The 1951–53 oil nationalization dispute and the Iranian economy: a rejoinder

Abstract

While much has been written about the politics of the 1951-53 AngloIranian oil dispute and the overthrow of the Musadiq government, relatively little has been written on Iran's economic response during the oil nationalization crisis and the results of these policies. More than forty years after Musaddiq's overthrow, the subject remains a source of powerful passions and, not surprisingly, the issue of economic policy and performance during the Musaddiq years (1951-53) has been a source of sharp disagreement and controversy. A widely held view is that the economic and fiscal measures adopted by Musaddiq successfully dealt with the grave economic crisis that had resulted from the nationalization of the Anglo-Iranian Oil Company and the subsequent boycott of Iranian oil. Adopting this approach, Clawson and Sassanpour' have examined the external and internal adjustments of Iran's economy to the loss of foreign exchange earnings and government revenues that resulted from the nationalization and boycott during 1951-53. The authors argue that, faced with the sudden loss of two-thirds of foreign exchange earnings and 40 per cent of government revenues, the Musaddiq government adopted a series of economic measures that were successful in dealing with the balance of payments and fiscal crisis. Measures intended to address the balance of payments crisis consisted of currency devaluation as well as import restrictions, quotas and tariffs. These measures, it is argued, succeeded in drastically reducing imports and boosted non-oil exports, and thus reducd the trade deficit to a manageable level. The fiscal crisis was addressed by cutting expenditure and raising taxes. Clawson and Sassanpour conclude that had the oil boycott continued indefinitely: