THE HANDSTAND

september 2005

Iran, a History
Richard Heinberg

First let us consider the geographic and historical context of the impending events.

The country now known as Iran (ancient Persia) was a center for pre-Islamic Indo-European culture since the second millennium BCE, and for Islamic culture since the fifth century CE. It was the birthplace of Zoroastrianism, the home of Sufi poet Rumi, a site of empires and a frequent object of conquest.

In the early 19th century, Persia began to fall under the rival commercial and imperial attentions of Britain and Russia, serving as a pivot for the Great Game of Eurasian geopolitics.

In 1901, an Australian explorer named William Knox D'Arcy managed to persuade the Persian shah to grant him mineral rights to the country for sixty years in exchange for GBP 20,000 and a 16% share of the proceeds. D'Arcy then began prospecting for oil, which he found in 1908. Iranian history from then on has hinged on this discovery.

Britain had meanwhile realized the strategic importance of petroleum for the future of industrial production and warfare (the British war fleet was converting from coal to oil) and was seeking secure supplies of the resource in the Middle East. Sidney Reilly, the famous British spy, talked D'Arcy into parting with his contract, and thus was born the Anglo-Persian Oil Company, which would later become British Petroleum or BP.

In 1921 Reza Khan, an army officer, organized a coup d'etat that left him as the country's shah and founder of the Pahlavi dynasty. The new shah acted to modernize the country while also managing to negotiate better terms with BP. In 1935, with the nation coming under increasing pressure from both Britain and Russia, the shah encouraged German commercial enterprise and changed the country's name from Persia to Iran (Farsi for "Aryan") Britain and the Soviet Union simultaneously invaded Iran in 1941 and quickly overcame Iranian resistance. Reza Shah abdicated in favor of his son, who ascended the throne as Mohammad Reza Shah Pahlavi. In September 1943, Iran declared war on Germany.

After the war, Iran's Prime Minister, a land-owning aristocrat named Mohammad Mosaddeq, nationalized BP's exclusive concession in order to satisfy the country's growing need for revenue to pay for modernization. With this nationalization of its oil fields Iran would come to serve as an example for other resource-rich Third-World countries. Mosaddeq, a flamboyant populist leader, spoke prominently at the United Nations and was the 1951 Time Magazine Man of the Year. Britain, furious, blockaded Iran and took its case against Mosaddeq to the World Courtwhich ruled in Iran's favor.

In 1953 British intelligence and the CIA colluded to overthrow Mosaddeq, with General Norman Schwartzkopf - father of the leader of the American forces during the Desert Storm operation in 1990 - playing a key role in the plot. Once Mosaddeq was gone (he spent his declining years under house arrest and died in 1967), the shah assumed dictatorial powers, granted oil rights to a consortium of British and American companies, and established close ties with the US.

Over the ensuing quarter-century, Shah Reza Pahlavi led efforts to industrialize his country, commissioning nuclear power plants from France and Germany during the early 1970s. In 1978, he refused BP's proposal for a 25-year renewal of its oil extraction agreement. The shah had outlived his usefulness.

In his book A Century of War: Anglo-American Oil Geopolitics and the New World Order, William Engdahl sets forth the view that the fall of the Pahlavi dynasty and the installation of Ayatollah Khomeini in 1979 were engineered by British intelligence and the CIA as part of a Washington strategy, proudly masterminded by Zbigniev Brzezinski, to stoke the fires of radical Islam throughout the Middle East in order to undermine efforts at Arab nationalism. The thought was that countries like Iran and Iraq could be played off against one another, then later the US could sweep in and pick up the pieces. The radical Islamists would also serve to undermine Soviet ties in the region: they were at the center of the Afghanistan war against the USSR and assisted in the later Balkans campaigns. They also would later provide a convenient new enemy to replace the Soviet Union after the end of the Cold War.

Covert connections between the new Iranian theocratic leadership and the incoming Reagan administration in the US were demonstrated by the so-called October Surprise, which spelled the end of Jimmy Carter's presidency, and the guns-for-hostages deal, also known as the Iran-Contra scandal.

The Iran-Iraq war (1980-88) appears to have been covertly fomented by the US (which encouraged Saddam Hussein to attack) in order to weaken both countries - Iran being supported by Syria and Libya and receiving weaponry from North Korea and China (as well as the US), Iraq enjoying wider support among both Arab and Western nations with the Soviet Union its largest arms supplier. War deaths were estimated at up to 1.5 million.



Khomeini died in 1989, and political power in Iran passed largely to president Rafsanjani, a more moderate leader (though the mullahs retained supreme authority). Rafsanjani, who sought better relations with the West in order to attract investment capital, was succeeded in 1997 by Khatami, the current president, also a moderate, who has pursued improved relations with the US and Saudi Arabia. However, as an Islamic Republic, Iran often spouts anti-American rhetoric, and has recently courted closer economic and security ties with Russia and China.


Iran's oil endowment is both its treasure and its curse. According to Colin Campbell (writing in ASPO newsletter #32), about 120 billion barrels of oil have been found in Iran, which made it a significant producer throughout the 20th century:-

Most of the discovery to-date lies in a few giant fields ... which were mainly found by the Consortium in the 1960s based on prospects long known to BP's explorers ... There have been recent reports of major discoveries at Bushehr, but it turns out that they are almost certainly long-known deposits of high sulphur heavy oil of no particular significance ... Future discovery is here estimated at about 8 trillion barrels, probably mainly coming from the offshore.

Campbell notes that Iran, a co-founder of OPEC in 1961, has the "typical twin-peaked [oil production] profile of an OPEC country":-

The first peak was passed in 1974 at 6.1 million barrels per day, falling to a low of 1.2 million barrels per day in 1980, before recovering to 3.4 million barrels per day in 2002. Some reports suggest that depletion of present reserves is running as high as 7%, which may reflect operational shortcomings and lack of investment ... [P]roduction could in resource terms rise to a second peak in 2009 at almost 5 million barrels per day before commencing its terminal decline at 2.6% a year, but operational and investment constraints may prevent such a level being reached in practice, with 3-4 million barrels per day peak being perhaps more likely. Naturally, any new invasion would radically affect this forecast.

Campbell also notes that "The country's gas resources were very large indeed, totaling some 1000 trillion cubic feet". Iran currently exports about 2.3 million barrels of oil per day (the world uses about 85 million barrels per day).