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 backnumbers. 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 back 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 ‘backward, 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 backing 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!
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.
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 backward 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?”