the Bank's operation of the nationalized oil company. The Bank, meanwhile, prevented by its Articles of Agreement from excluding employment of personnel from one of its members, could not agree to undertake the temporary operation of Iran's nationalized oil company. After a few months' break in contact between Iran and the Bank, the Iranian government sent a representative to the Bank to reopen the discussions - but unaccompanied by a controversial international adviser Mossadegh had requested. Consequently, when the oil talks reopened, the Iranian representative was unprepared to fully articulate a new Iranian proposal that would allow the reengagement of British personnel. Unfortunately, the Bank team did not follow up on this meeting and did not support the Iranian representative in refining the new proposal. Less than a year later, Mossadegh was deposed, and an international consortium took over operation of the Iranian oil company. The fall of Mossadegh demolished the hope for national sovereignty and full democracy in Iran - with far-reaching consequences for the Iranian people and the international community. This article, based mostly on archived and unpublished World Bank materials, reviews the involvement of Mohammad Mossadegh's government with the World Bank after the March 1951 nationalization of the Anglo-Iranian Oil Company (AIOC). Before nationalization, the AIOC had a considerable international market share for crude and petroleum products. Its operation of the world's largest refinery in Abadan ensured an uninterrupted supply of oil products to the British merchant and navy fleet. However, the Iranian workers in Abadan lived in appalling conditions, with no running water or electricity. The AIOC's profit distribution was also highly uneven. For example, in 1946, its profit taxes to the British government were twice as large as its royalties and net profits payments to Iran. In February 1951, the AIOC increased its profit-sharing offer to 50-50, but the Iranian government was not satisfied. Many Iranians considered the AIOC exploitative, and its nationalization plan constituted a critical element of the government reform program. On March 20, 1951, the Iranian Senate approved the nationalization bill. In May 1951, the AIOC applied to the International Court of Justice at The Hague for arbitration proceedings. While British warships were stationed near Abadan, the British government appealed to the United Nations Security Council (UNSC) to pass a resolution for the two parties to resume negotiations.1 After the AIOC was nationalized and its British personnel left Iran, operations at its oil fields ceased. Iranian-trained workers were unable to manage large-scale oil production, and a British-imposed embargo made it almost impossible for Iran to find tankers to export oil.2 Consequently, the heavily oil-dependent Iranian economy suffered considerably and while the US refused to grant financial support and the Soviet government declined to repay its wartime debts to Iran, budget and balance-of-payments deficits ballooned.3 Among several unsuccessful attempts to resolve the dispute, at least two were made by from the US government: first by Henry Grady, US Ambassador to Iran,4 and then by W. Averell Harriman, President Harry S. Truman's special foreign policy assistant, who went to Tehran to reconcile the two diverging positions. …