Anglo-Persian Oil Company - Nationalisation and Coup - Discontent in Iran

Discontent in Iran

Under the 1933 agreement with Reza Shah, AIOC had promised to give laborers better pay and more chance for advancement, build schools, hospitals, roads and telephone system. It had not done so.

In August 1941, the Allied powers Britain and the Soviet Union invaded and occupied Iran subsequently forcing Reza Shah to abdicate in favour of his son (see also Persian Corridor) who they considered far more friendly to their interests.

In May 1949 following World War II, Britain offered a "Supplemental oil agreement" to appease unrest in the country. The agreement guaranteed royalty payments would not drop below £4 million, reduced the area in which it would be allowed to drill, and promised more Iranians would be trained for administrative positions. The agreement, however, gave Iran no "greater voice in company's management" or right to audit the company books. In addition, Iranian royalties from oil was not expected to ever drop to the proposed guarantee of £4 million and the reduced area covered all of the productive oilfields. When the Iranian Prime Minister tried to argue with AIOC head Sir William Fraser, Fraser "dismissed him" and flew back to the UK.

In late December 1950 word reached Tehran that the American-owned Arabian American Oil Company had agreed to share profits with Saudis on a 50-50 basis. The UK Foreign Office rejected the idea of any similar agreement for AIOC.

On March 7, 1951 Prime Minister Haj Ali Razmara was assassinated by the Fadayan-e Islam. Fadayan-e Islam supported the demands of the National Front, which held a minority of seats in Parliament, to nationalize the assets of the British Anglo-Iranian Oil Company. As Prime Minister, Razmara had convinced the majority that nationalization would be folly, but his assassination eliminated the sole voice powerful enough to oppose the demands of the National Front. Iranian anger towards lack of progress in the nationalization of AIOC was apparent when the assassination of anti-nationalization prime minister Haj Ali Razmara, yielded a distinct lack of mourning from the Iranian public. A raucous walkout of protest by newspaper reporters ensued when a visiting American diplomat urged 'reason as well as enthusiasm' to deal with the imminent British embargo of Iran.

By 1951 Iranian support for nationalisation of the AIOC was intense. Grievances included the small fraction of revenues Iran received. In 1947, for example, AIOC reported after-tax profits of £40 million ($112 million) - and the contractual agreement entitled Iran to just £7 million or 17.5% of profits from Iranian oil. In addition, conditions for Iranian oil workers and their families were very bad. The director of Iran's Petroleum Institute wrote that

Wages were 50 cents a day. There was no vacation pay, no sick leave, no disability compensation. The workers lived in a shanty town called Kaghazabad, or Paper City, without running water or electricity, ... In winter the earth flooded and became a flat, perspiring lake. The mud in town was knee-deep, and ... when the rains subsided, clouds of nipping, small-winged flies rose from the stagnant water to fill the nostrils .... Summer was worse. ... The heat was torrid ... sticky and unrelenting - while the wind and sandstorms shipped off the desert hot as a blower. The dwellings of Kaghazabad, cobbled from rusted oil drums hammered flat, turned into sweltering ovens. ... In every crevice hung the foul, sulfurous stench of burning oil .... in Kaghazad there was nothing - not a tea shop, not a bath, not a single tree. The tiled reflecting pool and shaded central square that were part of every Iranian town, ... were missing here. The unpaved alleyways were emporiums for rats.