THE GULF'S BLACK
TREASURE The old
colonialism By Hossein Askari
This is the 17th article in a special
series on oil and the Persian Gulf. For previous
articles, please see the foot of the page.
Over the past 100 or so years, foreigners
have exploited the wealth of the countries in the
Persian Gulf for their own gain and at the expense
of the indigenous population. In the early days,
companies from Great Britain, later followed by
the United States and France, took advantage using
the threat of economic boycott and isolation and
military intervention - the old face of
colonialism. Today, foreign individuals and
corporations work hand-in-hand with the same
Middle East rulers to exploit their people - the
new face of colonialism. Here, we take a brief
look at the face of the old
colonialists and in the
next article we look into the new.
The
discovery of commercial oil deposits in the region
began with William D'Arcy in Iran. In 1901, D'Arcy
negotiated a 60-year exclusive contract for oil
exploration and production covering most of
Iran.The Shah received 20,000 pounds sterling,
shares in D'Arcy's company and 16% of all future
profits. After some setbacks and partial sale of
his Iranian venture to a syndicate named Burmah
Oil, D'Arcy and his partners discovered commercial
oil in a major field in Masjed-e-Soleiman in May
1908. Later in 1908, the venture sold shares
in the Iranian oil find and created the
Anglo-Persian Oil Company (APOC, also named the
Anglo-Iranian Oil Company, or AIOC). In 1913, the
huge Abadan refinery came on line, the largest
"single" refinery of its the time, and Iranian oil
was flowing. The British government injected more
cash into APOC and became a major shareholder.
APOC invested in other ventures in Iraq (more on
Iraqi oil development below) and in other parts of
Iran, with little visible benefit to the Iranian
people.
As a result, by the early 1920s,
there was widespread resentment of the British and
APOC's role in Iran. The dispute with APOC was
centered on a number of issues: access to APOC's
books to assess profits and other operational
numbers (information that is always available to
stockholders), a 25% ownership in APOC, a higher
dividend rate, having the royalty rate on oil
lifted, a tax on profits, an end to the exclusive
right of transportation of Iranian oil to APOC and
the extent (area) of APOC's Iranian concession.
Negotiations made little progress, and by
the early 1930s Iranian royalties were slashed to
under 500,000 pounds sterling, in part because of
the global economic slowdown and a global oil
glut. In 1932, Reza Shah cancelled the original
D'Arcy concession but then in 1933 signed a new
agreement that looked good on the surface but
again shortchanged Iran and the Iranian people in
a new 60-year concession agreement. Iranian
resentment continued to grow as AIOC exploited
Iran - for example giving Iran only 15-20% of its
after-tax profits after World War II and into the
early 1950s - and employed Iranians in what could
be classified as inhumane conditions.
In
late 1950, Iranians became further incensed at the
news that Saudi Arabia, to Iranians an
unsophisticated newcomer, had reached a 50-50
profit sharing plan with American oil companies
(more on Saudi oil development below). The British
government, the major behind the scenes power in
AIOC, refused to consider a similar arrangement
with Iran and simply dismissed Iranian pleadings
out of hand.
In 1951, what would lead to
the most tragic episode in Iranian history in 1953
over the last 100 years began to unravel. The
Iranian parliament nationalized AIOC and its
holdings and elected an Iranian national hero,
Mohammad Mossadeq, as prime minister. Britain
persuaded countries to boycott Iranian oil and
shut down the Abadan refinery while AIOC increased
its oil output elsewhere (as discussed in an
earlier article on the emergence of the
Organization of the Oil Exporting Countries, or
OPEC, as a power in dealing with the major and the
independent oil companies in the early 1970s, the
importance of diversified reserves for the
companies cannot be overemphasized).
The
Iranian economy, which had become so dependent on
its meager oil revenues, collapsed. In 1953, the
British persuaded the newly elected administration
in Washington that Mossadeq was a closet communist
and that Iranian oil and access to the Persian
Gulf would soon pass to the Soviets. The Central
Intelligence Agency and the British Secret
Intelligence Service collaborated to overthrow
Mossadeq in a tragic coup that in our opinion has
since shaped Iranian and Persian Gulf history.
After Mossadeq's overthrow, a consortium
controlled Iranian oil with the umbrella name of
NIOC (the National Iranian Oil Company), with AIOC
holding 40% of the shares in a 50-50 profit
sharing arrangement with Iran, but still with no
unfettered Iranian access to the consortium's
books. While this was a much-improved arrangement
for Iran, it was a humiliating treatment of a
sovereign nation and, most importantly, the
removal of Mossadeq would set Iran on a torturous
path that continues today.
Oil activities
in Iraq (then Mesopotamia and a part of the
Ottoman Empire) started in 1912 under a newly
formed company, the Turkish Petroleum Company
(TPC). By 1914, the Anglo Persian Oil Company
(APOC) had become the largest shareholder with 50%
of the shares. But then with the onset of World
War II, no significant activity was to take place
until after the war.
In 1925, TPC got its
concession in Iraq, in a loose agreement to share
profits after a number of years. In 1927, oil was
stuck near Kirkuk. As a result, in 1928 there was
some urgency to reach a formal agreement that
afforded shares of TPC (renamed the Iraq Petroleum
Company - or IPC - in 1929) to British, American
and French interests.
Foreigners in effect
assumed total control of Iraqi oil, promising Iraq
additional royalties and loans. But with the
global economic slowdown and a glut of oil on the
world markets, significant Iraqi oil exports did
not reach world markets until just before World
War II. All along, the British-installed monarchy
(after World War I) in Iraq got along relatively
well with IPC and negotiations for more favorable
profit-sharing arrangements and higher levels of
oil output were on the whole friendly and
reflected terms that were similar to those
afforded to Saudi Arabia.
But in 1958,
friendly Iraqi-IPC relations were set to change
with declining payments to Iraq, the revolution
overthrowing the Hashemite monarchy and two years
later with the formation of OPEC. During the
1960s, Iraqi-IPC relations were hostile. Iraq
(like Iran) continued to seek more control over
its oil with a higher level of ownership, higher
output and higher prices for Iraqi crude.
In the case of Saudi Arabia, the
government signed its first concession agreement
in 1933 with the Standard Oil of California. A few
years later, the Texas Oil Company, or Texaco,
became a partner. It took about four years to hit
oil in 1938 and oil was exported beginning the
next year. In 1948, two more American oil
companies joined the company that had been renamed
the Arabian American Oil Company, or Aramco. In
1950, Saudi Arabia pressured Aramco and received a
50-50 profit-sharing arrangement, with the US
government making tax concessions to the four US
oil company partners in Aramco to make such a deal
more palatable.
In sum, looking at the
first 50 years of oil exploration and oil output
in the Persian Gulf, country-company relations
were tortuous throughout the period before World
War II. The companies dictated the terms on a
"take it or leave it" basis, something that was
most vivid in British dealings with Iran, the
country with the longest history of oil production
and exports in the region.
The companies
controlled oil exploration, production and the
sharing of profits in these countries. The threats
of oil boycott and military intervention were
real, as the companies operated with the full
support of their imperialist governments. By any
reasonable standard, the oil-exporting countries
were shortchanged and exploited. The British
approach with Iran was much harsher than that of
the American companies with Saudi Arabia. In fact,
the participation of American companies may have
been a major factor in "softening" the British a
little.
Still, during most of the period
before the formation of OPEC in 1960, the rulers
and governments of these countries did what they
could to get a fairer share for their countries.
They were, however, negotiating from a position of
weakness with looming economic and military
threats.
All this, as we saw, was changed
by market conditions - growing global demand for
oil, an increasing OPEC share of world production
and exports, the entry of independent oil
companies with very limited sources of crude into
the international markets and a strengthening of
the financial position of Middle Eastern
countries.
Today, as we will see,
relations with the West are very different.
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