Among the collection of imperial plunder at the British Museum in London is the Seal of Darius the Great, which shows the Achaemenid king fighting lions from his chariot as a winged god hovers overhead.

The chariot is pulled by two horses, which, like everything else in the picture, are dwarfed by the image of Darius. Until recently, historians believed the proportions of the scene on the seal, which dates back 2,600 years to a time when the Achaemenid Persian Empire was at its peak, were simply compliant with rules that stated in art, if not in life, nothing could overpower the image of the ruler.

Then, in the 1950s, along came Louise Firouz, an American whose family had personal and professional connections to Iran. She discovered a tiny horse in the foothills of the Alborz Mountains in the north of the country and, in doing so, changed our understanding of history.

Firouz had moved to Iran in the late 50s, after having married a Persian prince. By the time I met her, in 2004, she had lived in Iran for almost half a century. In that time, she had raised three children, rubbed shoulders with shahs, spent time in prison for being on the wrong side of a revolution - and won international recognition for rediscovering the Caspian horse, which experts and historians thought had been extinct for at least 1,000 years.

While on a trip to buy ponies for her children in 1965, Firouz found a small horse tethered on a building site near the southern shore of the Caspian Sea.

"It was absolutely perfect," she told me, almost 40 years after discovering what she later called the Caspian. "I just thought, 'How could anything be so beautiful?'"

The exquisite creature, which she bought from the builder for US$10, was so filthy that Firouz could barely make out what colour it was. But once she had taken it back to her riding school, outside Tehran, and given it a thorough brush down, the tiny chestnut began to remind her of the horses she had seen on friezes in Persepolis, the ancient Persian capital, near where she had met her husband, Narcy, and also on the Darius Seal.

She and Narcy had built their equestrian centre east of the Iranian capital on land that had been given to them by Narcy's father. The place was popular with upper-class locals and the many foreigners - diplomats, oilmen, lawyers, traders and adventurers - who were thriving on Iran's newfound oil wealth.

Narcy was the grandson of Abdol Hossein Mirza Farmanfarma, whose own grandfather, Abbas Mirza, was a Qajar crown prince who would have been shah if he had lived long enough. The Qajars were toppled from the Peacock Throne by the Pahlavis, who were in turn overthrown in the 1979 Islamist revolution.

Narcy's father, Mohammad Hossein Mirza Firouz, had been an army general, the provincial governor of Fars twice, and minister for roads and communications in the last shah's government. He was in Paris in 1979, when Ayatollah Ruhollah Khomeini toppled the shah, and never returned to Iran. Narcy was refused permission to visit his father in France when it was clear he was nearing death; he died in 1982.

Louise had been introduced to Narcy at the home of mutual family friends near Persepolis while on holiday with her mother. She did not know he was a descendant of shahs - or even that she had become a princess - until after they were married, in 1957. They shared a love of riding, and their property became a haven for the well-heeled of Tehran.

AFTER FINDING THAT first tiny stallion, more followed. Firouz realised she was onto something and set out to prove that the horses on Darius' Seal were, in fact, to scale; that the breed was an ancient precursor to the Arabian and Thoroughbred; and, most controversially, that it still existed in Iran.

She came to refer to the Caspian as her "unicorn" and spent years working with equine geneticists, historians and breeders to confirm its provenance and wrest it back from the brink of extinction.

By the time she died, in 2008, in a village near the ruins of Alexander's Wall in far northern Iran, Firouz had helped establish the Caspian as an ancestor of the modern horse, by far pre-dating the Arabian, which had long been ranked as the world's oldest horse breed.

She had had to overcome the scepticism of experts across the world, as well as the rapacious greed of Iranian bureaucracies both before and after the 1979 revolution. Her herds of Caspians were confiscated and nationalised at least twice, by successive regimes, and her breeding stock were all but wiped out when they were attacked by a pack of wolves in 1976.

Stubborn and tenacious, Firouz was undeterred by the setbacks that came with being an American woman married to a former royal living in a socialist, misogynist, fanatically anti-United States and fundamentally religious society. She and Narcy were jailed after the revolution because of his aristocratic background - he was held for six months; she was released after six weeks because, she told me, she refused to eat.

Through it all, she got on with the business of producing Caspians and exporting them to Britain, Europe, the US and Australia, to ensure herds were established outside Iran and that the Caspian had a fighting chance of survival.

She was successful on all fronts; 1,952 Caspians have been registered worldwide since Firouz's first foundation stock were entered into an official stud book, and about half of them are still alive, according to Liz Webster, chairman of the Caspian Horse Society, who was the original importer and breeder of Caspians in Britain.

It is now accepted that today's Caspians are the same breed as those shown pulling Darius' chariot 2,600 years ago. Historians agree that Caspians were widely used in the ancient world for chariot racing despite their size, and were prized for their speed, agility and endurance. Their beauty and refinement also made them sought-after tribute gifts.

Experts say that it was Firouz's passion, conviction and tireless dedication that brought the Caspian to the attention of the world. Her enthusiasm proved so infectious that many owners describe their Caspians as an "addiction".

With about 900 Caspians worldwide, however, the breed is dramatically short of the 6,000 breeding females that international organisations say qualifies a species as being "rare" rather than "endangered".

What has saved it to date, according to Lawrence Alderson, president of Rare Breeds International, is that "Caspians are often maintained by dedicated breeders and keepers who do not observe the usual rules of unprofitability." But, he adds, "there is a limit and times are hard".

Alderson believes the situation for the Caspian is grim but positive. "It may decline in some countries or even disappear, but it has a special heritage and distinctive traits which will ensure it survives," he says.

His optimism is not universal. Farshad Maloufi is an Iranian-born equine veterinarian who worked with Firouz and now lives in Canada. He says that with between 500 and 600 horses at peak reproductive age worldwide, the Caspian "as a breed of domestic animal is endangered, [facing] extinction".

Maloufi says the greatest value the Caspian has is its "significance as a unique resource for future genetic diversity of modern domestic breeds of horses". But breeders are unlikely to respond to that esoteric motivation if there is no money to be made.

The main hope for the long-term viability of the breed, he says, is its proven ability to survive in the rugged mountains of Iran, where Firouz first found them.

"In these remote areas, breeding of these Caspian-like horses has never been driven by factors we worry about," such as global economic downturns, fads among the pony club set or changes in the market for riding and performance horses, he says. "Rather, farmers produce small, strong horses to work in their fields. They release the horses into the mountains between seasons, sometimes with their tack still on, and recapture them at harvest time.

"Of course, the expansion of roads and the introduction of motorised means of transport in these areas will [reduce] the need for such horses," Maloufi says. Nevertheless, a recent study he was involved in suggests that at least 200 Caspian-like horses exist in their native region, around the southern shores of the Caspian Sea.

Caspians outside Iran have "high levels of genetic diversity so this population does not appear to be at risk from inbreeding", he says. "But considering their small and shrinking numbers, and the vast geographical distribution of these horses, I think the long-term breeding viability of Caspian horses will require use of assisted breeding technology."

Maloufi's concerns are echoed by breeders, many of whom have tried to maintain the integrity of the Caspian by setting standards for everything from the way its fluffy ears turn inward to how its ankles turn when it canters. What they haven't been able to do, it seems, is build on the popularity of the breed as a riding horse for children, or as a driving animal.

Having failed to create a market, many breeders say that in the current economic climate they can hardly afford to keep the horses they have, let alone produce more. In Australia, the US, Britain, and elsewhere in Europe, breeders have said they will not produce foals this year. Many say they have not sold any Caspians for years, and some have been considering getting rid of them to cut rising overheads.

"It's a sign of the times and how bad things have become that the benefit that rare breeds had in terms of added value has been wiped out," says Rory Owers, chief executive of Britain-based international charity World Horse Welfare.

"When do we reach the point of no return? Inevitably, breeders will be taken out by the recession, and then it's a question of how many. Time will tell how long it will be before, or even if, they get going again, and given how deep this recession has been, there is not going to be any rapid bounce back," he says.

Caspians, averaging 11 hands high, are the size of ponies though their character and confirmation mark them as horses. They are intelligent and fast learners, enthusiasts say. They are personable, love a challenge and are largely fearless. Unlike Thoroughbreds, and despite being hot-bloods, Caspians are neither flighty nor temperamental; rather they are friendly, curious and easy to get along with; and they seem to have a natural affinity with humans.

After its arrival in the West, the Caspian found some popularity among children - who generally outgrow them by the time they reach their teens - for competitive riding, especially show jumping. Harking back to its chariot-racing days, the Caspian is also a fine carriage horse. Probably the most famous exponent of carriage driving is Britain's Prince Philip, who took it up and often represented his country in the sport, after he retired from polo in 1971. The last shah of Iran gave the Duke two Caspians, bred by Firouz, which he drove with for many years.

Prince Philip was introduced to Firouz, and the Caspian, when he and his daughter, Princess Anne, attended celebrations for the 2,500th anniversary of the Peacock Throne, in 1971. Firouz's daughters, Roshan and Atesha, rode with the British princess, and the last shah, Mohammad Reza Pahlavi, presented Prince Philip with a Caspian stallion and mare.

Firouz said the prince had told her that he feared her herd was vulnerable "to disease or other misfortune", and advised her to split it up. So she took his horses to Budapest, Hungary, where they spent two years in quarantine. By the time they reached Britain, the two had become three; by 2000, they and their offspring had produced another 29 and "formed the greater part of the breed outside Iran", Prince Philip says in a statement e-mailed by his office.

FOLLOWING UP on her initial find in the town of Amol, Firouz spent the next decade scouring the Alborz Mountains for tiny horses. She built up a herd that eventually numbered about 50.

Some of the horses she bought were born to larger breeds, which she believed was the result of genetic throwback. Nevertheless, she found these horses "bred true", producing small offspring and convincing Firouz of the strength of the Caspian gene. She was then able to refine its characteristics, until she had a breeding stock she believed represented, as near as possible, the original small horse.

"I saw some representations on ancient reliefs, and archaeologists said it was because the space was small, so you make the shah big and the horse small," Firouz said.

Mongol invaders in the late 13th century had effectively destroyed all records up to that point so historians believed the small horse was extinct. Until Firouz's find, there had been no evidence to the contrary.

"After I'd written some articles, people started to write me letters and ask me questions - archaeologists, people who were interested in horses," Firouz told me. "One day, I got a phone call from the British Institute of Persian Studies. 'You've found it,' they said. They got someone to come and check out some bones and that's when we knew these horses had been around for 3,000 or 4,000 years."

Firouz's findings, backed up by scientific testing in the US, put the Caspian between the heavy-set, dun-coloured and untamable Przewalski, which roamed the Eurasian steppe 160,000 years ago and of which a small number remain thanks to preservation initi-atives in Mongolia, and the modern horse, Equus caballus. The Przewalski has 66 chromosomes; the Equus caballus 64. The Caspian, she said, "came out as a hybrid of 65 chromosomes, and that was an indication that it was a missing link" in the development of the modern horse.

By the time I met Firouz, Narcy had been dead for a decade and she was living a solitary horse-breeder's life on a property near the Kopet Mountains, which separate Iran and Turkmenistan. She was producing and training Turkmen racehorses, having given up breeding Caspians as there was no demand for them in Iran and the government would not allow her to export them.

She sold her herd to a Canadian rancher, Brent Seufert, who had raised US$300,000 to export them to North America, in the belief that he could get the authorities onside. The horses were kept in government corals while Seufert waited for export licenses. But permission never came, and once the money had been exhausted in caring for the Caspians, they were allowed to starve to death and the carcasses were incinerated. An agriculture department official told me at the time that permission had been refused because the Caspian was a native Iranian breed and so had to remain in Iran.

Firouz was heartbroken at their loss, but saw the episode as part of a pattern of vindictiveness she had come to expect after the 1979 revolution. Rather than wallow in bitterness, she got on with training her racehorses, and helped make ends meet by taking foreign tour groups on horseback treks through the mountains. The proudest achievement of her life, she said, was the rediscovery of the Caspian.

IT IS NOT DIFFICULTTO understand the great love Caspian owners have for their little horses. The animals' inquisitive and affectionate nature is immediately evident: they will approach strangers and sniff them in much the same manner as a dog. They have been known, as foals, to curl up on owners' knees, like cats. Unlike most other horse breeds, Caspians look people directly in the eye.

Pandora Best - who describes herself as a Caspian addict - and her husband, Eric, keep about two dozen Caspians on their 30-acre property in Devon, southwest England. Pandora's job with a government agency provides their only income. Eric spends his days - helped in the mornings and at weekends by Pandora - catering to the idiosyncratic whims of each of their tiny charges: which ones like to be scratched where, who likes to play catch with his feed bowl, who likes his hay soaked for 20 minutes before eating it.

The joy the Bests gets from their horses, however, is tempered by a fear that the stud farm is a money pit. Though she says she wouldn't dream of giving away her Caspians, or slaughtering them as some owners are considering, Pandora Best says they fret about the future.

"We haven't bred a foal for two years and we haven't sold any for two years," she says, as she distributes the evening hay nets in large, airy stables. "People we know are giving them away, or selling them very cheaply. We have some elderly ones that wouldn't sell, but all of them are getting older. We have young colts that ought to be going somewhere else and doing something. But there's nowhere for them to go.

"We keep looking at our situation and asking ourselves what are we going to do tomorrow."

Things are not much better elsewhere in Europe, in the US or in Australia. Even in Sweden, which has a strong equestrian tradition and took to the Caspian with great zeal, breeders are considering giving up.

"The economic climate is devastating for breeders and especially for Caspians, which are not so well known as a riding pony," says Margareta Lindahl, secretary of the Swedish Caspian Horse Association, who hosted the Third International Caspian Conference and Breed Show at her farm near Stockholm in August. It was the first since 2004.

"There is no one breeding Caspians in Sweden at the moment - it is no use breeding if you can't sell the offspring. If we don't find new owners and breeders, it could be the end for the breed," she says.

A lack of unity among breeders - who tend to be close knit - hasn't helped. Webster says one of the "great tragedies" to befall the horse outside Iran was a split 12 years ago in the original society, leading to the formation of the Caspian Horse Society and the Caspian Breeders' Society, which do not appear to co-operate in perpetuating the breed. They rarely participate in horse shows and rarely hold their own.

The Bests are frustrated that the original royal connection in Britain has not been better exploited as a way of popularising the breed as a "perfect" riding horse for children. One could have been given to Zara Phillips, granddaughter of Queen Elizabeth and Prince Philip and a world-class horsewoman, when she married last year, Pandora says.

"We have an ancient and rare breed with royal connections going back to the Persian kings, so it could be worth asking our royals if they would help to support this breed and stop its extinction in these harsh times," she says.

"[The Caspians] have been through so much and have so much to give, and we need all the help and all the friends we can get."