ANGLO-PERSIAN OIL COMPANY

(ŠERKAT-E NAFT-E ENGELĪS O IRAN), a British company formed to extract and market oil in the oil fields of southwestern Iran.  

 

ANGLO-PERSIAN OIL COMPANY (ŠERKAT-E NAFT-E ENGELĪS O IRAN), a British company formed to extract and market oil in the oil fields of southwestern Iran. This article treats its early history and development from its beginning in the early 20th century until 1955, when it became British Petroleum Company.

Early history. In 1289/1872 Nāṣer-al-dīn Shah Qāǰār granted the first major concession to exploit Iran’s mineral resources, including petroleum, to Baron Julius de Reuter, a British subject. Although the concession was eventually canceled, the search for oil continued; after Baron de Reuter secured another mining concession in 1889, unsuccessful exploration proceeded in Semnān and the Persian Gulf area. French reports in Annales des mines (l892) on the availability of oil in the Qaṣr-e Šīrīn region soon prompted new activities, spearheaded by de Reuter’s agent, Edouard Cotte, and Iran’s customs director, Ketābčī Khan. The latter traveled abroad to interest French and British financiers in oil exploration; with the assistance of Sir Henry Drummond Wolff, formerly the British minister in Tehran, he entered negotiations with the British financier William Knox D’Arcy. After handsome bribes to key Persian officials and active support from the British minister in Tehran, Sir Arthur Harding, a concession was granted to D’Arcy on 28 May 1901 by Moẓaffar-al-dīn Shah. Because of Russian opposition, the five northern provinces of Azerbaijan, Gīlān, Māzandarān, Astarābād, and Khorasan were excluded from the deal. The sixty-year contract gave D’Arcy exclusive rights to explore, obtain, and market oil, natural gas, asphalt, and ozocerite. In return, D’Arcy agreed to pay the Iranian government ₤20,000 in cash, ₤20,000 in stocks, and sixteen percent of the annual profits. This agreement paved the way for the formation of D’Arcy’s First Exploitation Company in 1903, and the search for marketable oil in Iran began in earnest (B. Shwadran, The Middle East, Oil and the Great Powers, 3rd ed., New York, 1973, pp. 14-16). In 1905, the company discovered small quantities of oil, and three years later, a rich well was struck in Masǰed-e Solaymān near the Persian Gulf (M. Fāteḥ, Panǰāh sāl naft-e Īrān, Tehran, 1335 Š./1956, pp. 245-54).

British government involvement in the oil concession was intimately connected with the imminent conversion of the Royal Navy to oil fuel. The British provided indirect financial assistance and political backing to D’Arcy’s company, and in 1909, through complicated financial arrangements and intricate political maneuvers, the original D’Arcy concession became the Anglo-Persian Oil Company (APOC; cf. N. S. Fatemi, Oil Diplomacy: Powderkeg in Iran, New York, 1954, pp. 11-17). The company also acquired the rights and shares of the First Exploitation Company and later, of the British-created Bakhtiari Oil Company. D’Arcy became a director of the new conglomerate, a post which he held until his death in 1917. The British government foothold in Iranian affairs was solidified by a 1914 Act of Parliament which effectively gave the government control over APOC through ownership of fifty-three percent of the shares and the privilege of appointing two ex officio directors with veto powers over all acts of the company and its subsidiaries. A thirty-year contract between the Admiralty and the company ensured a steady supply of oil to the Royal Navy at substantially reduced prices.

Expansion and development. From the beginning the APOC had to face local tribal opposition to its operations in southern Iran. To overcome the resistance of the Baḵtīārī tribe, the British agreed to allot its chiefs three percent of the shares in the Bakhtiari Oil Company. In Ḵūzestān province, the British had to obtain the consent of the Arab tribal chief, Shaikh Ḵaẓʿal, who controlled the Moḥammera (later Ḵorramšahr) region on the Persian Gulf and paid nominal allegiance to the Iranian government; a 1909 agreement guaranteed his rights in the area and provided him with a handsome amount of cash and a ₤10,000 loan. Soon afterward, Ābādān island in the Ḵaẓʿal territory was selected as the site for an oil refinery: it opened in 1912 with an annual capacity of 120,000 tons and grew to become the largest in the world.

During World War I the British government made a concerted effort to protect the oil flow from Iran because of its critical importance to the operation of the Royal Navy. A German-instigated Baḵtīārī attack on the pipelines resulted in a temporary interruption of the oil flow and prompted the British to expand their control of southern Iran. Under the direction of Sir Percy Sykes, a military force called the South Persia Rifles was created to protect British oil interests; at British behest it was officially recognized by the Iranian government in 1917. At the same time APOC, alleging that Iran was responsible for the pipeline damage assessed at ₤614,000 and that it should bear certain other charges, withheld royalty payments until such time as these claims should be settled. Relations between the Iranian government and the APOC were further complicated by the formulation of the 1919 Anglo-Persian Agreement, which was designed to make Iran a British protectorate. A British Treasury official, Sydney Amitage-Smith, was selected to negotiate with the Iranian government. The investigation he initiated clearly found the APOC at fault for non-payment of full dues to Iran as well as for advancing numerous unreasonable demands. In late 1920 Armitage-Smith proposed to the Iranian government an interpretation of the D’Arcy Concession to which APOC had agreed. Simultaneously with this proposal the company waived its aforesaid claims and offered to pay ₤1,000,000 in settlement of Iran’s dues up to the end of March l919. Iran accepted the waiver and the payment but not the interpretation considering it to be unfavorable to her interests. Iran claimed that it adversely affected her 16% royalty right under the D’Arcy Concession in respect of the Company’s foreign operations. The agreement violated provisions of the original concession and appeared to be unfavorable to Iranian interests; fearing outright rejection, the Iranian prime minister did not submit it to the Majlis. The APOC, however, continued to operate and expand its activities as if the Amitage-Smith Agreement were legally enforceable. Even the Majlis repudiation of the 1919 Anglo-Persian Agreement at its historic meeting in January, 1921, did not affect the company’s operations.

The APOC next acquired a northern oil concession that had been formally granted in 1916 to a Russian subject, A. M. Khoshtaria, although it had never been ratified by the Majlis. In 1920 the APOC formed a new subsidiary, the North Persia Oil Company, but the Iranians refused to accept the new company on the basis of both the non-ratification of the Khoshtaria concession and a 1921 treaty with the new Russian government that had renounced all czarist concessions (except for the Caspian fisheries). They also held that the British had violated the provision of the D’Arcy concession that specifically excluded the northern provinces from the agreement. Undaunted, the British pursued their claims vigorously, even after the 1921 coup d’état that made Reżā Khan Iran’s new strongman.

The next few years brought intense diplomatic efforts by the APOC to validate its claims to the Khoshtaria concession, while the Iranian government attempted to lure American oil companies to participate in oil exploration in the north. Despite British and Russian opposition, negotiations were initiated with the Standard Oil Company of New Jersey and later with Sinclair Consolidated Oil Corporation. In 1921 the Majlis granted Standard Oil a fifty-year concession for oil exploration in the five northern provinces. The terms of the agreement explicitly denied the company the right to transfer the concession to a third party, but pressures from the British government and shrewd diplomatic maneuvers by the APOC officials, Sir John Cadman and Sir Charles Greenway, brought the American company to agree to a fifty-fifty share with the APOC in the northern operations. Since this arrangement was a clear violation of the non-partnership clause, the Iranian government, with the consent of the Majlis, began negotiating the same concession with Sinclair; a fifty-year concession was approved by the Majlis in 1924. It specifically excluded Gīlān province, forbade transfer of rights to non-American and non-Persian third parties, and arranged for a $10,000,000 loan to the Iranian government. British opposition remained unabated, but the concession faced two additional difficulties as well: The implication of Harry Sinclair, chairman of the Sinclair Corporation, in the “Teapot Dome” scandal of the Harding administration adversely affected the company’s operations, and the 1924 killing of Robert Imbrie, the American vice-consul in Tehran, by a religiously-led mob dampened the corporation’s enthusiasm for Iranian operations. The circumstances leading to Imbrie’s death are still controversial; several groups, including the British chiefs of the APOC, have been accused of plotting the murder in order to prevent American oil company activities in Iran. Whatever the truth may be, the Imbrie affair and the Sinclair Corporation’s inability to raise the loan promised to the Iranian government resulted in the abandonment of the concession (Shwadran, The Middle East, pp. 71-81). Exploration for northern oil continued in various forms through several different companies. The APOC objected to these activities, especially those of the Kavīr-e Ḵūrīān Company in the Semnān area. But the Iranian government insisted that the area had been in Khorasan province and hence was excluded from the original D’Arcy concession.

Reżā Shah Pahlavi and the APOC. From the coup of 1299 Š./1921 until his investiture by the Constituent Assembly, Reżā Khan’s efforts were directed primarily toward restoring internal stability. His attempts to reclaim full authority for the central government in southern Iran clashed with APOC interests. Having secured Baḵtīārī cooperation, he set out to bring Shaikh Ḵaẓʿal to his knees. Counting on British protection, initially the latter defied Reżā Khan; but support was not forthcoming, and Reżā Khan’s 1924 victory brought the principal area of APOC operations under the direct control of the central government. Meanwhile a number of points had emerged between the government and the company which had led to a general atmosphere of dissatisfaction with the company and a growing conviction that the time had come for a radical revision of Concession terms. Discussions had been going on for some time, but no definite decision about disputed points had been reached. The crash of 1929 reduced the APOC profits allotted to Iran and complicated agreement on an acceptable solution to the dispute. Matters came to a head when in June 1932 APOC informed the Iranian government that royalties in respect of 1931 would amount to ₤366,782; for the same period APOC’s income tax payment to the British government amounted to nearly ₤1,000,000. In November, 1932, the Iranian government formally notified the APOC of the cancellation of the D’Arcy concession on the grounds that it conflicted with the country’s interests. Swiftly rejecting the cancellation, the British brought the dispute before the Permanent Court of International Justice at the Hague. In a lengthy note the Iranian government dismissed the competence of the court in what it considered essentially an internal matter and accused the British government of bellicosity (L. P. Elwell-Sutton, Persian Oil: A Study in Power Politics, 1955, repr. Westport, Conn., 1976, pp. 67-82). In December, 1932, Great Britain submitted the dispute to the Council of the League of Nations. Presentations there proved Iranian grievances that its national wealth was being squandered through a concession that was originally granted by a non-constitutional government under duress. The Iranian representative further maintained that Iran was not responsible for damages to the pipelines during the course of World War I and rejected the validity of the 1920 Armitage-Smith project. Soon, however, the two sides agreed to direct negotiations: an agreement on a new sixty-year concession was ratified by the Majlis in 1933. It reduced the area under APOC control to 100,000 square miles, required annual payment in lieu of Iranian income tax, and guaranteed an additional minimum payment of ₤750,000 to the Iranian government. Although these provisions appeared to be important gains for Iran, as a whole the new concession was not in its favor. It extended the life of the original D’Arcy concession by another thirty-two years and allowed the APOC to select the best 100,000 square miles; the minimum guaranteed royalty was far too low, and the company was exempted from any import or customs duties; disputes were to be settled through an elaborate arbitration procedure, and Iran gave up its right to annul the agreement either through legislation or by administrative measures (Shwadran, The Middle East, pp. 38-47).

The APOC began a new phase of vigorous expansion of oil production. In 1935 it was renamed the Anglo-Iranian Oil Company (AIOC) to conform with Reżā Shah’s wish that foreign governments should call the country Iran rather than Persia. The company’s relationship with the Iranian government remained cordial and stable for the next few years. Following the new agreement, the British developed the Naft-e Šāh field in Kermānšāh, erected a small refinery in the area, and in 1934 registered the Kermanshah Petroleum Company in London as a new subsidiary. The AIOC’s production and profits increased substantially during this period. In 1933, the company produced 7,087,000 tons of oil and paid Iran ₤1,785,000. By 1939 AIOC oil production had increased to 11,327,000 tons, and payment to Iran to ₤4,300.000. During this time, the company discovered four large oil fields and one gas field. The Ābādān refinery increased its storage capacity to 6,000,000 barrels by l938 and to 10,000,000 tons in 1939.

Over the next few years, two further controversies between the AIOC and the Iranian government had to be resolved. First the AIOC maintained that for calculating royalties the British ton of 2,240 pounds should be used rather than the metric ton of 2,014 pounds; in 1936 the company bowed to the Iranian interpretation. Second the Iranian government insisted that the total number of foreign employees should be reduced in favor of Iranians; a “general plan” was worked out in 1936 although many Iranians, including government officials, continued to maintain that the AIOC was not doing enough to increase its Iranian staff, especially at the higher levels (Elwell-Sutton, Persian Oil, pp. 88-103). The onset of World War II resulted in a decline in oil production that decreased Iran’s profits; in 1940 the AIOC agreed to a minimum annual payment of ₤4,000,000 for two years and an indemnity of ₤1,500,000 for 1938-39. The situation changed dramatically with the 1941 Allied occupation of Iran, and Reżā Shah’s forced abdication. The British troops occupying southern Iran ensured the flow of oil during the course of the war.

Oil nationalization. The departure of foreign troops after the war brought a new era of tumult to the southern oil fields. On May Day, 1945, several thousand Iranian employees of the AIOC demonstrated for better working conditions, housing benefits, and higher wages. The British government responded by sending the first of a series of official missions to study existing conditions and make appropriate recommendations. In 1946, several major strikes, one of which turned into a riot, crippled the company’s operations. With the active involvement of the Iranian government, company officials made partial accommodations to the workers’ demands and offered them additional payments. The Iranian government further pressured the AIOC for adjustments in the 1933 agreement in order to increase the Iranian technical and managerial staff and provide a more equitable distribution of profits. The government’s position was buttressed by a 1947 Majlis act urging it to take appropriate measures to restore Iranian rights in the southern oil fields. After a year and half of negotiations, the Gass-Golshaʾyan (Golšāʾīān) agreement was reached on 17 July 1949; it increased Iran’s royalty from four to six shillings per ton and made other adjustments more favorable than the terms of the 1933 concession.

Opposition to the Gass-Golshaʾyan agreement delayed a vote on the final measure in the fifteenth session of the Majlis. During the elections for the sixteenth session, many candidates, especially the National Front nominees led by Dr. Moḥammad Moṣaddeq, made the new oil agreement a major campaign issue, and when the new prime minister, General ʿAlī Razmārā, reintroduced the agreement to the newly elected Majlis in 1950, Moṣaddeq and his allies led a successful fight against it (Ḥ. Makkī, Ketāb-e sīāh: Ḵaḷʿ-e yad az šerkat-e naft-e Engelīs o Īrān, Tehran, 1360 Š./1981, vol. 3, part 1, pp. 9-33). Razmārā tried to pressure the AIOC into making a more favorable proposal, while the news of the Aramco’s fifty-fifty profit-sharing agreement with Saudi Arabia bolstered Iranian opposition to existing AIOC arrangements. The company expressed its willingness to renegotiate, but this was not communicated to the Majlis or the public at the time. Meanwhile Moṣaddeq and his supporters proceeded to draw up a bill to nationalize the oil industry; demonstrations in Tehran and many other urban centers indicated extensive public support for Moṣaddeq and oil nationalization. On 7 March 1951 Razmārā was assassinated, and within several days a bill to nationalize the oil industry was passed. The news of nationalization was followed by anti-British demonstrations in Tehran and strikes in the southern oil fields. The new prime minister, Ḥosayn ʿAlā, soon discovered that he could not continue in office in the highly emotional atmosphere; with the fall of ʿAlā’s government, Moṣaddeq became prime minister on 28 April 1951; a nine-point law incorporating his view on the dispossession of the AIOC was passed immediately (Makkī, Ketāb-e sīāh II, part 1, pp. 217-39). Under this law the National Iranian Oil Company was created and in June 1951 its management established itself in Ḵorramšahr by evicting the management of the Anglo-Iranian.

Thus the British company, first as Anglo-Persian, then as Anglo-Iranian Oil, operated in Iran for forty-two years, during thirty-nine of which it was the most important oil producer, refiner and exporter in the Persian Gulf area. During those thirty-nine years (1912-51) it exported a total of 338 million tons of oil from Iran for which it paid Iran ₤118,000,000 representing an average of about 7 shillings per ton. According to an estimate made by the author of Persian Oil the Anglo-Iranian’s total investment in Iran amounted to ₤21,656,252 of which ₤5,000,000 was provided by the British government. In return for this investment the company’s stockholders received ₤115,000,000 in dividends, of which ₤49,000,000 went to the British government apart from the sum of ₤175,000,000 which was paid to it as tax.

Extensive discussions over the next several months aimed at resolving the dispute. The British maintained that the nationalization law was illegal, and in May, 1951, they formally referred the issue for arbitration to the International Court of Justice in accordance with the provisions of the 1933 concession, while dispatching a delegation to Tehran in the hope of reaching an agreement. When the Tehran talks failed, the British requested an interim measure of protection from the International Court of Justice in order to restrain the Iranian government from implementing its nationalization plans any further. Although Iran disputed the court’s competence in the matter, the interim measure was approved on 5 July 1951. But the Iranian government notified the secretary-general of the United Nations that it had already abrogated the compulsory jurisdiction of the court as permitted under the provisions of its 19 September 1932 declaration. Next the United States government assumed a more direct role in the conflict, e.g., through discussing loans to Iran and dispatching prominent emissaries. The British sent a high-level commission headed by the Lord Privy Seal, Richard Stokes, to Tehran in August, 1952, to negotiate an end to the crisis; it proposed an eight-point formula recognizing the principle of oil nationalization while retaining British control through the establishment of a British-run Purchasing Organization with rights to obtain large quantities of oil from southern Iran for the next twenty-five years. The Stokes proposal was rejected by the Iranian cabinet. In the meantime the United States provided some assistance to Iran as part of President Truman’s Point Four aid program (F. Rūḥānī, Tārīḵ-e mellī šodan-e ṣaṇʿat-e naft-e Īrān, Tehran, 1352 Š./1973, pp. 145-78). On 28 September 1951 the British government formally requested that the United Nations Security Council intervene in the dispute, claiming that the Iranian order expelling AIOC employees violated the International Court’s interim measure of 5 July 1951. The issue was placed on the agenda of the Security Council for debate, and an Iranian delegation headed by Prime Minister Moṣaddeq arrived or New York to argue that the dispute was within the domestic jurisdiction of Iran involving the Iranian government and the AIOC as a private company. The Council eventually adjourned without a decision. On 9 June 1952, the International Court of Justice began formal hearings, basically concerning its own jurisdiction in the dispute. The adversaries’ arguments centered on the nature of the 1933 agreement between Iran and the AIOC, and Iran’s 1932 declaration on the court’s jurisdiction. The court reached a final decision on 22 July 1952, declaring its lack of jurisdiction and indicating that its interim protection measures of the previous year were inoperative. In effect, the court accepted the Iranian argument that the dispute was between the Iranian government and a foreign corporation, not the British government; since the dispute was not about a treaty or convention with a foreign government, it was subject to Iranian domestic law (L. P. Elwell-Sutton, Persian Oil, pp. 265-69; A. Ford, The Anglo-Iranian Oil Dispute of 1951-1952, Berkeley, 1954, pp. 51-124).

Following the court’s decision, and with the active involvement of the American government, a compromise solution bearing the signatures of Truman and British Prime Minister Churchill was presented to Moṣaddeq. The plan was designed to restore oil operations in Iran and allow the International Court of Justice to decide on the issue of compensation for oil nationalization. It obligated the British government to relax its export restrictions on Iran and proposed an immediate grant of $10,000,000 to Iran from the United States. Moṣaddeq rejected the plan, offering instead a proposal that differed on the method of determining compensation and requested royalty payments from the AIOC for the period immediately preceding nationalization; it made an important concession by agreeing to permit the International Court to determine compensation questions, but these arrangements were unacceptable to the British government. Relations between the two countries worsened, and eventually diplomatic ties were severed in October, 1952. Attempts by the United States government to achieve other solutions proved unsuccessful (Rūḥānī, Tārīḵ-e mellī šodan, pp. 296-311). Iran now attempted to produce and market its oil through independent arrangements, though the British government prevented overseas marketing by threats and effective blockade measures. Moṣaddeq’s domestic coalition faced serious trouble, and his government was ended by the coup d’état of 28 Mordād 1332 Š./19 August 1953.

Anglo-Iranian diplomatic relations were resumed in December, and efforts were undertaken to restore the flow of Iranian oil to the world market. An international consortium was organized to operate and market the oil. In 1954 the final arrangements for the consortium granted the AIOC a forty-percent share of Iranian oil; another forty percent was given to American oil companies, and the remainder was assigned to other European oil concerns. Negotiations were also undertaken on the issue of compensation to the AIOC for nationalized Iranian oil; it was agreed that compensation would be satisfied by payment to the AIOC from other consortium companies for their shares and by a direct payment of about ₤25,000,000 from the Iranian government (Elwell-Sutton, Persian Oil, pp. 314-28; Shwadran, The Middle East, pp. 127-49). The consortium accord was ratified by the Majlis in October, 1954, and soon after the oil flow was once again resumed. On 3 November 1955 the AIOC was officially renamed the British Petroleum Company after its old subsidiary.

See also Moṣaddeq; National Iranian Oil Company; and Oil.

 

Bibliography:

See also M. Farmānfarmāʾīyān, Molāḥeẓāt- ī čand dar bāra-ye naft, Tehran, 1333 Š./1954.

International Court of Justice, AngloIranian Oil Company Case, The Hague, 1952.

Maǰles-eŠūrā-ye Mellī, Ṣūrat-e moḏākarāt-e komīsīūn-e maḵṣūṣ-e naft, Tehran, 1329-31 Š./1950-52.

Šerkat-e Mellī-e Naft-e Īrān, Tārīḵča wa matn-e qarārdādhā-ye marbūṭ be Īrān, Tehran, 1344 Š./1965.

C. Issawi and M. Yeganeh, The Economics of Middle Eastern Oil, New York, 1962.

A. Lesānī, Ṭalā-ye sīāh yā balā-ye Īrān, Tehran, 1329 Š./1950.

S. H. Longrigg, Oil in the Middle East: Its Discovery and Development, London. 1954.

R. W. Ferrier, The History of the British Petroleum Company I, Cambridge, 1982.

(F. Kazemi)

Originally Published: December 15, 1985

Last Updated: August 5, 2011

This article is available in print.
Vol. II, Fasc. 1, pp. 61-65