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In 1939, as war broke out in Europe, Russia was Iran's main worry. Communism, a mystery to most Iranians, was generally disliked because it was “godless,” clearly to be shunned and condemned. Its creed ran counter to Iranians' sense of authenticity. The war caught Iran in a bad time. An inflationary spiral had taken hold while salaries had remained fixed. Oil revenues had gone down, retarding industrial growth. The Germans buttered up the shah; the British fought with him. At the time, the only major power the shah was able to pressure was England, because of England's dependence on the Anglo-Iranian Oil Company (AIOC). The last days of Reza Shah on the throne were traumatic for him and for his son. His policy was to accommodate the Allies while maintaining Iran's neutrality. But he had misread the Russians and particularly the British.

The Consortium settlement in 1954 was a defeat for Iran. The Consortium received all the operational fields and territory previously conceded to AIOC. For the shah, moving beyond the Consortium was politically exciting and technically educational. He reasoned that oil was the fuel that drove the West, the commodity the West considered absolutely vital to its interests and would go to any length necessary to protect. In later years, Iran would become the first Third World country to engage in refining and distributing oil abroad. In the 1950s, however, the shah opted for the simplest solution: he would deal where governments controlled the oil—in Eastern Europe, India, Argentina, Finland, and the like. With these countries the exchange could take a number of forms, including barter, which became a way of trading with Eastern Europe.

Chapter 6 is devoted to the Abadan Crisis and the circumstances surrounding the decision of the International Court of Justice (ICJ) in the dispute between Britain and Iran over the ownership of oil in Iran, known as the Anglo-Iranian Oil Company case. The Iranians’ argument for their sovereign right to oil was based on the corporate veil of the state as a justification for the expropriation of the company’s assets and the corporate veil of the company to sustain the separation between ownership (the British Government) and control (the company’s management). The Iranian position used an old toolbox to promote a vision of a new postcolonial world order based on equality and distributive justice. The chapter juxtaposes the Iranian position with Philip Jessup’s theory of transnational law and the hermeneutics of legal realism in the British position and chronicles how the Iranian strategy and success in the ICJ eventually ushered the shift toward a new international investment law regime.

The discovery of oil near Masjid-e-Suleiman in Iran in 1908 by a British company aroused interest in Britain and America to explore the wider region for it. Standard Oil Company of California (Socal) secured oil concessions in Saudi Arabia from King Ibn Saud in 1933. The subsequent Arabian American Oil Company (Aramco) struck oil in 1938. The importance of Saudi petroleum increased when, following Iran’s nationalization of the British-owned Anglo-Iranian Oil Company (AIOC) in 1951, Western countries boycotted Iranian oil. The political turmoil in Iran ended with the restoration of the briefly deposed Muhammad Reza Shah Pahlavi to the throne with the assistance of the US Central Intelligence Agency (CIA) in August 1953. He leased the rights to Iran’s petroleum to the consortium of four Western oil companies for twenty-five years. With that, the United States became the prime Western influence in Tehran. By then Riyadh had forged military links with Washington. Soon rivalry developed between King Saud, a spendthrift ruler, and his austere Crown Prince Faisal. It ended with Saud abdicating in favor of Faisal in 1964. Four years earlier, Saudi Arabia had become one of the five founders of the Organization of Oil Exporting Countries (OPEC).