The Iranian Islamic Revolution in 1979 and the hostage crisis in Tehran frustrated American policy makers whose response came as an embargo on the new government of Iran. On January 20, 1981, the day Ronald Reagan was inaugurated, the hostages in Tehran were released. In turn, the embargo was relaxed, but relations with Iran did not improve diplomatically. In fact, the newly elected Reagan refused to sell arms directly to Iran. Even so, arms manufactured in the US that were sold to foreign nations continued to find their way to the Iranian military arsenal. The Iran-Iraq War raised demand for arms and "created opportunities that arms merchants around the world simply could not afford to miss. Indeed, the lure of windfall profits was so great that few countries had any scruples about selling weapons to Iran or Iraq--or both at the same time."
In response, The State Department dispatched special envoy Richard Fairbanks, who "spoke with diplomats, intelligence officers and arms industry officials" in targeted Arab countries as well as South Korea, Italy, Spain and Portugal. The State Department successfully dissuaded American allies from selling American arms to Iran on the tenet, created by Iran's association with Hezbollah, that Iran sponsors terrorism.