71 the kind of discounts which are always given to a good customer".

In this the Shah made it plain that he wanted the second alternative to be implemented within the framework of his regime's close political, economic and military links and alliance with the West. The major problem, however, with implementing the second proposal, was the fact

that Iran lacked sufficient technical know-how and trained manpower to operate the Iranian oil industry on its own after its handover to NIOC. For this, the Shah proposed that Iran would still seek help from the Consortium companies. When faced with the choice, there is no doubt that the second proposal was also attractive to the companies. While freeing them from the responsibilities and hazards of domesic operations, the proposal assured them not only of continued oil supply for the next 20 to 25 years at favourable terms as Iran's "privileged customers", but also of an important stake in the operation of the Iranian oil industry through their technical help. Moreover, the companies could still market a major proportion of the Iranian oil at retail prices which benefited them most.

Senior oil company officials discussed the Shah's proposals with him directly in St. Moritz, Switzerland, on February 26 and it was disclosed that a "satisfactory understanding" had been reached between the two sides. However, on March 16, the Shah announced that the oil companies had "totally surrendered" and had agreed to handover

"full control" of oil operations. He declared: "They have handed

over to us total and real operation of the oil industry ... with ownership 72

all installations". Furthermore, on March 20, the Shah announced that the Iranian takeover would take effect on the same day and that both the installations — production and refining facilities — and

the 17,827 employees of the Consortium would be controlled by the National 73

Iranian Oil Company. Thus, a new agreement called the 'St. Moritz Agreement', replacing the 1954 Agreement was concluded between Iran and the Consortium companies. In view of the Shah's pronouncements, at first it appeared that the terms of the new agreement would be much

different from what the Shah had outlined in his second proposal. However, as subsequently became clear, the St. Moritz Agreement was formulated very much in line with that proposal except that it came into force six years before the expiration of the 1954 Agreement in 1979.

The St. Moritz Agreement was to be valid for 20 years. Under this agreement, while the NIOC was entrusted with all the policy-making and management responsibilities and the "control of all oil operations" and

installations, including the Abadan and Mahshahr Refineries and all related establishments, the former Consortium companies were turned into Iran's long-term and privileged customers, with an important expertise stake

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in running the country's oil industry. Upon submitting the agreement to the Majlis on July 19, 1973, however, Prime Minister Hoveyda stressed

that the NIOC would need the companies' expertise only for part of the

oil operation related "to exploration and exploitation". Their

services would be contracted according to the laws of Iran and would

"be utilised temporarily for a period of five years". Moreover, he

emphasised that under the agreement arbitration of any dispute with a contractor company would be based on Iranian laws and the agreement's provision "will be interpreted in accordance with the laws of Iran". Also, Iranian oil would be sold to the companies at prices "no less than

those earned by the Persian Gulf states". He characterised Iran's

relationship with the companies, under the new agreement, as one between "seller and buyer". He hailed the agreement as an "historic document" manifesting the implementation of the Nationalisation Act of 1951

"in its fullest sense after a lapse of twenty-three years, thus realising 75

our long-cherished national objective".

The agreement, however, did not offer much comfort to the Shah's critics, who branded it as yet another manifestation of the Shah's

"collusion" with the West. A Tudeh Party commentary in exile stated

that although the companies were weakened in international politics and they could no longer impose their will, the Shah's government, "as a

result of behind-the-scenes deals" made them "privileged, long-term"

purchasers of "our crude oil". This enabled them to hold on their

monopoly on the sale of a major part of Iran's oil "against the interests of the Iranian people" and contrary to "the spirit of the oil nationalisation

law (1951)". It recommended that: "Iran should be free to sell its oil

in world markets in any way that would secure its interests to the 76

utmost". In spite of all its encouragement and support for Iran and

OPEC against the international companies, Moscow, too, criticised the new

agreement Iran was not only committed to a long-term« oil sale to the Consortium companies, but also "Iran gets only four per cent of the oil production for its internal needs and for independent export. This

share will only increase gradually, which means that the Consortium will, as before, retain the (increasing) role of middle-man between Iran and the oil buyers of the market of the capitalist world. As before, the member monopolies of the International Consortium will export large

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