The Anglo-Iranian Oil Politics

BY B. PADMANABHA RAO, M. Com.. LL. B.
(Osmania University)

The “National Herald” of Lucknow published a cartoon during the last week of May on the subject which is in the ‘hot news’ of late. The cartoon is very well done and thought-provoking. It represents America twirling the British lion’s tail to goad the unwilling king of the forest for a fight with the Persian goat, which is in a very provocative mood. Nor is the goat a match for the lion; she is sufficiently lean to be devoured. The subject-matter of the cartoon is already in the news, but not all the parties represented therein, because of the recent soft-pedaling which America did through her Ambassador in Teheran and also from Washington. The reasons are quite understandable if one reads the incident through the lines. It is but another scene in the Cold War Drama in which the leading roles are too well known to bear repetition. America sees Red in everything, especially nowadays. In the case of Persia she has all the more reason to do so, because Persia has nearly 1500 miles of common frontier with Russia in Azerbaijan, which caused considerable headache to the Western Allies and Persia after World War II. Any day Azerbaijan can be counted to be a weak spot for those who either hate or fear Communism, because the people in that region are unnaturally divided into two Russian and Iranian. The Iranian part of it is a replica of any other Middle Eastern feudatory, consisting of absentee land lords living in palatial houses in the capital, rolling in posh cars, and supported by their bleeding peasants. The Russian part is a clear contrast to it, where the land flows with milk and honey and people working on the collective farms and enjoying the fruits of their labor, healthy, wealthy and peaceful. Therefore, in her own ‘self-defence’ and in the interests of world peace which is being violently threatened the U. S. A. wants to step in and tender her ‘advice’.

Leaving the cartoon and America, let us come to the subject matter of the cartoon. It has overshadowed the rest of the topics the international news, even pushing the Korean War and the Arthur incident aside as numbers. One who is a student of economic geography knows that the Middle East contains the largest reserves of oil in the world nowadays, and this is causing the greatest excitement in the world, particularly in England and Iran. Recently
these two countries have been in the front-page news over an issue which has assured top priority in international power-politics.

In order to understand this game of power-politics, we will have to go quite long into history at the close of the 19th century. Iran, which was then known as Persia, was a cockpit for rival claimants for power. She was being raided by the Western concessionaries even from 1880’s and was being eaten up slowly and steadily just like any other ‘ward, impoverished and semi-feudal’ countries of the Middle East. Incidentally she was subjected to the same technique of pincer movement in which the Western Powers first granted huge loans to the corrupt, weak, extravagant and indifferent Shah and extracted the highly remunerative oil concessions. One point is to be noted in this connection, that this lending and borrowing was not on a governmental level, hut between the Shah and the Western private moneylenders. This was not to last long, as in 1907, England and the Czarist Russia entered into an agreement, whereby they agreed to respect the territorial integrity and independence of Persia and allow her to be entirely free in internal affairs. Four years later, Russia occupied the northern half of Iran bordering on Azerbaijan, and Great Britain similarly occupied more than half of the southern part including the highly remunerative and extensive oil concessions, This was followed by the two occupying Powers ing rival claimants for power in Persia.

After the 1917 Revolution in Russia, the new Socialist Republic withdrew from Persia and later on entered into an agreement on the basis of the 1907 Agreement. This is significant treaty between Russia and Iran which we will have to remember often, and which gives a right to Russia to march her troops into Iran in case any foreign power stations troops near the northern frontiers of Iran.

Oil is very important to Iran not only internationally but also for maintaining her internal economy. The oil potential of Iran is estimated to be in the neighbourbood of 7,000 million barrels. At the present time when oil is drilled only in the southern provinces of Persia the annual output is about 19 million tons constituting barely a 1.8 % of her potential. The only concessionaire in Iran for drilling oil, the Anglo-Iranian Oil Company (AIOC), is the biggest oil company in the Middle East and in the world. This company was originally started with a capital of £2,000,000 which was increased from time to time to cope with the increased production as well as supply, and it has now a paid-up capital of £33,000,000, and total assets to the tune £110,000, 000 consisting of wells, pipe-lines, refineries, buildings etc. The Anglo-Iranian refinery at Abadan is the largest single unit in the world, now turning out 25 million tons of oil annually. Any observer of Iranian statistics will be quite impressed with the apex position occupied by the Anglo-Iranian in the Iranian economy, if he notices that the AIOC employs over 70,000 labour which is more than half of the total workers in Iran, that it exports oil which constitutes 90% of the total exports from Iran, and that Iran gets more than 5/6th of her total foreign exchange from the Company either in the form of Royalties or otherwise. Further, the AIOC owns tankers of nearly 2,000,000 tons dead-weight, which is again the largest owned by any oil company in the world.

In 1914 the British Government acquired shares in the AIOC to ensure oil supplies to the Royal Navy to the value of about £2 million. The Company paid rich dividends to the extent of £6.5 millions in the first decade itself, besides an equally huge amount saved by His Majesty’s Government in Britain through purchasing oil at special rates. Later the Government invested an additional £l2 millions in the Company in view of its strategic importance, and now it has 52-55% of the shares in the Company, with a right to appoint two Directors on the Board who have over-riding powers. Three facts may be mentioned here: that the AIOC is the largest single investment inherited by the British Labour Government, that it declared a 30% dividend in 1947-48, and that the Company’s earnings touched the record level of £33,000,000 in 1950 which is equal to its paid-up Capital!

The 1933 Agreement

This is just one phase of the career of the Anglo-Iranian. Though the Iranians themselves were not so vociferous as to decry the oil deal vehemently, the Shah of Persia was out to create new trouble and seize any spoils. In 1932 he cancelled the oil concession to the Anglo-Iranian Oil Company, firstly on the ground that it was extracted from him under duress at a time when Persia was not fully independent and foreign troops were on her soil; secondly, as a penalty for the Company’s default to pay income-tax. The Company was not ready to face any insolence from the Shah, and refused to be bound by the cancellation in a unilateral fashion. Then the Company refused to accede to the conditions, and threatened military action to counteract the Shah’s decrees There was no necessity for either to roll up their sleeves as the affair was rounded off by notation. A new agreement, the present 1933 agreement, was finalised between the AIOC and the Iranian Government to the advantage of the latter. Firstly, the Royalties rate was raised, bringing in a revenue of £8 million to the Iranians as opposed to the £1.5 million under the former agreement. The Company’s operations were restricted to a total extent of 100,000 sq. miles, of South Persia only, and the AIOC was to ‘accept’ an officer of the Iranian Government appointed for the purpose of checking their accounts and verifying the profits. At the same time the Company was to have the right to cancel the agreement and surrender the concession under a two years notice. In that contingency, the Company was to have no claim on the property in Iran which should revert to the Iranian Government. Further, the Government of Iran was to exempt all the capital equipment, purchased abroad by the Company and imported into Iran, of all the Import duties. There is also an arbitration clause enabling either party to request the Hague Court for mediation if the efforts at conciliation through a mutually agreed Board failed to achieve the objective. Thus it can be seen quite clearly that the Government of Great Britain does not figure in the picture at all, excepting for the fact that they hold a 52% interest in the AIOC with powers to appoint two Directors on the Board who have over-riding powers to reject any resolution tabled by the other Directors. This agreement was to have a currency of 60 years.

But the contract between the AIOC and the Iranian Government not to be applied to the northern provinces of Iran verging on Soviet Russia, There was some talk during World War II of expanding the operations of the Company, but this was not countenanced by the Persian Government as they contended that Iran was not independent then. Further, the U.S.S.R. (which was also an applicant for oil concessions) resented any such action, as its claims to be considered in view of the fact that they had already done some drilling operations. The pro Communist Tudeh Party conducted huge demonstrations in Teheran, culminating in a Cabinet crisis and ultimately resulting in the abandoning of the move. Thereupon the Majlis (the Persian Parliament) wrested the power to grant oil concessions from the Cabinet and reserved it for themselves. Moreover Iran refused to negotiate any concession while foreign troops were on her soil, as by that time the British, American and Russian troops were stationed there.

The U.S.S.R. could understand that the Iranian Government was under the pressure of the British and American oil companies in the other countries of the Middle East for the extension of the concessions to her (Iran’s) northern frontiers verging on Russia. Therefore she retained her troops in Azerbaijan for a longer period than the British and American troops stayed in Iran, presumably with the motive of checkmating the Western moves. (The Russians treat politics as a game of chess and they are experts in that game.) The Russian strategy seemed to have succeeded almost when they concluded an agreement in 1946 with the Persian Government under Premier Ghavam Sultaneh, for drilling oil in the northern regions for a period of 50 years on seemingly more liberal terms than those of the AOIC’s. One condition of the agreement is that the Teheran Government was not to grant oil coneessions to any other foreign company in the area operated by Russia. The object of the agreement, it was stated, was to bring about the withdrawal of the Soviet troops; when they were withdrawn, the treaty was not ratified by the Iranian Parliament (Majlis) as it was required to be done, and it was thrown over. There was a talk to impeach the Premier, Ghavam, but he later on escaped to France for political reasons and is living upon his bank balances now.

Matters did not end there, and Russia has not taken this “volte face” by Persia coolly. It is a raw wound in the hearts of the two nations, burning the body whenever it is scratched a little; and Russia waits to pay them in the same coin when the occasion arises.

The culminating point in the Anglo-Iranian power politics was reached when the Persian Majlis refused in July 1949 to ratify the revised oil agreement with the AIOC for increased Royalties with retrospective effect. By now it has become impossible for a series of Persian Governments to get this newly negotiated treaty ratified because the Anglo-Iranian Oil Company has become the whipping-dog of Persian internal politics.

General Ali Razmara

Sheik Kashani, the leader of Fadaian Islam (Party ready to die for Islam) called for the nationalisation of the Persian oil resources and nationalisation of the AIOC. This demand of this murder-group in Persia was uniformly supported by the Nationalists of Iran, excepting one man, the then Premier, General Ali Razmara, a former Chief of Staff of the Persian Army and friend of the Shah. The General was as important in the Middle East as Pandit Nehru is in S.E. Asia for the preservation of peace. Though he was a novice in politics, he managed excellently in the midst of so many trouble spots. Iran was having troubles with the American advisers to the Shah on the re-organisation of the Persian Gendarmerie and in the execution of the 7 year plan; there were many border-clashes with the Russians arising out of the Trade Treaty and the presence of some Americans near the border. Iraq was laying claim to the border regions towards the south or Persia.

The greatness of General Razmara lay in the £7,000,000 Trade Agreement he had concluded with the U.S.S.R. which was acclaimed as beneficial to Persia, or at any rate, not unfavourable to her. Realising the strategic position of Iran which has a common frontier of 1500 miles with Russia, he thought he should be friendly with her and not provoke her unnecessarily. Therefore he issued orders to forbid all foreigners in Persia to travel near the frontiers, and further ordered that the Voice of America and the B.B.C. Broadcasts shall not be relayed by Persia.

All this does not mean that the young General was turning Red or helping Iran to turn Red. Actually when the Shah asked General Razmara to form a new Government and run the State, Great Britain welcomed this decision as he was considered strong enough to steer the new Oil Agreement of 1949 July through the Majlis (Parliament). Many a Persian thought he was strong enough to assume powers to push the Agreement through, and that he would become a ‘benevolent dictator’ of Persia. He recommended the new Agreement to the Majlis (Parliament) sincerely believing that Iran would gain by it, as she had not the required technical personnel to man the huge oil industry. He also urged that they should press for more Royalties and training of Persian technicians. But he was denounced as an ‘infidel’ and branded as a traitor. He was accused of selling out Iran to Britain. It is easy to whip up popular passions in Iran over the AIOC question; the issue was canvassed at the mosques and public places by the Mullahs, resulting in a member of the Fadaian Islam killing the Premier over the nationalisation issue. By his death, Persia is definitely poorer, and also the Middle East.

The subsequent story is well known. The Persian Majlis unanimously passed a resolution to nationalize the Anglo-Iranian Oil Company and setting up an Oil Nationalisation Board for the purpose. The resolution is quite reasonable and cannot be questioned. The reasons put forth by the Persians are that Iran’s national sovereignty is threatened by the existence of such a huge foreign concession in the country controlling an area of 100,000 Sq. miles. During the last war, Iran was under the occupation of the Allies and they did not evacuate even after the cessation of hostilities, though no war was actually fought on Persian soil. Further, oil gets itself absorbed into the internal politics and interferes with the country’s normal progress. It is said that the AIOC prevented the Persians from occupying their territory by refusing fuel to the Iranian Army, while it helped the British and American forces in the same job. Many of the members of the Majlis are on the secret pay roll of the AIOC. When it is argued that the AIOC may well be allowed to continue, as they have agreed to double the Royalties, the Persians vehemently protest by saying that “when they are agreeing to double the Royalties, who knows how we were cheated in the past?” The Company has created a ‘State of its own’ within the State of Persia and is importing foreigners to man the industry, while discriminating against the Iranians. We, in India, can understand all these difficulties only too well.

This Nationalisation is a very bitter pill for Great Britain to swallow. The Middle East oil industry is the single largest asset of the Labour Government, and the single largest foreign exchange earner in 1950 to provide funds for the rearmament programmes of the Labour Government and the Atlantic Treaty countries. Therefore she is trying to dodge the issue by trying to bargain with the Persian Government in all ways. They tried arbitration, but the Iranian Government is strong in its refusal to face any such move, saying that His Majesty’s Government in Britain will not come into the picture, as the AIOC is a commercial concern and the Company is a domestic issue of the State. They have also threatened that the officials of the “former Anglo-Iranian Oil Company” should help the Government to bring about the nationalisation, failing which they will be free to take their own steps which are not specified. Great Britain has taken this issue to the World Court at the Hague, and it is known what is likely to happen if Persia refuses to abide by their decision. One feels that it would be very advantageous to the two parties to settle the issue amicably through normal diplomatic channels after the initial heat has subsided. This will help Iran to develop her ward and under-developed economy through her abundant natural resources. This must be acceptable to Britain also as she will be in a position to look after her properties and interests in the Middle East as a trustee.

One is tempted to ask, “If the Labour Government came to power on the nationalisation issue and ara implementing that policy at home, how can they obstruct it abroad?”