Iran - the (oil) drum

When Vita Sackville-West visited Iran in 1926, her husband, Harold Nicolson, was working there in the diplomatic service. No doubt part of his job description in was to keep a glad eye on the progress and fortunes of the Anglo-Persian Oil Company (APOC) in which, by the mid-twenties, Britain had a considerable interest.

The history of this company gives insight to a century of political intrigue and commercial gamesmanship, served with a side of warfare, by Western mercantilists and governments hellbent on controlling the vast reserves of Middle-Eastern oil.

At the end of the nineteenth century, the Persians had discovered a minor oil deposit in south-western Iran. Lacking the capital to finance search and development activities, the Persian Commissioner-General (Mr Khan) met Sir Henry Drummond Wolff, a former British Minister toTehran, and asked for his help in locating a suitable investor. Wolff sniffed around The City and Westminster traps, but the banks were very wary after some of their dodgy investments in the Middle East had gone belly-up.

Enter one William Knox D’Arcy. D’Arcy’s provenance seems made to order for a carpetbagger. Born (1849), the son of an Irish solicitor, he was educated at Westminster, the family then emigrated to Rockhampton, Australia, where he qualified as a solicitor, then diversified into mining (Australia’s robber barons’ industry of choice) through restoration of a nearly abandoned gold mine (Mt Morgan). He was a millionaire by 1886.

D’Arcy’s social ambitions took him back to London, where, having secured a town house and a country mansion, he set about emulating the dissolute lifestyle of the Prince of Wales (later King Edward VII). By the turn of the century, D’Arcy was in need of a new investment stream, when he came across Wolff and the Khan proposal for the southern Persian oil concession. Wolff recommended D’Arcy as “a capitalist of the highest order who declares himself disposed to examine the affair.”

In the light of Persia’s long history of invasion, political subterfuge and theft on a grand scale, one would have thought they could spot a bandit at fifty leagues, but not so: the concession D’Arcy won gave him the rights to “search for and obtain, exploit, develop, render suitable for trade, carry away and sell natural gas, petroleum, asphalt and ozokerite for a term of 60 years” for all but the five northern provinces. (The Iranian government didn’t wish to offend Russia, which had designs on the northern regions’ resource concessions.) But the second part of the agreement got right up the Russkies’ noses, as it gave D’Arcy exclusive rights to lay pipelines to the Persian Gulf and establish distribution depots, to construct and maintain factories and all works and services necessary to operate the concession. Then came the coup de grace . All the concession’s imports and exports would be free of duty and tax, with a maximum of 16% of net profits payable in royalties to the Persian Government! (The pound sterling signs must have danced before the accountants’ eyes in The City of London.) But things didn’t go all that swimmingly for D’Arcy at first. He sank £225,000 into unsuccessful exploration from 1905-1908 and had ordered geologist George Reynolds to shut down and abandon the concession when the first well came in in what was to become the Persian Gulf field. D’Arcy was then able to offload the concession to a syndicate forming the Anglo-Persian Oil Company, which reimbursed D’Arcy for all his expenses, gave him £900,000 in company stock and a lifetime directorship. So D’Arcy, who’d never bothered to even visit Persia, got to live happily ever after (the geologists had the pleasures of working in the field, where “smallpox raged, bandits and warlords ruled, water was all but unavailable and temperatures were frequently above 50C”). Winston Churchill is a regular player in the story. As First Lord of the Admiralty, he was determined to wean the British Navy off its reliance on coal, and therefore lobbied in 1913 for heavy Government oversight of the Persian investment in oil. Then, out of power in 1923, he was a paid consultant lobbying the British Government to put in new money in order to gain exclusive rights to Persian oil (including the northern provinces, following the 1917 Bolshevik revolution, while the Russians were somewhat distracted by their internal affairs). Britannia rules the waves (of oil). For four years, from 1928, Persia tried to renegotiate the concession, reflecting popular sentiment that the national wealth was being squandered. The Persians knew they’d been dudded, and suspected APOC was creatively spiriting royalty-attracting profits through their various properties in Turkey and Iraq (all such interests were registered only in London). But the Brits, being masters of diplomatic sleight-of-hand after centuries of ‘benevolent’ colonialism, prevaricated, hedged, told outright porkies, treated senior envoys with contempt and generally worked the Persians over. In 1931, with their royalties at an all time low, the Persians announced they were cancelling the D’Arcy agreement. Pity about the League of Nations, pal. The Brits took the case to the “Permanent court of International Justice” at the Hague, which (surprise, surprise) just happened to be dominated by the victors of WWI! The fallout was a new 60-year agreement to be ‘negotiated’. On the surface, it looked a better deal for Persia, but needless to say, the devil was in the detail (e.g., the concession area was reduced to 100,000 square miles, but the Brits got to choose which 100,000). The APOC was renamed the Anglo-Iranian Oil Company (AIOC) in 1935. Needless to say, internal discontent about the arrangements continued unabated, so by 1941 ‘outside pressure’ was brought to bear and the vacillating Shah was forced to abdicate in favour of his pro-Western son. The new Shah was unable to quell unrest, but with most of the British Empire still intact after WWII, the Brits summarily dismissed any attempts by Persian envoys to find middle ground as nuisance, unwelcome noise. If the conditions in the coal mining communities of Wales were deplorable, those at the AIOC’s Abadan refinery on the Persian Gulf were worse. In 1947, workers in the shanty town “Paper City” were paid 50c/day. There was no electricity or running water. In winter, the village, with no paving, was knee-deep in mud, and when the rains cleared, the stagnant water bred plagues of tiny-winged flies that clogged every orifice. Summer was worse, with sandstorms and no respite from the 50C heat. Paper City was described as an “emporium for rats”. Workers’ dwellings were constructed out of rusted oil drums, hammered flat. There was not a single tree, and the cultural and community features of every Persian town – baths, a tiled pool, a tea shop – were no-where to be seen. Nor were the hospitals, school, paved roads and telephone system that the Concession obligated the AIOC to provide. The Brits had done a grand job of fomenting revolutionary sentiment in Persia, and by 1950, the call for nationalisation of the oil industry was irresistible. The 1950 Arabian-American Oil Company’s agreement on a 50:50 split of royalties with the Saudi Arabian government added fuel to the nationalisation fire in Iran, given the fact that the Persian Gulf field was now the world’s largest, with 450 wells, 2,000 miles of pipeline, 150 miles of roads. The royalties to the Persian government amounted to a measly £120m. p.a. In March 1951, the democratically elected Iranian Parliament, with the widely respected statesman Mosaddegh as Prime Minister, voted to nationalise the AIOC. The British Government, by now 51% owners, cried foul and shut down the Abadan refinery and met their production needs by ramping up production from other countries. Attempts to solve the crisis proved fruitless and in July ’51 Mossadegh broke off negotiations. In response, The City informed all tanker operators on the world market that receipts for Iranian oil shipments would not be honoured. The US attempted a solution via the International Court of Justice, intending a 50:50 royalties split, but this was rejected by both parties. By mid-1952, the embargo and boycott were starting to bite, with the effects felt by the populace as Iran’s economic situation worsened. Half a world away, the US was embroiled in the Korean War. Britain, with canny Winston Churchill back in #10, leveraged the US’ fear of the Red Spread by painting a picture of Iran as unstable and likely to fall to communism, triggering a domino effect in the Middle East. Come in Spinner. Now singing from the same hymn-book (oil security, whatever it takes), the CIA (“Operation Ajax”) and MI6 (“Operation Boot”) fuelled unrest by bribing politicians and newspapers, organising riots and the like and orchestrating the 1953 coup d’etat, with the backing of the Shah and his flunky, General Zahedi. Mossadegh held on until August, when he was finally overthrown. By 1954, the oil began to flow again. The AIOC changed its name to British Petroleum and tried to reinstate the previous conditions, but were forced into a new consortium – Iranian Oil Participants Limited (IOP), with shareholdings as follows:

BP 40%

Gulf Oil (later Chevron) 8%

Royal Dutch Shell 14%

Total (French) 6%

the four US Aramco partners (8%each)

For the next twenty years The partners of the IOP (known as the ‘seven sisters’) controlled 85% of oil reserves worldwide.

At last Iran had a 50:50 profit sharing deal. Net, that is. Yes – IOP was required to share its profits “but not to open its books to Iranian auditors or to allow Iranians onto its Board of Directors”. Business as usual…until the 1973 oil crisis and, six years later, the Iranian revolution. 1980 and Saddam Hussein made an opportunistic land-grab on Iran’s Persian Gulf territory, claiming it was historically part of Iraq. It was a grave strategic error that triggered eight years of war. Saddam was backed by the US and Britain, who provided arms, money, satellite intelligence, military planning assistance, even the precursors of chemical weapons. (There’s a nice photo from 1983 of the US envoy, one Donald Rumsfeld, greeting Saddam.) Ironically, the invasion was pivotal in shoring up the shaky Khomeini hold on power by providing a enemy against which to rally. Khomeini and the mullahs stoked the fires of righteousness and religious fervour. By 1983, he’d managed to kill off (literally) all effective moderate opposition, including the assassination of high profile opposition leaders in exile in Europe. Once installed, the clerics had no intention of being usurped by moderate influences. The US has imposed sanctions of varying severity on Iran since 1979. In November 2011, the US targeted oil revenue by cutting Iran off from US financial system and banning dealings with all foreign financial institutions that conducted oil transactions with Iran’s central bank (thereby corralling China, Japan, India, Sth Korea, Turkey, South Africa and Singapore inside the anti-Iran fold). The UK and Canada then ordered their financial institutions to stop doing business with their Iranian counterparts. In January 2012, the EU froze assets belonging to the Bank of Iran, banned all trade in gold and precious metals then, six months later, placed a ban on crude oil. European companies were banned from insuring oil shipments, of which they had previously underwritten 90%. Swift – the Brussels-based body handling global banking transactions – cut Iranian banks from the system, making it almost impossible for money to flow into and out of Iran via official channels. (And tourism dollars are effectively limited to cash-only transactions.) In October 2012, the EU banned transactions with financial institutions as well as banning import, purchase and transportation of Iranian natural gas, construction of oil tankers and flagging and classification of tankers and cargo carriers. So Iran remains hostage to its riches – it’s an energy superpower, in theory. The CIA’s 2014 energy statistics rate Iran world #2 in proven resources of natural gas (with 33 trillion cubic metres in reserves; Russia’s #1, Australia #24) and #4 in crude oil reserves (after Venezuela, Saudi Arabia and Canada), but the West’s sanctions mean economic development is stifled and, for the average Iranian, life is pretty grim. Courtesy of the West’s policies, the Rial has devalued by 70% since 2012: petrol is rationed, wages for most of the population are below subsistence levels and there are food and medical supply shortages across the country. Chicken, once a protein staple, is now a luxury item. The middle class has been decimated. The Guardian (UK) has described the sanctions as “strategically unwise and morally indefensible…. a starving population makes them more reliant on regime support”. (the US sanctions on Iraq post-9/11 caused the death of estimated 700,000 children; the Iranians have stated that air strikes would have been preferable to sanctions as then “collateral damage” would only have killed local citizens, not decimated the entire population.) Note: the above commentary/facts and figures are extracts from BBC and the Guardian sources. As for the people in the street, they simply can’t understand why they’re hated, subjected to iniquitous sanctions and condemned as terrorists. Yes, like the rest of the Arab States (to a greater and lesser degree), they’re anti-Israel. Yes, they have nuclear interest (confirmed for energy purposes; weapons intent suspected but unconfirmed). But Israel has The Bomb. Perhaps it all just boils down to Oil. #Abadan #PersianGulf #Iran #2014