February 27, 2017

1933 Agreement

From “Oil Nationalisation and Managerial Disclosure: The Case of Anglo-Iranian Oil Company, 1933-1951”

Chapter 2: AIOC History, oil and Iranian politics.


London 1932 December, Sir John Cadman, the Anglo-Persian Oil Company chief, returned from Los Angeles, USA. to deal with the crisis which has arisen concerning the company's concession in Persia. (Photo by Planet News Archive/SSPL/Getty Images)

London, 1932 December, Sir John Cadman, the Anglo-Persian Oil Company chief, returned from Los Angeles, USA. to deal with the crisis which has arisen concerning the company’s concession in Persia. (Photo by Planet News Archive/SSPL/Getty Images)

The 1933 Concessionary Agreement defined several rights and obligations for the AIOC and the Iranian government, to guarantee the continuation of the company‟s operations. The concession included determining the duration of the contract; defining the area under concession; excluding the operation of other companies within the allocated area and offering rights of exploration and production within a stipulated period. The terms also covered refining and marketing[142]. This meant that the AIOC had a number of commitments towards the Iranian government. These included payment of taxes, royalties[143], rent to the Iranian government, provisions for employment, training of local workers and technicians, supply of petroleum to the Iranian market at reasonable prices and means of dispute resolution through arbitration rather than local courts[144]. The 1933 concession, ratified by the Majlis and Reza Shah (Iranian Prime Minister, 1923-1925) obviously extended the life of the D‟Arcy concession by thirtytwo years. By granting this extension, the Shah deprived the Iranians of the possibility of controlling and operating their oil industry. The 1933 Agreement between Iran and the AIOC stipulated that the company should supply oil products for internal consumption in Iran and to warrant the Iranian government a discount of 25 per cent from the basic price to supply its own needs. It stipulated that other consumers in Iran warranted a 10 per cent discount[145]. However, the AIOC had at times encountered difficulties with the Iranian government over the payments made to the government for the oil produced[146]. Furthermore, with the 1933 Agreement, Iran had a share in the AIOC‟s overall profits around the world equivalent to 20 percent of dividends distributed among holders of common stock in excess of £671,250[147]. This shows that the British government had the right to increase its taxes, but Iran‟s taxes on AIOC revenue were frozen for a period of thirty years[148]. Evidently, Iran was left at the mercy of the British government because the company practice was to pay higher taxes in order to decrease its net profits. Less was then paid to the Iranian government which was well aware of the fact the company was making large profits from their oil industry in which the former saw themselves as having no real share or adequate reward. Moreover, with the 1933 Agreement, there was slow progress in replacing the British employees with Persian nationals and the “General Plan” to aid the progressive reduction of non Persians never came into practice. Iranian social and psychological grievances stemmed from the comprehensive discrimination against them “not only in pay but even in the bus which took them to work in comparison with British workers in the fields”[149]. In 1945 there was a proposal by the Soviet Union to give Iran equal shares in profits and management in return for having a concession in the Northern provinces. Thus, in 1946, an agreement was reached by the Iranian Premier that a Soviet-Iranian Oil Company would be formed for the exploitation of Northern Persian oil[150]. Under this agreement, Iran would supply the oil resources and receive 49 per cent of the shares and the Russians would hold 51 per cent of the company‟s shares for the first 25 years[151]. After this period, profits would be divided proportionately in return for maintaining all the necessary capital, equipment and staff[152]. Unfortunately, this agreement led to resentment among the tribal and settled public in south Persia and they demanded a break up of relations with Russia [153]. Not only that, but Communist ministers were dismissed from Iran and the agreement was rejected[154]. In short, the Iranian fear of communist expansion from the north of Persia helped to damage relations with Russia but furthered British interests in maintaining control over all of the Iranian oil resources.


Notes & References
142. Issawi and Yeganeh, The Economics of Middle Eastern Oil, 24.

143. Upon discovery of oil, it becomes the property of the AIOC who stops paying rent and instead pays the Iranian government a royalty.

144. Issawi and Yeganeh, The Economics of Middle Eastern Oil, 25.

145. Ibid, 75.

146. Penrose, The large International firm in developing countries, 64.

147. Elm, Oil, Power and Principle: Iran’s oil nationalisation and its aftermath, 37.

148. Ibid.

149. Katouzian, The political economy of Modern Iran 1926-1979, 157.

150. Longrigg, Oil in the Middle East.

151. Issawi and Yeganeh, The Economics of Middle Eastern Oil, 133.

152. Ibid, 133.

153. Longrigg, Oil in the Middle East.

154. Ibid.

155. Issawi and Yeganeh, The Economics of Middle Eastern Oil, 133.


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