The UK underestimated the impact of US economic pressure on Iran’s policy positions four decades ago, British document reveal

The UK underestimated the impact of US economic pressure on Iran’s policy positions during the first Gulf War, British documents reveal.

The documents, unearthed by MEMO in the British National Archives, also show that the UK rejected US efforts to impose economic and trade sanctions on Iran and a military plan to attack vital targets on Iranian soil to force a shift in Tehran’s stance. Given Iran’s strategic importance, British officials argued that such measures were unlikely to succeed and would harm Western long-term interests.

This disagreement reflected the broader divergence between British and American views on Iran during the eight-year war between Iran and Iraq (1980–1988). According to Foreign and Commonwealth Office (FCO) documents, the US was deeply concerned about the possibility of a final Iranian victory and worked both economically and militarily to prevent it.

By 1986, two years before the war ended, the US assessed that an Iranian victory was becoming increasingly possible. A key indicator was Iran’s seizure of the Iraqi Al-Faw Peninsula in March 1986. The US believed this development provided Iran with “a significant psychological boost” with no signs of Tehran “not being willing to prosecute the war.”

US officials feared that Iran: “Was preparing another major – final – offensive to cut the Basra Road, which would be a major blow to Iraq.”

Between April and August 1986, extensive UK-US consultations were held in London and Washington to discuss American “contingency plans” for pressuring Iran. The British delegation was led by Ewen Fergusson, deputy under-secretary of the FCO, while the US delegation was headed by Assistant Secretary of State for Near Eastern and South Asian Affairs Richard Murphy.

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Records of these meetings indicate that Murphy warned of the: “Possibility of an Iraqi collapse and an Iranian victory.” He emphasised that the US sought to increase the economic cost of war for Iran by persuading friendly nations to refuse further credit to Tehran. The US: “Should seek ways of putting further pressure on Iran to bring home to them the dislike of the war in the US and other Western countries and to increase the economic cost to the Iranians of waging that war.” After the US intensified its efforts to stem the flow of arms to Iran, it moved to: “Concentrating on curtailing the extension of credit to Iran.”

Washington had approached Western European governments, Japan, Singapore and Turkiye, urging them to restrict credit to Iran and thereby limit its ability to import arms, food and industrial supplies amid US expectations that the Iranian economy “was likely to run into increasing difficulties” later in 1986.

In early June 1986, the US Embassy in London informed the FCO that instructions had been sent to US embassies worldwide to: “Request friendly governments to ban all further government credit to Iran and also to block credit to Iran being provided by commercial banks.”

However, the UK refused to support this approach. British officials firmly stated that their policy was: “Of the neutrality in the conflict and believed in having as normal relations as possible with each side.”

Fergusson emphasised the West had to acknowledge that: “Iran’s presence in the area and political attitudes were a fact of life.”

During the meeting, the US ultimately accepted the British view.

During the meeting, the US accepted the British view that Iran: “Is a large, important and strategically placed country with whom it would be important, in the long term, for the West to have good relations.”

Regarding the Gulf states, Fergusson noted that while Saudi Arabia was “prestige conscious”, other Gulf nations saw the necessity for “a modus vivendi with Iran”.

As a result, the UK decided against imposing economic pressure on Iran. British diplomats argued that pushing Iran into financial hardship “will not push them to negotiate” and would “harm the West’s long-term position.”

While they understood the US aims, they also doubted the effectiveness of US economic pressure, pointing out that the pressure “would reinforce Iranian determination to tighten belts and continue” the war. The US was also reminded that the Iranians were: “Resilient politically and economically and used to austerity.”

Commercial interests also played a role in the UK’s decision. British officials calculated that cutting credit to Iran would jeopardise existing exposure worth approximately £117 million and unrecovered debts of £140 million from Iran. Consequently, they “resist US suggestions” to halt official and unofficial credit to Iran.

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At the military level, the UK rejected a US plan to launch airstrikes inside Iran to prevent an Iranian victory. In bilateral talks in Washington following the Battle of Al-Faw, the US requested “a joint military study” on the conflict’s future and the “coordination of security assistance” to the Gulf states. US officials talked about: “All-out and sustained attack by air on Iran’s economic lifelines might change Iranian attitude.”

However, the UK’s Ministry of Defence dismissed this approach and refused to participate: “No matter how much the Americans insisted on proceeding with it.”

A subsequent UK delegation to Washington reaffirmed Britain’s reluctance to engage in military action against Iran. G.H. Boyce, head of the FCO’s Middle East Department, expressed scepticism about the effectiveness of airstrikes in forcing Iran to end the war. He noted: “Iraq’s lack of military resolve and Iranian political stubbornness did not make this a very promising option.”

A July 1986 report from the FCO’s Middle East Department summarised the UK’s stance: “While Iran has greater long-term importance and potential, the better policy is a quiet, low-profile, neutral approach toward Iran and Iraq. This allows us to obtain the maximum commercial advantage in the entire region.”

The war ultimately ended in 1988 after Ayatollah Khomeini, Iran’s late supreme leader, accepted a United Nations ceasefire resolution, describing the decision as akin to “drinking a cup of poison”.

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The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.