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In 1949 the Angelo-Persian Oil Company negotiated an agreement with the Iranian government under which it would pay the government 25 to 30 per cent of its net profits,  The British government controlled 52 per cent of the stock of the company.  Under pressure from the the Shia clergy and members of the Communist [[Tudeh party]], the Iranian government led by Prime Minister Mohammad Mossadegh did not ratify the agreement and on May 2, 1951, nationalized ownership of the oil industry.  In October Britain shut down Abadan, the world's largest refinery, on the Persian Gulf, and boycotted Iranian oil for the next two years.  30 per cent of Iran's national income previously came from oil exports.  Iranian production fell from 424,000 barrels a day in 1947 to 59,000 in 1954, while Saudi Arabia rose from 246,000 barrels to 953,000, and Kuwaut from 45,000 barrels to 953,000.

In 1949 the Angelo-Persian Oil Company negotiated an agreement with the Iranian government under which it would pay the government 25 to 30 per cent of its net profits,  The British government controlled 52 per cent of the stock of the company.  Under pressure from the the Shia clergy and members of the Communist [[Tudeh party]], the Iranian government led by Prime Minister Mohammad Mossadegh did not ratify the agreement and on May 2, 1951, nationalized ownership of the oil industry.  In October Britain shut down Abadan, the world's largest refinery, on the Persian Gulf, and boycotted Iranian oil for the next two years.  30 per cent of Iran's national income previously came from oil exports.  Iranian production fell from 424,000 barrels a day in 1947 to 59,000 in 1954, while Saudi Arabia rose from 246,000 barrels to 953,000, and Kuwaut from 45,000 barrels to 953,000.

In January 1953 the Iranian parliament extended Mossadegh's dictatorial powers. The following month, Mossadegh denounced the Shah for intrigues with "foreign interests".  On February 28 the Shah announced he would abdicate "for reasons of health".  Serious riots ensued when the Shah's supporters clashed with Mossadegh's in the streets.  The Shah cancelled his plan of abdication.

In January 1953 the Iranian parliament extended Mossadegh's dictatorial powers. The following month, Mossadegh denounced the Shah for intrigues with "foreign interests".  On February 28 the Shah announced he would abdicate "for reasons of health".  Serious riots followed when the Shah's supporters clashed with Mossadegh's supporters in the streets.  The Shah cancelled his plan of abdication.  Meanwhile, the United States ambassador presented proposals to end the impasse with Great Britain, one proposal was for a consortium of oil companies to replace Anglo-Iranian Oil Company and buy from Iran's nationalized industry.  Mossadegh rejected the suggestion and continued to complain about the boycott.

After the CIA-backed coup of 1953, Mossadegh was overthrown and the Shah returned to power. [[Ayatollah Ruhollah Khomeini]] emerged as an active critic of the Shah's increasingly autocratic government during this period. Khomeini was imprisoned and later exiled, but popular anti-government sentiment continued to spread. In 1979, the Shah fled Iran as Khomeini returned from exile. The Shah's troops were defeated by the rebels and in the following year, the Islamic Republic was established following a national referendum.

 

When Mossadegh received word, he began mass arrests. Two days of chaos ensued. Rioters smashed statues of the Shah and his fahter and screamed, "Death to the Shah!"  With assurances from the CIA, the Iranian Army turned against the officers Mossadegh installed, and drove rioters off the streets.  On August 19, Mossadegh turned himself over to the Shah's forces and was jailed along with Tudeh leaders.  In December he was sentenced to three years in solitary confinement.  Iranian economy and living standards of the people gradually recoverd as oil exports regained a market share which had been decimated during the previous two years.  The Shah expressed his understaing of the importance of Iran's position in the region and the world as a bulwark against Soviet expansionism.

 

[[Ayatollah Ruhollah Khomeini]] emerged as an active critic of the Shah's increasingly autocratic government. Khomeini was imprisoned and later exiled, but popular anti-government sentiment continued to spread. In 1979, the Shah fled Iran as Khomeini returned from exile. The Shah's troops were defeated by the rebels and in the following year, the Islamic Republic was established following a national referendum.

On November 4, 1979, a group of Iranian students entered the US embassy and took a number of American personnel hostage, citing the overthrowing of Mossadegh in 1953 and accusing the embassy staff of preparing another coup against the revolutionary government. Some of the hostages, including women, African Americans and an employee diagnosed with multiple sclerosis, were quickly released. Others were held for 444 days before being allowed to leave Iran and return to the United States.

On November 4, 1979, a group of Iranian students entered the US embassy and took a number of American personnel hostage, citing the overthrowing of Mossadegh in 1953 and accusing the embassy staff of preparing another coup against the revolutionary government. Some of the hostages, including women, African Americans and an employee diagnosed with multiple sclerosis, were quickly released. Others were held for 444 days before being allowed to leave Iran and return to the United States.