Iran : The Illusion of Power by Robert Graham

Iran : The Illusion of Power
by Robert Graham
St. Martin's Press, 1980, Revised Edition

Story of Economic Problems at the end of the Shah's reign

First euphoria, then enormous waste and disappointment

... (cover jacket)

"Dazzled by it s new importance and spurred by the prospect of economic take-off, the Iranian response was unashamedly grandiose. The Fifth Plan, less than one year old was set aside and in its place a new set of objectives introduced costing $69 billion: double the original estimate. The new plan approved in August 1974 at a special conference at the Caspian resort town of Ramsar, was more a statement of intent than a concrete blueprint." (p.18-19)

"The Shah was ... dismissive of those who did not share his vision of Iran's future as the world's fifth industrial power by the turn of the century." (p.79)

The Great Civilisation we promise you is not a utopia either. We will reach it much sooner than we thought. We said we will reach the gates in 12 years [1986?]; but in some fields we have already crossed its frontiers. [p.80, source: Kayan International Aug. 4, 1974]

"All the evidence pointed to dangerous overheating" (circa Aug. 1974) "With exceptional management the Iranian authorities might have achieved a good part of their objectives. Instead they were swept along in a careless euphoria." (p.83)

" ... the boom was short-lived. In just over two years, by mid-1976 expenditure overtook revenue and accumulated bottlenecks curbed the hectic pace of development. Official recognition ... was a complete reversal of the arrogant self--confidence of December 1973 at the time of the Tehran OPEC meeting. (p.19)

.... A less charitable view [of events] would be that for selfish reasons dressed up as patriotism the Shah squandered a unique opportunity. By trying to do too much too quickly he undermined the very dream of Iran he so earnestly hoped to realise, retarded the development process and set in motion revolutionary forces that proved so destructive that the achievements of the 50-year-old Pahlavi dynasty disappeared. (p.20)

1974 "... real issues: social objectives of the revised Plan were being undermined by an accelerating urban/rural and rich/poor gap; while the economic objectives were being undermined by inadequate infrastructure, lack of skilled labour and an alarming increase in costs and overall wastage." (p.94)

Oct. 26 1976 Kayhan International..."we have not demanded self sacrifice from people: rather we have covered them in soft cotton wool. Things will now change. Everyone should work harder and be prepared for sacrifices in the service of the nation's progress." (p.103)

History - Reza Shah

History - Why name changed to Iran

"Persians were just one of the Indo-European Aryan tribes that came to settle in what is now Iran." (p.55)

History - Reza Shah's Acquisitiveness

"He built up his own wealth through a mixture of gifts, cheap acquisitions and expropriation, mainly in land. [Marvin Zonis writing in the Political Elite of Iran, Princeton University Press, 1971, p.55] calculates that" (p.55)

by the time of Reza Shah's abdication, more than 2000 villages passed to the control of the new monarch. Using a measure of 4.8 persons per household, some 235,800 were in direct service of His Imperial Majesty qua landlord.

Reza Shah and the Trans-Iranian Railway

Why the Shah's critics bitched about it. "The Trans-Iranian Railway ... connecting north and south Iran over a distance of 860 miles ... took almost 12 years to build and finally opened in 1938. It was a tremendous feat" but "as Julian Gharier acidly comments: `There is no doubt that on almost any economic criterion the railway was ill-conceived.` To lay each mile of track cost 35,000 [pound sterling]. The equivalent cost of a road link would have been a maximum 525 [pounds] per mile. A road could have achieve the same purpose; and besides the steep gradients made it impossible for trains to carry heavy loads and the aridity combined with extreme heat made it difficult to use steam locomotives." (p.43)

History - Nationalization of the Anglo-Iranian Oil Company

Nationalization of AIOC - Its start

"Well before coming to office he had made a platform out of oil nationalisation. Even if this was against the Shah's better judgment it was a policy he was in no position to oppose. Mossadegh knew this and stipulated nationalisation of AIOC as a precondition of accepting office. Once in office this was his first move, but it soon became clear that he was as much concerned to humiliate the Pahlavis as nationalise the oil industry." (p.65)

History - Nationalization of the Anglo-Iranian Oil Company - Why it didn't work

"When the majles passed the bill nationalising oil, they simply thought it meant channeling profits - which they exaggerated - into the national coffers. No one had any real idea what nationalisation meant or entailed.` Nationalisation meant operating the oilfields, running the sophisticated Abadan refinery and marketing both crude and refined products in the international market. Since expatriate personnel ran all key functions of the industry and marketing was an international cartel of the oil companies, Mossadegh was powerless once personnel were withdrawn and both AIOC and the British government decided to block the sale of Iranian oil.

In purely economic terms the net result of the abortive nationalisation attempt was disastrous. From 1951 to 1954 the Iranian oil industry virtually closed down. Iran forfeited its position as the leading producer of oil to boost their own production. Iran's first attempt at planned economic development was completely undermined. ..." (p.35)

History - Nationalization of the Anglo-Iranian Oil Company - How it Ended

Under a new agreement signed in August 1954 Iran could only obtain a fifty/fifty division of profits and, in return for sovereignty over certain non-essential operations like health, had to compensate AIOC very substantially for losses. Part of the agreement was the disbandment of AIOC but less in response to Iranian sensitivities than pressure from US and other international oil groups keen to obtain a share of the rich Iranian oil operation. The new company became known as the `Consortium` comprising the seven major oil companies (the Seven Sisters) with BP holding the leading stake of 40%." (p.35)

History of Oil in Iran

  • 1911-1919 Iran received "a mere 335,000" pounds sterling in royalties (p.34)
  • 1920-1929 - annual royalties average "just over 1 million" pound sterling (p.34)
  • 1933 - new agreement
  • 1934-1939 - "under 2.5 million" pounds sterling a year
  • 1941-1945 - 4 million a year
  • 1950 - 16 million pounds a year
  • 1951-1954 - oil industry virtually closed down. Mossadegh nationalization crisis. (p.35)
  • 1954 August - new agreement with foreign oil companies. 50/50 division of profits
  • 1970 - $1.12 billion revenues (p.36)
  • 1972 - $2.39 billion revenues. (p.36)
  • 1973 - $5 billion (p.16)
  • 1974 - $19 billion (p.16)

    History - June 1963 Riots

    In June 1963, immediately after moharram (the holiest period in the Shiite year), Khomeini was arrested in Qom, provoking the worst riots of the century which raged throughout the country's major cities for three days. In response the Shah countenanced a bloody law and order operation by the army which resulted in serious loss of life - perhaps over 1000 killed or seriously wounded.
    [Assadollah Alam, the then prime minister, said 86 people were killed. In a later interview he gave his views of what happened. See Margaret Laing, The Shah, p.168-9. The author has been told by ex-National Front members that the total of seriously wounded and killed was over 1500. The estimate has been scaled down against anticipated exaggeration.]
    This ferocity cowed the opposition as the message was now clear: the army would be used to back up the regime whenever necessary. The Shah's gamble had paid off: the suppression of the riots curbed the mullahs and their faithful supporters, who could draw in elements who were not necessarily religious, but who could use religion as a front for political protest." (p.69)

    History - General Pakravan

    "General Pakravan, the donnish second head of SAVAK, was pensioned off as Ambassador to Pakistan for allegedly being too accommodating to the Shah's opponents." (p.70)

    Shah's Mistakes - Price Controls

    "Imposing draconian price controls in a severely overheated economy was inevitably disruptive and ultimately counter-productive. Matters were not helped by the bands of ill-informed inspectors, frequently students, sent out to check prices and decide sometimes with complete arbitrariness the correct price for a product. The price war was the first political test of the newly formed single party, Rastakhiz; and on at least one occasion youths in the name of the party and the municipality sacked a Tehran supermarket, said to be overcharging ... " (p.96)

    As a whole the price campaign was a failure. Official indices were down for six months but black-market prices for essential commodities rose sharply. The shortages were not relieved, and if anything became more pronounced." Some imports and manufacturers just ceased to be imported or manufactured. (p.96) Tycoons Habib Elghanian and Mohammed Wahabzadeh Elghanian, who had been under attack, ceased their operations.

    Shah's Power and lack of any institutional power

    "All important decisions were by decree, imperial firman. The monarchy was the country's only institution, around which all power revolved without any formal checks and balances." (p.131)

    "The Shah observed the traditional and fundamental principle of divide and rule. Power was distributed to a series of individuals or agencies with overlapping functions which were kept fragmented and weak." (p.131)

    Shah's Power and Corruption

    Because there is such a premium on acquiring influence, corruption flourishes. When real power is in the hands of only one person, the best proven means of acquiring influence and political favour are the most valuable commodities, there is no moral stigma attached to paying to obtain them or for receiving payments in return for giving them. Corruption is therefore built into the system ..." (p.198-199)

    Oil and Arabic Khuzestan

    "Since 1946 there have been challenges to central authority, abetted from outside, through autonomy movements in Azerbaijan, Baluchistan and Kurdistan, while the oil-rich southern province of Khuzestan with its large Arabic-speaking population is still regarded by some Arab states as Arabestan (Syrian and Iraqi maps mark it as such.)" (p.171)


    "The convenience with which the opium crop fitted into the cycle of Iran's water supplies was one of the principal reasons why cultivation of the poppy was so important. The crop was sown in the winter and harvested in spring. Opium was also highly profitable and allowed the farmer to have a different summer crop. Up until the late 1920s when vigorous national and international measures were taken to curb opium production in Iran, Iranian farmers were producing 30% of the world's production (measured in morphine content). The crop also provided as much as 15% of export earnings and accounted for 10% of tax revenues. [source: Julian Bharier, Economic Development in Iran: 1900-1970, OUP, 1971, p.136] (p.39)

    Agriculture - Land Reform

    "When land reform came, little thought was given to matters of improved performance from the agricultural sector. It was a political maneuver by the Shah to win over the rural masses and curtail the power of the big landowners." (p.40)

    SAVAK and Israel

    SAVAK was established in 1957 and "was also assisted by the Israeli intelligence service Mossad. The Shah had already turned to the Israelis for the provision of his personal security after deciding outsiders were more efficient and trustworthy." (p.68) [Israel had not confirmed its involvement].

    Arms Purchases - How it Led to Influx of Foreign Devils

    The Shah spent large some on American military equipment, some of which was so sophisticated it required large numbers of American technicians to operate it. "By permitting the Iranian purchase of sophisticated equipment in unprecedented quantities, the US committed itself to make this hardware operational. This meant an exposed profile in the form of extensive military and civilian technical and advisory personnel in Iran to compensate for the serious shortage of skilled manpower. By 1976 it was reckoned that the majority of the 24,000 American in Iran were defense and defense-related. Before the revolution this number had been expected to reach between 50,000 and 60,000 by 1980, largely as a result of purchased of arms from the US." (p.178-9)

    Arms Purchases - Why?

    The Shah bought it out of gadget-lust and to give him an edge on the USSR but also because the US government let him because "Iran was seen as a major new opportunity to sustain production lines as the Vietnam War weapon sales boom began to taper off." (p.174)

    Agriculture - From self-sufficiency to dependency

    "Iran was largely self-sufficient in foodstuffs up to the early 1960s and could balance the deficit by exports of cotton, fruits (peaches and limes) and nuts. However the diet was low-calorie and used little read meat. After the 1973 oil price rise food consumption shot up, creating a substantial dependence upon imports." (p.40)

    The Revolution

    The Revolutionaries - Who Were they?

    In isolation this semi-legal opposition would have squeezed small concessions from the Shah. But they were only the more visible and tangible sign of generalized disaffection, particularly in the big urban centres of Iran. These disaffected groups could be classified as follows:

    1. the students
    2. the small underground guerilla movement
    3. The clergy
    4. the new rootless urban proletariat
    5. the Bazaar merchant communities (p.213)

    "The revolutionary forces that coalesced in his [Khomeini's] name were extremely heterogeneous: conservative Islamics, nationalists, dissident capitalists, disaffected intellectuals, Marxist revolutionaries and the frustrated urban proletariat. One group noticeably absent was the rural peasantry - too poor and isolated to play any significant part yet comprising over 40% of the population." (p.251)

    Women Revolutionaries - Their Key Role

    Despite Khomeini's traditional attitude toward women before the revolution and the popularity of chadoor among women anti-shah protesters as a symbol of "rejection of the modernising process," non-traditional activity of traditional women was important in overthrowing the Shah

    One of the remarkable features of the ensuing demonstrations was the large scale participation of women. The chadoor, the traditional cloth with which women cover themselves, came to symbolise a form of protest: an identity with Islamic values and a rejection of the modernising process instituted by the Pahlavis.

    The chadoor was first used as a form of political protest inside the universities in 1977. Students began to wear the chadoor on campus. But the presence of women in the demonstrations probably owed little to the example in the universities. The bulk of the women taking part in the demonstrations were working class and this was an important dynamic in the revolutionary process. Women first appeared in large numbers in the mourning processions for those killed. Because the mourning processions were transformed into political protests, the women became part of this protest. Previously mourning processions had been the sole occasion on which women from conservative backgrounds had been permitted to demonstrate their feelings in public. Therefore the political involvement of women was a natural evolution. Their presence was not discouraged. On the contrary, the demonstrators realised that this unexpected female presence tended to unnerve riot police and the army, making demonstrations more difficult to challenge. It is also possible that the presence of women gave men greater courage to stand up to the police and army. [p.227]

    The Revolutionaries - What Were They Against?

    "Yet the Islamic banner should not disguise the existence of other unifying forces - a profound dislike and mistrust of the Pahlavis (there was nothing stage-managed about the scenes of delirious joy the day the Shah left Iran); and a resurgence of traditional Iranian chauvinism toward foreign influence which the Shah and his reforms came to symbolise. Ultimately it was a nationalist revolution." (p.251)

    "The Shah's overthrow was an explicit rejection of the hectic capitalistic model of development that relied heavily on foreign technology and foreign imported skills. There is now scope for a more reasonable model of development that takes account of Iran's real needs." (p.253)

    D. The Lumpen immigrants from the Countryside

    Part of the crowd in the early demonstrations was probably paid to participate by the Bazaaris. The boom had created a fertile source of rabble. The thousand of persons who had flocked to the towns from poor conservative backgrounds in the hope of jobs were that section of the urban proletariat that least benefited from the boom. Often they were single males whose families remained in country villages. They were confronted with an alien culture, often forced to live on building sites or at great expense in slum conditions. Their earnings, which at first seemed high, were frequently illusory, eroded by inflation. From mid-1977 the economic slowdown, combined with efforts to peg tents and house prices, provoked a sharp fall off in construction activity
    which was the main source of employment for unskilled hicks. Many became unemployed, and this unemployment further coincided with a bad year for the agricultural sector ... pushing more men to the towns" to look for jobs "It was this confused, bitter new urban proletariat which imbibed quickest the protest messages coming from the mosques." (p.226)

    Religious Leaders - Khomeini, Taleghani, Shariat-Maderi?

    "the National Front and Iran Liberation Movement had retained their ties with the most progressive among the Shiite hierarchy, Ayatollah Taleghani. These links were reinforced during 1977. However, religious protest was not formally co-ordinated with that of the Constitutionalists, even though in January 1978 the leading religious figure inside Iran, Ayatollah Shariat-Maderi, came out in support of the constitutionalists." (p.218)

    "However, both [the politicians] and the regime seemed unwilling to admit that they clergy lived much closer to the people and were consequently more aware of popular feeling. ... the Bazaar was still the centre of ordinary Iranian life, no matter what had happened during the boom." (p.218)

    Religious Education

    "A person enters the clergy via a seminary which for the Shiia are centered in Tehran, Meshed and Qom in Iran and Najaf in Iraq. The seminary does not study theology exclusively and subjects such as mathematics and physics are included with the aim of giving the student a broad moral dimension." (p.218)

    Break in Fear and Submission of Populous

    A Revolution needs:
    A) Serious Dissatisfaction with the status quo, i.e. desire for revolution and
    B) A lack of fear of the "sanctions" of the powers-that-be.

    The "barrier of fear was broken ... at the popular level" with the "killing of the theological students in Qom in January 1978. From then onwards, often led by theological students or mullahs, demonstrators were prepared to face the army fearlessly." (p.228)

    Incompetent riot control and Demoralization of Army

    "The heavy casualties wrought on civilian demonstrators by the army had for the Shah the negative consequence of demoralising the conscripts and junior officers. The armed forces were not geared to cope with such large internal security operations. Crowd control had not been seriously studied. As far back as Tabriz, ordinary policemen had refused to intervene. Fraternisation between demonstrators and the army became evident in early September, and from `Black Friday` onwards the number of incidents increased in which junior officers disobeyed orders, or where soldiers shot their officers and joined the crowd." (p.228)

    Why the Revolution succeeded

    "There are at least six main reasons why this dramatic end came with such bewildering speed:

    1. The Shah underestimated the strength of the opposition.
    2. The concessions made to the opposition were always too late and inadequate.
    3. All his actions suffered from a lack of credibility.
    4. His close ties with the US allowed nationalist sentiment to brand him as an American puppet.
    5. His personalised system of government prevented him from distancing himself from any errors committed.
    6. He became too dependent upon the military for his survival and was subject to their hardline pressure. (p.229)

    1. The Strength of the Opposition

    "At the onset of 1978 Khomeini was still a voice crying in the wilderness, severely constrained by his relations with Iraqi government ...Within Iran the moderate clergy still looked to Ayatollah Shariat-Maderi as their spiritual leader and he was not advocating the Shah's overthrow. The National Front did not have a popular base and their demands seemed containable." (p.229)

    Underestimating Religious opposition

    "For in the past 30 years religious extremists had assassinated two of his Prime Ministers, General Razmara (1951) and Hassan Ali Mansur (1965) and had carried out at least two of the assassination attempts on his own life. [source: comment to the author by an unnamed someone in frequent contact to the shah during his life] [But]as late as June 1978 the Shah was telling a visitor that the demonstrations were caused by `a lot of mullahs pining for the seventh century.`" [Financial Times Sept 12, 1978] (p.230)

    2. Concessions: Too Little Too Late

    General Nassiri, "who presided over SAVAK during the moments of greatest repression, was a symbol of the things that needed changing," but his replacement was a career army intelligence guy and Nassiri was "merely pensioned off as ambassador to Pakistan ... not disgraced." But then not "only six months later on 7 November Nassiri was arrested as a sop to public opinion along with 12 other prominent personalities that included former Premier Hoveida and Darioush Homayoun (responsible for the anti-Khomeini article in Etelaat. Even then there was no effort to reform SAVAK methods, and political prisoners were released grudgingly." (p.231)

    "The Shah's policies had been called in question in June 1977. Not until November 1978 did he concede in any manner that he was personally at fault. This only came when he announced on 6 November the installation of a military government after large parts of Tehran had been sacked and hundreds of Shah portraits been thrown into the streets." (p.232)

    COMMENT: the opposite of Taheri's interpretation that the Shah bungled that address NOT by having waited so long to admit fault but by not calling for a crackdown. That all the destruction would have given him support to appear firm and call for a crackdown instead of telling the TV audience he supported the revolution.

    4. Foreign Influence

    "The opposition, no matter what complexion, was one in feeling that the Shah's modernisation plans had permitted too many foreigners to work in Iran, had made Iran too dependent upon foreign technology and allowed Iran to be a tool of American imperialism. These sentiments represented the hard-core of anti-Shah feeling and permitted Khomeini to be elevated to a symbol of the monarch's complete antithesis - unsullied by anything foreign: free, independent and utterly Iranian. The deep military involvement of the US in Iran had always been resented." (p.233)

    "The Americans themselves sealed the Shah's chances of returning to Iran by being the ones to announce his decision to leave for an indefinite holiday - as though it were an American prompted decision. Secretary of State Cyrus Vance said on 11 January announcing the decision: `We think it a sound decision and we concur in it.` But not until late January did the Americans concede that Khomeini held the key to Iran's immediate future." (p.234)

    4. Personalised Government

    "... For instance, the arrest of Nassiri and Hoveida in November was a charade. These men were the Shah's loyal servants carrying out his policies in his name. The real culprit could not be disguised. Besides, these arrests in particular destroyed the Shah's standing among what remained of his supporters." (p.234)

    5. Losing power to the military

    Toward the end the military took away some of H.I.M.'s control "General Gholamli Oveissi, commander of the ground forces and marital law administrator in Tehran, was especially zealous in suppressing opposition." This "only served to harden the resolve of Khomeini's supporters and to unify the various opposition groups on a broad anti-Shah ticket." (p.235)

    Military's outwitted by Opposition

    "The military government had niether the wit nor the experience to govern a country in a state of turmoil. Long shielded in a protected world of comfort and privilege which had little contact with civilian Iran, the military had no measure of their adversary, the crowds in the streets. They were no match for the ingenious organisers of such tricks as sticking loud speakers on rooftops that echoed the sounds of tape-recorded gunfire or the splashing of faked blood in ditches, thus further antagonizing the population against the military. Moreover like the angry bull, the only real method that the military nderstood was to charge head on." (p.235)

    Progress of the revolution

    Government of national reconciliation under Sharif-Emami

    "Creation of government of national reconciliation under Sharif-Emami at the end of August 1978 ... was a good six months too late, for by then the revolutionary philosophy of Khomeini in exile had taken popular root, and a gut anger had been provoked by the Shah's (rightly or wrongly) presumed involvement in the Abadan cinema fire disaster." (p.250)

    What should the Shah have done?

    "He never sought, say in August 1978, arguably the decisive month for the Shah, to call Khomeini's bluff an invite him back to Iran when still exiled in Iraq. He never sought to risk exposing himself in public to win the sympathy of his subjects. To the last he remained remote, shielded by bodyguards (and latterly tanks), projecting himself only via radio and television." (p.250)

    Strikes Paralyse - November

    Both the National Front inside Iran and Khomeini outside encouraged the strike as a political weapon. By early November, when the Shah resorted to a military government, all public services - transport, telecommunications, customs, ports and fuel supplies - were either paralysed or semi-paralysed. For instance the strikes in the Bank Melli affected import credits; the strikes at customs halted industrial production through lack of raw materials and spares ... " (p.236)

    When was the Shah broken and Khomeini set as Iran's new leader?

    "Khomeini's uncompromising stance in France turned the tables on the Shah. The Ayatollah adopted the mantle of the strong Leader (Farmandeh). The Shah became a man on the run. The endorsement of Khomeini as the alternative power came in the huge mass demonstration held in Tehran on 9 December. During this demonstration a 17-point resolution was presented declaring the Ayatollah to be the leader of the Iranian people. The declaration called upon the people to overthrow the Shah and struggle until this was achieved. From then onwards it was only a matter of time before the Shah either left voluntarily or involuntarily." (p.238)

    "Towards the end the Shah lost the will to govern. At times he was so demoralized he did nothing but spend long periods brooding morosely, often in tears. ... The key turning point in Khomeini’s fortunes was probably not his widening religious appeal but the calculated decision by the key sectors of the Iranian labour force (government employees and oil industry workers) that he was the likely winner of a power struggle, therefore attaching themselves to his Islamic banner. Opportunism played no small part in the overthrow of the Shah." (p.250)