Modern States and MNC’s,Case Study: “Operation AJAX” Coup in Iran

Submitted to Dr. Abdur Rob Khan

ESS DepartmentBRAC University

ECO325

Submitted by:Obedur Rashid Bin Sakrat Kaderi

03105002

AbstractAfter World War II, MNC’s have started to play a major role in the world politics as well

as economy. More or less people started to think about the state role in this situation. In

this paper I tried to analyze the Iran incidents in 1953, and tried to find out the role of the

modern state in international conflicts as well as the hegemonic state system is really

working or not.

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Table of Contents

Introduction..........................................................................................................................4“Operation AJAX”, what did happen?................................................................................5Causes of Nationalization in Iran........................................................................................7Findings from the incidents...............................................................................................10Conclusion.........................................................................................................................12Bibliography......................................................................................................................13

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Introduction

Oil is the most important single commodity in the economic life of industrialized and

industrializing countries. . But oil is not a renewable resource. So from time to time of the

industrial revolution, oil becomes more valuable energy resources. Now oil price

influences the price of the most of the commodities and services. In essence once can say

that whoever has the power to produce oil or control over he or she has the power to

control over the world economy. And that’s why most of the modern economic and

political issues evolve around the “OIL”.

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Most of the oil producing and exporting countries in the world are from the Middle East

of Asia. And they have the vast amount of petroleum reserve hidden beneath their land.

As a result, most of the modern political and power crises are evolving around the Middle

Eastern part of Asia. Iran is one of the largest oil producing countries which is situated in

the Middle East. But at the beginning of the 20th century, most of the countries have the

petroleum reserves were the poor country or colonized by the European power. So they

don’t have the enough capital to extract the oil by themselves. Energy base MNC’s

started to extract the resources and started to make profit. Iran also faced the same

problem at the beginning.

After World War 2 most of the developing countries emerged or became independent

from the colonial power. The system of economic and social structure was vulnerable and

a few people got the whole power of the states. As a result state got a weak political and

government system. During the period of cold war most of the countries had to join any

of the two blocks, a) Socialistic block b) Capitalist block.

Many historical incidents happened at that time, and many analysts tried to find out the

reason behind it. In Iran during the cold war U.S.A intelligence agency CIA conducted a

coup against democratic government and replaced it by a monarchy system. In this paper,

using the political economics tool I analyzed the incidents and tried to find out answer of

some questions like: Is the state system going to abolish? , What are the causes which led

to these incidents? And in the future what will be the role of MNC’s or Are MNC’s going

to direct control over the host countries political system?

In this paper, Section1: gives the historical review of the incidents, Section2: discuss the

causes of Nationalization, Section3: discuss the U.S.A involvement of the coup,

Section4: findings from the incidents and Section5: concludes the paper.

“Operation AJAX”, what did happen?

In 1901 a British mining magnate William Knox D’Arcy got the permission to explore

for petroleum in Iran. In 1909 Anglo-Persian Oil Company (renamed Anglo-Iranian Oil

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Company or AIOC later becomes British Petroleum) emerged and started to extract crude

oil from the southern Iran. According to a concession the company got the permission to

explore all over the Iran for petroleum for 60 years.

After World War One British government induced Iranian government to sign a treaty

giving Britain substantial political, economic, and military control over Iran and it

aroused the Iranian nationalist. Opposition to the treaty in newspapers and popular

demonstrations dissuaded successive governments from submitting it to the Majlis

(Iranian parliament) for ratification. By 1921 both Britain and Iran had let the draft treaty

quietly die.

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During the period of World War II it was ruled by a monarchy system, but at the end of

the war Majlis system again established and many political parties emerged. Foreign

intervention became one of the major issues of those parties. As a result British control of

Iran’s oil field became central issues. AIOC in which British government had 51% share

and provided a modest royalty payment which was a fraction of the company’s profit. So

some political parties advocated for nationalization of the country’s oil field and it

became a major popular movement.

In the mid-1940s Mohammad Mossadeq, an Iranian statesman and a member of the

Majlis, emerged as the leader of the oil nationalization movement. This movement sought

to transfer control over the oil industry from foreign-run companies to the Iranian

government. Throughout his political career, Mossadeq consistently advocated three

goals: to free Iran of foreign intervention, to ensure that the shah remained a democratic

monarch and not a dictator, and to implement a social reform. He believed ending foreign

interference was a prerequisite for success in other areas, and he was convinced that as

long as the AIOC controlled Iran's most important natural resource, foreign influence was

inevitable. Beginning in 1945 he led a successful campaign to deny the Soviet Union an

oil concession in northern Iran. Although he resisted joining political parties, Mossadeq

agreed in 1949 to head the National Front, a coalition of several parties that supported oil

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nationalization. Within a year the National Front had members in cities and towns

throughout the country and had become adept at organizing mass political rallies.

Conservative political groups, backed by the shah, opposed nationalizing the AIOC,

partly because they believed such a course would cause irreparable harm to relations with

Britain and partly because they distrusted Mossadeq populism. However, as the

nationalization movement grew, fewer and fewer politicians openly challenged Mossadeq

on the oil issue. In an effort to forestall nationalization, the shah appointed military

officer Ali Razmara as prime minister in 1950. This move increased the scale of

demonstrations in favor of nationalization and against a government that increasingly was

denounced as a puppet of foreign interests. Razmara was assassinated in 1951 after only a

few months in office, and the more militant supporters of nationalization applauded his

death. Sensing the popular mood, the Majlis passed a bill nationalizing the AIOC, then

took the unprecedented step of appointing Mossadeq prime minister over the shah's

objections.

In response to these events, Britain enforced a blockade on oil exports from Iran, a move

that deprived Iran of foreign exchange. Although Iran had not relied on oil revenues prior

to 1951, Mossadeq development budget anticipated this income; its absence severely

hindered efforts to stimulate the economy and implement social reforms. Attempts to

secure foreign financial assistance proved unsuccessful because most countries and

international financial institutions feared offending Britain. The escalating crisis also

discouraged private investment in Iran. Mossadeq, like many other Iranian political

leaders, hoped the United States would intervene to resolve the crisis. Initially, the United

States tried to mediate a compromise. By 1952 it had persuaded Britain to accept the

principle of oil nationalization. However, the various diplomatic efforts ultimately failed

to resolve the dispute.

In early 1953, when a new administration came to power in the United States, U.S. policy

toward Iran began to change. The United States now became sympathetic to British

arguments that Mossadeq government was causing instability that could be exploited by

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the USSR to expand its regional influence. As the Cold War escalated, world

superpowers began to interpret political developments around the globe as “wins” or

“losses” for the US -led Western bloc and the Soviet-led Eastern bloc. Although

Mossadeq advocated Iranian neutrality in the Cold War conflict, neither side wanted to

“lose” Iran. Consequently, the United States decided to use its Central Intelligence

Agency (CIA) to help overthrow Mossadeq. And they send Kermit Roosevelt, the

grandson of the Theodore Roosevelt to conduct an operation which had a code name

“Operation AJAX”. By this time, many conservative politicians in Iran, some senior

military officers, and the shah was prepared to work with the CIA to bring down the

Mossadeq government. The coup, carried out in August 1953, failed initially, and the

shah was forced to flee the country. After several days of street fighting in Tehran,

however, army officers loyal to the shah gained the upper hand. Mossadeq was arrested,

and the shah returned in triumph.

Causes of Nationalization in IranPrime Minister Mossadeq was one of the pioneer leaders for nationalization of oil field in

Iran. He led the Iranian parliament to nationalize AIOC, it was the culmination of more

than four decades of Iranian grievances against British imperialism that had been only

partially and temporarily met with the new concession signed in 1933.Between 1913 and

1951, Anglo-Iranian had grossed $3billion, out of which only $624 million went to the

Iranian government. The remaining portion, $2.4 billion, had been transferred abroad as

profits (Stroke, 1973). At that period 50-50 profit-sharing formula was adopted by other

oil company in Venezuela and Saudi Arabia. But AIOC did not agree with the formula.

During the Cold War period USSR (Union of Soviet Socialist Republics) and U.S.A

tried to make two clusters according to their interest. Therefore, they targeted newly born

countries as well as Middle Eastern oil producing countries to strength power. For this

reason most of the developing countries have politicians are pro-socialistic as well as pro-

capitalistic. From the beginning of 20th century Iran tried to play a neutral role in any

international conflict. But as it is blessed with “Black Gold”, nobody let it be neutral.

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As Iran had a border with the USSR, they tried to influence Iranian political and

government system. On the other side Anglo Iranian Oil Company that was basically

controlled by British Government tried to protect their interest of capitalization. The

foreign force hampered Iranian neutrality.

After the World War II, people started fearing about the colonization politics and as well

as the capitalist system of the modern country. As a result the socialistic movement

became a more populous among the newly born and developing countries, and every

political party used socialistic issues to get into the power. In Iran Dr. Mossadeq

advocated for the nationalization of the oil field against the capitalist system as it was the

populous issue in that political era.

Sturcturalist perspective theory of International Political Economy can explain the causes

of nationalization of Iranian oil field. The social structure of Iran at that time was

perfectly suitable for a political leader to nationalize oil field. Shah’s autocratic ruling

and British government intervention during the World War divided the economy into

extreme classes. Marxist class struggle and modernization made a strong middle class in

the beginning of the 20th century. Few people got the most of the privileges. In this

situation political leader had to modify the system or had to show to the people some

reformation of the societal project. This led to the nationalization of oil field, because

AIOC extracted the most of the profit without showing any social responsibilities to the

host country.

U.S.A involvement and coupThe role of the United States on the incidents in the beginning was indirect. First, energy

giant like Standard Oil, Gulf Oil, etc.; did not have any interest on the issues as they did

not have an oil field in the Iran. Second, U.S.A became allied after the World War II and

it needed to ally with as much as countries to strengthen its role in the international

politics. But during the rule of Eisenhower (the chief of the allied force during the World

War II), Iran started to give concession to explore for oil field to other countries like the

USSR. (Stark, 1973). As a result this concession made U.S.A aware that Iran might

going to be a second China.

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During the cold war period, all the countries of the world had to support any of the sides.

On the one side U.S.S.R is controlling the socialistic countries and other side U.S.A is

controlling the capitalistic countries. And controlling the petroleum producing countries

became a main issue of the two powers.

Energy Giant like Gulf Oil, etc. also wanted to have control all over the Iranian oil field,

because as Iran at that time was the 2nd largest oil exporting countries can influence the

market price of the oil. It might be used by the U.S.S.R to lessen the U.S.A power. On the

other hand Nationalization of oil field led Britain imposing boycott on the Iran. As a

result Iran had to earn foreign currency from none other than the Soviet Union. As Soviet

Union had a land border with Iran pipelining will be more effective.But it will give

Soviet Union more power to control the oil market. At this point U.S.A had to play a role.

In August 1953 the United States used more or less $23 million to create political uproar

against Mossadeq government. On the other side British boycott reduced the production

and earning from the oil field. Production of oil reduced 243 million barrels in 1950 to

around 8-9 million barrels in 1952 and 1953.Although Iran had been dependent on

Anglo-Iranian, the company’s strength was that it did not depend on Iran for all its crude

oil. In Iraq, where AIOC had a 23.75% share, production jumped by 160 million barrels.

In Kuwait, where they held 50%, production jumped by 189 million barrels. (Stroke,

1973)

Though masses supported Mossadeq and his National Front government unequivocally,

other elements were lea happy. Economic problems brought on by the boycott led him to

take measures against some of the vested, landed interests. Beginning in August 1952 he

established commissions to collect unpaid taxes from the rich and throw them in jail and

confiscate their property if they did not pay. By decree he cut off feudal dues received

from the sharecroppers. Some officers were unhappy at increasing revenues being

diverted from the military to more socially beneficial budget categories. Eisenhower

administration got a suitable field to make “Operation AJAX” a successful as British

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government wanted back the profitable AIOC fields in Iran as well Shah wanted back his

power to rule the country.

After the coup, the Shah and AIOC negotiated with other energy giant to share the

Iranian oil field. According to the negotiations resulted in agreement that paid lip services

to Iranian national sovereignty, but vested full management and commercial rights a

consortium of companies in which Anglo-Iranian held only 40%, Shell got 14%, CFP

6%. The major newcomers were the five American companies, getting 8% each for a

total of 40%. Eight smaller American companies were brought in later at 1% each. Large

or small, any stake in this immensely profitable and virtually risk less ventures was like

British oil expert “like getting a license to print money” (Kolko). The Iranian government

got no additional revenues on the assets of the industry, it now owned and was used

freely by the companies.

Findings from the incidents

In this period of globalization, some political question arises: like what will be the states'

role in the economy? Or is state system going to abolish or not? I tried to analyze the

situation using the tools of different perspective of IPE. According realist perspective, we

fully analyze the incidents. U.S.A wanted to be the hegemonic power all over the world

by using economic force.As U.S.A is not only industrialized country but also its

agriculture is developed in a large extent that it needs market to make profit from extra

production. So United States wanted to be the global hegemonic power.

According to the liberal perspective, government intervention may destroy the market

system. It may be true for the domestic market, but in a global market a non state entity

can’t forcefully dominate a country in this modernizes period. From 16th to 19th century

people all over the world might be ignored about the world system as a result East India

Company used direct military power, but now in a systematic system a state can play that

role. MNC’s may use loopholes of the host countries to control the economy. But they

cannot intervene in the government system. As a result home country has to advocate

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for the MNC’s became a common strategy and home country may use force in the

interest of the MNC’s into the host country. From this analysis, we can the power of the

non state actors like MNC’s may increased but in front state has to play a role in the

interest of the MNC’s.One can say that state system will remain because MNC’s needs a

camouflage. In the United States most of the shareholders of the giant MNC’s are

representing the citizens in the parliament. It is same for host country's parliament, most

of the parliament members all over the world are businessmen or have shares in the major

industry.

If we analyze the Iran nationalization movement, it contradicts with the liberal

perspective of the political economy. Liberal view might be better for pricing, but liberal

view ignores the matter distribution. In a free market system, mighty or powerful may get

the whole part or major part of the profit and for this reason the government has to

intervene in the market system. Otherwise class conflict will create a chaos. So from

socialistic view we can find that Iran nationalization was essential to lessen the difference

in between classes. And from the realist perspective, Marxism perspective as well as

orthodox perspective and from the incidence we can find that state system is necessary as

well as for non state profit maximizing entity state is necessary to control the market or to

create the market.

Conclusion

“Kermit Roosevelt, the CIA man in charge of the Iranian operation, later left

‘public service’ to become a vice-president of Gulf Oil.”-Joe Stork.

From this line it is clear that state people’s involvement in two major companies all over

the world is one of the reasons International conflicts. It is true that 1953 is past, but the

learning from that incident can be used to analyze the present conflicts. We can analyze

the present situation about Iran and U.S.A conflict as well U.S.A invasion in Iraq and

Afghanistan. Because still major industrial productions are conducted by oil and oil is a

major energy resource. Though cold war is ended, major power like the United States still

wants to be the hegemonic power of the world.

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It is true people are rational and they will try to maximize individual profit. People will

fight for the individual interest in the future. But the question arises, is it truly necessary

to fight for individual interest. Is it truly necessary to use state power to control foreign

territory by MNC’s? We are modernizing day by day, but are we civilizing? I think in

near future we will find the answers and may try to avoid conflicts.

Bibliography

1. Gasiorowski , Mark J “The 1953 Coup D’etat in Iran”, 1987

2. Kolko,Limits , P.419

3. Krasner D. Stepehen “A Statist interpretation of American Oil Policy towar the

Middle East”, 1979

4. Microsoft Encarta 2005.

5. Stork, Joe “Middle East Oil and the Energy Crisis: Part 1”, 1973

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