Britain and the Abadan Crisis
enterprise.13 The length of the agreement was, to be sure, not much different from others—the concession of the Imperial Bank was likewise for sixty years, to 1948— but this agreement was for the establishment of an industry that, if successful, had the and potential to grow exponentially. That this was not understood was clear from the manner in which the negotiations were approached and the contract sealed, with the sense from the Iranian side that Knox D’Arcy was on a fool’s errand. Given the initial difficulties in striking oil they might have been excused this complacency. While Knox D’Arcy had paid £20,000 for the concessionary rights (around £2.3m in today’s terms), with a further £20,000 in paid-up shares,14 he had spent considerably more prospecting for oil (in the process selling most of his rights to Burmah Oil) before finally striking oil at the eleventh hour in 1908.15 In retrospect the contract, which envisaged Iran receiving a royalty of 16% on the company’s profits, was clearly misconceived, not least because by 1919 with the balance of power between the two parties even more stark Britain decided to delimit more strictly what might constitute the profits of the company.16 There was some merit in clarification given the diverse and growing nature of the industry, but the clarification went against Iran and while accepted by the Iranian government was nevertheless regarded as a convention and gentleman’s agreement rather than a contractual revision. It was accepted for much of the 1920s in part because the turmoil of the post war years meant there was little ability to challenge the decision, but also because the steady rise in royalty payments (they tripled over the decade) meant there was also little appetite to do so. That said, with the overthrow of the Qajars and the establishment of the Pahlavi dynasty in 1925, there was a renewed attempt by Iranian politicians to have the contract reviewed and revised. Quite apart from the clarity required on the nature of the payments afforded to Iran it was clear to the Iranian government that royalties payable on ‘profits’ were far too opaque and open to abuse especially as the complexity of company operations grew. But in addition, the new intensely nationalist administration argued that the concession had been agreed by the then Shah prior to the Constitutional Revolution of 1906, and therefore as an arbitrary act of a despot lacking any form of legitimacy. Matters came to head by the end of the 1920s as the Great Depression affected the company’s profits and by extension Iran’s royalties, so that these were now considerably less than the tax paid to the British exchequer. The Iranian government was certainly not shy in expressing its views, and the Minister of Court, Abdolhossein Teymourtash, pointedly referred to this ‘fine asset’ when he visited the refinery at Abadan in 1928. A British diplomat noted that the Minister of Court’s ‘general attitude was one of paternal pride in the 13
See R. Ferrier, The History of the British Petroleum Company: Vol. I, The Developing Years 1901-3 (Cambridge: CUP, 1982), p. 42. Ferrier notes that the concession was not unusual by the standards of the day and the risk involved (p. 43). 14 The additional shares noted in Ferrier, p. 42, are omitted from Butler’s account. The total of £40,000 is the same as that offered for the Reuter’s Concession in 1872 and suggests little imaginative thinking on the part of the Iranians. 15 Ferrier, The History of the British Petroleum Company, p. 60, notes that by 1903, D’Arcy had spent £160,000 on prospecting and was seeking another £120,000, much to the chagrin of Curzon who was sceptical of finding any workable deposits of oil in Persia. See also J. Bamberg, The History of the British Petroleum Company: Volume II, The Anglo-Iranian Years 1928-1954 (Cambridge: CUP, 1994), p. 3. 16 Ferrier described Article 10, ‘a sum equal to 16% of the annual profits of any company or companies’, as ‘vague’ (p. 42).
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