Iran and the West: A Century of Tension, Conflict, and Potential for Renewal

Recent developments have made the relationship between Iran and the U.S. increasingly volatile. The prospect of meaningful trade partnerships seems unlikely and impractical, with the threat of conflict looming. However, this has not always been the case. The relationship between Iran and the Western world was once strong, and many believe Iran still has much to offer in terms of energy and industry. To understand how the ongoing situation develops and what it means for us, we must explore the history of Iran's relationship with the West, how we reached this point, and what we can expect moving forward.

 

Iran and the United States have had relations dating back to the 1720s, but I don't think you'd be interested in going that far back, and frankly, I don’t feel like covering that much. So, let's narrow our focus to the past 100 years. For much of the 20th century, Iran was run by a monarchy led by a ruler known as the Shah. In 1919, the Qajar dynasty was overthrown in a coup, and the Pahlavi dynasty, led by Reza Shah, took over. Here, we see the early seeds of anti-Western sentiment in Iran, as the British government played a significant role in the coup. A British embassy report later confirmed that the British helped place Reza Shah on the throne. The Pahlavi dynasty served as a constitutional monarchy for 28 years. During this period, Iran saw considerable growth, with projects like the Trans-Iranian Railway, the founding of the University of Tehran, and major investments in oil drilling. Reza Shah promoted secularism and Westernization, which often clashed with the country’s Muslim majority.

 

In 1936, the Shah banned traditional garments like the chador (veil) in favor of Western clothing, much to the displeasure of Islamic authorities. Toward the end of Reza Shah's reign, his relationship with Britain became increasingly strained. He withdrew from several oil trade agreements, and during World War II, he aligned with the Axis powers, with Germany becoming Iran's largest trade partner. This eventually led to the British-Soviet invasion of Iran, which forced the Shah to abdicate in favor of his son. The new Shah continued his father's policies, pursuing further industrialization, but had limited success in oil production. A previous agreement saw 85% of Iran's oil profits going to Britain, with only 15% going to Iran. Dissatisfied with this, Prime Minister Mohammed Mossadeq supported nationalizing Iran's oil industry.

 

In response, Britain placed an embargo on Iranian oil, severely damaging the economy. As with most global oil issues, the CIA soon got involved, and, with MI6's support, they orchestrated a coup that destabilized the Iranian government and led to Mossadeq’s imprisonment. In the aftermath, the Shah was reinstalled as an autocratic ruler, with 40% of Iran’s oil control going to British Petroleum and another 40% to U.S. oil companies. This ushered in another period of economic growth, though internal support for the Shah began to waver. The U.S. helped Iran develop a nuclear program and provided $1.2 billion in aid over the next decade. Iran’s oil revenues continued to grow, and so did its partnership with the U.S., particularly in military spending. Between 1967 and 1973, Iran’s military spending rose to $8 billion, much of which went to U.S. weapons companies. In 1974, the Shah’s government announced plans to invest $6 billion in industrial expansion and $5 billion in oil and gas development, with U.S. firms playing a central role.

 

However, the relationship between the Shah's government and Iran’s Islamic clergy remained strained. Opposition to the Shah grew, led by Ayatollah Ruhollah Khomeini, who was staunchly against Iran’s modernization. In 1977, anti-government demonstrations erupted, leading to the declaration of martial law. When 400 people were killed in a terrorist attack falsely attributed to the Shah’s secret police, tensions escalated. A revolution seemed inevitable, and to avoid civil war, the Shah went into exile, despite the Carter administration’s objections. The "Islamic Revolution" followed, and Khomeini took control of the new government.

 

Iran’s government structure is unique. Unlike most autocracies, it has an elected president, cabinet, and legislative assembly. However, ultimate power rests with the Supreme Leader, who holds life tenure. The Supreme Leader serves as the Islamic authority and can overrule any decision. Since the revolution, Iran has had two Supreme Leaders: Ayatollah Ruhollah Khomeini and his successor, Ayatollah Ali Khamenei. If this system confuses you, think of it in "Star Wars" terms—the Supreme Leader is like Chancellor Palpatine after the Senate granted him emergency powers. In NBA terms, he is to Iran what LeBron James is to the Lakers’ front office.

 

Khomeini's Islamic revolution drastically deteriorated Iran’s relationship with the West. The government rolled back Westernization policies in favour of Islamic Sharia law. Economic policy shifted towards self-sufficiency, beginning with the nationalization of key resources. Iran’s private sector was reduced to a minor aspect of the economy, while state control expanded. A welfare system aimed at helping rural areas was also introduced.

 

Since Khomeini's death in 1989, attempts to incentivize private industry in Iran have largely failed. The centrepiece of Iran’s economy remains its energy sector. Iran has the largest hydrocarbon reserves in the world, with 836 billion barrels of oil and 34 trillion cubic meters of natural gas. Hydrocarbon extraction and refining dominate the country's GDP, making Iran heavily reliant on oil and gas revenues. Domestic economic activity in Iran is often informal, with over a third of trade unmonitored by the government, posing significant challenges for tax and welfare programs.

 

Foreign relations have also impacted Iran’s economy. The Iran-Iraq War, backed by the U.S., cost Iran approximately $500 billion and hindered post-war reconstruction efforts. More recently, the sanctions imposed by President Trump in 2018 in response to Iran’s nuclear threats further isolated Iran. The Trump administration’s sanctions significantly reduced trade between Iran and the U.S. from $500 million in 2018 to around $50 million today. Although Iran maintains some economic allies, such as China, which pledged $400 billion in exchange for discounted oil, tensions with the West persist.

 

In 2020, tensions spiked when Iranian General Qasem Soleimani was assassinated by a U.S. airstrike. Soleimani, a key figure in Iran’s clandestine operations, played a pivotal role in events like the Arab Spring and the Iran-Israel wars. His assassination was viewed as a severe act of aggression, and millions attended his funeral.T he ongoing Israel-Hamas war has further strained relations with Iran. Since the 1979 revolution, Iran has refused to recognize Israel, and it has supported militia groups attacking Israeli forces. In response to the recent conflict, Iran launched rockets at Israel, which retaliated by targeting Hamas leaders in Tehran. Supreme Leader Khamenei has threatened significant retaliation, while Israeli Prime Minister Netanyahu warned of preemptive strikes on Iran.

 

Despite the hostility, there may still be a path to peace. Iran’s presidential election on July 5 resulted in the election of Masoud Pezeshkian, who has shown a willingness to reopen discussions with the U.S. on trade and nuclear policy. He has urged Khamenei to reconsider any attacks on Israel, citing the potential damage to Iran’s economy and infrastructure. As a result of Pezeshkian’s stance, a communication hotline was established between the U.S. and Iran in August to ease tensions, and Khamenei agreed to delay any military action until the new cabinet is sworn in.

 

It is clear that the relationship between Iran, the U.S., and the Western world has become increasingly fragmented over the last few decades. Ideological differences, deep-rooted mistrust, and a history of conflicts have defined their interactions. As the situation in the Middle East continues to unfold, it is critical to stay informed, as any development could have far-reaching consequences. Despite these challenges, Iran still holds immense potential with its rich history and vast resources. We are not far removed from a time when Iran was a beacon of development in the Middle East. As we look forward, there is hope that Iran may find its way back to stability and once again become a significant player on the global stage.