Tehran, 1953: The Coup That Changed Oil Politics
The ongoing Iran war has unleashed one of the most severe energy shocks in decades. Our five-part series explores decisive moments when turmoil in the energy world changed the trajectory of geopolitics.
Barrels and Power - Part 2
The coup that restored the Shah also entrenched a legacy of oil politics and foreign intervention that still shadows Iran today.
At the start of the 20th century, Persia was a fading empire ruled by the aging Qajar monarch Mozaffar al-Din Shah Qajar. The country possessed little industry, a weak treasury and a government increasingly dependent on foreign concessions to raise revenue. Beneath its deserts, however, lay one of the world’s largest oil deposits - an asset that would draw the attention of imperial powers and transform Persia into a central arena of global energy politics.
The story began in 1901 when the Shah granted British financier William Knox D’Arcy an extraordinary concession to explore for oil across most of the country. D’Arcy’s gamble nearly collapsed after years of costly drilling in remote terrain. Only in 1908 did the venture succeed, when oil was finally struck in southwestern Persia. The discovery led to the creation of the Anglo-Persian Oil Company, which would later become Anglo-Iranian and eventually the modern energy giant BP.
Crown Jewel
Its crown jewel was the sprawling refinery at Abadan Refinery, which, by the 1930s it had become the largest refinery on the planet, employing tens of thousands of workers and processing crude that fuelled ships, factories and military aircraft across the British Empire.
The refinery was so vast that it functioned as a company town, complete with segregated quarters that starkly illustrated the inequalities between foreign managers and Iranian labourers.
In 1914, on the eve of the First World War, the British government took a controlling stake in the Anglo-Persian Oil Company to secure fuel for the Royal Navy, which was switching from coal to oil. The decision effectively bound Britain’s imperial power to Persian oil. From that point forward, the fortunes of the company and the geopolitics of the Middle East became inseparable.
Meanwhile, Persia itself was entering a new political era. In 1925 the ambitious military officer Reza Shah Pahlavi seized power, ending the Qajar dynasty and launching a program of modernization that included renegotiating the terms under which foreign companies operated in Iran’s oil fields.
By the early 1950s, Iranian oil accounted for roughly 40 percent of the Middle East’s output. But the prosperity generated by this vast enterprise was unevenly shared. To many Iranians, the Anglo-Iranian Oil Company had become a symbol of foreign domination and economic injustice. Although Iran received royalties and a share of profits, nationalist politicians argued that the country was being exploited while its natural wealth enriched foreign shareholders.
Through the Second World War, Iran had remained largely within Britain’s strategic sphere. But as the Cold War intensified, Washington began to view Iran not merely as a British responsibility but as a critical front in the struggle against Soviet expansion. The Soviet Union had already occupied northern Iran during the war, and American officials worried that a weak and unstable country might eventually fall under Moscow’s influence.
Landmark Agreement
In Washington, officials increasingly believed that Iran deserved a larger share of its petroleum wealth. The American diplomat George McGhee, who was negotiating a landmark fifty-fifty profit-sharing agreement between Saudi Arabia and the American-backed Saudi Aramco consortium, argued that the existing financial arrangements in Iran were outdated and politically dangerous.
In London, however, the mood was far less accommodating. The powerful chairman of the Anglo-Iranian Oil Company, William Fraser, resisted pressure to revise the company’s agreement with Tehran. A tough and uncompromising executive, Fraser believed the existing terms were fair and feared that any concession would only encourage further demands. Within the British government, senior officials such as Foreign Secretary Ernest Bevin and later Anthony Eden struggled to balance diplomatic realities with the strategic importance of Iranian oil to Britain’s fragile post-war economy.
The announcement of the Saudi deal in 1950 detonated expectations across the oil-producing world. If Saudi Arabia could claim half the profits from its oil, Iranian nationalists asked, why should their country accept less? The precedent sent shockwaves through Tehran, where critics of the Anglo-Iranian Oil Company increasingly portrayed the arrangement as a relic of imperial privilege.
In Tehran, the political climate was becoming increasingly combustible. Prime Minister Ali Razmara, a controversial military officer, opposed nationalisation of the oil industry, arguing that Iran lacked the technical expertise to manage such a complex enterprise. His warnings proved politically fatal. In March 1951, as he approached a mosque in Tehran, Razmara was assassinated by a religious extremist. His death removed the last major obstacle to a radical shift in policy.
Within weeks, the Iranian parliament voted to nationalise the oil industry. At its center stood the charismatic and eccentric nationalist leader Mohammad Mossadegh. An aristocrat by birth but a populist by temperament, Mossadegh had long campaigned against foreign influence in Iran and quickly emerged as the political hero of the nationalisation movement.
The nationalisation law soon followed, dealing Britain a severe blow. Abadan was not only the world’s largest refinery but also a cornerstone of Britain’s energy supply and financial stability. Yet London found itself with limited options.
Meanwhile, Mossadegh’s popularity soared at home. To millions of Iranians, he had accomplished a historic act of national liberation. Even as the country’s economic situation deteriorated, oil exports collapsed and government revenues plunged, many supporters saw the sacrifice as necessary to reclaim Iran’s sovereignty. Mossadegh himself declared that the oil could remain underground indefinitely if that was the price of independence.
High Stakes
But the crisis was reshaping Iranian politics in unexpected ways. Mossadegh increasingly relied on mass mobilisation to maintain power, using radio broadcasts to rally supporters into the streets.
The Shah, watching these events unfold, felt increasingly marginalised. Though he remained the country’s monarch, real power seemed to lie with the charismatic Mossadegh and the nationalist movement that surrounded him.
At the same time, the geopolitical stakes were rising sharply. In June 1950, North Korea’s invasion of South Korea transformed the Cold War into an open military confrontation. Western officials now viewed the Middle East’s oil resources as essential to global security. The possibility that Iran might drift toward the Soviet Union or fall under the influence of the communist Tudeh Party deeply alarmed policymakers in Washington and London.
By 1952, the Iranian economy was deteriorating rapidly. Without foreign expertise and markets, the nationalised oil industry could not sell its production. Mossadegh’s political base now began to narrow while conservatives, monarchists and sections of the military began to unite.
In the summer of 1953, the United States and Britain decided to intervene covertly to reshape the political balance in Tehran.
The operation, code-named Ajax, was organised jointly by the CIA and British intelligence. Its field commander was Kermit Roosevelt, a grandson of Theodore Roosevelt, who entered Iran secretly in July 1953.
Roosevelt faced a daunting challenge. The Shah himself was hesitant and fearful. Convinced that Mossadegh had widespread popular support, the monarch doubted the chances of success. Roosevelt eventually managed to meet him secretly in the palace, arriving under a blanket in the back of a car to avoid detection. During the clandestine encounter, he persuaded the Shah to support the plan.
The coup began in mid-August with an order from the Shah dismissing Mossadegh from office. But the initial attempt quickly collapsed when Mossadegh learned of the plot and arrested the officer delivering the decree. Pro-government supporters poured into the streets, while the Shah fled the country, first to Baghdad and then to Rome. From exile, he believed his reign was over.
In Washington, officials briefly assumed the operation had failed. Yet events in Tehran took an unexpected turn. On August 19, a pro-Shah demonstration erupted in the capital. What began as a small gathering rapidly expanded into a vast crowd. Wrestlers, weightlifters, and street performers marched through the bazaars, rallying supporters and denouncing Mossadegh.
As the crowds grew, key military units began to switch sides. Soldiers sent to disperse demonstrators instead joined them. Soon the momentum had shifted decisively. Mossadegh fled his residence, climbing over a garden wall as pro-Shah forces seized control of the capital.
In Rome, the Shah received the news in a hotel suite where he and his wife had been living in anxious exile. A wire news reporter rushed up with the headline announcing Mossadegh’s overthrow. The Shah reportedly turned pale before declaring, “I knew that they loved me.”
Within days he returned to Tehran in triumph. Mossadegh was arrested, and General Fazlollah Zahedi became the new prime minister.
The political drama had profound consequences for the global oil industry. Although the Shah had regained his throne, the old system dominated by the Anglo-Iranian Oil Company could not simply be restored as Iranian nationalism remained too powerful.
Instead, Western governments crafted a new arrangement. A consortium of international oil companies - American, British and European - would jointly operate Iran’s petroleum industry. Anglo-Iranian would remain involved but no longer dominate the enterprise. American companies, which had previously been excluded from Iranian oil, now gained a significant share.
The 1953 coup demonstrated how profoundly oil had become entangled with global power politics. For Iran, the consequences would reverberate for decades. Many Iranians came to view the overthrow of Mossadegh as shorthand for foreign interference in their country’s affairs. The resentment generated by the episode would simmer beneath the surface of Iranian politics for a generation, until it erupted again in the revolution of 1979.
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