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.