During the 1970s, the agrarian reforms of the White Revolution (see part 3), skyrocketing oil revenues, and Iran’s new role as the U.S.’s Persian Gulf gendarme combined to bring rapid—and destabilizing—social, political, and economic change. Oil income shot up from $22.5 million in 1954 to over $19 billion in 1975-76. By mid-decade, nearly half of Iran’s people lived in urban areas (up from 30 percent a decade earlier). Tehran’s population soared by 2.5 million people between 1961 and 1978. Industry and manufacturing tripled in size compared to the 1950s, and Iran’s middle class was growing quickly.¹

The Shah bragged that Iran would soon have one of the world’s five biggest economies. The U.S. imperialists saw Iran as a model of development, an island of stability, and a crucial Middle East outpost.

Yet billions in oil revenues didn’t lead to balanced, self-reliant economic growth or a better life for most Iranians. Oil revenues propped up the Shah’s repressive tyranny. Iran’s oil sector and a few other more technologically developed industries remained islands linked to foreign capital, technology, and markets, but disconnected from most of the rest of Iran’s economy.

Iran’s oil industry was very capital intensive (machine and technology heavy), employing only 42,000 Iranians out of a 1972 labor force of nearly 10 million.² Oil technology and equipment were imported, so its development didn’t lead to either technological development of the economy as a whole or less dependence on selling oil. Instead, by 1977, over three-quarters of Iran’s government revenues came from petroleum.³

Most manufacturing was still done in very small, labor intensive workshops. Traditional goods—like carpets, handicrafts and agricultural goods—continued to make up more than 80 percent of Iran’s non-oil exports. Fewer worked in rural areas and on the land, but feudal and semi-feudal relations remained widespread and per capita agricultural output stagnated. Newer urban industries were often concentrated in “import substitution” manufacturing. There, high-end consumer goods—like cars—were assembled using imported parts and technology.⁴

This kind of imperialist-driven economic growth made Iran even more addicted to imports of technology, up-scale consumer goods, military hardware, and food. Iran’s imports jumped from $400 million in 1958-59 to a staggering $18.45 billion in 1975-76, including some $2.6 billion in food. This giant tab sucked up most of Iran’s oil income, wiped out many small Iranian businesses, and reinforced foreign capital’s overall stranglehold.⁵

These changes also sharpened social divisions. Foreign companies made huge profits in Iran, ranging from 30% to 200% rate of return on investments, while the Shah and capitalists and landowners closest to his regime made immense fortunes. Iran’s small upper strata and growing professional and technical middle class enjoyed rising incomes, some becoming quite wealthy.

At the same time, millions were being driven off the land and pulled into sprawling urban shantytowns without water, sewage, or electricity. Sixty percent of Iranians remained illiterate, life expectancy was 50 years, and 139 of every 1,000 children died in their first year.⁶ When I visited Iran in 1979, a construction worker told me about working on a new palace for the Shah’s mother. He made $3 a day, barely enough to pay cab fare to and from work, and buy a lunch of bread and cheese. He couldn’t afford Tehran’s skyrocketing rents, and had to live with his brother’s family to survive.⁷ Uprooted from the countryside and set adrift in the cities, many shanty dwellers became a key base of support for Ayatollah Khomeini and Islamic fundamentalism. Khomeini, a reactionary theocrat, would emerge as the leader of Iran’s 1979 revolution.

A British magazine captured Iran’s crazy-quilt, lopsided growth: “Iran is being Westernized in all the wrong places. Modern bottling plants for Pepsi, Coke, and Canada Dry have sprung up all over the place, while in the filthy poor quarters of the cities people still drink from the jubes—open water courses that run down the sides of the streets, collecting all manner of rubbish. Teheran airport is one of the finest in the Middle East, yet there is still no adequate road and rail system. A tall Hilton hotel is being built, while hundreds of people sleep in the streets.”⁸

Iran: America's Persian Gulf Gendarme

The Shah’s role heading up a U.S. military outpost in the Persian Gulf and on the Soviet Union’s southern border also skewed Iran’s economy and society, and amplified other problems.

U.S. military advisors had been operating in Iran since the early 1940s. But U.S. direct involvement in Iran's military greatly increased after the 1953 coup. By 1954, three different U.S. military groups were operating in Iran, directing the expansion of Iran’s Shah’s army, forming a modern air force and navy, training Iranian officers, and overseeing weapons purchases.⁹ Iran was a key member of a sequence of U.S. regional military alliances.

In the early 1970s, Iran’s importance as a U.S. military ally took a leap. U.S. President Nixon, then in the throes of the Vietnam War, announced the U.S. was going to rely more heavily on allies and clients to police key regions. Iran, along with Saudi Arabia and Israel, would be one of U.S. imperialism’s “pillars” in the Middle East.

To fulfill this role, Iran embarked on a massive military buildup and spending spree. Huge bases were built in the north to monitor the Soviets and along the southern coast to police the Persian Gulf. Between 1972 and 1975 alone, Iran spent $35 billion of its $62 billion in oil revenues on the military—mainly on purchases from the U.S. and other Western powers. By the late 1970s, nearly 8,000 U.S. military advisers and technicians were stationed in Iran.

In the wake of Israel’s 1967 and 1973 wars seizing Palestinian and Arab lands, anger and resistance rose across the region. The Shah stepped in and supplied Israel with 90 percent of its oil. The Iranian military helped crush an anti-imperialist guerrilla movement in the Dhofar province of Oman. The Shah conspired with the Nixon administration to manipulate and then betray Iraq’s Kurds in order to weaken the Saddam Hussein regime. (In 1975 the unsuspecting Kurds were decimated by Iraqi forces, with thousands killed and some 200,000 driven into Iran.)

SAVAK: U.S.-Trained Torturers

A decade of breakneck development, fueled by imperialism and oil revenues, effected rapid economic, political, social, and cultural changes—in a highly unstable way. The U.S. and the Shah built up elements of a modern economy and infrastructure, but in a narrow, lopsided manner. Feudal relations weren’t fully uprooted, and in many ways were reinforced and incorporated into these imperialist-driven transformations. Millions of rural labors and peasants were still locked in poverty, and those driven into the cities remained largely left out of the more modern segments of society. These changes also alienated powerful segments of society whose authority was rooted in regressive, feudal relations and ideas. These included some merchants and landlords, as well as significant segments of the Islamic clergy.

The newer middle and upper classes did grow and prosper, but were denied a political voice. Tens of thousands of students went abroad as part of the Shah’s modernization. They were radicalized by both the situation in Iran and the anti-imperialist and revolutionary movements sweeping the world. They, in turn, brought an open, seething hatred of the Shah’s regime to countries where they studied, and often militant anti-imperialism and internationalism.

The Iranian students had a powerful impact on the countries where they studied. This included the United States, where they made millions aware of the role the U.S. government played in propping up the Shah’s tyranny--and what this meant for the Iranian people. And their revolutionary sentiments and solidarity with people struggling inside the U.S. brought an internationalist consciousness against a common enemy.

A significant revolutionary Maoist current developed among the students, including the Union of Iranian Communists.  (Some of its members would later help form the Communist Party of Iran, Marxist-Leninist-Maoist (CPI-MLM) in 2001.)

Few who encountered anti-Shah students will ever forget their marches of unabashed defiance and seemingly boundless energy, going for miles. Or their booming chants: "The Shah Is a Fascist Butcher, Down with the Shah!" "The Shah Is a U.S. Puppet, Down with the Shah!" The Shah dispatched his secret police abroad. But their efforts to intimidate and suppress the students failed. All this reverberated profoundly back in Iran, where such open contempt and opposition was suppressed. And these students would play a crucial role in the downfall of the Shah in 1979.

Both the more traditionally-minded as well as the newer, more secular classes were humiliated and outraged by the Shah’s subservience to the U.S. In the face of widespread deprivation, he insisted on pursuing America’s imperial objectives, ostentatious consumption, and grandiose royal displays.

So the Shah’s U.S.-driven politics and economics ended up turning both traditional and new segments of society against his rule.

To keep the lid on, the Shah increasingly turned to his dreaded secret police—SAVAK. Founded in 1957 under the CIA’s direction (and later with assistance from Israel’s intelligence service, Mossad), SAVAK’s mission was finding and stamping out any and all opposition. It had the authority to arrest and detain suspects indefinitely and ran its own prisons. Torture was routine: “electric shock, whipping, beating, inserting broken glass and pouring boiling water into the rectum, tying weights to the testicles, and the extraction of teeth and nails.”¹⁰  In 1975, the London Times reported that prisoners were forced to watch their children “savagely mistreated.” One man reported, “I found it so unbearable, that that I wished I had a knife so that I could kill my son myself, rather than see him suffer like that.”

SAVAK dispatched its agents all over the world to monitor and punish dissidents, anti-Shah students in particular. Communist, radical, and secular forces were SAVAK’s main targets. Some clerics were also jailed, exiled, or suppressed, even as the Shah continued to reinforce Islam and the clergy. In 1976, Amnesty International reported that Iran had the “highest rate of death penalties in the world, no valid system of civilian courts and a history of torture which is beyond belief. No country in the world has a worse record in human rights than Iran.”¹¹

The U.S. was directly and deeply involved in SAVAK’s operations. By the 1970s, an average of 400 SAVAK agents were trained in the U.S. every year. A former CIA analyst on Iran admitted the agency instructed SAVAK in torture techniques. “We’re keeping the Shah in power through our agents,” one intelligence officer stated, “who are training their agents in Iran.”¹²

But this too would soon backfire. Underneath a facade of stability, Iran was heading toward a revolutionary eruption, and the founding of a reactionary Islamic theocracy.

Next: The 1979 revolution and the Islamic Republic.