Profile of an Oil Producer: Iran

Posted by admin on August 6, 2009 at 4:05 pm

(image: wikimedia.org)

Not surprisingly given its production capacity, Iran was one of the founding members of OPEC — the Organization of Petroleum Exporting Countries — which was created in 1961 to assist these nations in coordinating prices and production to ensure consistent revenues. The organization was created in part to deflect attempts by Western oil companies to keep oil prices low. In one of the first displays of OPEC power, the Arab OPEC states in conjunction with Egypt and Syria established a trade embargo against the United States during the early 1970s due in part to American support of Israel during the Yom Kippur War. While the embargo and weak dollar wreaked havoc on the U.S. economy during this time, Iran, a non-Arab state, did not participate.

Through the 1980s and 1990s OPEC was a fractured body, failing to reach consensus on key issues largely due to disagreements between Iran and the Persian Gulf monarchies. After the Asian economic slowdown of the late 1990s pushed crude prices towards $10 a barrel, Iran offered a dramatic olive branch. In 1999 Iranian President Mohammad Khatami, who had promised to break the international isolation surrounding his country when he was elected in 1997, visited Saudi Arabia and reached a business alliance with Crown Prince Abdullah. It was the first time an Iranian cleric had crossed the Persian Gulf and it came to be a turning point for oil producers in the region. Iran and Saudi Arabia, the largest rivals and top two producers within OPEC, worked together to prop up prices.

“Since that summit, OPEC has put aside political questions and decided to focus on prices and nothing else. That depoliticization of debates has made OPEC remarkably efficient,” energy specialist Pierre Terzian told the New York Times in 2005.

The nation’s huge oil reserves have played a large role in forming its modern identity.   Today’s Iran is defined by its natural resources — there are also significant natural gas reserves — and its geostrategic position between Europe, Asia and the Persian Gulf. In addition to driving both domestic and international policies in Iran, the oil within its borders has attracted both wanted and unwanted attention from foreign governments and corporations looking to exploit it. In the first decade of the 20th century the Anglo-Persian Oil Company, which became the Anglo-Iranian Oil Company in the 1930s and eventually British Petroleum in 1954, first began making oil explorations in the Iranian desert. Although exploration was performed under a cooperative deal between Britain and Iran, nearly all of the revenues from the organization flowed to Europe. During World War II a combined Soviet and British military force invaded Iran to secure both these petroleum resources and railroad access for use by the Soviets against the German Nazis on the Eastern Front. Although Iran was technically neutral at the time, English and Soviet officials suspected Iranian leader Reza Shah Pahlavi of being sympathetic to Germany. During the campaign Pahlavi was forced to abdicate his throne in favor of his son Mohammad Reza Shah Pahlavi who signed an alliance agreement with Britain and the USSR. The younger Pahlavi held the title of shah until the 1979 Iranian Revolution. Once controlled by allied forces during WWII, Iran became a critical supply route whereby England and later the U.S. transported goods to the Soviets. The United States sidestepped into the Iranian political theater at this time in support of England’s interest in securing its oil assets. However, the new shah received significant support from the Americans and made frequent state visits to the White House during his reign. While the shah’s policies of Westernizing Iran gained praise from the U.S., it frustrated large portions of the Iranian population, especially conservatives.

In 1951 the Iranian Majlis (parliament), after first attempting to gain a 50-50 split of the AIOC oil revenues from the British, voted to nationalize the Anglo-Iranian Oil Company to Britain’s astonishment. Mohammed Mossadegh, a popular statesman and the architect of the nationalization campaign, was subsequently promoted to prime minister. Although Iran took possession of its resources, the short-term gains were mitigated when British oil companies withdrew technical personnel, which slowed petroleum production to near-zero levels. In addition, the British government, stripped of its single largest overseas asset, also instituted an embargo on the purchase of Iranian oil in retribution. In part because of the turmoil in Iran following the nationalization of AIOC and the shah’s ongoing feud with conservative clergy, Mossadegh began to consolidate power and a popular mandate. Despite his huge popularity at home and throughout the Middle East — he was Time Magazine’s “Man of the Year” in 1951 — Mossadegh was seen as an enemy to Western interests. Finally in 1953 the U.S., England and troops loyal to the shah staged a coup d’etat deposing Mossadegh and returning power to the pro-Western shah. Mossadegh was subsequently tried and convicted of treason, but the incident marked the first real confrontation between U.S. and Iranian interests and had long-lasting ramifications. While securing Western control over Iranian oil was one priority of the United States during the overthrow, the Cold War threat of a possible communist overthrow of Iran has been considered a motive as well.