The Road Not Taken by the U.S. in 1950s Iran

News Abroad

John T. McNay is Associate Professor of History at the University of Cincinnati's Raymond Walters College. He is the author of Acheson and Empire: The British Accent in American Foreign Policy (Missouri, 2001) and the editor of Henry Grady's memoirs.

The streets of Tehran are often filled these days with anti-government protesters criticizing a government that came to power largely as a reaction to a repressive government imposed on the Iranian people through a CIA-backed coup.  And that government’s pursuit of nuclear technology has generated fear in much of the world community as a threat to international security.

There are signs of change in the power structure in Iran that point to the possibility that the military may slowly be taking more control of the government.  Many commentators see this as a potentially positive development from the security standpoint in the belief that the generals will be less ideologically-driven than the clerics.

There was a similar opportunity in Iran in the early 1950s that, had it been taken, might have produced a different situation today. That alternative is outlined in the important memoirs of Ambassador Henry F. Grady, published recently for the first time by the University of Missouri Press.  Grady wrote the memoir in 1952-1953 but was unable to revise the manuscript before his death in 1957.  Since that time, the memoir has been in the archives of the Harry S. Truman Library in Independence, Missouri.

Grady, who held a PhD in economics from Columbia University, had a long and varied career in government service, beginning in the wake of World War I with the League of Nations and culminating in his service as the American ambassador to Iran in 1950-51.  In between, he led the New Deal effort to transform the system of international trade through the negotiation of bilateral trade treaties, served in the economic warfare effort in World War II, worked on a plan for Middle East peace (the Grady-Morrison Plan), managed Truman Doctrine funding as the ambassador to Greece, and was the first American ambassador to an independent India.  Grady’s memoirs provide a crucial and overlooked perspective on these important developments as well as other international issues.

But it was Iran that Grady felt was his most important posting, and it was his perceived failure there which troubled him the most.  Grady viewed the American role in economic development efforts as a central weapon in the Cold War.  All through his career he had endorsed this strategic approach, and as the Cold War dawned he continued to see it as the most effective way to encourage democracy and to make allies in the post-colonial world.

By the late 1940s, it had become clear that the two world wars had badly damaged the capabilities of an important American ally, Great Britain.  This decline in Britain’s imperial fortunes led to conflicts with American policy in the Africa and Asia.  Iran serves as a fine case study of these stresses.  Grady was both a cold warrior and an old New Dealer, and he believed economic assistance to Iran was essential in holding Iran to the U.S. side.  But plans to genuinely support the Iranians ran into difficulty because of large and important British interests in the country.  Since 1906, Britain’s Anglo-Iranian Oil Company (AIOC) controlled the southern oilfields and had built the world’s largest refinery at Abadan.  The contracts with Iran left the Iranian government with only a tiny portion of the oil revenue generated in the country.  Meanwhile, elsewhere in Saudi Arabia and Venezuela, American oil companies had signed deals for a fifty-fifty split of the oil revenue.

When Grady arrived as ambassador in the spring of 1950, the Iranian government under Prime Minister Haj Ali Razmara was attempting to gain concessions from the AIOC.  The AIOC, using a time-honored colonial tactic, was withholding its payments to the government until the Iranian parliament, the Majlis, approved the new contract on terms the AIOC wanted.  Over 43 percent of the Iranian government’s revenue came from the oil industry, so withholding revenue was a crippling act by Britain.  Time and again around the colonial world, this kind of stalling tactic had resulted in enough turmoil that eventually a local government would fall and another would come to power that would do as the British wished.  It had worked in Iran before.  But the world was changing and Britain’s AIOC was slow to keep up.

Grady had brought with him an important group of financial experts who perceived their goal to be focused on economic development in Iran.  Grady had led a similar group in Greece where he managed Truman Doctrine funds in what was roundly viewed as a successful operation.  Earlier, during WWII, he had led similar efforts in India and Italy, often working closely with his British counterparts.  Grady was the obvious choice to conduct the same kind of effort in Iran.

What he ran into, however, was resistance by Britain, AIOC, and the American State Department, particularly by Secretary of State Dean G. Acheson.  “We have followed the philosophy of the Marshall Plan,” Grady wrote in his memoir, “everywhere in the countries that are objectives of Russian design except in Iran, where the United States has tragically failed to insist that the British adopt what must clearly be the only policy that would keep this vital country on the side of the West.”  Grady maintained that instead the U.S. had supported policies that would bring “Iran to Britain’s terms by pressures that are steadily weakening the economy of the country.”

Grady was hoping that not only would Britain make its back payments, but that the U.S. would push through a loan from the export-import bank.  Together, Grady believed, this funding could allow Iran to proceed with a seven-year plan of economic development, a plan that had been created by another visiting group of American economic experts.  Led by Max Thornburg, a former Standard Oil executive, the plan developed by his team was roundly criticized by Britain, so much so that Acheson ordered Thornburg and his team out of the country.

“The colonial approach,” Grady wrote in his memoirs, “is completely inconsistent with the program the United States has initiated in the underdeveloped countries… Britain’s ‘waiting out’ position and its later imposition of sanctions is completely opposed to the only policy that can win the Cold War.”  Grady was particularly impatient with British arguments that it could not interfere with the AIOC.  “This, clearly,” an exasperated Grady wrote, “is an untenable position and ridiculous in light of the fact that Britain owned the oil company.”  In a message to Acheson in October 1950, Grady was even more direct:  “It can only be concluded,” Grady wrote, “that [Britain is] bent on sabotaging our efforts to strengthen Iran in order to preserve its dubious supremacy and control here.  Not only is such an approach inconsistent with our mutual interest… but it jeopardizes the global position of the Western democracies as well.”

Grady clearly expected a more forceful act by the United States government, perhaps as forceful as the action with regard to Greece and Turkey.  Razmara, it seems, would have been a valuable partner from a Cold War point of view.  George McGhee, then Assistant Secretary for Near East, South Asian, and African Affairs, wrote at the time that Razmara presented the United States with a rare opportunity.  “Razamara was,” McGhee wrote, “an accomplished and worldly soldier who had traveled widely.”  Educated at St. Cyr, the French military academy, Razmara worked with French officers to establish the first military academy in Iran.  Just before World War II, he had been promoted to the rank of general at the urging of the French commanding officer at the academy.  During the war, Razmara was in charge of the military academy, the Shah’s military office, and military intelligence as well as being Joint Chief-of-Staff, a post he also held 1945-50.  His work, which was both reformist and nationalistic, made him popular among the younger officers but a threat to the old officer corps.

Further, Razmara brought into the government a large number of young, skilled, and nationalistic colleagues.  “Never,” McGhee wrote, “had Iran had such an able group of government officials committed to the betterment of the economy and its people.”  Grady echoed McGhee’s enthusiastic support for Razamara and understood that in order to achieve his goals, Razmara needed the agreement with the British completed.

Instead, Britain’s AIOC reacted with intransigence and Razmara was unable to negotiate a settlement.  The foot-dragging on the British side brought not a change in government that would appease the AIOC, but a radicalization of politics in Iran.  As a result of this, Razmara was assassinated in March 1951 by an Islamic extremist upset because Razmara’s attempts to negotiate with the AIOC had painted him as a British stooge.  As one commentator noted, having alienated much of his powerbase in Iran through his reforming efforts and his inability to make progress, and without the support of Britain and the United States, “Razmara was doomed.”

Now, it is true that Razmara was no saint, and perhaps he was not the savior that some saw him.  The British saw him as “sinister.”  But Grady believed Acheson was to blame for the American policy that led to failure in Iran.  “Had Dean Acheson given me, from the beginning, the full backing to which I was entitled, better results would undoubtedly have been obtained,” Grady argues in his memoir, pointing out that his criticism of British actions ran counter to Acheson’s view.  “Acheson has never been accused of being an Anglophobe,” Grady wrote, referring to Acheson’s well-known Anglophilia.

In his Present at the Creation, Acheson puts a different spin on the situation over providing funding to Iran while acknowledging some responsibility.  “We lacked decisiveness and vigor,” he wrote, “while they [Grady and the embassy staff] suffered from the habit learned in Athens of thinking in terms of large, financial resources, with the result that both the mission and the Shah disdained the funds available, nothing got done, and confidence suffered all around.”  But in the same paragraph, Acheson acknowledges that they had moved Grady, “our successful ambassador in Athens to Tehran and reinforced him with a sizable and competent economic mission.”  In this context, it is easy to understand why Grady expected significant levels of support for economic development efforts.  In Acheson’s account, the conflict with Britain and their objectives goes unmentioned.

Grady left Iran in the spring of 1951, believing he had been forced out by Acheson.  The situation in Iran began to worsen.  A new prime minister, Muhammad Mossadegh, nationalized the British oil holdings later in 1951, and in 1953 a CIA-backed coup toppled Mossadegh and re-installed the Shah, who then engaged in a campaign of repression.  The Shah’s hold on power lasted until the Islamic Revolution in 1979 installed the current Iranian fundamentalist government.

So, as tensions rise once again between the United States and Iran, what lessons might we take from Grady and this early attempt of American involvement in Iran?  First, the United States and its allies must be creative and remember that the Cold War is over.  Second, there must be recognition that Iran has legitimate nationalistic aspirations that need not be seen as a threat.  Third, economic development assistance needs to be designed to actually benefit and not exploit those who are receiving it.

Finally, keeping these points in mind, if Secretary of State Hillary Clinton and others are correct that recent events in Iran indicate that something like a military dictatorship is taking control, then that may open avenues for negotiation with the Iranians that have previously been blocked by Islamic fundamentalism.  However, distasteful it may be, making progress toward democratic and economic reforms may be easier through the generals than through the religious leadership.

In this respect, it may be possible that Grady’s hope of creating a growing and self-sustaining economy in Iran that is part of a world of free trade, may well be attainable and create ties of trade and even friendship that would put present-day tensions in the past.

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Randll Reese Besch - 3/29/2010

I also would add that if Mossedegh hadn't been assassinated by the USA and the Shaw installed Iran would have been in better shape too and maybe not an Islamic theocracy eroding into military dictatorship right now. It could have been a democracy of some kind as it was in the early 1950's.