OIL POLITICS

West Asian countries have oil reserves, but in the early nineteenth century, their people were unable to exploit it for their own use or anyone else’s benefit. In 1908, William Knox, a New Zealander had obtained a concession for the exploitation, sale and export of oil in Iran through the APOC.

The terms of the treaty were:

The concession was to last for 60 years after which all machinery, buildings and installations were to revert to Iran without any compensation.

The Iranian Government was to receive an annual royalty of 16% of the net profits of the APOC.

Oil was struck in commercial quantities in May 1908 at Majid-e-Suleman. In 1909, APOC was formed with a capital of 2 million pounds. In I914, the British navy began to use oil instead of coal-based energy in its ships. In order to obtain oil at a low price and to prevent other countries from having a share in the rich Iranian oil deposits, the British Navy purchased 55% of APOC’s shares and became the controlling shareholder.

Meanwhile, Russia and American Companies tried to extract concessions but were unsuccessful. APOC was increasing oil production and by 1933 it was producing 70 million tons per year. most of the administrative staff were British and they occupied all key positions. The Iranians were exploited and treated as inferior.

The Advent of Reza Shah: When Reza Shah came to power in 1925, the concession agreement with the APOC was revised to make it more favorable to the Iranian government.

It reduced the area covered by the concession to 100,000 sq miles.

The royalty payment guaranteed a fixed income to Iran

The new arrangements were not beneficial to the Iranian government.

In 1935, Reza Shah changed the name of the APOC to Anglo Iranian Oil Company (AIOC)

Iran and World War II: During World War II, Iran was occupied by British, Americans, and Russian troops, which took over or otherwise controlled most of the administration. In 1943, the three powers reached an agreement for withdrawing their respective troops from Iran within six months after the end of the war. Russian troops left Iran only after the UN exerted considerable pressure on Russians. Even then Russians set up a pro-Russian regime in Iran’s northern province Azerbaijan, adjacent to the Russian border. This political confusion at home weakened Iran’s international standing.

After the war, both Britain and Russia were interested in controlling the oil rich deposits in Iran. Russia agreed to withdraw her forces only if their demand for oil concessions was granted. However, in 1945 the Iranian Majlis (Parliament) prohibited granting oil concessions to any foreigners. Britain withdrew troops but Russia didn’t. ultimately, the matter was referred to the UN Security Council (March 18, 1946). Therefore, Russia signed an agreement for oil concessions and then withdrew on 9 May 1946.

Oil Crisis: The question assumed crisis proportions in June 1948 when the AIOC announced that the royalty payment would remain the same as 1947 even if its net profits had increased from $26 million in 1947 to $52 million in 1948.

In 1947, the Iranian government received $19 million in royalty payment and taxes whereas the British Government received $56 million from dividends and taxes.

When the figures were published the Iranian people were agitated.

In 1948, the Iranian Government submitted a 25-point memorandum to the AIOC calling upon it to:

Increase the governments share of profit to 50%

Employ fewer foreigners and

Train more Iranians for technical and managerial position in the AIOC.

The two reached an agreement in 1949 known as ‘Supplementary Agreement’ (1949) which gave some concession to the Iranian Government. Unfortunately, the AIOC failed to keep its promises. The AIOC Annual Report of 1949 showed that Iran was given about $37 million in royalty payment and taxes whereas Britain received about $79 million from dividends and taxes.

Rise of Mussadiq: In 1950, the Iranian Majlis appointed an Oil Committee under the chairmanship of Dr. Muhammad Mussadiq to deal with AIOC. Dr. Mussadiq was a distinguished lawyer known for his loyalty. There followed negotiations between the oil committee and the AIOC which were unsuccessful. Britain found it difficult to accept the fact that she was no longer an eminent world power. America tried to persuade Britain to accept some demands of the Iranian Oil Committee. However, the AIOC refused to act.

Nationalization of Oil Industry: In December 1950, the Oil Committee rejected the supplementary agreement on the ground that it did not safeguard Iranian rights and interests. Dr. Mussadiq moved a resolution in the Iranian Maajlis calling for – nationalization of the oil industry in Iran. The government opposed this resolution, declaring nationalization to be impracticable.

Four days later the Iranian Prime Minister Razmaia was murdered. With his murder opposition to Dr Mussadiq’s proposal of oil nationalization crumbled and the Majlis passed a bill nationalizing the oil industry in Iran.

In April 1951, Mussadiq became the new Prime Minister and in October the AIOC was ousted from Iran.

 

Post Nationalization developments: After rejecting the supplementary agreement even the oil concessions to Britain were rejected. The British Government proposed arbitration and referred the dispute to the International Court of Justice at Hague but Mussadiq refused to submit to the courts jurisdiction. He argued that the dispute was between the sovereign state of Iran and a private company.

Thereafter, the British Government showed its willingness to accept the nationalization of the AIOC in a modified form. Dr. Mussadiq was also willing to negotiate with the British Government since he won the main battle. In a series of negotiations each side believed that it possessed the stronger bargaining power to back up its legal position.

The AIOC believed that only they could operate the intricate oil industry, the Abadan refinery and provide the necessary capital. In the absence of oil royalty payment, the Iranian economy would face serious difficulties which would face serious difficulties which would force the government to come to terms with it. It further believed that the action of the Iranian government in nationalizing the AIOC was illegal and wrong as it contravened the 1933 agreement. To the Iranians this nationalization meant independence.

Dr. Mussadiq encouraged the Iranians to believe that income from oil royalty and profits would enable them to live in ease and comfort, but he failed to realize the complexities of the international oil industry, or the difficulties involved in selling Iranian oil on the world market without the cooperation of international oil companies. He believed that Britain and France required Iranian oil to sustain their economies and would come to terms with him. He also expected the US Government to support him.

Deadlock I the negotiations and the resultant crisis: Very soon the negotiations reached a deadlock as either side refused to make any concessions. By mid 1951 oil production was completely stopped and arbitration failed. Mussadiq refused to submit the issue either to the Inteirnational Court of Justice or the United Nations.

Britain and Western Europe adjusted themselves to do without Iranian oil support.

Under these circumstances the situation in Iran began to deteriorate. Loss of royalty and profits began to pinch, scarcity of foreign exchange and credit forced Iran to curtail her imports. The army was short on supplies and wealthy landlords were forced to curtail on spending and luxuries. Iranian nationalists were frustrated at the continuing deadlock.

Dr. Mussadiq became more autocratic and in July 1952 he demanded autocratic power for himself. He wanted to rule by personal decree, dissolve the Majlis and introduce a comprehensive reform program. He held a referendum to dissolve the Majlis and got a 99.93% vote in favor of dissolution.

On 12 August 1953, he dissolved the Majlis.

By this time, he had been isolated, and he lost all support except from the communists. On August 13, 1953, the King dismissed him and appointed General Zahedi as the new Prime Minister. Dr. Mussadiq was arrested, found guilty of attempted rebellion and sentenced to three years imprisonment.

With General Zahedi at the helm of affairs, the Iranian crisis was nearing a solution.

In September 1953, the United States government granted Iran an emergency loan of $45 million to settle temporary difficulties. The oil dispute was finally settled in February 1954, by a consortium of 8 major oil companies.

On August 5, 1954, the Consortium and the Iranian Government signed a formal agreement which formally settled the dispute. The agreement went as follows:

-       The Consortium would extract, refine and market oil for the National Iranian Oil Company (NICO).

-       The NICO would receive 50% of the profits.

-       The Iranian Government would pay $70 million as compensation for nationalizing the AIOC.

-       In 1956, the NIOC took over the Russian oil concessions and thereby acquired full control over Iranian oil resources. In 1965, was formed the National Iranian Gas Company (NIGC), to exploit and utilize the seemingly limitless natural gas deposits in Southern Iran. In 1966, the royalty and profit income of Iran stood at $500 million.

Dr. Mussadique set an example for others to be cautions and the foreign companies became more reasonable, and therefore his cause was never lost. This episode in Oil Politics has been referred to as ‘an important reminder of strength’.

OIL POLITICS IN IRAN

Oil has been and remains till today a major asset of West Asia. The history of oil politics in West Asia originated in a humble village with ethe earliest discovery of Arabian Oil in 1859 and it reached a landmark in 1960 with the formation of OPEC (Organization of Petroleum Exporting Countries).

Even in the period prior to 1960, oil was basic to the life of many Arab countries as well as Iran. In the early twentieth century they had given concessions to search for oil. Once oil was discovered they were dependent on foreigners for the investment as well as the technology to extract, refine and sell the oil. These gigantic companies manipulated oil prices in a manner beyond the control of individual producing state to exercise some authority over the international company. A country could either nationalize the oil company as Iran did in 1951 or they could organize an international cartel to protect their interests.

This is what happened I 1960 when the Organization of Petroleum Exporting Countries (OPEC) was born. OPEC was the result of a series of events and forces in which both the oil companies and oil producing countries were involved.

Although oil is the major asset of West Asia, yet not all of this region is oil rich. A majority of West Asian countries produce no oil at all or only small quantities of it. Hence there is a wide disparity of income between the nations of West Asia. The main oil producing countries of the region are Iran, Iraq, Saudi Arabia, Kuwait, Bahrain, Qatar, some of the members of United Arab Emirates and Oman. Except for Iran, they are all Arab Nations.

Oil had been discovered in Persia in 1908. The concession to extract it was secured by the British company named the Anglo Persian Oil Company (APOC). Prior to 1933, the fluctuations in the amount received from year to year left the finances of Iran at the mercy of the oil company. Besides, Iran’s share from the oil profits was a miserable 16%. In 1933, Reza Shah secured better financial terms and a reduction of the concession area by half of the company whose name was now changed to Anglo Iranian Oil Company (AIOC). In Iraq oil was discovered before World War I. The Ottoman Government had granted the oil rights to two German concerns. At the end of World War I, Iraq came under British control. Iraq had oil field in Mosul region in the North. Later oil was discovered in the Baghdad province and around Basrah in the South. These were exploited by the Iraq Petroleum company.

The Arabian peninsula is extremely rich in oil deposits. In Saudi Arabia oil was discovered in 1938 by the California Standard Oil Company (CASCO), whose name was later changed to the Arabian American Oil Company (ARAMCO). It was supposed to have anywhere between 1/3^rd to 1/4^th of the worlds oil reserve. Saudi Arabia grew rich very rapidly. Oil was discovered in Bahrain (1932) and a large refinery was build by a British company to exploit it. Oil was found in Oman in 1937 but production began only in 1967. In Qatar, the Sheikh granted the oil concessions to the Iraq Petroleum Company in 1935 but oil began to flow only after World War II. In 1934, the Kuwait Oil Company (KOC), a British cooperation received a concession for the entire 5,800 sq miles of the state. Oil was found in 1938 through commercial production was stalled during World War II and did not commence till 1946. Of the seven petisheikhdom that had been under British production, and which formed the United Arab Emirates in 1968, Abu Dhabi, Sharjah and Dubai are oil producing.

By mid-1940, the oil resources of the Arab world and Iran had become the most important reason for the strategic value of this region to Western companies which made huge profits 80-90% of the oil used in Western Europe flows from this region. In the year 1960, Iran and the Arab world were producing about 25% of the world’s output and held 2/3^rd of its reserves. In the period between the end of World War II and 1960 when OPEC was formed voices began to be raised in this region against the huge profits being made by the International Companies at the expense of oil producing countries. Venezuela played an important role in shaping the oil policies of the oil producing countries. In 1948, a law was passed which called for a 50-50 profit split between the Oil Company and Venezuela. The same principle was gradually adopted in West Asian Countries except Iran.

The non-acceptance of the principle in Iran led to one of the gravest crisis of the oil industry. Since 1941, when British troops have invaded the country, Iran had a deep sense of animosity towards it. Realizing this the Anglo Iranian Oil Company opened in 1948 had started preliminary discussion with the government about profit split. When the government demanded that profit split on the 50-50 principle should apply to all company’s profit, the company refused. In July 1949, the company offered the Iranian government that the shares of profit should not fall below 4 million pounds a year. this was not acceptable to the Iranian government.

However, it was too late. By then the bill had been passed and received royal assent for the nationalization of oil company.

The act of nationalization of oil company in Iran in 1951 created more problems that it solved. This was the oil crisis of 1951-53. The oil activities were completely crippled when the Prime Minister Dr Moussadique insisted that the British Personnel employed by the Company should either work for him or leave the country. The staff accepted to leave. Iranians were not available to run the industry. The chaos was total and complete. Not only did Iran cease to export oil but they had to even import it for their own use. The Anglo Iranian Oil Company which had half the share in the Kuwait Oil Company expanded its activities in Kuwait. As a result, the oil prices in Iran acted as a catalyst for oil production in Kuwait.

A military coup led by General Zahedi in 1953 removed Prime Minister Mossadique from power and re-installed Shah Muhammed Reza Shah. A new consortium of international companies was formed to revenue the Iranian oil industry. Though oil was the property of National Iranian Oil Company, the international consortium produced the oil. The National Iranian Oil Company was the first of the (inter)national oil companies.

In order to appreciate the logic of OPEC, oil relations in West Asia between the oil producing countries and the oil companies that existed till 1960 have to be studied. The terms of the oil concessions awarded to the companies often constituted the source of friction, dispute and misunderstanding between the two parties. Most o fhte concessions were of a long duration. Also, the areas covered by these concessions were vast. For e.g., they covered almost all territories of Iraq, Kuwait, Qatar. In some other countries they covered a majority of the area.

The companies never surrendered the area not explored by them. Therefore, on many occasions, the host government undertook to persuade or pressurize the companies to do so. Obviously, this created resentment between the two. There was also a phenomenal increase in the demand for oil and hence its production. Production had increased in the Middle East from 11 million tons in 1935 to 257 million tons in 1960.

The host countries felt that they did not have sufficient control over the activities of oil companies. This was made clear when the oil companies unilaterally reduced the oil prices first in 1959 and then again in August 1960. Arab League in 1951 had set up an Oil Experts Committee and subsequently a decision was taken in 1954 to make a permanent organization to look into oil affairs. An Arab Oil Congress was held in 1949 and 1951. It was within the Arab League that most of the ideas of Arab policies for oil took shape. With the Arab League taking interest in oil, oil was politicized, and the stage was set for OPEC.

In September 1960, Iraqi government convened a conference of oil producing countries at Baghdad. It was at this conference that OPEC was born. Iran, Kuwait, Saudi Arabia and Venezuela, were the founder members of OPEC. Others soon joined. OPEC consists of seven Arab states – Iraq, Kuwait, Saudi Arabia, Abu Dhabi, Qatar, Libya and Algeria. The six non-Arab states are Iran, Venezuela, Indonesia, Nigeria, Ecuador and Gabon. In 1967 (OAPEC) i.e., Organization of Arab Petroleum Exporting Countries was also formed.

The aims of OPEC were to establish a uniform policy, ironing out differences among various producing countries with respect to issues like price, royalty, production. The first task OPEC set for itself was to stabilize oil prices and maintain them steady and free from all unnecessary fluctuation.

Since 1973, OPEC has steadily raised the price of oil, thus holding the rest of the world to ransom. The role of Saudi Arabia had been crucial since it is the largest producer. Oil has provided the Arab states with a powerful weapon which can be used.

Thus during the Arab Israeli War of 1973, oil was employed for political gains. The Arab countries of OPEC placed an embargo of supplies to USA. The output of oil and prices automatically jumped. OPEC countries had thus emerged as the economic power to reckon with.

The West Asian countries have now nationalized their oil industries. For e.g., Iraq did so in 1972 and Kuwait in 1975.

Oil politics continue to be dominant in West Asia. The Iraqi occupation of Kuwait in August 1990 and the Gulf War of Jan-Feb 1991 form part of the continuing story of oil politics in this region.

REZA SHAH & MODERNISATION OF IRAN

Introduction – Only 85% of Iranians lived in villages and about 15% of the population who were landlords held most of the land. The terrain is mountainous; therefore, agriculture is difficult. Even in villages and towns, few families were powerful. Society was feudal. The position of the clergy was very high. Education was almost absent. They followed a very restrictive form of Islam.

Rule of Kajars – The Kajars were a Turkish tribe who came to Iran in 1794 A.D. They defeated several other tribes and established a dynastic monarchy in Iran.

They made Tehran their capital and though in the early 1800s Napoleon attempted to size the area, he was unable to defeat the Kajars.

By the early twentieth century, Russia moved into Northern Iran which upset Britain. England also attempted to get spheres of influence in Iran.

In 1907, Britain and Russia signed the Anglo-Russian Convention. Accordingly, the northern part of Iran was to be under Russian influence and the Southern part under British influence. The middle sphere remained neutral.

In 1917, when Russia pulled out of the war, she lost her position in Iran and British influence these became paramount.

By now the Kajar rulers were heavily in debt through European banking institutions. There was tremendous corruption and economic exploitation in the Imperial Tobacco Company. There was corruption in the Government and socially and economically it remained very backward.

Rise to power – Reza Shah was born in 1878 in a village North East of Tehran. His original name was Reza Khan. He came from a military background and joined the Cassock Brigade of the Iranian army. He had not much formal education. As an excellent soldier he rose swiftly in the ranks. He ended up as commander in the Cassock Brigade.

In 1921, there was an uprising in Iran led by Zir-ud-din Taka Bey (a former newspaper editor) who seized power and disposed off the Shah. Reza Shah was made his minister of war. Three months after the revolution Reza Shah forced Taka Bey to flee Iran.

The Shah of Iran was reinstated, and Reza Shah became the Prime Minister.

In 1923, Reza Shah advised the Shah of Iran to take an European tour. While he was away, Reza declared himself Shah of Iran.

By 1925, Reza Shah had crowned himself the Shah of Iran. The Muslim clergy initially opposed him, but he made the Majlis (Parliament) pass a decree declaring him as Shah and making it compulsory that he be accepted as the Shah. He then began dismissing potential opposers and gave important positions to his supporters.

Reza Shah was attracted by the material aspects of the West and glorified the old Achaemenid and Sassaned ancient empires of Iran. He also wanted to reintroduce Zoroastrianism.

Reforms – Reza Shah reestablished and reorganized a central authority using the army, he forced several tribes to accept his authority and troops were stationed in rebellious provinces.

Economy – To reform finances he invited Dr. Arthus Millsplough (US Economist) to be the advisor administrator general of finances of Iran.

Millsplough was given Cabinet Minister status and total control over Iran’s finances. No expenditure, grants, financial or trade agreements could be made without Millsplough’s permission.

By 1927, Millsplough balanced the budget, reorganized the tax structure and improved economic conditions.

By this time Iran was stable and earning steady income from trade. Only when the economic stability was instituted, Reza Shah began introducing reforms.

Transport and communications – He introduced reforms in transport and communication. He constituted the Trans-Iranian policy that linked Tehran to the Caspian Sea and this increased trade.

The railway began in 1927 and was completed in 1939. What is special is that it was completely financed by Iranian funds. Foreigners were consulted only in technical aspects and in the same way other highways and rail links were built.

Air services were improved, and airmail post was started between Tehran and outlying provinces. In 1938, Imperial Airways was allowed to fly from India to Iraq via Iran.

Security and trade increased, and economy flourished.

 Reorganization of the army – Reza Shah paid a great deal of attention to the army. He reorganized the structure, introduced strict discipline, and regularized salaries. Along with the army he defeated provincial rebellions including those in Khorasan and Azerbaijan. He continued the Kurdish tribes and did not allow them even semi-autonomy.

Communists were severely dealt with. By 1925, Reza Shah had assured himself no opposition through the army.

Social and Educational Reforms – He concentrated on education because he believed that modernization meant material wealth and progressive thinking. He broke the hold of religion on education and set up a new judicial system free from religious domination. Civil courts were based on the structure of frame. He reduced the power of the clergy and he attempted to secularize Iran. To appease the clergy, Islam was reorganized as the official religion and the Jafaratites tribe was considered most important. All laws made by the majlis had to be in keeping with Islamic traditions. Primary education was made compulsory, and many schools were built. This experiment failed because of lack of teachers. The Iranian University had six faculties including Theology. The school curriculum stressed patriotism, civil mindedness, and love for the king.

Several Christian missionaries set up schools, but Reza Shah realized that they were trying to spread Christianity. He immediately had them banished from Iran. This was a tremendous setback for education.

He encouraged sports, build stadiums, and made boy scouting and girl guiding compulsory. Patriotism was constantly stressed and extra-curricular activities were introduced to keep students away from politics.

In 1928, Reza Shah banned oriental dressing and the fez cap. Western clothes, and the European hat were propagated.

Reforms for Women – According to a decree of the Majlis, women and men were equal. Women were given divorce rights and were encouraged to dress in the western style. They were encouraged to hold public offices but not to enter politics. He also banned the purdah which resulted in rioting. He used the army to crush the opposition. Women no longer wore veils.

Literature – Reza Shah revised the Persian language, doing away with Arabic words. Persian continued to be written in the Arabic script. He started the Iranian Academy of Literature.

Media – The press was expected to propagate Reza Shah’s reforms. Only four daily newspapers existed. By 1940, Government owned Radio broadcasting began.

In 1935, Reza Shah changed the name of Persia to Iran.

Industrialization – Iran had a predominantly agrarian economy and two third of the land was held by landlords. Therefore, land reforms were introduced. Irrigation projects started and modern techniques were used. Much progress was not made. Reza Shah therefore turned to industrialization. Industries were set up for sugar, spinning and weaving of cotton, canning of meant and fish products, cement industries and chemical factories.

Most were government owned and their efficiency and capacity for products differed. Cost of production was high and inspite of so many industries, Iran still imported many goods.

Reza Shah also set up management institutes.

Oil – The Anglo Persian Oil Company was started. In time the Company fixed the Royalty payments.

Criticism – Reza Shah was strict with the Iranian Bureaucracy and genuinely wanted to reform Iran. He was the only one capable of doing this. He tolerated no opposition. Thus, he became alienated from reality because he allowed only good things to be said about himself. There was no one to point out the defects in his reforms. Many of his reforms failed because people were not ready to accept them, and Reza Shah was not sensitive to social attitudes. He also collected huge personal fortunes and when the Second World War broke out, he annoyed the allies.

In 1941, the allies invaded Iran, deposed off Reza Shah and banished him to South Africa. He died there in exile. His son Muhammed Shah Pehlevi succeeded him as Shah.

Inspite of all these defects, it must be admitted that Reza Shah who almost single handedly brought a poor and backward nation like Iran aboard the modern world, was one of the greatest figures of Persian History.