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

Chapter 2: AIOC History, oil and Iranian politics.


William Knox D'Arcy, the founder of BP, standing with his wife in their Edwardian English home. He entered the oil industry in 1901 by obtaining an oil concession in Iran.

William Knox D’Arcy, the founder of BP, standing with his wife in their Edwardian English home. He entered the oil industry in 1901 by obtaining an oil concession in Iran.

The D’Arcy concession
In 1901, William Knox D‟Arcy, the son of an Irish solicitor and a millionaire London socialite was the real founder of the AIOC[113]. He used his fortune to finance oil exploration in Iran[114]. On 28th of May 1901, an exclusive concession was granted to D‟Arcy for 60 years for the exploration of natural gas and petroleum throughout Iran which covered 500,000 square miles of territory[115]. Later in 1905, D‟Arcy ran into financial difficulties before oil in commercial quantities was discovered and the Burmah Oil Company was brought in to come to D‟Arcy‟s assistance by taking shares in the company to explore for oil in Burmah and India[116]. Fortunately, in 1908, a great oil-field had been discovered by D‟Arcy and Burmah Oil which partly financed the Anglo Persian Oil Company (APOC), allowing it to become a leading contender in international oil markets[117]. After the discovery of oil in 1908, a pipeline was built from the oilfields to the coast and a refinery was constructed at Abadan[118]. This discovery was to alter radically the face of the world oil industry[119]. D‟Arcy was given a million pounds‟ worth of shares but Burmah Oil Company continued to be the leading shareholders contributing to the APOC[120]. In 1914, the first Lord of the Admiralty, Winston Churchill, was keen to see the Navy change its ships from coal to oil power. He had an interest in the oil reserves of Iran to guarantee a continuous oil supply and to ease the strain on Britain‟s hard-pressed coal supplies at a time of economic reconstruction. In fact, Churchill viewed the APOC with increasing interest, as it had a promising future with its various oilfields in the Middle East[121]. As a result, after prolonged negotiations, Churchill bought 51% of the APOC with the aim of establishing a new kind of industrial animal[122]. The British navy converted from coal to oil which was an attraction in the emergence of the British oil industry and was the main reason for the growth of the British government‟s interest in the affairs of the oil companies[123]. Oil demand expanded in the post-war period, relying extensively on imports of petroleum from Iran because of the conversion from coal to oil and owing to Britain‟s negligible local production[124]. Churchill‟s interest in the Iranian oil reserves reflected increasing British dependence on Iranian oil and the reorientation of the peacetime economy away from coal. In summary, more than coal, the oil industry has been associated with government intervention due to its importance in providing intermediate inputs to the British economy.

AIOC’s domination in Iran
Based on a review of the AIOC historiography, there are various debates about the dominant influence of the AIOC in Iran and the motivations for Musaddiq to nationalise the oil industry. To examine these debates, this section draws upon the secondary literature to reflect the opinions of other scholars towards the AIOC‟s existence in Iran and the agreements that it made with Iran. British Petroleum began its activities in Iran under the name of the Anglo Persian Oil Company (APOC) which had changed at the beginning of the Twentieth Century to Anglo Iranian Oil Company or (AIOC) with the support of the British government. Up to the Second World War, Iraq and Iran provided the only oil sources for the AIOC, although the company was undertaking explorations in different parts of the world[125]. As mentioned earlier, the AIOC discovered oil in Persia in 1908 and pioneered oil prospecting in oil-rich Iran. The discovery of oil in Iran not only marked the successful beginning of the modern oil industry in the Middle East but the AIOC‟s plan was to become the only one of the seven sisters[126] to be wholly British-owned[127]. Bostock and Jones argued that the AIOC had become “the most important British interest in Iran by the mid 1920s”[128]. Not surprisingly, therefore, the British government acquired a 51% stake and became a major stakeholder in Iran and had the right to nominate two government directors and a contract to supply fuel oil to the Royal Navy[129]. However, government directors on the Board looked at the company from a wider strategic viewpoint and only retained a Board veto to safeguard their interests. The company was seen as British because the majority of the shares were held by the British government. The AIOC had the most noticeable and strongest British government connections because it was dealing with a strategic asset in a strategic area. Moreover, the AIOC had imperial connections and powerful national as well as strategic importance to Britain‟s economic situation and overseas interests[130]. Bill and Louis were not alone in observing that the AIOC was a dominant power in Iran since “the company was mainly owned by the British government, its power was in the end that of Britain”[131]. The British government sought to marry the protection of AIOC interests in Iran with wider concerns for fighting communism and advancing the Anglo-American special relationship[132]. This explains why the AIOC was observed and widely reported in the literature as an arm of imperial strategy under strong British government influence where the Iranian oil deposits were concerned. As Odell pointed out, the ultimate goal being, as was widely believed, to maintain control and serve its own interests[133]. There is no doubt that the great political power of the British government gave the AIOC more strength to confront Iranian demands and maintain its imperialism. The AIOC had a notion to ally itself in Iran to British ideals and carry on with its political and economic exploitation to maintain its imperial identity. The AIOC was a dominant player within the Iranian economy and was effectively the backbone of the British Empire. As Marsh indicated, the AIOC was “a state within a state and regarded to all intents and purposes as an arm of the British Admiralty and British Strategic policy”[134]. The AIOC‟s operations in Iran were extremely important to Britain‟s economic situation and prestige[135]. The AIOC was Iran‟s main source of income because it had in Iran “Abadan” which is the world‟s largest refinery[136]. Abadan was “…truly impressive for its scale and scope and its vast yet orderly design, covered 400 acres in addition to its tank-farms and housing estates”[137]. In 1951, the AIOC had a score of producing wells, various field equipment, an industrial area with important stores and workshops and it contained its own hospital so it was a major source of employment. The relationship between the company and the Iranian government was very
strange, given their mutual dependency, and the fact that they seemed to wish it otherwise. The company was not prepared to give up any of its control and share its power with the Iranians. Although the total profits of the AIOC constituted a formidable sum in the Iranian economy, the share of the Iranian government in the profits was relatively small[138]. As a consequence, in 1928, there had been negotiations between the Iranian government and the Anglo Persian Oil Company to replace the 1901 concession with a new one because the Iranians were dissatisfied with the terms of the old concession and were keen to improve the royalty terms. Friction developed between the two parties and various disputes increased gradually over a number of issues. For instance, Iran complained about the fact of selling oil to AIOC subsidiaries and the British Navy at discounted prices and charging investment expenditures outside Iran as costs of oil operations. By this manoeuvre Iran was deprived of sharing in the profits of companies formed by the AIOC operating outside Iran[139]. The company requested an extension of the concession period to recoup their investment and refused to pay the Iranian income tax introduced in 1930, claiming tax exemption under its concession agreement[140]. According to Jones, securing the concession “was a case of the British government and the oil interests using each other to their mutual benefit and to the possible disadvantage of the Persians”[141]. It is clear that the AIOC was eager to secure a good deal from Iran by extending its concession to maintain its control over the Iranian oil resources.


Notes & References
113. Sampson, The Seven Sisters: The Great Oil Companies and the world they made, 53.

114. Penrose, The large International firm in developing countries, 109.

115. Issawi and Yeganeh, The Economics of Middle Eastern Oil, 26.

116. Penrose, The large International firm in developing countries, 109.

117. Ibid, 57.

118. Ibid, 112.

119. Jones, The State and the emergence of the British oil industry, 2.

120. Sampson, The Seven Sisters: The Great Oil Companies and the world they made, 54.

121. Ibid, 51.

122. Ibid, 52.

123. Jones, The State and the emergence of the British oil industry, 9.

124. Issawi and Yeganeh, The economics of Middle Eastern Oil, 18.

125. Penrose, The large International firm in developing countries, 113.

126. Seven Sisters is a group of oil companies which included: Standard Oil of New Jersey and Standard Oil Company of New York (now ExxonMobil); Standard Oil of California, Gulf Oil and Texaco (now Chevron); Royal Dutch Shell; and Anglo-Persian Oil Company (now BP).

127. Jones, The State and the emergence of the British oil industry, 128.

128. Bostock and Jones, British business in Iran, 1860s- 1970s, 36.

129. Ibid, 112.

130. Marsh, Anglo-American Crude Diplomacy: Multinational Oil and the Iranian Oil Crisis, 19511953.

131. Bill and Louis, Musaddiq, Iranian nationalism, and oil, 329-30.

132. Marsh, HMG, AIOC and the Anglo- Iranian Oil Crisis, 143.

133. Odell, The significance of oil.

134. Cited in Marsh, Anglo-American Crude Diplomacy: Multinational Oil and the Iranian Oil Crisis,
1951-1953, 28.

135. For the people of Great Britain, AIOC has opened up a rich supply of petroleum products which have come to be crucial for national progress and also for national safety; Marsh, Anglo-American Crude Diplomacy: Multinational Oil and the Iranian Oil Crisis, 1951-1953, 28.

136. Abrahamian, The 1953 coup in Iran.

137. Longrigg, Oil in the Middle East, 151.

138. Karshenas, Oil, State and Industrialization in Iran, 80.

139. Issawi and Yeganeh, The Economics of Middle Eastern Oil, 27.

140. Ibid.

141. Jones, The State and the emergence of the British oil industry, 130.


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