Talk:Anglo-Persian Oil Company/The 1933 Agreement of Iran

1933 Agreement of Iran

The 1933 Agreement was a revision to an outdated, unfair arrangement between the British and Iranian governments on behalf of the Anglo-Persian Oil Company and its ventures and revenue. Some scholars refer to the 1933 Agreement as Reza Shah's “great betrayal” of Iran. Due to its superficial appearance of combating an imperial power, the 1933 Agreement allowed the British to maintain an oil concession in Iran. The 1933 Agreement provided the British with a new 60 year concession. Although Reza Shah and the Iranian people gained a reduction of area over the Anglo-Persian Oil Company, the Company still demonstrated dominance and exploitation in Iran.

The D'Arcy Concession

The D'Arcy Concession was an agreement between Persian ruler Mozafferddin Shah and William Knox D'Arcy, a British-Australian businessman, in 1901. Under the concession, D'Arcy and his crew of oil explorers and expediters were allowed to search and cultivate oil throughout Iran, expect in the northern provinces which we dominated by the Russians. In conjunction with the APOC, the D'Arcy Concession promised an exclusive right to explore, extract, and refine oil area of about 400,000 square miles (1,000,000 km²), as well as an exclusive right to construct pipelines throughout Persian lands expcept in the northern regions that bordered Russian lands. This agreement would last for 60 years. In return the agreement promised the Persian ruler a cash payment of about $100,000, a 10% ownership of the “first exploration company”, 16% of the Anglo-Persian Oil Company's profits, and at the end of the 60 year concession all of the Anglo-Persian Oil Company's assets were to belong to the Persian [Iranian] governmenti. According to the concession, D'Arcy and his company were allowed to use all lands belonging to Persia which could be used for oil exploration and extraction. This entrance for D'Arcy virtually allowed British access to all of the Persian lands excluding the five provinces in the north. Because of this entrance, it strengthened the company's interest as well as the British presence in the country. Furthermore, it was agreed that there would be no taxation on the importation of equipment used for exporting and refining the oil and also the exportation of oil and oil related products. This clause allowed the British to have a larger profit, which in return would be a larger profit for the Persian government if the concession was carried out in good faith. Also in the interests of the Persian government, the “first exploration company” was not to become null and void for two years. Despite the superficial appeal of the deal, the concession was a win-win for both the Persian and the British investors; no other deals with better terms were offered to Persia at this time and if the British were able to access the oil and cultivate the oil fields both states could prosper off of this investment. However, the problem is that prosperity is not viewed the same way by both parties in the late 1910s into the mid 1920s.

Discovery of Oil

In October 1904 two engineers on behalf of the Burmah Oil Company were in contact with D'Arcy. Burmah was a Scottish oil company that was founded in 1886. The company had great success in South Asia, and D'Arcy felt that a deal would benefit both parties. On January 25, 1905 an agreement was finalized between the Board of Burmah and Fletcher Moulton, who represented D'Arcy. D'Arcy was relieved that he was able to receive some additional funding for his exploration, however there were many stipulations in the agreement that favored the Burmah Oil Company that later caused problems for associates of D'Arcy. By April 1908 there was no promising produced oil fields. D'Arcy was on the verge of bankruptcy and the other investors were not pleased with the expedition. On April 15, 1908 “the Board of Burmah requested D'Arcy] to pay half of any expenditure up to £20,000 [and] that if he declined by the end of the month ‘the Board would then consider whether they would not at once abandon the operations in Persia entirely.’” After considerable thought, D’Arcy ordered his men to return to England at the end of April. But George Reynolds ignored D'Arcy’s orders and on May 28, 1908 he struck oil by sheer luck in Masid-i-Suleiman, Iran.

The Anglo-Persian Oil Company

The Anglo-Persian Oil Company was founded in London in 1909 by D'Arcy and his partners in Burmah Oil Company. Yet the government of England was not yet fully comprehending the importance of their newly acquired resource. It wasn't until 1911 when Winston Churchill became the First Lord of the Admiralty did the British become aware of the APOC's vital resource. Churchill supported an idea of Admiral John Fisher to transform the navy's means of energy from coal to oil. This conversion allowed the navy, Britain's most crucial asset to their military and imperial power, faster speeds and lesser smoke emissions/less visibility by the enemy. The APOC was managed, owned, and operated completely by the D'Arcy and his investors with a 51% backing by the British government. With Churchill's recommendation of the effectiveness of oil and its importance to the Admiralty, the British swiftly rushed to acquire a dramatic 51% of the APOC shares. As one scholar notes, “In 1914, the British government purchased a controlling interest in the original concession, and the Iranians found themselves in an unequal commercial relationship with a powerful foreign state. The British set the prices, the amount of output, and the destinations to which the oil was sent, and they used their own formulas to determine profits and the amount of revenue accruing to the Iranian government.” This was an unfair set of events for the Persian government and was an unexpected development from the original scope of the D'Arcy Concession. However, the Persian government was given one million pounds in settlement of Persian claims to due royalties in 1920. The exploitation of oil caused an extreme uproar in Persian society and in economical and political relations occurring within Persia from 1915 until 1925.

The Pressures for Revisions to the D'Arcy Concession and the 1914 Agreement

There were many pressures by the Iranian people to revise the D'Arcy Concession and the agreement made in 1914 between the governments of Persia and Great Britain. Tehran “did not protest until August 25, 1920 when it ordered its financial advisor, Sydney Armitage-Smith, to negotiate with the APOC on royalties” owed to the Persians by the British. As a result the Persian government was awarded one million pounds in settlement. But the Persian economy was in awe of the profits being made by the British. The Persian merchants and bazaaris were no stranger to the suffocating grip of British control of Persian commerce and resources. The Persians remembered the Talbot Concession of 1890 and how Persians suffered the losses of economic prosperity at the hands of a foreigner in their lands much like the oil concessions currently taking place. Public hostility to the increasing dominance of foreign economic interests in the country contributed to the overthrow of the Qajar Dynasty.

Reza Shah and Abdolhossein Teymourtash

Reza Shah had become the ruler of Persia in 1925. Like many, Reza Shah “considered the D'Arcy Concession unfair, extracted when Iran had been at its lowest level of power and prestige while Britain had been at its highest8.” Reza Shah was determined to make Persia a sovereign state. Reza Shah began eliminating local and foreign privileges and “subdued the power of politicians, landlords, mullahs, and the tribes, and then, to Britain's surprise, concentrated on limiting the influence of the British and their institutions in Iran.” Simultaneously Reza Shah launched a modernization program to strengthen Persia: “The government built electric power plants, roads, telecommunication facilities, government office buildings, and textile, cement, and food processing factories.” This program was financed by both oil income and internal taxes. When Reza Shah came into power he and his administration started to ridicule the Qajar's dealings with the British. He tested the legality and validity of the 1920 agreement based on the fact that it never passed in the Persian National Assembly, the Majlis. In 1925 First Minister of the Court, Abdolhossein Teymourtash, began talks with the British in hopes of revising certain stipulations of past agreements: “Abdolhossein Teymourtash told Sir John Cadman (the APOC's chairman) that the Iranian government would grant a new 60 year concession, if, in return, the APOC would agree to reduce the area of the concession, to a complete cancellation of the exclusive right of transportation, to give the Iranian government a substantial block of the shares, to register itself (the APOC) in Tehran and in London, and to be exempted from tax by both governments.” The British declined this offer, and in 1928 Abdolhossein Teymourtash made clear demands that Persia be given 25% of APOC's total shares, that areas under the old concession be reduced accordingly, and that Persia be given 12.5% of the dividends out of the shares. At this time Tehran was in complete turmoil financially. Reza Shah had a lavish lifestyle filled with exorbitant and frivolous spending in addition to his programs of modernization that was dependent on the oil revenue. However, by 1931 Iran's oil revenues had fallen by 76 % from the previous year. No longer did Reza Shah have the income to run his programs of reform and modernization and he decided that he needed to make his stand against the British. As one historians writes, “On November 27, 1932, Reza Shah, presiding over the council of ministers, had called for the text of the D'Arcy Concession and records of discussions and in a fit of anger ordered them to be thrown into the stove that heated the room.” After his fit of anger, Reza Shah instructed Abdolhossein Teymourtash to notify the APOC that the D'Arcy Concession had been canceled. The British did not accept the Shah's demands for the cancellation of the D'Arcy Concession and threatened to take the matter into the Permanent Court of Justice. Thinking that the British had some leverage, the British government, disguised as the APOC, decided to present the matter to the League of Nations. The League asked its president, Eduard Benes of Czechoslovakia, to mediate between the two parties. On April 4, 1933 Sir John Cadman and Sir William Frazer of the APOC went to Tehran to discuss cancellation of the D'Arcy and possible revisions being drawn up as a new contract. Neither side budged for two weeks and Cadman wanted to take the matters to the League of Nations again. However, Reza Shah knew that he couldn't allow this to occur. If he did, it would only drag out the process. Cadman was invited into Reza Shah's palace where the two discussed possible solutions to the predicament. Sayed Hassan Taqizadeh, the finance minister in 1933, demanded that the area of oil exploration should be reduced to 15% of the area of the D'Arcy Concession, the exclusive right of transportation should be canceled, the APOC should give 20% of its shares to the Persian government, APOC should train Iranians and limit the number of non-Iranian workers, and that the new concession would not exceed the number of years left in the D'Arcy Concession (28 years). Cadman and the other representatives knew that the Shah would not be willing to sign another 60 year concession, so Cadman and his fellow peers prepared to leave, but stopped at the palace of Reza Shah once more. According to Mostafa Elm, “Cadman's astute strategy, the Shah's authoritarian attitude, and the timidity of the Iranian team at the meeting were central to the atmosphere in which decisions on the 1933 agreement were reached.” On April 24 and 26, 1933 Cadman met with Reza Shah and finally came to an agreement. This agreement is known as the 1933 Agreement.

The 1933 Agreement

The 1933 Agreement was an agreement that was met with great acceptance by the Iranian government and people alike at the time, however, many scholars like Mohammad Majd have later referred to the agreement as Reza Shah's “historic betrayal” and Reza Shah's “sell-out.” Later in the Iranian nationalization of oil in the early 1950s the agreement and Reza Shah's actions were referred to as a dictator giving into western demands in return for money. The 1933 Agreement was signed on April 30, 1933 between Reza Shah and the APOC and its main components were as follows: “the new agreement cancels the former 16% basis of royalty and provides for the payment of 4 gold shillings per ton on all oil extracted with a minimum of 5,000,000 tons yearly; also that it provides for the payment of 2,000,000 pounds (in gold) against outstanding claims and last year's royalty; and that the company receives a thirty year extension of its concession.” Also the 1933 Agreement called for “a reduction of the company's area of operation from 500,000 square miles (1,300,000 km²) to 100,000 square miles (260,000 km²), and the elimination of the company's exclusive right to construct pipelines to Iran's Persian Gulf coast.” These revisions and the new agreement of 1933 allowed Iranians more involvement with the company, while at the same time limiting Britain's operations both with land proximity and revenue. It allowed Persia to not be subjected to the high taxes that the British government implemented to devastate the Pahlavi's government and limit their prosperity. The British knew that with their old agreements there was a strong need for money by Reza Shah for his own personal use as well as to his programs for modernization. But the British also realized that they had more to lose than to gain. If Reza Shah was serious about canceling the D'Arcy Agreement and any other agreements made prior to 1925, the British were virtually defenseless. Reza Shah also elevated the status of Persians in the APOC: he implemented a 4 % tax on the APOC , demanded that Iranians have representation on the APOC's board, secured a 20% share of the company for Iran, and also had the APOC promise cheaper oil for the Iranians. The cancellation of free transportation and the diminishing size of the area controlled by the APOC allowed the Persian government more control over their lands, as well as new opportunities with other businessmen and entrepreneurs that weren't necessarily British.

The aftermath and/or impacts of the 1933 Agreement

The 1933 Agreement demonstrated Reza Shah's determination to limit foreign powers of control in Persia. Ironically, it also demonstrated Reza Shah's need for the foreign powers due to the lack of revenue that was being brought into the government by a poor economy. In order for Reza Shah to implement his new ideas of modernization and reform he needed money, and a great deal of the money that he would receive would be from the British and the APOC. Reza Shah and the Persians surrendered their right to annul the D'Arcy Agreement and made the 1933Agreement a finalized arrangement between the two parties until the 1990s (if the agreement was to be carried out in full).However, the 1933 Agreement did not allow any room for revisions for either side. In the early 1950s the 1933 Agreement, as well as the D'Arcy Concession and any other arrangements made between the Iranian government and the APOC/British were dissolved with the nationalization of Iran's oil by Mohammad Mossadegh. Reza Shah's minister of finance, Taqizadeh, explained in a 1950 speech to the Majlis (the National Assembly) that “we were a few helpless men without authority who did not agree with it [the 1933 Agreement] and we were exceedingly sorry that it had to happen.” Taqizadeh knew that if he did not comply with Reza Shah's orders than he would be murdered like Abdolhossein Teymourtash under the Shah's orders.