Strike Gold, Strike Oil – Origin of Oil Concessions [= Origin of BP] in Iran

patrolling the oil pipelines

Sources are cited in abbreviations inside brackets at the end of each paragraph. See web/bibliography.

[O]il was primarily a lighting and heating fluid until Henry Ford produced his first assembly-line Model Ts and the horseless carriage went mass-market. Oil was originally an American phenomenon. [By 1911, Rockefeller’s] Standard Oil monopoly was being broken under the Sherman Antitrust Act… Its offspring… would turn into many of the giants we know today: Exxon (originally Standard Oil of New Jersey), Mobil (Standard Oil of New York), Chevron (Standard Oil of California) and Amoco (Standard Oil of Indiana). [MF p 88]

[The oil concession in Persia] had started out as a partnership between equals, a concession granted by [Mozzafar-e-din] Shah in 1901 to a small private company owned by William Knox D’Arcy … a big, hearty man newly wealthy from an Australian gold-mining venture… The contract had guaranteed Persia 16 percent of all company revenues… That was before World War I, when oil was still a minor commodity. [MF p 88]

The British-owned Burma Oil Company, which took over the D’Arcy Concession in 1905, struck the first well in 1908. It soon became the Anglo-Persian Oil Company, and its first payment to Iran came in 1912-13 – totaling the paltry sum of £2,900. [EA2 p 55]

The Field of Naphtha was 210 rugged kilometres from the mouth of the Persian Gulf, where Anglo-Persian was building a refinery complex to turn the flow of thick crude oil into a usable product. Just getting adequate exploration equipment to the site had taken months. Now a pipeline would have to be built across the winding, mountainous route. Segments of pipe arrived in bulk from the United States, and crews took them as far as they could upriver by barge. Mules dragged them the rest of the way, with labourers taking over where the land was too steep for animals to pass. The work was slow and painstaking. It took two years. Meanwhile construction delays plagued the refinery site. At its completion, Abadan refinery would be the world’s largest, supported by a diverse workforce: fitters, riveters, masons and clerks from India, carpenters from China and semi-skilled workers from the surrounding Arab countries. [BP]

By 1914 the Anglo-Persian project was nearly bankrupt for the second time in its short history. The company had plenty of oil but no one to sell it to. Cars were still too expensive to count as a mass market for fuel, and more established companies in Europe and the New World had the market in industrial oils cornered. Standard Oil of Indiana (later called Amoco), for example, had been in business for over 25 years. Besides that, refining couldn’t remove the Persian oil’s strong, sulphurous stench. It couldn’t be sold as kerosene for home heating, one of the main consumer uses for oil at the time. “This Persian business seems to get more complicated every day,” complained the chairman of Burmah Oil, Anglo-Persian’s parent company. [BP]

Enter Winston Churchill, who had taken a new role in British politics as First Lord of the Admiralty. Britons were proud of their navy, and oil-powered vessels were the latest innovation. But while Anglo-Persian executives had courted the Royal Navy for years as a prospective customer for its oil, the old guard at Whitehall had been hesitant to endorse coal’s upstart rival. [BP]

“Oil,” as Admiral J. Fisher pointed out, “don’t grow in England.” [MF p89]

Churchill was a believer. He thought Britain needed a dedicated oil supply, and he argued the case in Parliament, urging his colleagues to “look out upon the wide expanse of the oil regions of the world!” Only the British-owned Anglo-Persian Oil Company, he said, could protect British interests. [BP]

His voice rising to a fever pitch, Churchill called on those seated about him to see how perfect the match could be: APOC would sell the Admiralty all the oil it needed at a reduced price for twently years, guaranteeing its fuel needs as surely as if the oil were located right there in England. In return the government could buy 51 percent of the shares, infusing the company with capital while ensuring that it would remain under tight British control. [MF p89]

The House of Commons voted with Churchill. From then on Persia would deal not just with a private company but with “a sovereign state masquerading as a tradesman.”… The Persian government was never consulted, thought the concession it had granted was specifically and exclusively to D’Arcy, a private individual. Instead it was delivered a fait accompli. APOC, it was informed, was now controlled by the British government. [MF p89]

Despite its name, the British Petroleum brand was originally created by a German firm as a way of marketing its products in Britain. During [WWI], the British government seized the company’s assets, and the Public Trustee sold them to Anglo-Persian in 1917. With that, Anglo-Persian had an instant distribution network in the UK, including 520 depots, 535 railway tank wagons, 1,102 road vehicles, four barges and 650 horses. [BP]

[In 1919, a British financial adviser’s report to the Persian government] disclosed that the £614,489 claimed by the company for the pipeline damages was a complete fabrication, the actual cost being only £20,000. Furthermore, it revealed that the company had already been charging £10,000 a year for these damages and the disguised them as operating expenses, which reduced its profit margin, and, hence, the amount it paid in royalties to the Persian government. [MF p 94]

What’s more, Persian oil was virtually subsidizing the British Admiralty. Were the company not selling to the Royal Navy at a tenth of the going rate (10 shillings versus £5 a ton), its overall profits would be higher and the Persian government would be considerably richer. [MF p93]

Britain had risen to world power largely because of its success in exploiting the natural resources of subject nations. [By 1949] More than half of Anglo-Iranian’s profits went directly to the British government, which owned 51 percent of the shares. It paid millions of additional pounds each year in taxes and also supplied the Royal Navy with all the oil it needed at a fraction of the market price. Foreign Secretary Ernest Bevin was not exaggerating when he observed that without oil from Iran, there would be “no hope of our being able to achieve the standard of living at which we are aiming in Great Britain.” [SK p 68]

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  1. […] assert Iranian sovereignty over our land and its resources including that most sought-after of all, oil. The 1953 coup followed several years of grass roots movement including labour strikes against […]

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