UK reopens embassy in Iran: Will history get in the way of business?

Alice Drury is an intern in the Lowy Institute's West Asia program, and currently undertaking a Masters of Iranian Studies at the University of Tehran

The UK reopened its embassy in Tehran the Sunday before last, eager not to be outdone by France and Germany in the jostle for a share of Iran’s enormous unrealised market potential as the country begins to open to trade.

British Foreign Secretary Philip Hammond stated at the reopening ceremony that it was a necessary first step to 'support British trade and investment' in Iran. The reality is however, that after nearly two centuries of economic subjugation and political interference, the British will have to work much, much harder than their European rivals to gain a foothold in the Iranian market. Even then their position will be tenuous.

The significance of the two nations’ imperial history has been missed in the reporting on the reopening of the British Embassy. It stops at the most recent, relatively insignificant diplomatic spats: the protests which led to the Embassy’s closure four years ago in response to the UK imposing sanctions on Iran; Ayatollah Khamenei’s accusation of British involvement in the 2009 Green Movement; and the fatwa issued against British author Salman Rushdie.

These were headline-grabbing events at the time, but they were the symptoms rather than the cause of tensions, which run much deeper. Without paying heed to those tensions, such commentary does little to explain the significance of the renewed diplomatic and economic relationship and the challenges facing UK businesses.

Britain’s economic and strategic interests contributed significantly to the haplessness of Iran’s experience of the 19th and 20th centuries. To the great European powers France, Britain, Russia and Germany, the Persian Empire was regarded as little more than a barrier between them and India, the British Empire’s most valuable colony. Accordingly, Britain’s Iran policy was to keep the state weak and responsive to British interests, and prevent it from straying too far into Russia’s sphere of influence. [fold]

British domination over Iran started with military confrontation when it expelled Iran from its former territory in western Afghanistan in 1856. It proceeded to pursue a policy of economic domination, made easy by Iran’s variously inept and corrupt monarchs, who were often all too ready to sell their country in order to fund their extravagant lifestyles. In 1872 the Shah agreed to what was then considered to be the most extraordinary surrender of a kingdom's resources to foreign hands: a single British national had been promised sole control over all of Iran’s future railways, forms of transportation, factories, agriculture and mineral extraction.

Another concession in 1890 granted a complete monopoly over the production, sale and export of Iranian tobacco to a Briton. While these two agreements ultimately collapsed under pressure from Russia, a further concession in 1901 granted exclusive rights of the country’s petroleum to a British prospector and led to the creation of the mammoth Anglo-Persian Oil Company (now British Petroleum). Thus the British found themselves in a position of control over Persia politically and economically, without needing to formally colonise and invest in the country.

Things worsened for Iran after the turn of the 20th century. In 1907, Britain and Russia agreed to split the country into three zones – the south for British influence, the north for Russia and a neutral 'buffer' zone in between.

As well as completely debilitating Iran’s leadership, the impending risk of war between Russia and Britain ensured neither would bother to invest in Iran, leaving it poor and undeveloped. Desperate to find a third partner that might be able to free Iran from this foreign domination, Pahlavi King Reza Shah reached out to Nazi Germany. The Allies responded by invading Iran and forcing the King to abdicate the throne to his son. Finally, British meddling in Iranian affairs came to a head in 1953, after Iran’s first democratically-elected Prime Minister, Mohammad Mossadegh, nationalised Iran’s oil industry in an attempt to prise the country from the grip of the Anglo-Persian Oil Company. The British, along with the CIA, orchestrated a coup d’état and reinstated the dictatorial King Mohammad-Reza Shah Pahlavi, who imprisoned and killed many of Mossadegh’s supporters.

Recalling events that took place in the 19th century may seem antiquated in a comment on modern day political and trade relations, but to Iranians this is recent history, and it continues to inform the country’s foreign policy. To a revolutionary Government that has promised never again to fall victim to Western hegemony, its credibility mandates that it concede little to the British. Claims of being a 'puppet' to Western capitalists is an easy and devastating political accusation to make of one’s more moderate opponents. Hence the minimal fanfare when the UK Embassy opened in Tehran. Iranian embassy workers were reportedly reluctant to attend the press conference and the opening was not mentioned in any official announcements published by President Rouhani or Foreign Minister Zarif. Iranian media also reported the story with headlines along the theme of 'Reopening of embassy chance to stop UK hostilities'.

The reopening of the UK embassy in Tehran is a positive step for British business interests in Iran and bilateral relations in general. However, the British Government and those British businesses which ignore their imperial history in the Middle East do so at their peril. Deep-seeded mistrust fuels propaganda, which makes the relationship vulnerable to another flare-up of the kind seen in 2011. And that would not be good for business.

Photo courtesy of Twitter user @foreignoffice