In Crafting A Nuclear Deal With Iran, Mossadegh Still Matters

This week marks the anniversary of Iran’s 1953 coup, an episode that transformed the Pahlavi monarchy and the American-Iranian relationship. Washington’s role in unseating Iran’s prime minister, Mohammad Mossadegh, continues to touch a nerve among Iranians, and Mossadegh justifiably remains a democratic icon for many. Each year at this time, the coup draws renewed attention in the Iranian media and the policy community. Strangely, though, the popular interest in the coup itself tends to overshadow the important events that preceded it. In fact, the joint British-American plot to oust Mossadegh was enabled and encouraged by the success of a devastating embargo imposed on Iran for two years prior to the coup.

The 1951-53 embargo and its implications are particularly relevant today, as Washington and the world contemplate next steps in dealing with Iran’s nuclear ambitions and how best to leverage the far-reaching sanctions regime erected to thwart them. The current sanctions have eroded Iran’s oil exports, trade and integration in the international financial system, and are credited by some with helping to generate the victory of a moderate candidate in Iran’s recent presidential elections and a new diplomatic opening from Tehran on the nuclear issue.

As international negotiators prepare for a return to talks on the Iranian nuclear program, delving into the history of the 1951-53 embargo would be instructive for all sides. Perhaps an understanding of the history will help both sides today from repeating the mistakes that led up to the earlier catastrophe. These include the American misreading of Iran’s internal political and economic circumstances, Iran’s distorted view of its own leverage, and a tendency for both sides to perceive the conflict in absolutist terms as the impasse dragged on.

For today’s policymakers, 1953 and the embargo that preceded it should serve as a cautionary tale. Like today’s sanctions, that embargo worked— at least in the sense that it devastated Iran’s finances and economy. But then as now, even a severe economic crisis could not force a simple or quick repudiation of a policy that was perceived by many Iranians as essential to its security and independence. In 1953, Iran’s ploys at the negotiating table and its highly emotional leadership helped persuade Washington that Tehran would never accept a compromise deal, and that Iranian intransigence was a harbinger of a strategic disaster. In the end, an American president became converted to the viewpoint of an ally that harbored a more apocalyptic view of Iranian provocations. The coup was a short-term win and a long-term disaster for Western interests— and for Iran. It is hardly a stretch to imagine something comparable to this scenario playing out in the ongoing standoff over the nuclear issue.

The 1953 coup had its roots in the arrangements devised a half century earlier governing the activities of the British company, which became known as the Anglo-Iranian Oil Company, that first began commercializing Iran’s oil resources. During the 1930s and 1940s, oil emerged as the touchstone for growing nationalism and a fluid power struggle that helped forge an alliance among Iran’s clerics, left-leaning groups, and the merchant community that has stood the test of time.

The royal establishment opposed nationalization on the grounds that Iran needed British protection for its survival and its development. For Mossadegh and his supporters, Iran could not be independent without full control of its own resources. Iran’s supreme leader Ayatollah Ali Khamenei and others among the current Iranian leadership have made similar arguments about the nuclear program. Such parallels underscore the sensitivities surrounding those including the new Iranian president, Hassan Rouhani, who have advocated diplomacy and compromise on the nuclear issue.

In contrast to the current sanctions, the 1951 embargo began almost accidentally, as Britain’s refusal to acknowledge Iran’s nationalization bid slashed exports to a halt almost immediately. In the months that followed, the company warned that purchasing Iranian oil or assisting Tehran with its oil sector would draw legal action. Next AIOC pulled its personnel from Iran, and nearly every available alternative source of skilled oil workers (except Italy) refused to assist Tehran. The British government sought to buttress the company’s pressure on Iran by freezing Tehran’s UK-based assets, limiting its access to currency exchanges, and banning exports of key products including sugar and steel. London also flexed its military muscles, positioning warships in the Gulf to reinforce the company’s threats against Iran’s would-be customers. Aside from the warships— so far, at least— this all sounds worrisomely familiar to the current sanctions regime.

Once the embargo took hold, Mossadegh managed to avoid outright economic catastrophe, boosting non-oil exports and reviving economic growth despite the cutoff of its oil revenues. The embargo’s impact was cushioned by Iran’s agricultural base and its limited reliance on imports for manufacturing. Tehran sought new sources of revenue, including more rigorous collection of customs duties and government bonds, and used quotas and the depreciation of the rial to curb imports. In the current crisis, the Islamic Republic has deployed a wider variety of tools, but its essential game plan for managing the sanctions has not terribly dissimilar from that of Mossadegh.

Like the current sanctions regime, the oil boycott proved painfully effective. Without Western technocrats and labor, oil production slowed to a trickle of its previous volume, and Tehran only managed to export approximately 100,000 tons of oil and oil products during the two-and-a-half year crisis – approximately a single day’s exports prior to nationalization.

The United States and Britain saw the crisis in very different terms. The shutdown of AIOC’s Iranian production would deprive London of approximately 100 million pounds per year, as well as desperately needed crude oil and products. And Iranian nationalization was seen as a blow against the sanctity of all foreign contracts, inviting the demise of concessionary oil arrangements around the world, and ushering in the inexorable decline of British power and the British empire.

Washington was primarily concerned with preserving Iranian stability and preventing any pretext for Soviet incursions. This meant that U.S. policy toward Tehran repeatedly diverged from that of its British ally. Whereas London wanted to squeeze Tehran, the Truman Administration saw economic pressure as a threat and pointedly maintained U.S. economic ties to Iran while attempting to mediate a resolution to the standoff. Even in the later stages of the crisis, President Eisenhower pressed the British to accept Iranian terms and briefly contemplated reviving direct assistance to a beleaguered Tehran.

However, over the course of the embargo and the failed bids at negotiations, Washington’s perception of its interests and its view of Mossadegh evolved considerably. Concerns about security of oil supply receded, while anxieties began to focus on the possibility that the embargo had fatally weakened the Mossadegh government and emboldened Iran’s communists. The tentative U.S. embrace of Mossadegh as a nationalist figure who might be capable of withstanding Soviet manipulation was replaced by frustration with his antics and skepticism about his mental state. American trepidations of what was ultimately an unlikely worst-case scenario— that the nationalization would facilitate a Soviet beachhead in Iran— took life, and facilitated the ultimate intervention.

For its part, Tehran gravely overestimated the country’s leverage in international oil markets and its ability to maintain production without British involvement. Iran’s bargaining power declined as AIOC ramped up production elsewhere, and just as with the current sanctions, Iran bore the brunt of the costs of the continuing standoff. Mossadegh’s ability to keep the economy limping along may have contributed to his overconfidence. The Islamic Republic responded similarly to the intensification of world-wide sanctions in 2010; even the regime’s pragmatists initially misread the shifting supply-demand balance in global energy markets and presumed that the new measures would hike up oil prices and hurt the West more than they did Iran.

Over time, the nationalization crisis became defined in zero-sum terms for Iran (as well as for the West). For Tehran, backing down became seen as tantamount to forfeiting any hope of national sovereignty. This perception only exacerbated Mossadegh’s innate mistrust of British intentions, and put any compromise beyond the prime minister’s reach. Here too, there are natural analogies to the nuclear crisis, where American pressure has entrenched the paranoia of Khamenei and other hard-liners.

At the same time, Washington’s perception of the Iranian situation also hardened. Mossadegh’s tough stance at the talks brought U.S. officials closer to the British conviction that no settlement of the nationalization issue could be reached as long as he remained in office. And since the shah was unwilling or unable to contain his prime minister, the onus fell on outside powers to avert the disaster of Soviet expansionism and the loss of this valuable strategic asset. This assessment transformed the American posture from one of mediation to direct intervention in Iran, and in turn encouraged Mossadegh’s domestic rivals, many of whom were courting London and Washington to advance their own aims.

In this way, the standoff over nationalization gave way to the unseating of Mossadegh. The prime minister’s tumultuous tenure eroded his delicate coalition and hemorrhaged his support on the streets. The embargo cost him support among some of his most stalwart supporters. For a relative bargain— $285,000— Washington and London rented crowds and induced elites to agitate. After a few uncertain days, when the initial plan appeared to implode and the Shah decamped to Italy, Mossadegh’s brief reign was summarily ended, and the monarchy was reinstated and reinforced.

The coup was a turning point for Iran, both with respect to its internal political dynamics and in its relationship with the rest of the world. Washington’s involvement in the ouster of Mossadegh meant that the Eisenhower Administration had a real stake in the fate of his successor. The generous American program technical and financial assistance enabled the Shah to impose a higher degree of central control and reassemble the mechanisms of the state under his personal authority.

After the coup, it took more than a year of contentious negotiations to conclude the standoff over nationalization. The final terms of the oil concession were substantially inferior to what Mossadegh had been offered and had rejected. Today’s Iranian decision-makers should take heed of this footnote to the Mossadegh episode; the best deal for Iran may be one that they left sitting on the table.

One can easily overstate the parallels between the dynamics of the oil nationalization crisis and the nuclear impasse with Iran. Still, for both sides, there are unmistakable lessons to be derived from the embargo and the failed negotiations: that misinterpreting the adversary’s approach to contentious negotiations, overestimating one’s own leverage, and perceiving a conflict in zero-sum terms led to disastrous results for both America and Iran sixty years ago. Hopefully, the outcome of the current stalemate will end in more auspicious fashion.