The Turkish Petroleum Company
In 1912, several rival groups banded together to establish the
Turkish Petroleum Company (TPC), which would seek a concession
to explore for Iraqi oil. The original purpose of the TPC was
to eliminate rivalry among the partners and to outflank American
concession seekers. The TPC's guiding hand was Calouste Gulbenkian,
who had been hired by British banking interests because of his
knowledge and his ability to influence the decisions of the Turkish
government. His 5 percent holdings in TPC reputedly made him the
richest individual in the world for many years, and were the source
of his nickname, "Mr. Five Percent."
Establishment of the TPC did not eliminate the rivalry among
the shareholders representing various national interests. Britain
had a long-standing strategic interest in Mesopotamia because
of its location in relation to Britain's military and commercial
routes to India. The British government's decision before World
War I to convert its naval fleet from coal to oil increased the
importance of the area. By 1914, the British-government- controlled
Anglo-Persian Oil Company had bought 50 percent of the shares
of TPC and was exerting pressure on the Turkish government to
grant the Anglo-Persian Oil Company a concession, but World War
I delayed negotiations.
World War I demonstrated to the major powers the importance of
securing their own sources of oil. The British-French San Remo
Conference of 1920 provided for permanent British control of any
company established to develop Mesopotamian oil, but allocated
Iraqi interests 20 percent if they chose to invest. France claimed
the German shares of TPC that had been seized as enemy property
and formed the CFP to hold the French shares in TPC. The Italian
and United States governments protested their exclusion. After
prolonged and sharp diplomatic exchanges, American oil companies
were permitted to buy into TPC, although negotiations were not
completed until 1928.
Although Iraq became a British mandate in 1920, that did not
guarantee TPC an exclusive concession. Using the promise of a
concession from the prewar Turkish government, TPC began negotiating
for one in 1921. A major point of contention was Iraq's 20 percent
share of any oil development company, a condition stipulated at
the San Remo Conference. By the early 1920s, TPC consisted almost
entirely of oil companies that did not want Iraq's representation
or its interference in the management of TPC. They successfully
resisted Iraqi efforts to participate despite pressure by the
British government to accept Iraqi shareholders.
A concession was granted to TPC in March 1925. Many Iraqis felt
cheated from the beginning of the concession. Its term was for
seventy-five years, and it covered twenty-four plots selected
by TPC. The Iraqi government was to receive royalties at a flat
fee per ton to be paid in English pounds sterling, but with a
gold clause to guard against devaluation of the pound. Royalty
payments were linked to oil company profits, but this clause became
effective only after twenty years. The Iraqi government had the
right to tax TPC at the same rate levied on other industrial concerns.
TPC was to build a refinery to meet Iraq's domestic needs and
a pipeline for the export of crude oil. The Iraqi government had
the right to lease other plots for oil exploration and development,
and TPC was not excluded from bidding on these additional plots.
TPC began exploratory drilling after the concession was ratified
by the Iraqi government. Oil was discovered just north of Kirkuk
on October 15, 1927. Many tons of oil were spilled before the
gushing well was brought under control. This indication of a large,
valuable field soon proved well-founded.
The discovery of oil hastened negotiations over the composition
and the functions of TPC. The shareholders signed a formal agreement
in July 1928. The Anglo-Persian Oil Company, the Dutch Shell Group,
the CFP, and the Near East Development Corporation (which represented
the interests of five large American oil companies) each held
23.7 percent of the shares, and Gulbenkian the remaining, but
nonvoting, 5 percent. TPC was organized as a nonprofit company
registered in Britain that produced crude oil for a fee for its
parent companies, based on their shares. TPC was limited to refining
and marketing for Iraq's internal needs to prevent any competition
with the parent companies. The Anglo-Persian Oil Company was awarded
a 10 percent royalty on the oil produced, as compensation for
its reduced share in TPC.
A major obstacle facing United States firms had been a clause
in the 1914 reorganization of the TPC that stipulated that any
oil activity in the Ottoman Empire by any shareholder would be
shared by all partners. Gulbenkian had insisted on the clause
so that the oil companies could not circumvent his interests by
establishing other companies without him. This arrangement, continued
in the 1928 reorganization, came to be known as the Red Line Agreement
because the TPC partners were forbidden to act independently within
the boundaries of the now-defunct Ottoman Empire. This "red line"
effectively precluded the United States and other TPC partners
from concession hunting and from oil development in much of the
Persian Gulf region until after World War II.
In 1929 the TPC was renamed the Iraq Petroleum Company (IPC).
IPC represented oil companies that had diverse and sometimes conflicting
interests. The Anglo-Persian Oil Company and Standard Oil of New
Jersey (also known as Esso and subsequently known as Exxon), for
example, had access to major sources of crude oil outside Iraq,
and they therefore wished to hold the Iraqi concessions in reserve.
CFP and other companies, in contrast, pushed for rapid development
of Iraqi oil to augment their short crude oil supplies.
IPC's parent companies delayed development of the Iraqi fields,
and IPC's concession expired because the companies failed to meet
certain performance requirements, such as the construction of
pipelines and of shipping terminals. IPC's concession was renegotiated
in 1931. The new contract gave IPC a seventy-year concession on
an enlarged 83,200-square-kilometer area, all east of the Tigris
River. In return, however, the Iraqi government demanded and received
additional payments and loans as well as the promise that IPC
would complete two oil pipelines to the Mediterranean by 1935.
Iraqi politicians remained suspicious of IPC's motives. Many
Iraqis believed that IPC was deliberately withholding Iraqi crude
from the market to boost the price of the parent companies' oil
produced elsewhere. In 1932 Iraq granted a seventy-five-year concession
to the British Oil Development Company (BODC), created by a group
of Italian and British interests, to 120,000 square kilometers
west of the Tigris River. The terms were more favorable to the
Iraqi government than those of earlier agreements. BODC financing
was insufficient, however, and the company was bought out by IPC
in 1941 and was renamed the Mosul Petroleum Company (MPC). IPC
shareholders asserted their monopoly position again when they
won the concession rights to southern Iraq and in 1938 founded
the Basrah Petroleum Company (BPC) as their wholly owned subsidiary
to develop the region.
Transport remained the main obstacle to the efficient export
of Iraqi oil. When France joined IPC after World War I, it wanted
the Iraqi pipeline to transit its mandate in Syria to a coastal
terminal at Tripoli, Lebanon. The Iraqis and the British preferred
a terminal at Haifa, in Palestine. In 1934, a pipeline was completed
from the Kirkuk fields to Al Hadithah, where it divided, one branch
going to Tripoli (the Tripoli branch was closed by Syria--which
supported Iran--in 1982 after the outbreak of the Iran-Iraq War
in 1980) and the other to Haifa (the Haifa line was closed in
1948). In 1938, nine years after the discovery of oil, Iraq began
to export oil in significant quantities. Iraqi production averaged
4 million tons per year until World War II, when restricted shipping
in the Mediterranean forced production down sharply .
Data as of May 1988