TEHRAN – Soon after oil was discovered in Iran in 1908 as the first country in the region, colonial powers, particularly Britain and later the United States sought to bring the Iranian national wealth under their control, depriving the impoverished nation of its revenues.

In the absence of a powerful Iranian government during both Qajar and the successor Pahlavi dynasties, the British colonial power used force and abused the weakness of the Iranian state to coerce it into making concessions which allowed foreign companies to control oil extraction and sale. The nationalization of the oil industry was the response to such colonialism. Different weak Iranian monarchs made concessions to colonial powers.

D'Arcy Concession 

In 1901, William Knox D’Arcy, a British investor backed by the British government, reached a sixty-year agreement with Mozzafar al-Din Shah of Iran to exploit Iran’s potential oil resources. Six years later, in 1907, his exploration efforts paid off and oil was discovered in Masjedsoleyman in the southwestern province of Khuzestan for the first time in the West Asia and southern Persian Gulf regions.  Within two years, the Anglo-Persian Oil Company was established to produce and bring Iranian oil to world markets. 

After the first Pahlavi king, Reza Shah rose to power with the full support of the British Empire, who helped him to stabilize the country in line with its colonial goals, he began to undo what his Qajar predecessors did. One of Reza Shah’s actions was to cancel the 1932 D'Arcy Concession. But his 1933 oil concession was not much in Iran’s favor.

Iran's 1933 Oil Concession

The Iranians at the time of Reza Shah were opposed to the D’Arcy Concession as they looked for their inalienable rights and the increasing Iran's share of oil revenues. By contrast, Britain sought to maximize their gains and extend its full control over the natural Iranian resources. The Brits also intended to get a stronger agreement, which had to be ratified in the Iranian parliament in order not to have the weaknesses of the previous concession. 

The new 1933 agreement extended the concession for another sixty years, sparking outrage among Iranians who eventually moved towards the 1951 nationalization. 

After the ratification of the 1933 agreement, an amount of pound sterling was deposited into Reza Shah's account at Lloyd's Bank in London, while the small amount of money as Iran's share in the agreement was spent by Reza Shah and his inner circle as they wished.

In the meantime, the British were engaged in a rivalry with the Russians over gaining control over the Iranians’ wealth. 

Formation of the nationalization of the Iranian oil industry movement 

The movement to nationalize the oil industry was a reaction by the Iranians to concessions made by both Qajar and Pahlavi Shahs to foreign powers. The movement was originated in the parliament.

The movement was led by lawmaker Mohammad Mosaddegh, who later became prime minister. 

The British and Soviet troops invaded Iran in 1941, toppled Reza Shah, and occupied the country. The British removed Reza Shah and sent him into exile while Iran remained under Allied occupation until 1946. When the young Mohammad Reza replaced his father as the new Pahlavi king, the anti-colonial oil nationalization movement had become too strong to suppress. In the meantime, the senior cleric Ayatollah Abol-Ghasem Kashani was leading a powerful popular movement outside the parliament against foreign interference in the country’s affairs.

Anyway, the weakness of Mohammad Reza Shah’s regime benefitted the movement in the period after World War II. Different political groups emerged and the oil movement gradually got more and more powerful.

As time passed, the United States joined the United Kingdom and the Soviet Union to gain control of the Iranian oil industry. The religious movement led by Ayatollah Kashani and the National Front headed by Mosaddegh, who were both MPs from the capital Tehran constituency at the 16th parliament, were strongly in favor of nationalizing the oil industry in the parliament. Ayatollah Kashani's house had already become a center for popular gatherings and opponents of the Shah-appointed prime ministers Abdolhossein Hazhir (1948), Ali Mansour (1950), and Haj Ali Razmara (1951) governments. 

After Prime Minister Razmara was assassinated by a member of the religious movement Fada'iyan-e Islam, the 16th parliament led the process of approving the legislation to nationalize the oil industry and the Anglo-Iranian Oil Company (AIOC). Finally, on March 15, 1951, the legislation was approved and it was verified by the parliament two days later on March 17.

Mohammad Reza Shah reverses course on nationalization of oil industry

After the piece of legislation to nationalize the oil industry was passed, the next month in April, Mosaddegh was introduced as prime minister by Shah Pahlavi under immense pressure from the parliament. Consequently, he served as the 35th Iranian prime minister from 1951 to 1953. 

The young Shah along with the UK and the U.S. could not stand the nationalization of the oil industry and the democratically-elected Mosaddegh. For that, they overthrew his government in the 1953 coup d’état which was orchestrated by the intelligence agencies of the United Kingdom (MI6) and the United States (CIA).

In the aftermath of the coup, Mohammad Reza Pahlavi could reassert his autocratic control and negotiated the 1954 Consortium Agreement with the British, which returned the ownership of Iranian oil to a consortium of Western companies until 1979, the year the Islamic Revolution became victorious.