In 1951, Mohammed Mosaddeq rose to power in Iran and nationalized the country’s British-owned oil industry. The nationalization triggered an international crisis as the British, together with major oil companies, placed an embargo on Iran, effectively de-integrating Iranian oil from the global oil market. Convinced that pressure on Mosaddeq would worsen Iran’s political instability and push the country toward communism, the United States attempted to broker a settlement that would produce a suitable definition of “nationalization,” satisfying Iranian nationalism while preserving the dominance of the oil oligopoly. Successive negotiations in 1951 and 1952 failed to produce a settlement. A myth of Iranian incapacity obscured the companies’ use of market power to isolate Iran while the United States helped redirect flows of oil to make up for Iran’s de-integration.

In August 1953, the United States and Great Britain overthrew the government of Mohammed Mosaddeq with assistance from Iranian elements and the shah. The coup was motivated by American concerns that an Iranian “collapse” was imminent, one that would pave the way for a takeover by Iranian communists and threaten Western control of Middle Eastern oil reserves. Mosaddeq’s attempts to construct an “oil-less” economy, with some assistance from American developmentalists working in the Point Four program, may have succeeded in disentangling Iran from dependence on oil revenues. The coup squashed this experiment, and in 1954 the United States engineered a new oil agreement between the shah’s government and a consortium of oil companies, reintegrating Iranian oil into the global market and tying Iran’s economic future to the production of petroleum.