• No results found

Capital formation in the petroleum industry in Iran, 1954-1973.

N/A
N/A
Protected

Academic year: 2021

Share "Capital formation in the petroleum industry in Iran, 1954-1973."

Copied!
325
0
0

Loading.... (view fulltext now)

Full text

(1)

CAPITAL FORMATION IN THE

PETROLBOm

INDUSTRY IN IRAN:

PRODUCING -AND RE-FI-N^O 1954-197^3

BY

SEYED HASSAN SEYEDI MANSOOR

Thesis submitted for the degree of

Doctor of Philosophy at'the University

of London

School of Oriental & African Studies

February

19 79

(2)

ProQuest Number: 10752624

All rights reserved INFORMATION TO ALL USERS

The qu ality of this repro d u ctio n is d e p e n d e n t upon the q u ality of the copy subm itted. In the unlikely e v e n t that the a u th o r did not send a c o m p le te m anuscript and there are missing pages, these will be note d . Also, if m aterial had to be rem oved,

a n o te will in d ica te the deletion.

uest

ProQuest 10752624

Published by ProQuest LLC(2018). C op yrig ht of the Dissertation is held by the Author. All rights reserved.

This work is protected against unauthorized copying under Title 17, United States C o d e M icroform Edition © ProQuest LLC.

ProQuest LLC.

789 East Eisenhower Parkway P.O. Box 1346

(3)

Capital F or m a t i o n in the Oil Industry in Iran: P r o d u c i n g and Ref i n i n g 1954-1975.

Seyed H a s s a n Seyedi Ma n s o o r A BSTRACT

As a step towards a rigorous study of capital f o r m ation in Iranian economy, this study is con c e r n e d w i t h the d e t a i l e d m e a s u r e m en t of capital stock in the oil industry

in Iran. The study is an empirical one in that it is b ased

on the i t em -b y -i te m e xa mi n a t i o n of investment flows and presents d i s a g g r e g a t e d series of capital s tock according to types of capital goods.

The first two chapters comprise an attempt to put the study on the context of Iranian oil industry and to examine the framework of i n v e s t m e n t - d e c i s i o n - m a k i n g s .

Chapters three - five deal w i t h the technical problems i n v olved in defining, classifying, def l a t i n g and

acc o u n t i n g for d e p r e c i a ti on and obsolescence. Cha p t e r six

treats the problems in d e t e r m i n i n g zero-year-stocks and presents b o t h i n v e s t m e n t - f l o w and s t o c k s - f l o w series in

formats (92 Tables) w h i c h suggest structural and temporal c o m p o s i t i o n of the stocks.

The mat e r i a l thus provided, opens up new areas

for i n v e s t i g a t i on and analyses. And Chapter seven points at one

such area of i n v e s t i g a t i o n by trying to e x p l a i n the increased- o u t p u t - p e r - u n i t of-input, w h i c h is not e x p l a i n e d b y the

a v a il ab i l i t y of l a b o u r - p e r - u n i t -o f- ou tp ut a n d/or capital

p e r - u n i t - o f - o u t p u t . The analysis establishes that capital

has b e en deeply r e - s t r u c tu re d in favour of the more t e c h n o l o g y ­

intensive i n f r a - s t r u c t u r a l components. It also shows a c o n ­

stant technical bias in c a p i t a l - l a b o u r substitution. Finally

a techno l o g y index (A(t)) is c o n s t ructed in order to determine the s ha re -i n- co nc r e t e - p r o d u c t i o n of combined inputs of-zero- y e a r - q u a l i t y vis-a-vis that of mo d e r n technical e m b o d i m e n t s .

(4)

A C K N O W L E D G E M E N T

T h r o u g h o u t the w h o l e p e r i o d in w h i c h the p r e s e n t r es e a r c h was in m a king, m a n y p e o p l e h a v e g e n e r o u s l y a s s i s t e d

me in va r i o u s ways. To all of th e m I own m y s i m p l e but h e a r t y

g ratitude. I can on l y s ingle out a few w i t h o u t w h o s e h e l p and

e n c o u r a g e m e n t this w o r k w o u l d n o t h a ve b e e n r e a l i z e d in its p r e s e n t form.

I shall e t e r n a l l y r e m a i n i n d e b t ed to P r o f e s s o r Pe nr os e w h o s e m e t i c u l o u s g ui da n c e and p a t i e n t c r i t i c i s m n o t on l y w e r e an e y e - o p e n e r for me, b u t th e y w e re al s o a h ea r t y c o n t r i b u t i o n to the o b j e c t i v i t y of the views e x p r e s s e d in this thesis.

I am also i n d e b t e d to Messrs. J. Cole and K.

G o od wi n of B r i t i s h P et r o l e u m , Mr. D. Brooks of I r an ia n Oil P a r t i c i p a n t s H.Q. and M e s s rs Modir, Shahlavi, and S al e h i of NIOC, T e h r a n and Mr. K a h f i - Z a d e h of Ahwaz O ff ic e w h o s e s y m ­ p a t h e t i c h e l p in p r o v i d i n g m e w i t h p u b l i s h e d m a t e r i a l

e n a b le d m e to c a r r y m y w o r k to a (I hope) s a t i s f a c t o r y conclusion.

I s ho u l d also express m y thanks to P r o f e s s o r

V.M. D a n d e k a r of G o kh al e Ins t i t u t e of E c o n o m ic s and Politics, Poona, India, w h o s e s in c e r e e n c o u r ag em en t in the earlier

stages of this w o r k p r o v e d to be a great i n t e l l e c t u a l stimulus to me.

M y g r a t i t ud es are also due to all the a d m i n i s t r a ­ tive staff of the D e p a r t m e n t of E c o n o m i c s and P o l i t i c s of SOAS, U n i v e r s i t y of London, in p a r t i c u l a r to Miss Janet Marks, the s e c r e t a r y of the D e p a r t m e n t w h o s e e f f i c i e n c y and p a t i e n c e in d e a l i n g w i t h w h at m a y h a v e s ee me d m y u n e n d i n g

(5)

demands h a v e b e e n a dmirable. E q u a l l y I am i n d e b t e d to Mrs. W il li a m s wh o has d i s p l a y e d a h i g h de g r e e of c a r e a n d e f f i c i e n c y

in a r r a n g i n g a n d t yp i n g the p r e s e n t work.

Finally, X ca n n o t express m y i n d e b t e d n e s s to m y m o t h e r a n d two y o u n g e r b r o t h e r s w i t h o u t a c e r t a i n d e g r e e of

emotion, who, h a v i n g s u f f e r e d the u n e x p e c t e d loss of our father, d i s p l a y e d a h i g h d eg r e e of t o l e r a n c e an d p a t i e n c e in m y absence, at a time w h e n b o t h the f a m i l y a n d m y b e l o v e d c o u n t r y were' u n d e r g o i n g deep suffering.

(6)

I V C O NT EN TS A b s t r a c t A c k n o w l e d g e m e n t PART ONE C H A P T E R I B A C K G R O U N D TO THE OIL A G R E E M E N T OF 1954 1.0. F o r e w a r d 1.1. B a c k g r o u n d to General E c o n o m y 1.2. C o r p o r a t i o n as ’p o o l 1 of P r o d u c t i v e R e s ources 1.3. P r i c i n g S y s t e m pr i o r to 1950s 1.4. D e v e l o p m e n t of C o n c e ss io ns C H A P T E R II F A C T O R S I NF L U E N C I N G I N V E ST ME NT B E H A V I O U R OF IRA N I A N OIL C O N S O R T I U M 1 1 . 0. F o r e w ar d 1 1 . 1. O r g a n i z a t i o n a l S t r u c t u r e 1 1 . 2. G e neral P o l i c y Lines I I . 3 I I . 3.1. P r o v i s i o n s of the A g r e e ­ m e n t as reg a r d s c osts of A c c e s s to R e s o u rc es I I . 3.2. O p e r a t i n g fees, R o y a l t y and Taxes 1 1 . 4. I n t e r - c o m p a n y L i f t i n g A r r a n g e ­ ments 1 1 . 5. S um m a r y P A RT TWO C H A P T E R III CAPITAL: C ON CE PT S, D EF IN I T I O N S , C L A S S I F I C A T I O N A N D M E T H O D O L O G Y 111.1. S ub j e c t - m a t t e r 1 1 1 . 2. D e f i n i t i o n 1 1 1 . 3. C l a s s i f i c a t i o n I I I . 3.1. Buildings I I I . 3 . 1 . (a) R e s i d e n t i a l B u i l d i n g s Page ii

1

1- 5 5- 8 8-12 12-25 27 28-32 33-35 35-40 40-43 43-52 52-53 55-56 56-58 60

(7)

1 1 1 . 3 . 1 . (b) N o n - R e s i d e n t i a l B ui l d i n g s 1 1 1 . 3.2. C o n s t r u c t i o n Wo r k s 1 1 1 . 3 . 2 . (a) Oil C o n s t r u c t i o n III. 3,2. (b) N o n - O i l C o n s t r u c t i o n 1 1 1 . 3.3. M a c h i n e r y an d E q u i p m e n t 1 1 1 .3.3. (a) M a c h i n e r y 111. 3 . 3 . (b) E qu ip me nt 1 1 1 . 3.4. T r a n s p o r t E q u i p m e n t 1 1 1 . 3.5. M i s c e l l a n e o u s 111. 3. 6. E x p l o r a t i o n and D e v e l o pm en t 1 1 1 . 4. I I I . 4.1. M e t h o d o l o g y of M e a s u r e m e n t 1 1 1 . 4.2. Sources R e s t r i c t i n g Choice of M e t h o d 1 1 1 . 4.3. A p p l i c a t i o n a n d C l a s s i f i c a t i o n 1 1 1 . 4.4. R e c o n c i l i a t i o n of C l a s s i f i c a t i o n 1 1 1 . 5. V a l u a t io n: C r i te ri a an d Stages C H A P T E R IV D E F L A T I O N I V . 1. The Con c e p t of C o ns ta nt P ri c e I V . 2. D e f l a t o r Series C o n s t r u c t e d and A p p l i e d I V . 3. M e t h o d o l o g y of C o n s t r u c t i n g D e f l a t o r Series I V . 4. Series I V . 4.1. Bui l d i n g s D e f l a t o r Series I V . 4.2. C o n s t r u c t i o n D e f l a t o r Series I V , 4.3. M a c h i n e r y and E q u i p m e n t D e f l a t o r Series Page 60-61 62 62 63 64-65 65 65 65-67 67-68 68 68-72 79-73 73-74 75-77 77-79 79-82 83-85 86-87 88-89

(8)

Vfi

C H A P T E R C H A P T E R C H A P T E R P age I V . 4.4. .Transportation D e f l a t o r Series 90 I V . 4.5, M i s c e l l a n e o u s D e f l a t o r Series 91 I V . 4.6. Ge n e r a l D e f l a t o r Series 92 D E P R E C I A T I O N A N D O B S O L E S C E N C E V.l. The N at u r e of the P r o b l e m 93- 96 V.2. C o u n t e r a c t i n g T e n d en ci es 96- 93 V.3. M e t h o d o l o g y 98-101 V.4. E s t i m a t i o n of O p e r a t i o n a l Life 1 0 1-103 F I X E D CAPITAL: S T O C K FLOW; D E P R E C I A T I O N A N D G R O W T H i— 1 * I— f > On I n v e s t m e n t Series 1 0 4-111 VI. 2. O n S t o c k - F l o w and R e l a t e d Con c e p t s VI.II.l, A s s u m p t i o n s 11 2-115 VI. 11. 2. Concepts V I . I I . 2.1. Gross St o c k 115-116 V I . I I . 2.2. D e p r e c i a t i o n 116-117

VI.11. 2.3. Net S tock 118-119

V I . I I . 2.4. A g e Index 1 1 9 - 1 20 V I . I I . 3. The Or d e r of D a t a 120-124 V I . I I . 4. Graphs 124-129 C A P I T A L - L A B O U R S T R UC T U R E S A N D P R O D U C T I V I T Y G R O W T H V I I . 1 . Th e Sc o p e of A n a l y s i s 1 3 0-131 V I I . ,2.1. M e a s u r e m e n t of O u t p u t 131-134 V I I . 2.2. F o r e w a r d 134-137 V I I . 2.3. On M e a s u r e m e n t of La b o u r 137-147 V I I . 3.1. O u t p u t - F a c t o r Ratios 147-149

(9)

VIII.l

V I I . 3.2. C a pital R atios V I I . 3.3. L a b o u r Ratios V I I . 4. P r o d u c t i v i t y A n a l y s i s Page 149-152 152-156 157-162 VIII A P P E N D I C E S A P P E N D I C E S TO C H A P T E R IV VIII.l. A p p e n d i c e s 1-8 VIII. 2. A p p e n d i c e s to C h ap te r VI: A p p e n d i x 9 1. Gross F i x ed Investment; C o n s o r t i u m 2. Gross F i x e d Investment; NI O C

3. Gross F i x ed Investment; Oil

I n du s t r y 4. Ca p i t a l Stock; C o n s o r t i u m 163-171 V I I I . 2.4. V I I I . 2.4. V I I I . 2.4. V I I I . 2.4. V I I I . 2.4. V I I I . 2.4. V I I I . 2.4. V I I I , 2.4. V I I I . 2.4. V I I I . 2.4. V I 1 1 . 2 . 4 •. V I I I . 2.4. 173-184 185-194 195-196 B u i l d i n g s ; C o n s o r t i u m B u i l d i n g s ; N I OC C o n s t r u c t i o n ; C o n s o r t i u m C o n s t r u c t i o n ; NI O C M a c h i n e r y ; C o n s o r t i u m M a c h i n e r y ; NI O C E q u i p m e n t ; C o n s o r t i u m Equ i p m e n t ; NI O C T r a n s p o r t at io n; C o rsort ium T r a ns p o r t a t i o n ; NIOC M i s c e l l a n e o u s ; C o n s o r t i u m M i s c e l l a n e o u s ; NIOC 197-199

200-202

203-205 206-208 209-211 212-214 215-217 213-220 221-223 224-226 227-229 230-232

(10)

V I I I . 2.4. V I 1 1 .. 2. 4. V I I I . 2.4, V I I I . 2.4. V I I I . 2.4. V I I I . 2.4. V I I I . 2.4. V I I I . 2.4. V I I I . 2.4. V I I I . 2.4. V I I I . 2.4. V I I I . 2.4. V I I I . 2.4. V I I I . 2.4.

m

n Page A c c u m u l a t e d I n v e s t ­ ment; C o n s o r t i u m 233-235 A c c u m u l a t e d I n v e s t ­ ment; N I O C 236-23$ Gross Stock; C o n s o r t i u m 239-241 Gross Stock; N I O C 242-244 D e p r e c i a t i o n ; C o n s o r t i u m 245-247 D e p r e c i a t i o n ; NIOC 248-250 Net Stock; C o n s o r t i u m 251-253 Net Stock; N I O C 254-257 A g e C o m p o s i t i o n ; C o n s o r t i u m 258-259 A g e C o m p o s i t i o n ; NIOC 260-261 A n n u a l G r o w t h Rates; C o n s o r t i u m 262 A n n u a l G r o w t h R a t e s ; NIOC 263 D e p r e c i a t i o n and F i x e d A ss et s Charges (BP) 264 F i x ed A ss e t s Charges and M o v a b l e A s s et s D e p r e c i a t i o n (author) 265 V I I I . 3. A P P E N D I C E S T O C H A P T E R VII: A p p e n d i x 10: V I I I . 2.1. Net P r o d u c t i o n V I I I . 2.2. P r o d u c i n g P er so nn el V I I I . 2.3. P r o d u c i n g O p e r a t i o n a l Costs 267 268 269-270 V I I I . 2.4. Oil Fi e l d and P r o d u c t i o n U n it D a t a 271 V I I I . 2.5. W e ll P r o d u c t i v i t y 272 V I I I . 2.6, A v e r a g e G r a v i t y 273 V I I I . 2.7. P r o d uc ts Prices 274

(11)

V I I I . 2.8. Indexes for C o n v e r s i o n of O p e r a t i n g Costs 275 V I I I . 2.9. E s t i m a t e d Age D i s t r i b u t i o n C harts 276 IX S O UR CE S A N D B I B L I O G R A P H Y I X . 1. P r i m a r y S o urces and D o c u m e nt s 277-281 I X . 2. S e c o n d a r y Sources I X . 2.1. A r t i c l e s and P a p e r s 281-293 I X . 2.2. Books 293-297 I X . 3. T e r t i a r y S o u r c e s , 297-301

(12)

To m y c o u n t r y m e n w h o s e s u ff e r i n g s I h a ve w i t n e s s e d

and s h ar ed all m y life.

(13)
(14)

C H A P T E R I

B A C K G R O U N D T O TH E OIL A G R E E M E N T OF 1954

In or d e r to t h r o w some light on the c o n t e x t in w h i c h the Oil A g r e e m e n t of 1954 was con c e i v e d , this c h a p ­

ter p u r po rt s a) to cast a c a u t i o u s glance, t h r o u g h c e r t a i n indicators, at the e co n o m i c p e r f o r m a n c e of P e r s i a by the tu r n of the c e n t u r y (Section 1), b) to de p i c t a s u m m a r y p i c t u r e of some of the m a i n features of i n t e r n a t i o n a l oil

i nd us t r y (Section 2), c) to f o r w a r d an e x p l a n a t i o n of the m a i n lines of e v o l u t i o n of the p r i c i n g s ys t e m p r e v a l e n t in the w o r l d oil i n du s t r y (Section 3), and d) to a c c o u n t for c e rt ai n s a li e n t po i n t s in the f i f t y - y e a r h i s t o r y of c o n ­ c e s s i o n a r y a g r e e m en ts as an i mm e d i a t e b a c k g r o u n d (Section 4).

1.1. By the tu r n of the c e n t u r y Iran was, m a inly, a

n o n - i n d u s t r i a l society, r a n g i n g in s t r a t i f i c a t i o n from wide, d i s p e r s e d ^ p a s t o r a l ’p a t e r n o - f e u d a l i s t i c ' c o m m u n i t i e s

to h i e r a r c h i e s of power. R es o u r c e and p r o d u c t s m a r k e ts

w e r e far f r o m ’f r e e ’ and n a t i o n a l l y integrated. The

d i s t r i b u t i o n of w e a l t h and p o w e r was e x t r e m e l y p o l a r i z e d an d o u t b r e a k s of famines w e r e b y no me a n s

rare.-*-P o p u l a t i o n was e s t i m a t e d at about ten m i l lion, the d i s t r i b u t i o n of w h i c h was o v e r w h e l m i n g l y d e t e r m i n e d by

1. See Curzon, P e r s i a and the P e r s i a n Q u e s t i o n , two vols.,

(15)

the a v a i l a b i l i t y of w a t e r . ^ The m e a n age was 25 years and l i f e - e x p e c t a n c y di d not e xc ee d 30, w h i l e the p o p u ­ l at io n h a d an av e r a g e g r o w t h rate of 0.7 5 p e r cent. A lm o s t one out of five of the total i nh a b i t e d u r b a n areas (that is: 24% in 3 cities, 21% in 7, and 45%

in 90 t o w n s ) , w h i l e w e l l above ha l f the p o p u l a t i o n l i v ed in 1 5,200 v i l l a g e s and h a ml et s and a q u a r te r of the

w ho le li v e d a n o m a d i c life.

M i g r a t i o n was m a r g i n a l and that b e t w e e n the rural areas m o s t l y c a us ed by famines, d r o u g h t s or feuds. L a bo u r was p r e d o m i n a n t l y u n s k i l l e d and the r e m u n e r a t i o n , m a i n l y in kind, d i d not e x c e e d the 'accepted' level of

sub s i s t e n c e . I l l i t e r a c y m a r k e d up to 95 p e r cent, and

n u t r i t i o n p e r c a p i t a was e s t i m a t e d at 50 l b / m o n t h of

w h e a t c on su mp t i o n . Some one m i l l i o n p e o p l e l iv e d in

R us si a and C a u c a s i a n oil fields as u n s k i l l e d labour, and m i n i m a l l y as b us i n e s s m e n .

The Gross D o m e s t i c F i x e d Ca p i t a l F o r m a t i o n is e s t i m a t e d at a bout 300 m i l l i o n Krans (one K r a n e q u a l l e d 4.5 p e n ce in 1900), c on si s t i n g of 98% i n d i g e no us and 2% i m p o r t e d goods, 47% of the total b e i n g c o n s t i t u t e d b y rural

and u r b a n housing. The e c on om y is t h ought to h a v e ha d

a g ro wt h rate of 0.5 p e r cent (1900-8).

1. By r e t r o g r e s s i o n f r o m the 1956 census, J u l i a n B h a r ie r c o n c l u d e d the f i gure 9.86 m i l l i o n in his E c o n o m i c

D e v e l o p m e n t in Iran 1 9 0 0 - 1 9 7 0 . The figures in this

s e c t i o n draw’ u p o n his studies b o th in the b o o k and his u n p u b l i s h e d thesis, Capital F o r m a t i o n in I r a n , U n i v e r s i t y of London, 19 65, unless o t h e r w i s e stated.

(16)

P r i va te c o n s u m p t i o n e x p e n d it ur e is e s t i m a t e d at 3.1 t h o u s a n d m i l l i o n Krans and g o v e r n m e n t e x p e n di tu re

at K. 67 m il l i o n , only ab o u t 2% of the GNP. 43% of

this e x p e n di t ur e we n t to the army, 24% to p e n s i o n s , 13% to the r oyal fam i l y and 7% to the a l l - c o u n t r y a d m i n i s ­

tration. This g o v e r n m e n t e x p e n d it ur e was f i n a n c e d

from v ar i o u s sources, 25% fr o m customs, 8% f r o m m o n o ­

p olies a nd 60-65% fr o m taxes and gifts.

The single m o s t i m p o r t a n t fac t o r d e t e r m i n i n g e co n o m i c s tr uc tu re was the o c c u p a t i o n al p a t t e r n of l abour

distrib u t i o n . A l m o s t 80 to 90 per cent of e m p lo y m e n t

was in agri c u l t u r e , u n d e r a s y s t e m of l a t i f u n d i a of the crown, a bs e n t e e lords, and v a g f (religious trusts).

F i s h i n g in the Gulf, le a s e d to Russians, b r o u g h t 850,000

Krans yearly; and in the N o r t h it was a n o n - i n d u s t r y ,

a s p ar e- ti me hobby. The f o r es tr y - some 20 m i l l i o n

h e ct a r e s - was a G r e e k m o n o p ol y, and the total m i n i n g o u t ­ put e s t i m a t e d at a bo u t three m i l l i o n Krans per year, was

l e as e d for 80 0 , 0 0 0 Krans.

Industry, m a i n l y c o ns is ti ng of small m a n u f a c ­ tures, c ot t a g e i n du st ri e s a n d han d i c r a f t , r e l i e d e n t i r e l y

on m a n p o w e r and animal, since steam p o w e r was v i r ­

tu a l l y n on ex is t e n t . M a r k e t s w e re g en e r a l l y i n s ul at ed

from one a n ot he r m o s t l y b e c a u s e of low demand,

simple h o m o g e n e i t y of goods, and the lack of c o m m u n i c a t i o n and t r a n s p o r t a t i o n system.

There w e r e on l y 800 m i l e s of roads o f w h i c h 227 we r e b u i l t and c o n t r o l l e d by the R u s s ians, 160 by

(17)

the British, 280 b y the B a k h t i a r i c h i e f tains, and on l y

120 by the government. The only means of t r a n s p o r t a t i o n

was animal. F r ei gh t was v e ry h i g h and in the case of

i mp o r t e d goods it a m o u n t e d to some 40% of the final price. T here were 8 mi l e s of r ailroads, and the w a t e r w a y s we r e

r e s t r i c t e d to a fe w m i l e s o n R i v e r K a r u n and Lake R esaieyeh, the l at t e r b e i n g n o r m a l l y le a s e d for some 1 3, 00 0 Krans

annually. Ports were l i m i te d to four, in the P e r s i a n

Gulf, w i t h 4 50 , 0 0 0 t o n/ y e a r capacity, 88% of w h i c h we r e B r i t i s h g o o d s .

Customs was a l most n o n - e x is te nt . Imports

a m o u n t e d to 255 m i l l i o n Krans of w h i c h 1% was capital goods, 60% m a n u f a c t u r e d c o n s u m e r goods, 29% f o o d s tuffs, 3% ker o s e n e , 4% raw m a t e r i a l s and 3% tobacco, as ag a i n s t the e x p o r t of 147 m i l l i o n Krans c o n s i s t i n g of r a w v e g e ­ tables 50%, raw animal p r o d u c t s 25% and m a n u f a c t u r e d

goods 25%. The b a la nc e was more or less s t r uc k by

i nv i s i b l e incomes. The m a i n trade p a r t n e rs w e r e Russians

(45%), B r i t i s h (34%), T u r k e y and F rance (7% e a c h ) . N a t i o n a l c u r r e nc y was s il ve r - b a s e d , w h i c h

d e c l i n e d in e x t e r n a l v a l u e since 1875 (9.06 - 4.57 p ence * 1 K r a n ) , the m a i n re a s o n s for its d e v a l u a t i o n being: a) depreciation, of s i l v e r - g o l d p a r i t y and b) adv e r s e

b a l a n c e of pay m e n t s . T here we r e two banks in the country:

The Imperial B a n k and B a n q u e de Pr§te. The f ormer was

B r i t i s h a n d e n j o y e d e xc l u s i v e rights of i s suing notes,

and h a d e ight b r a n c h e s in the country. The latter was

(18)

5.

R u s s i a n b a nk was f o u n d e d by the turn of the century. All the rest of the f i n a nc ia l ope r a t i o n s r e s t e d in the hands of the t r ad it i o n a l sarrafs, usurers.

1.2. In contrast, i n d u s t r i a l i z e d E u r o p e a n c o u n tries

ha d e v ol v e d into some r e a s o n a b l e degree of s o cial i n t e g ­ r at i o n v i a s tr on g so c i a l an d e c o n o m i c inst i t u t i o n s .

One c ou l d c o n c e i v a b l y t a l k of n a t i o n a l m a r k e t i n t e g ­

r a t i o n for b o t h factors and products. The c o r p o r a t i o n

h a d e m e r g e d and was e v o lv in g as the o r g a n i z a t i o n a l

e m b o d i m e n t of social p r o d u c t i v e resources. F r om a mere

o f f s p r i n g of ea r l y o w n e r - m a n a g e r ente r p r i s e s , they were on their w a y to a h i g h l y s o p h i s t i c a t e d a n d r e f i n e d stage of p l a n n i n g and a d m i n i s t r a t i v e units of the i n d u s t r i a l i z e d

e conomies. As e f f i c i e n t pools of r es ou rc es they could

o r g a ni ze f a ctors of p r od uc t i o n , and i n t e g r a t e o t h e r w i s e

i s o la te d m a r kets. T h e y co u l d tu r n f i n a n c i e r s ’ m o n e y into

p r o d u c t i v e capital, a n d thus i n s t i t u t i o n a l i z e d investors - s en s i t i v e to cre d i b i l i t y , s e c u r i t y and rates of r et u r n - w e l c o m e d the o rg a n i z a t i o n s w h i c h t ur ne d s p o nt an eo us o p po r t u n i t i e s into some o p p o r tu ne inst i t u t i o n s .

In oil e n terprise, wh e r e the d e g r e e of u n c e r ­ tainty was e x t r e m e l y high, and sinking c ap i t a l b ef or e it c o u l d re s u l t in p r o d u c t i o n w a s enormous, l o n g - t e r m and

1. The co n c e p t has been developed in a comprehensive manner by Edith Penrose in The T h e o r y of the G r ow th of the F i r m , London, 1st e d . ,

19 59. See also her The Large I n t e r n a t i o n al F i r m in

(19)

r e w a r d i n g c o n c e ss i on s w e r e p r e - r e q u i s i t e s for any

investment. O n the other h a n d the e x i st en ce of n u m e ro us

stages in b e t w e e n the p r o d u c t i o n of the crude and m a r ­ k et in g of the e nd -p ro d u c t s , an d the d e r i v e d n a t u r e of the d e m a n d for p r o d u ct s m a de the c o r p or at io ns e n t e r ­

p r i s i n g in it to i n t e g ra t e ver t i c a l l y . Thus, i n t e g r a t i o n

apart from a i m i n g at p r of it s and e xc l u s i v e c o n trols - b ot h of w h i c h ha v e p l a y e d a p a rt in s t r u c t u r i n g the i n d us tr y - was d e v i s e d to c oo rd i n a t e ope r a t i o n s of c o nt in uo us stages

of the one i nd u s t r y and imbue it w i t h f l e x i b i l i t y . This

f e ature of the i n du s t r y h a d p e r h a p s the single m o s t i m p o r ­ tant i mpact on its trends of d e v e l o p m en t a nd in the f o r ­

m a t i o n of its m a r k e t s tructure; oligopoly. F u r t h e r m o r e

it h e l p e d to w a r d off the rivals from the s ou r c e s of low- cost crude by me a n s of long term legal conces s i o n , and from p r o d u c t s - m a r k e t s by m e a n s of e s t a b l i s h i n g great m a rg in s b e t w e e n t r a n s f e r - p r i c e s an d a r m s - l e n g t h pr i c e s , and thus s qu e e z i n g r e f i n i n g m a r gi n s for them.

The p a t t e r n of n a tu ra l d i s t r i b u t i o n of r e s o urces of crude on the one hand, and the p at t e r n s of d e m a n d for its p r o du ct s on the other, m a d e it an i n t e r n a t i o n a l

industry. A n d this i nt er n a t i o n a l o r g a n i z a t i o n of the

i n d us tr y plus the c l o s e d - o l i g o p o l y s t r u c t u r e of its market, t o ge th er w i t h v e r t i c a l i n t e g r a t i o n of the firms o pe r a t i n g in it and j o i n t - o w n e r s h i p of the crude by the e n d - p r o d u c t - m a r k e t competi t o r s , e q u i p p e d the i n d u s t r y w i t h hi g h

degrees of m a n o e u v r a b i l i t y . Thus in a sh o r t time they

(20)

fuel in the less d e v e l o p e d h o st c o u n tries a l t h o u g h these m a rk et s have, for the m o s t part, r e m a i n e d ma r g i n a l .

In the a d v an ce d i n du st ri a l countries, h o wever, the

i n d us tr y was not u nr iv al l e d . In Europe, c o a l .c o m m a n d e d

h i gh rates of emp l o y m e n t . Furt h e r m o r e , the oil h a d to

p r o ve s u f f i c i e n t l y e c on om ic a l to w a r r a n t a d j u s t m e n t or early scrap of the e x i s t i n g m a c h i n e ry , a n d to w i n a race

a g ainst the coal (which was m a i n l y u s e d to o p e r a t e t r a i n s ) . T h e se c om mo n causes of s u p p o r t i n g o i l - o p e r a t e d

\

industries, e n g i n e e r i n g d e mands for oil p r o d uc ts , c o m ­ b a t t i n g e s t a b l i s h e d a l t e r n a t i v e sources of energy, d i d not however, rule out the o c c u r r e n c e of the p r e c a r i o u s game

of c o m p e t i t i o n in the industry: In a p r i c e - c o m p e t i t i o n

of a 'perfect c o m p e t i t i v e ’ m o d e l the limit to the pri c e - cut is set by the m a r g i n a l p r i ce e q u a l l in g m a r g i n a l cost, and the m a x i m u m size of the p r o d u c t i o n is f i x e d at this

po i n t w h i c h com m a n d s m a x i m u m revenue. Th i s ’size of

p r o d u c t i o n ’ in turn d e t e r m i n e s the 'optimum size of a firm'

in the 'theory of firm'. But in a p r i c e - w a r - w h i c h is

the m os t p r o b a b l e shape of pr i c e c o m p e t i t i o n in an o l i g o ­ p o l y - the p r i ce m a y d e s c e n d further do w n the cost to

p a r a l y z e the adv e r s a r i e s . H e n c e the t e n d e n c y to

sub-2

s titute p r i c e - l e a d e r s h i p , for p r i c e wars. T h e t e n d e n c y

1. For an e l ab or a te d i s c u s s i o n and c r i t i c i s m see Penrose, Edith, The T h e o r y of the Gr o w t h of the F i r m , op.cit., pp. 9-13.

2. M a r kh am , S.W., d i st in gu i sh es B a r o m e t r i c f ir m leadership, d o m i n a nt f i r m l e a d e r s h i p and c o l l u s i v e leadership.

See 'The N a tu re and S i g n i fi ca nc e of Price L ea d e r s h i p ' , A m e r i c a n E c o n o m i c R e v i e w , 1951, p. 891.

(21)

however, has far less t h a n d o m i n a t e d the scene, w i t h r e s u l ­ tant changes in the m a r k e t s t r u c t u r e and p o s i t i o n s of

the firms v i s - a - v i s one another.

1.3. Si n c e 1921, a r m s - l e n g t h crude p r i c e s we r e f i x e d

on the basis of f.o.b. crude of the Gulf of M ex i c o , w h i c h

r e q u i r e d c e r t a i n convent i o n s : a) the p r i c e of f.o.b.

M e x i c a n crude d e t e r m i n e d w o r l d crude prices; b) Gu l f of

M e x i c o was the po i n t of d e p a r t ur e for t r a n s p o r t a t i o n w h e r e ­

soever, bas ing point; c) t a n k e r rates w e r e a s s u m e d to be

'given' and d) g r a vi t y was the sole a r b it e r of p rice d i f ­

fere n t i a t i o n . Thus the crude e x p o r t e d f r o m the P e r s i a n

Gulf po r t of A b a d a n to n e i g h b o u r i n g India was p r i c e d as

if it were t r a n s p o r t e d fr o m the Gu l f of M ex ic o , and

thus a b s o r b e d a 'phantom freight'. On the other hand,

the P e r s i a n Gu l f oil in E u r op e was to absorb the d i f f e r ­ ential f r e i g h t equal to A b a d a n - E u r o p e m i n u s M e x i c o - E u r o p e .

Due to its volume, p e t r o l e u m is f r e i g h t - s e n s i t i v e . Thus the o i l - c o n s u m i n g n a t i o n s felt c o n c e r n e d about the

t a n k e r rates. In the i n t e r - w a r p e r i o d some 50 per cent

of the w o r l d tankers w e r e owned, and the o t h e r 40 per

cent were c h a r t e r e d for lon g - t e r m s by the i n t e r n a t i o n a l oil 'corporations, and o n l y 10 p e r cent w e r e a v a i la bl e for

s i n g l e - v o y a g e charters. W a r t i m e n e c e s s i t y h e l p e d e s t a b ­

lish two s t a n d a r d rates of freight, i.e. 'Tanker M a r k e t N o m i n a l F r e i g h t Scale' fin Britain) and 'United States

M a r i t i m e Commission' (in the U n i t e d S t a t e s ) . In reality,

(22)

rates w i t h Scale' w e r e rare and the n o r m a l cases w e r e 'Scale plus x pe r cent' or 'Scale mi n u s x pe r cent'.

This s i n g l e - b a s i n g - p o i n t s y s t e m p r e v a i l e d until the S e c o n d W o r l d War, w i t h the e x c e pt io n of R o m a n i a n oil in w h o s e case, R o m a n i a - E a s t A m e r i c a was a s s u m e d e q u i ­

dis t a n t w i t h East A m e r i c a - C a r r i b e a n ports. This s y s t e m

of p r i c i n g f a v o u r e d d e v e l o p i n g A s i a n and A f r i c a n low- cost oil, and the com p a n i e s de a l i n g in t h e m h a d strong m o t i v e s to e x p a n d o v er the m a r k e t s b e y o n d the w a t e r s h e d w h e r e the n o mi na l cost plus fr e i g h t p rices b r o ke even w i t h A m e r i c a n oil b e c au s e the real cost in A f r i c a and

M i d d l e E a s t was m u c h lower. Thus the e n t e r p r i s i n g a t t i ­

tudes of c o m panies led to o c c a s i o n a l c u t -t h r o a t c o m p e ­ tition, e.g. A s i a t i c p e t r o l e u m and S t a n d a r d of N ew J er s e y

in In d i a n m a r k e t in 1927. Besides, u n s e t t l i n g entries

also happened, e.g. Sov i e t e n t r y , i n t o the h a z a r d o u s

m a r k e t s i t u a t i o n s w h i c h w e r e to be g u a r d e d b y all means, not the least by m a r k e t - s h a r i n g a r r a n g e m e n t s , l o n g - t e r m su p p l y a r r a n g e m e n t s , s u p p l y - a n d - p r i c e con t r o l a r r a n g e m e n t s a n d so forth.

The o u t s et of the S ec o n d W o r l d W a r t e m p o r a r i l y s t o p p e d the flow of oil f r o m the P e r s i a n Gu l f to E u r o p e a n

m a r k e t - a f r ei g h t a b s o r b i n g area. T h e n the d e l i v e r y

in P e r s i a n Gulf to E u r o p e a n powers b r o u g h t the p h an to m- freight u n d e r di s p u t e and r e s u l t e d in e s t a b l i s h m e n t of a d u a l - b a s i n g - p o i n t s y st e m of pricing, w i t h P e r s i a n Gulf as a s e c o n d point.

To ass i s t r e c o v e r y of the p o s t - w a r E u r o p e a n industries, s e l f - s u f f i c i e n c y in oil p r o d u c t s was desirable,

(23)

and this r e q u i r e d larger r e f i n i n g margins to s p u r c o n s t r u c ­ tion of r e f i n e r ie s w h i c h w o u l d m e an ei t h e r lower crude

prices or h i g h e r p r od u c t s prices. M e a n w hi le , the r el a x a t i o n

of the U.S. price s t a b i l i z a t i o n p o l i c y a l lo we d the price of crude f.o.b. Gulf of M e x i c o to rise from $1.05 per b arrel to $2.60 p er b a rrel, a m a r g i n high e nough to p ro vi d e o p p o r ­ tunities for m a n o e u v r i n g to re t a i n West E u r o p e a n market. Thus crude f.o.b. P e rs ia n Gulf plus Suez Canal tolls plus USMC f r eight rates from P e r s i a n Gulf to L o n d o n was equated

against crude f.o.b. M e x i c a n ports plus U S M C freight rate

from there to London. In other w o r d s 'L o n d o n was re n d e r e d

a point w h e r e pr i c e s of P e r s i a n and M e x i c a n Oils were set

to be equal. H o w e v e r since L o ndon was n e a r e r to M e x i c an

Gulf .than to P e r si a n Gulf, P e rs ia n oil was the r e b y re d u c e d by some 44^ per barrel (equal to freight from e q u a l i z a t i o n p oint in s o u t h e r n Italy to L ondon a cc or di ng to scale r a t e s ) .

In. 1948 R a a s - a t - t a n o o r a h r e p l a c e d A b adan, and C a r r i b e a n that of M e x i c a n Gulf as ports of export, by virtue of w h i c h M i d d l e E a s t e r n oil price was r e d u ce d from

$2.22 to $2.03 per barrel. Since D e c e m b e r 1948 - i m p l e m e n ­

t ation of the U.S. c o n s e r v a t i o n po l i c y - M i d d l e E a s t e r n oil i n c r e a s i n g l y c o m p e n s a t e d for A m e r i c a n s h u t - d o w n

capacity. In fact E u r o p e p a i d more for its i m ported oil

than did the U.S. On this g round E u r o p e a n C o- op er at io n

A d m i n i s t r a t i o n (ECA) r a i s e d an objection. As a result

of this o b j e c t i o n E u r o p e a n p rice was r e d u c e d b y 15 cents per b a r r e l - a r e d u ct i on w h i c h was already i n i t i a te d by

(24)

Later, N e w Y or k r e p l a c e d L o n d o n as the po i n t of p rice e q u a l i z a t i o n an d the d o m i n a n t f r eight rate w h i c h was U SM C m i nu s 35|%, was m a d e the b asis of p r i ce d e t e r ­

m in a t i o n . This a r r a n g e m e n t r e d u c e d the p r i c e to E u r o p e

b y an o t h e r 13 cents p er barrel.

The system, n o t w i t h s t a n d i n g its p r a g m a t i c

con v e n i e n c e , was f r a u g h t w i t h i n c o n s i s t e n c i e s a nd a n o m alies,

un d e r w h i c h it e v e n t u a l l y b r o k e down. Two e x a m p l es

w o u l d suffice: a) In 19 52 the M ut u a l S e c u r i t y A g e n c y (a

s u b st it ut e for ECA) b r o u g h t a case in the US J u s t i c e

A d m i n i s t r a t i o n aga i n s t J e r s e y Standard, S o c o n y V a c u u m and

Caltex. The s ub s t a n c e of the case was that since on the

one hand, the V e n e z u e l a n oil of 36°API was $2.65 bbl

a nd s p o t - f r e i g h t f r o m V e n e z u e l a to N e w Y o r k was $0.38 bbl, (total $3.03), a n d on the ot h e r h a n d the f r e i gh t from

P e r s i a n G u l f to N e w Y o r k was $1.70 bbl, t h e n crude f.o.b. P e r s i a n Gulf s h o u l d have b e e n 3.03 m i n u s 1. 7 0 equal to $1.33 bbl, w h i l e the three companies r e c e i v e d their

oil from an a f f i l i a t e of A r a m c o at $1.43 bbl. b) A n o t h e r

a n o m a l y w h i c h was n a m e d af t e r its author's n a m e - S t o c k i n g a n o m a l y - was that the d e m a n d for tankers was d e r i v e d

f r o m the d e m a n d for oil. Thus a b o o s t of d e m a n d for oil

i n c r e a s e d the d e ma nd for tankers and c o n s e q u e n t l y i n c r e a s e d the fr e i g h t rates, a n d this, p a r a d o x i c a l l y , d e p r e s s e d the pr i c e of o i l ; w h i l e a d e p r e s s i o n of oil demand, d e p r e s s i n g

the f r e i g h t rates, w o u l d i n c r e a s e the p r i c e of oil. Thus

b e c a us e of these and ot h e r reasons, by the e a r l y fifties the s y s t e m g r a d u a l l y c o r r o d e d and was r e p l a c e d by p o s t e d

(25)

12.

price s y stem.^

1,4. T he first oil e x p l o r a t i o n activi t i e s in Iran w er e u n d e r ­

taken b y a B r i t i s h g e o l o g i e s t ’L o f t u s ’ in 1885. The first c o n ­ cession, how e v e r , was g r a n t e d to a B r i t i s h ’Mr. T o r y ’

five years a f t e r D r ak e ' s d i s c overy, to co v e r oil as

parte in t o t o . In 1872 B a r o n Julius de R e u t e r was

g r a n t e d a c o n c e s s i o n to the a ma z e m e n t of the w o r l d w h i c h

c on s i s t e d of:

The m o n o p o l y of r a il wa y (Art. II), t r a m w a y (Art, III, IV, V an d VI), e x t r a c t i n g all m i n e s e x c e p t i n g go l d and s il v e r and p re c i o u s stones (Art. XI-XII), all g o v e r n ­ m e n t f o rests (Art. XIV) a nd u n c u l t i v a t e d land (Art. IV),

c o n s t r u c t i n g canals a n d i r r i g a t i o n w o r ks (Art. XV), an o p t i o n of a N a t i o n a l B a nk (Art. X X ) , and all e n t e rp ri se s

1. The l it er a t u r e is ample, see for e x am pl e Leeman, Wayne,

The P ri c e of M i d d l e E a st Oil, N e w Y o r k 1962; Nie l s o n , R . ,

Oil T a n k e r E c o n o m i c s , Bremen, 1959; M an s o o r , Foroozan,

Iq t isadi N a ft ~ Tehran, 1342 ; D eC h a z e a u , M.G., and Kahn,

A.E., I n t e g r a t i o n and C o m p e t i t i o n in the P e t r o l e u m I n d u s t r y ; and Cassady, R . , Price M a k i n g and P r i c e B e h a v i o u r in the P e t r o l e u m I n d u s t r y ^ 19 56 .

2. The p ol i t i c a l h i s t o r y of the c o n c e s s i o n has b e e n a b u n ­ d a nt l y d i s c u s s e d in the r e l a t e d lit e r a t u r e , so r e p e t i t i o n

wi ll be r a t h e r u n ne ce s sa ry . The f o l l o w i n g m a k e some v e r y

i n t e r e s t i n g reading: L o r d G.N. Curzon, P e r s i a and P e r s i a n

Q u e stion, London, 1892, pp. 480-481. The author ca l l e d

the c o n c e s s i o n 'a p o l i t i c a l b o m b sh el l all over the w o r l d ’ . B e n j a m i n S h w a d r a n in his The M i d d l e East, Oil and the

Great P o w e r s , N.Y. 1955 , p~! speaks of it as ’ a c o n ­

c e ss i o n that in the era of s w e e pi ng c o n ce ss io ns put all

the rest to s h a m e ’ . Sir P e r c y Sykes in his A H i s t o r y of

P e r s i a , 1921, pp. 370-72, gives a c o l o u rf ul ac c o u n t of

its h i s t o r i c a l setting. Sir H e n r y R a w l i n s o n in his

E n g l a n d and R u s s i a in the E a s t : A series of pa p e r s on

the p o l i t i c a l and g e og ra ph ic al c o n d i ti on s of C en t r a l Asia, London, 1875, p. 126, e x a mines w hy the c o n c e s s i o n was not

p r ac ti c a b l e . A n d L en cz o w k s i in his R u s s i a and the W e s t

in I r a n , N.Y., 1949, p. 4, examines its c o n s e q u e n c e s m Persia.

(26)

13.

c o n n e c t e d w i t h roads, t e l e g r a p h systems, f a c t o r i e s and o p e r a t i n g the entire customs of the c o u n t r y for twenty- five years (Art. XIX)?

Upon p a y m e n t of: A s t i p u l a t e d sum for the first five years, and 60 per cent of the d i f f e r e n c e b e t w e e n the annual net

p r o ce ed s and the a mo u n t r e a l i z e d ’t h e n ’ b y the g o v e r n m e n t for the r e m a i n i n g 20 years (Art. XIX) plus 20% of the p r of it s a cc r u i n g f r o m r a i l w a y s C A r t . IX) and 15% of tliose d e r i v e d

fr o m all o t h er s o urces (Art. XI-XII). This c o n c e s s i o n

was a n n u l l e d s h o r t l y afterward.

In 1884 the first ’oil concession' was g r a n te d

to the fi r m of Hotz an d Co. of Bushehr. B y this time

A m e r i c a n oil was e x p a n d i n g over E u r o p e a n m a r k e t s and

Europe was s e a r c h i n g for oil in the East. C a u c a s i a n oil

2

h a d a l r e a d y b e e n d e v e l o p e d by N obel B r o t hers. Hotz

c o ncession, ho w e v e r , was a b o r t e d in 1899. But in the

same y e a r two R u s s i a n s u b jects o b t a i n e d a m i n i n g rights c o n c e s s i o n in A z a r b a i j a n (Gharajeh-Dagh) w h i c h r e s u l t e d in eight. m i n i n g e n t er pr is es b ef o r e it w as i n v a l i d a t e d u n d e r the S o v i et c o m p r e h e n s i v e a n n ul me nt of all R u s s i a n

rights o b t a i n e d in the T s a r i s t era.

1. Al l r e f e r en ce s are to the text of the C o n c e s s i o n of the P e r s i a n G o v e rn me nt to B a r on R e u t e r , J u l y 1872.

2. A l f r e d Nobel, the f o u n d e r of the Nobel Pr i z e was among

them. See T ugendhat, Oil, The B i g g e s t Bus i n e s s , 1968,

p. 34.

3. 1921, T r a n s - S o v i e t Treaty, League of N a t ions, T re a t y Series, 1922, Vol. IX, pp. 383-415.

(27)

14.

By 1901 ’B u r m a h O i l 1 was dri l l i n g in B u r m a h u p o n p a ym en t of five per cent of the gross v a l u e of oil

w i t h o u t any f iscal e x e m p t i o n on its o p erations. In Baku,

however, the r o y a l t y was t w e n t y - f i v e per cent of the va l u e or the v ol u m e of p r o d u c t i o n , and the m a x i m u m size of the area c o v e re d by the c o n c e s s i o n was one squ a r e m i l e o f f e r e d

by auction. The d i s c o v e r y of oil was by no m e a ns g u a r a n ­

teed.

D ^ r c y c o n c e s s i o n on M a y 26, 1901, ag a i n s t such

a b ac kg ro u n d , gave w a y to sus p i c i o n s of d i p l o m a t i c m e d

-2 3

dlings, and a t t r a c t e d p u b l i c opinion. The c o n c e s s i o n ­

aire was c o n f e r r e d upon: an e xc l u s i v e ri g h t to explore,

extract, r efine or treat in any ot h e r w a y and sui t a b l e for commerce, all h y d r o c a r b o n res o u r c e s in an area of 500,000 square m i l es for a p e r i o d of 60 year's (Art. I), the e x c l u ­ sive ri g h t to lay p i p e l i n e s to the P e r s i a n G u l f w h i c h

b ar r e d the e n t ry of p o t e n t i a l rivals. U p o n p a y m e n t to

1. C au c a s i a b e l o n g e d to an almost d e v e l o p e d pa r t of the

i n d u s tr ia l world. Thus it did not s uf fe r f r o m the hazards,

u n c e r t a i n t i e s an d i nf ra -s t r u c t u r a l b o t t l e n e c k s c o mp ar ab le

to those in a c o u n t r y like Persia. Out of c o ntext c o m ­

parisons, t h e r efore, do not s e em to do full j u stice to

the facts of the case. For such c o m p a r i s o n however,

see, for example, M i k d a s hi , Z., A F in a n c i a l A na l y s i s of M i d d l e E a s t e r n Oil C o n c e s s i o n s , L o n d o n , 1966, p. 20. 2. For a d e t a i l e d s t o ry in his own words, see Si r A r t h u r

H ar d i n g e , A D ip lo m a t in the E a s t , London, 1928, pp. 278-280. Also Fatemi, Oil Diplom a c y , A P ow d e r K e g , N.Y., 1954,

p. 35 7, w h e r e Ke wri t e s of m i l i t a r y s u pport for D JArcy.

See also E lw e l l Sutton, P e r s ia n Oil: A S t u dy in Po w e r

P o l i t i c s , London, 1955, p~[ 15, w h e re he speaks of 1 sweet-

e n e r s 1 g i v en to the Shah. Al s o Fateh, M.K., P an j a h Sal

Naft-e I r a n , Tehran, 1335, p. 254, w h e r e he do c u m e n t s

1 g i f t s 1 to the Shales m in in is t e r s . A n d also see E l i z a b e t h

Monroe, B r i t a i n ^ M o m e n t in the M id d l e East, 1 9 1 4 - 1 9 5 6 ,

London, 196 5, pp. 105-6 w h e r e she argues that B r i t i s h g o vern- m e n t was e n t i r e l y i mp a r t i a l in S h a h - D ^ r c y c o ncession.

3. A s tory of an e sp io na ge b a s e d on a c o n fl ic t b e t w e e n / C o n t i n u e d over

(28)

15.

the g o v e r n m e n t of' a 16 p e r cent a f t e r - t a x in c o m e of the

c o m p a n y (Art. X) j a fi x e d rate d e t r i m e n t a l to the c o n c e s ­

s io n a i r e w h e n p r o f i ts we r e b e l o w the e x p e c t e d ’r e a s o n a b l e ’ returns and to the host g o v e r n m e n t w h e n the p r o f i t s were

excessive.- Be s i d e s , the f e a tures of the c o n c e s s i o n p r o v e d

to be r u inous to the h e a l t h y conduct of a ct iv i t i e s in the long-run, in that the c o n c e s s i o n a i r e was the sole a r b i t e r of d e v e l o p m e n t an d that the c on ce s s i o n did not p r o v i d e for change of terms in the future.

The c o n c e s s i o n a i r e f o r m e d The F irst E x p l o r a t i o n C o mp an y in 1903, to be a s s i m i l a t e d in the C o n c e s s i o n S y n d i ­

cate of D ’A r c y - S t r a t c o n a and B u r m a h Oil in 1 905.^ By

2

1908 all i n v e s t m e n t was sunk, u n t i l the first rig tap p i n g

a large r e s e r v o i r on M a y 26, 1908 in M a s j i d - e Suleiman. In 1909, the S y n d i ca te c o n c l u d e d some o t h er a g r e e m e n t s of e xpediency, w h i c h in a later date b e c a m e

F o o t n o t e 3 c o n t i n u e d fr o m page 14.

R o c k e f e l l e r and D e t e r d i n g is first t o l d in La G r a p o u i l i o t in Paris, th e n r et ol d in A n t o n Zischka, La Gu e r r e S ecret du P e t r o l e , la t e r p u b l i s h e d in the P e r s i a n n e w s p a p e r Shafagji-TT S o r k h , and r oo t e d in p u b l i c opinion.

1. For a d i s c u s s i o n of a case for the B r i t i s h g o v e r n m e n t ’s p r e s e r v i n g the c o n c e s s i o n see Church i l l , Win s t o n , The W o r l d Crisis 1 9 1 1 - 1 9 1 8 , London, 1938, Vol. I, e s p e c i a l l y pT 54 .

2. A n e m o t i v e a c c o u n t of the story is to be f o u n d in H e n r y Longhurst, A d v e n t u r e in O i l , London, 1959, p. 72.

3. In his h y p e r b o l i c language, St e p h e n L o n g r i g g c a l l e d this ’one of the m o s t s i g n i f i c a n t events of all

P e r s i a n h i s t o r y ’, see Oil in the M i d d l e E a s t , op.cit., p . 19.

(29)

bones of contention:

a) B a k h t i a r i Oil C o m p a n y A g r e e m e n t - in effect

the C o mp an y was f o r m e d w i t h an initial c a pital of 4 00 ,0 0 0 pounds sterling, 3 per cent of w h i c h we n t to local c h i e f ­ tains as s ha r e - c a p i t a l .

b) B a k h t i a r i la n d a g r e em en t. ^

c) B a k h t i a r i - S y n d i c a t e s e c u r i t y p r o v i s i o n a g r e e ­

m e nt . ^

d) K h a z a l - S y n d i c a t e a g r e e me nt for p r o v i s i o n of

one square m i le of la n d for c o n s t r u c t i o n of a r e f i n e r y

3

and g u a r a n te e of s e c u r i t y in Khuzistan.

The f o r m a t i o n of A n g l o - P e r s i a n Oil C o m p a n y (APOC) in 1909 t o ok pl a c e aga i n s t the b a c k g r o u n d of a

p r i o r e s t a b l i s h m e n t o f the J e r s e y S t a n d a r d and Royal D u t c h

Shell c o n co mi ta nt ly . The i r r e v oc ab le trends in the naval

d e v e l o p m e n t s c o n s t i t u t e d a p r e s s i n g n e c e s s i t y for the B r i ti sh g o v e r n m e n t to b e c o m e the o w n e r / p r o d u c e r of its

4

supplies of l i q u id fuel. The government, t h e r e f o r e , b o ught

1. For an ana l y s i s of the f i n a n c i a l terms of some t r a n s ­

actions u n d e r this agr e e m e n t , see M i k d a s h i , A n A n a l y s i s ..., o p .c i t ., p , 19.

2. R a m s a y M a c d o n a l d c r i t i c i z e d these a gr e e m e n t s , in the H ouse of Commons, as the i n f r i n g e me nt of P e r s i a n G o v e r n ­ m e n t ' s sove r e i g n t y , and an a t t e m p t to w e a k e n its central

authority. See Fateh, op.cit.

3. On M a y 6, 1909, on b e h a l f of H.M. G o v e r n m e n t , Sir P e r c y Cox gave S h e i k h Khazal a g u a r a n t e e that B r i t a i n w o u l d not al l o w the P e r s i a n G o v e r n m e n t to di s t u r b the status

quo of h i m s e l f or his heirs and s uccessors. See

S utton,E., op.cit., pp. 20-21.

(30)

its w a y in towards a c o n t r o l l i n g share.^ This was f o l ­ l o we d b y an A P O C - A d m i r a l t y sales contract, the c o n f i d e n ­ ti al it y of the terms of w h i c h bec a m e a n o t h e r source of

2 c o n t e n t i o n in a later period.

In the m e a n t i m e the AP O C was a c q u i r i n g shares in T u r k i s h P e t r o l e u m C o m p a n y ( T P C ) , later Iraq P e t r o l e u m C o m p a n y ( I P C ) , an d K u w a i t Oil. A m e r i c a n so u r c e s were b e co m i n g g r o w i n g l y c o n c e r ne d about w o r r i e s of e x h au s t i n g reserves, and B r i t i s h g o ve r n m e n t e s t a b l i s h e d in S ou t h e r n P e r s i a a S o u t h e r n P o li c e R e g i m e n t (SPR) - a b o d y of 5 5,000 - u n d e r Gen e r a l Sykes.

The collapse, in 1917, of the T a a r i s t Russia, c a us ed the u n i l a t e r a l d e n u n c i a t i o n by the So v i e t g o v e r n ­ me nt of 1907 R u s s o - B r i t i s h c on fi de nt ia l p ac t d i v i di ng P er s i a into zones of influence,- and thus gave the B r i t i s h

a full sway. H e nc ef or th , events u n f o l d e d rapidly:

V o s u g h - F i r u z C a bi ne t was i n t r o d u c e d w i t h A r m i t a g e - S m i t h - a s s i s t a n t s e c r e t a r y to B r i t i s h T r e a s u r y - as fin a n c i a l adviser, and the p r o c e ss c u l m i n a t e d in 1919 A g r e e m e n t .

In 1920 A P O C was e n g a g e d in n e g o t i a t i o n s c o n ­ c e rn ed w i t h the p u r c h a s e of a c o n ce s s i o n g r a n t e d to a K h o s h t a r i a in 1916 c o v e r i n g ’N o r t h P e r s i a n ’ Oil, and on N o v e m b e r 29th, 1920, it was n e g o t i a t i n g y e t an o t h e r

1. In 1914, the share of the g o v e r n m e n t was £ 2 , 0 0 1 , 0 0 0 as a ga i n s t B r u m a h ’s £ 1 ,0 69 ,0 00 and p u b l i c £1,530,000.

2. P a r l i a m e n t a r y Deb a t e s (Mozakerate M a j l i s ) , Tehran,

(31)

c o n c e s s i o n to co v e r A z e r b a i j a n and K h o r a s a n . ^ But a p o t e n t i a l snag was that n e i t h e r the A PO C n or the K h o s h t a r i a c o n c e s s i o n h a d r e c e i v e d the p a r l i a m e n t a r y r at i f i c a t i o n , r e q u i r e d by A r t i c l e 24 of the 1906

con-s t i t ut io n of Percon-sia. H e n c e the n e c e s s i t y , f r o m A P O C

p oi nt of view, of i n t r o d u c i n g any change, i n t e r p r e t a t i o n or s u p p le me n t w h i c h b y its a p p roval in the p a r l i a m e n t

w o u l d i m p l i c i t l y enact the o r i g i n a l con c e s s i o n . One

such i n t e r p r e t a t i v e ’ a t te mp t was that of A r m i t a g e - S m i t h ,

? .

c o n t a i n i n g v a r i a t i o n s to the d e t r i m en t of Persia, m

that, a) the p r o f i t s of the B r i t i s h T a n k e r Company, a

fully ow n e d s u b s i d i a r y w e r e to be e x c l u d e d fr o m r o y a l t y

payments; b) the p r o f i t s of o t h e r s u b s i d i a r i e s w e r e also

e x cl u d e d to the e x te nt that they were t r a d i n g in non-

P e r s i a n oil; c) the p r o fi ts of s u b s i di ar ie s r e f in in g or m a r k e t i n g P e r s i a n oil o u ts id e P e r s ia we r e m a d e el i g i b l e for s i z ea bl e d e d uc ti on s b ef o r e c o m p ut in g r o y a l t y payments; d) s ub si d i a r i e s w e re so d e f i n e d as to i n c l u d e o n l y those in w h i c h A P O C h ad a m a j o r i t y share. By 1921, m a n y i mp ed im e n t s w e r e o b s t r u c t i n g the i m p l e m e n t a t i o n of the ' V o s u g h 1 agreement, w h e n a coup

e l im in at ed any ch a n c e the 'interpretative' a g r e e m en t ha d for

ratific a t i o n . Two years later, Sinclair was d e f e a t e d

1. Fatemi, op.cit., p. 79.

2. In fact the d e t e r i o r a t i o n was due to e r o s i o n of the b a r g a i n i n g p o s i t i o n of P er si a v is -a -v is gro w i n g

p ow e r of the B r i t i s h g overnment. See for example

H o s s e i n Makki, T a r i k h - e Bist Saleh-e Iran, Tehran, 2 vols.

(32)

19.

in P e r s i a , h o w e v e r , in 1924, Kavir-e K f m r i a n c o n c e s s i o n

was revi t a l i z e d , and a m a j o r i t y share of it was sold

to the S o v i e t g o v e r n m e n t vi a K h oshtaria.

O n N o v e m b e r 28, 1932, D ' A r c y c o n c e s s i o n was

2

u n i l a t e r a l l y cancelled. O b j e c t i o n s and r e s e n t m e n t s

ensued. B a r g a i n i n g got u n d e r w a y and on A p r i l 29, 1933

a ne w c o n c e s s i o n was concluded, r a t i f i e d and endorsed,

and be c a m e a law. The c o n c e s s i o n e m b o d i e d the f o l l o w i n g

changes: a) the area was r e s t r i c t e d (Art. 2.A), and was

to be f u r t h e r r e s t r i c t e d to 10 0 , 0 0 0 s quare m i l e s (Art. 2.B); b] p r o f i t - s h a r i n g a r ra n g e m e n t gave w a y to a tonnage-

r o y a l t y s y s t e m at 4S p e r ton (Art. 1 0 . 1.a), w i t h a l l o w a n c e for p o s s i b l e d e v a l u a t i o n of s t e r l i n g in terms of gold

(10-V, a , b ) , a n d w i t h a g u a r a n t e e d m i n i m u m of £ 7 5 , 0 0 0 p e r

a n nu m ( 1 0 . 1.c); c) K e r m a n s h a h * Oil was to be o p e r a t e d un d e r

a s u b s i d i a r y (Art. 9), and d) the right to lay p i p e - l i n e s

was r e n d e r e d n o n - e x c l u s i v e (Art. 3).

The 4 S/ t o n arrange m e n t , w h i c h in a y e a r of d e p r e s s i o n - su c h as was the case w h e n the n ew c o n c e s s i o n

1. A P OC f ou g h t this war: R u mours of S i n c l a i r e - J e r s e y

a r r a n g e m e n t s t a l e m a t e d the govern m e n t , b e c a u s e J er s e y h a d an a rr a n g e m e n t w it h APOC, w h i c h was c o n t r a r y to a P e r s i a n d e c i s i o n not to give a f o o t h o l d to A P O C in the

North. B es i d e s the story of the ’T e a p o t - D o m e ’ - S agga

K h uneh- S c a n da l w h i c h r e s u l t e d in the d ea t h of A m e r i c a n consul in T eh r a n is s u s p e c t e d to ha v e b e e n e n g i n e e r e d by Pr i n c e Firuz, w h i c h if p r o v e n right, c on f i r m s B r i t i s h

i n v o l v e m e n t .

2. For an an a l y s i s of the p ol i t i c s of c a n c e l l a t i o n see Noori, H o s s e i n Sh e i k h Hosseini, A St u d y of the Nat i o n - a l i z a t i o n of the Oil Industry in Iran, C o l or ad o State College, Ed.D., 1965, pp. 70-75.

3. R e f e r e nc es are to the A r t i c l e s of the text of P e r s i a n C o n c e s s i o n 1933-1993.

(33)

was s i g n e d - s e e m e d mo re f a v o u ra bl e to P er si a than

p r e vi ou sl y, d a t e d b a c k to 1925 TPC conc e s s i o n , w h i c h by then was a s s u m e d equal to 1/8 of the va l u e of the M i d d l e

East crude f.o.b. P e r s i a n Gulf. One i m p o r t a n t feature

of this a r r a n g e m e n t was that the oil i n d u s t r y m a n a g e d to rel i e v e i t se lf of the i n t r u s i o n of g o v er n m e n t s , gu a r d a g ainst i n f o r m a t i o n - l e a k , a n d p ro t e c t m a n a g e r i a l autonomy.

In 1934, K e r m a n s h a h s u b s i d i ar y s t a r t e d to operate.

A y e ar later, A P O C b e c a m e A n g l o - I r a n i a n Oil C o m p a n y

( A I O C ) T w o years la t e r an a b o rtive c o n c e s s i o n -A m i r a n i a n - was g r a n t e d to the S ea bo a r d Oil Co. and in 19 39 the Du t c h 'A l g e m e e n e E x p l o r a t i e M a u t s c h a p p i j ’ set a p r e c e d e n t of a 50-50 a r r a ng e m e n t , to be la t e r a b o l i s h e d due

to w a r t i m e o p e r a tions.

As a r esult of the start of the W o r l d W a r II, Iran f o u nd it s e l f u n d e r the o c c u p a t i o n of the Allies. The oil i n d u s tr y thus was g e a r e d to the needs of the

m i l i t a r y command. It was h i g h time the So v i e t s us e d

their K a v i r - K h u r i a n c o n c e s s i o n as a v e h i cl e of p ro po sa ls d e s t i n e d to repel Jersey, S i n c l a i r e or A I O C f r o m t heir

?

b or de r areas. A g i t a t i o n s by the B r i t i s h to h av e So v i e t

1. The c hange of the n a m e from P er s i a - the land of the Parsis - to Iran - the la n d of A r y a n s - h a d a s i g n i f i ­

cant p o l i t i c a l i mp l i c a t i o n at the time. Therefore,

they s h ou ld not be c o n f u s e d as some a u thors h a p p e n to have done, for e x am pl e Noori, op.cit., t h r o u g h o u t his

t h e s i s .

2. A l t h o u g h J e r s e y a n d S i n c la ir e did not p u b l i c i z e their terms, however, M i c h a e l Brooks argues on evi d e n c e that K a f t a r a d z e h p a c k a g e was so e m b a r r a s s i n g l y s u p e ri or to Iran as c o m p a r e d to that of other b i d d e r s that they

d e c i d e d to leave the scene for a while. See Brooks,

References

Related documents

(b) Calculate the gravitational potential energy of a single helium atom near the surface of the Earth.. Choose the zero of gravitational potential energy to be infinitely far away

conceive of his patient as being beleaguered or partially overwhelmed by impulses or feel- ings that are forbidden because of previous threats and intimidations,

The validity of at least six analytical methods to assign cause has been studied using comparable data from the PHMRC study: physician- certified VA (PCVA), InterVA 3.2, King-Lu

We asked how anthropogenic noise, mediated through changes in arthropod abundance, altered timing of leaf senesce, chemical composition (i.e. C/N ratios, total phenolics)

● display: vector (feature server) and raster (image server); ● browser (client): version HTML or with Java applets..

Press the Menu button , choose Admin Setup and press the Select button , enter passcode (if required) and press the ENTER soft key.. Choose Diagnostics using the Scroll-

A Educação Ambiental como estratégia de alfabetização de adultos catadores foi a maneira empregada para analisar a contribuição da Educação Ambiental para

The AEO working group should draft national requirements in compliance with the guiding standards established by Chapter 5 of the SAFE Framework, with respect to