Post-World War II Through the 1970s
With the end of World War II, IPC and its affiliates undertook
repair and development of facilities in Iraq as rapidly as financing
and materials became available. Exploration and drilling were
pressed, particularly in the Basra and the Mosul areas, to meet
concession terms. Although considered a priority, the elimination
of transport constraints was set back when a larger second, nearly
completed pipeline to Haifa was abandoned in 1948 as a result
of the first Arab-Israeli war. Use of the existing Haifa line
was also discontinued. In 1951, however, commercial exports by
the BPC of good quality crude began via a new pipeline to Al Faw,
on the Persian Gulf. Exports were boosted further with the completion
in 1952 of a thirty-inch pipeline linking the Kirkuk fields to
the Syrian port of Baniyas, which had a throughput capacity of
13 million tons per year. In that year, production from Basra
and Mosul approached 2.5 million tons while the Kirkuk fields
increased production to more than 15 million tons. In the space
of a year (1951-52), total Iraqi oil production had doubled to
almost 20 million tons.
Iraqi officials still harbored ambitions, dating back to the
1920 San Remo Conference, to take control of their nation's oil
resources. The elimination of transportation bottlenecks and the
subsequent rapid growth of exports encouraged Iraqi assertiveness.
IPC's costly, irretrievable investments in Iraq's oil infrastructure
gave the government even greater leverage.
One particularly sore point among the Iraqis concerned IPC's
contractual obligation to meet Iraq's domestic requirements for
gasoline and other petroleum products. An IPC subsidiary operated
a small refinery and distribution company based near Kirkuk that
supplied two-thirds of Iraq's needs. But IPC imported the remaining
third from a large refinery in Abadan, Iran. Iraq considered this
arrangement politically imprudent, a judgment that was vindicated
when, in the early 1950s, Iranian production was cut during that
country's oil industry nationalization crisis. In 1951 the Iraqi
government took over, with compensation, the small Kirkuk refinery
and hired a United States contractor to build a refinery near
Baghdad. This represented Iraq's first concrete step toward taking
control of the oil industry.
In 1952 Iraq followed the examples of Venezuela and of Saudi
Arabia by demanding and receiving a 50 percent tax on all oil
company profits made in the country. The tax more than doubled
Iraqi profits per ton on exported oil.
The 1958 Iraqi revolution had little effect at first on the government's
attitude toward IPC. The government needed the oil revenues generated
by IPC; moreover, Iran's experience when it nationalized its oil
industry was a vivid reminder to the Iraqis of the power the oil
companies still wielded. In 1959 and in 1960, surpluses led the
international oil companies to reduce the posted price for Middle
Eastern oil unilaterally, which reduced government revenues significantly.
IPC's policy of exploiting and developing only .5 percent of the
total concessions it held in Iraq, and of holding the remainder
in reserve also reduced Iraqi revenues. Perhaps in response to
the general situation, Iraq convened a meeting in Baghdad of the
major oil-producing nations, which resulted in the September 1960
formation of the Organization of Petroleum Exporting Countries
(OPEC). In December 1961, the Iraqi government enacted Law No.
80, which resulted in the expropriation of all of the IPC group's
concession area that was not in production. The expropriation
locked the government and the oil companies in a controversy that
was not resolved for more than a decade. The companies had two
paramount objectives in seeking to mitigate the law's effect.
One was to regain control of the concession to the North Rumaylah
field in southern Iraq, which was expected to be a major source
of oil. In particular, the companies did not want competitors
to gain access to it. The companies' second major objective was
to limit the impact of Iraq's actions on IPC concession agreements
in other oil- exporting nations.
In February 1964, the government established the state-owned
Iraq National Oil Company (INOC) to develop the concession areas
taken over from IPC. INOC was eventually granted exclusive rights
by law to develop Iraq's oil reserves; granting concessions to
other oil companies was forbidden, although INOC could permit
IPC and other foreign companies to participate in the further
development of existing concessions. Nevertheless, IPC continued
to lift the bulk of Iraqi oil from the Kirkuk field that it had
retained, and, more important, to export and to market it. IPC
therefore remained the arbiter of existing, if not potential,
Iraqi oil production.
Iraq's disillusionment with newly formed OPEC began just after
the enactment of Law 80. Iraq applied pressure on OPEC to adopt
a unified negotiating stance vis-a-vis the oil companies. Instead,
OPEC members negotiated separately. This allowed the oil companies
to extract concessions that permitted them to switch production
away from Iraq and therefore to pressure Iraq with the prospect
of lower oil revenues. Iraq's relationship with IPC was further
aggravated in 1966 when Syria raised transit fees on the pipeline
that carried two-thirds of Iraqi oil to port and demanded retroactive
payments from IPC. When IPC refused to pay, Syria closed the pipeline
for several months, an action that cost the Iraqi government much
The eight-year shutdown of the Suez Canal that followed the June
1967 Arab-Israeli War increased the importance of Mediterranean
oil producers because of their proximity to European markets.
In 1970 Libya took advantage of this situation to win higher prices
for its oil. Iraq, which was in the unusual position of exporting
oil through both the Gulf and the Mediterranean, demanded that
it be paid for its oil at the Libyan price. IPC countered that
Iraqi oil, because of its higher sulfur content, was inferior
to Libyan oil. Meanwhile, exports of Iraqi oil via the Mediterranean
began to decline, which IPC attributed to falling tanker rates
that made Gulf oil more competitive. Iraq, however, interpreted
the declining exports as pressure from the oil companies. In general,
Iraq believed that IPC was intentionally undercharging customers
for oil it sold on behalf of Iraq and was cutting back Iraqi production
to force Iraq to restore the nationalized concession areas. In
response, Iraq attempted to make INOC a viable substitute for
IPC. The INOC chairman of the board was given cabinet rank and
greater authority, but INOC's activities were hampered by lack
of experience and expertise. Iraq therefore sought assistance
from countries considered immune to potential IPC sanctions and
to retaliation. In 1967 INOC concluded a service agreement with
Entreprise des Recherches et des Activites Petrolieres (ERAP)--a
company owned by the French government--covering exploration and
development of a large segment of southern Iraq, including offshore
areas. Some foreign observers doubted that the terms of the arrangement
were more favorable than IPC's terms, but more important from
Iraq's point of view, the ERAP agreement left control in Iraqi
hands. By 1976 ERAP started pumping the oil it had discovered,
at which point INOC took over operation of the fields and began
delivering the oil to ERAP.
In 1967 INOC tapped the Soviet Union for assistance in developing
the North Rumaylah field. The Soviet Union provided more than
US$500 million worth of tied aid for drilling rigs, pumps, pipelines,
a deep-water port on the Persian Gulf, tankers, and a large contingent
of technicians. In 1972, the North Rumaylah field started production
and produced nearly 4 million tons of crude.
In the same period, Iraq obtained aid from French, Italian, Japanese,
Indian, and Brazilian oil companies under service contracts modeled
on the 1967 ERAP agreement. The service contracts, which Iraq
did not regard as concessions, allowed the foreign oil companies
to explore and to develop areas in exchange for bearing the full
costs and the risks of development. If oil were discovered, the
companies would turn their operations over to INOC, which would
sell them the oil at a discounted rate.
Iraq's increasing ability to manage its petroleum resources finally
induced IPC to negotiate. In 1972 IPC promised to increase its
production in Iraq and to raise the price it paid for Iraqi oil
to the Libyan level. In return, IPC sought compensation for its
lost concession areas. Iraq rejected this offer and, on June 1,
1972, nationalized IPC's remaining holdings in Iraq, the original
Kirkuk fields. A state-owned company, the Iraqi Company for Oil
Operations (ICOO), was established to take over IPC facilities.
BPC was allowed to continue its operations.
In February 1973, Iraq and IPC settled their claims and counterclaims.
IPC acknowledged Iraq's right to nationalize and agreed to pay
the equivalent of nearly US$350 million to Iraq as compensation
for revenue lost to Iraq over the years when IPC was selling Iraqi
oil. In return, the government agreed to provide to IPC, free
of charge, 15 million tons of Kirkuk crude, valued at the time
at over US$300 million, in final settlement of IPC claims. Some
observers believed that IPC had received a liberal settlement.
The October 1973 Arab-Israeli War impelled the Iraqis to take
complete control of their oil resources, and Iraq became one of
the strongest proponents of an Arab oil boycott of Israel's supporters.
Although Iraq was subsequently criticized by other Arab countries
for not adhering to the agreed-upon production cutbacks, Iraq
nationalized United States and Dutch interests in BPC. By 1975
all remaining foreign interests were nationalized. Fifty-three
years after the humiliating San Remo agreement, Iraq had finally
gained complete sovereignty over its most valuable natural resource.
Throughout the mid- to late-1970s, increases in the price of
oil caused Iraqi oil revenues to skyrocket even as production
fluctuated. Iraq funneled much of this revenue into expanding
the oil industry infrastructure. Refinery capacity was doubled,
and in 1977 a key pipeline was completed from the Kirkuk fields
across Turkey to a Mediterranean terminal at Dortyol.
In 1976, the structure of the Iraqi oil industry was revamped.
A new Ministry of Oil was established to direct planning and construction
in the petroleum sector and to be responsible for oil refining,
gas processing, and internal marketing of gas products through
several subsidiary organizations. INOC would be responsible for
the production, transport, and sale of crude oil and gas. Some
of its operations were contracted out to foreign service companies.
The State Organization for Northern Oil (SONO), subordinate to
INOC, replaced ICOO as the operating company in the northern fields.
In subsequent reorganizations, SONO was renamed the Northern Petroleum
Organization (NPO), and a Central Petroleum Organization (CPO),
as well as a Southern Petroleum Organization (SPO) were also established.
The State Organization of Oil Projects (SOOP) took over responsibility
for infrastructure from INOC, and the State Organization for Marketing
Oil (SOMO) assumed responsibility for oil sales, leaving INOC
free to oversee oil production.
Data as of May 1988