Turkish Petroleum Company ,
British-Armenian oil magnate The forerunner of the Iraq Petroleum Company (IPC) was the Turkish Petroleum Company (TPC), which was established in the early 20th century in the belief that
Mesopotamia (Iraq and parts of Syria) contained substantial reservoirs of oil. It was created by
Calouste Gulbenkian, a
British-Armenian oil magnate. Since Mesopotamia was an
Ottoman possession, early negotiations for an oil concession centered in the empire's capital,
Constantinople. The first interest was shown by
Imperial German banks and companies, already involved in building the
Berlin-Baghdad railway. On January 31, 1911, in an attempt to bring together the competing British and German interests in the region, a British company known as
African and Eastern Concessions Ltd, was formed in which
Deutsche Bank held 25% in exchange for their railway concessions and Gulbenkian held 40%. On October 23, 1912, this company became the Turkish Petroleum Company (TPC). The owners were: • Deutsche Bank: 25% •
National Bank of Turkey (British-owned): 50% • Anglo-Saxon Petroleum Co. (
Royal Dutch-Shell): 25% • Gulbenkian: 15% (held by National Bank of Turkey) The
Royal Navy under
First Lord of the Admiralty Winston Churchill was in the process of switching from coal (available in abundance in the United Kingdom) to fuel oil, but wanted to remain in control of the production of its fuel. It undertook to acquire a controlling interest in The
Anglo-Persian Oil Company, which had been in possession of the
D'Arcy Concession in
Persia since 1909 and was the only producer of crude oil (
Masjed Soleyman oil field) and refined products (
Abadan Refinery) in the Middle East outside of Egypt (which had a fledgling, but small scale oil industry). With the weight of the British government behind the enterprise, the TPC felt that it was necessary (or perhaps beneficial) to concede to the demands of these rival interests to become part of TPC. On March 19, 1914, at the British
Foreign Office, an agreement was adopted, with Gulbenkian's share reduced to 5%, taken care of equally by Shell (22.5%) and APOC (47.5%), leaving 25% to Deutsche Bank. The capital was increased from 80,000 to 160,000 £1 ordinary shares, the new shares were purchased by APOC, while those of the National Bank of Turkey were distributed among the remaining two parties. The Board now had 8 members (APOC: 4, Deutsche: 2, Shell: 2). Gulbenkian's interest, from which he was entitled to reap all financial benefits, was nonvoting and his shares held in custody by APOC and Shell. In clause 10 of this agreement was formulated in short form the
Red Line Agreement of 1928. Deutsche Bank brought a concession granted to the
Anatolian Railway Company to explore for minerals and oil along a -wide strip on either side of its proposed railway in Mesopotamia. On 28 June 1914, the Turkish
grand vizier confirmed the promise of a concession to TPC, but the outbreak of World War I ended TPC's plans. When the Ottoman Empire was broken up in the aftermath of the war, the question of shareholding in TPC became a major issue at the 1920
San Remo conference, where the future of all non-Turkish and
Arab-majority areas of the former Ottoman Empire were mostly decided with the creation of the
League of Nations mandates for
Palestine,
Syria and
Mesopotamia. A rising demand for petroleum during the war had demonstrated to the big powers the importance of having their own sources of oil. Since one of the original partners of TPC had been
German, the
French demanded this share as the spoils of war. This was agreed upon by the
San Remo Oil Agreement, much to the annoyance of the Americans, who felt excluded from Middle Eastern oil and demanded an
open door.) covered the provinces of Mosul (35,130 square miles) and Baghdad (54,540), but excluded the Basra province (53,580) and ran for 75 years. Gulbenkian was left out, no agreement had been reached on his share and it was to be decided at a later date. The composition of TPC in 1925 was from the outset a preliminary one. Under the terms of the concession TPC was to conduct a comprehensive survey beginning within 8) 1,500 feet in the first 3 years and 500 feet in subsequent years until a block had been fully tested. The same conditions applied to TPC on their blocks and their royalty obligations. Additionally, TPC was obliged to reserve 30% of pipeline capacity for sublessees and then on a day-by-day basis buy oil from producers in a competitive market to fill that shared capacity. Secondary Iraqi interests that were safeguarded by other clauses included: the right to appoint one government official to serve on the TPC board of directors, the obligation to TPC to employ Iraqi citizens to the extent practically possible and to also train them towards becoming capable of employment. Whenever new shares were to be issued by TPC, Iraqi interests were to be given the first right to purchase them on 20% of the new stock. These terms specifically resulted in the strongest official criticism of a generally unpopular government decision. The ministers of Justice and Education resigned over the successful refusal of TPC to honor the clause of the
San Remo Oil Agreement that granted local national interests a general right to acquire 20% participation in TPC, not limited to only new shares issued. The American group got an open door and were invited to join TPC. They managed to influence TPC policy and created an open door for further participation. But this policy was weak. Since IPC received the auction proceeds and the procedure used sealed bids which IPC processed, IPC could shut out any competitor at zero upfront cost for the lease to itself. In any event, in the revision of the 1925 concession signed in 1931 IPC was granted a blanket concession for the territory east of the Tigris and no block auction ever took place. In 1925 the
IRR Eastern Line meter-gauge railway extension from Eskikifri was completed via
Tuz Khurmatu to Kirkuk. The headquarters for the exploration effort were erected at Tuz Khurmatu. At
Qarah Tappah and at
Sulaiman Beg 1,000 ft railroad sidings were laid. From Qarah Tappah 26 miles of road were built to a new road junction from which 5 miles of road were built to the drill site at Khashm Al Ahmar and 9 miles to the Injanah site. From Qarah Tappah 36 miles of 3-inch fuel pipe were laid. At Umr Mandan a 270 ft timber bridge was built. From Umr Mandan, 14.25 miles of mixed 3 and 4-inch water pipe were laid to Khashm Al Ahmar. From the siding at Sulaiman Beg 5 miles of road were built to the Palkhanah drill site. Seven miles of mixed 3 and 4-inch water pipe led from Tuz Khurmatu to Palkhanah. At a conference held in London on September 2, 1926, 10 drilling locations were selected. (further activities of infrastructure construction in 1927 are not covered by the above cited sources).
Sharqat, on the banks of the Tigris, was at the time the northern terminus of an isolated standard-gauge stretch to Baghdad of the
Berlin-Baghdad railway, but was not yet connected to the main portion ending at
Nusaybin on the Turkish border, because World War I had put an end to the German-led effort. TPC planned to drill 8 holes with rotary drills to a maximum depth of 4,500 feet widely spaced east of the Tigris and 2 holes with cable-tool rigs, near the Tigris, to a maximum depth of 1,500 feet. The drilling crews were from California. Geologist J. M. Muir located the well at Baba Gurgur, just north of Kirkuk. Drilling commenced, and on October 14, 1927, oil was struck at a depth of 1,521 feet. The initial uncontrolled gushing spilled many tons of oil, but the oil field was soon brought under control and proved to be extensive. TPC drilled a total of 14,646 feet in 1927 and 17,781 feet in 1928.
Red Line Agreement and the creation of IPC The discovery hastened the negotiations over the composition of TPC, and on 31 July 1928 the shareholders signed a formal partnership agreement to include the Near East Development Corporation (NEDC). The final composition of the Turkish Petroleum Company was thus: • 23.75%
Anglo-Persian Oil Company (APOC) • 23.75% Royal Dutch/Shell • 23.75% the
Compagnie Française des Pétroles (CFP) • 23.75% Near East Development Corporation (NEDC) • 5% Calouste Gulbenkian. Gulbenkian, who did not own a refinery, signed a separate agreement with CFP on or around July 31, 1928 in which CFP took on the obligation to buy his share of oil at a fair price, i.e. reasonably close to the market value at the point of shipment. The Mexican Petroleum Company,
Texaco and the
Sinclair Consolidated Oil Corp. were originally in the group of companies attempting to gain access to the TPC, but dropped out along the way. with a controlling interest dating back to 1916). In April 1926, at the start of geological survey operations in Iraq, the 5 companies making up the "American group" were already the same as those initially interested in the NEDC. The agreement, known as
Red Line Agreement after a red line drawn around the former boundaries of the Ottoman Empire (with the exception of Kuwait), effectively bound the partners to act together within the red line. The writer Stephen Hemsley Longrigg, a former IPC employee, noted, "[T]he Red Line Agreement, variously assessed as a sad case of wrongful cartelization or as an enlightened example of international co‑operation and fair-sharing, was to hold the field for twenty years and in large measure determined the pattern and tempo of oil development over a large part of the Middle East". The Agreement lasted until 1948 when two of the American partners broke free. During the period, IPC monopolized oil exploration inside the Red Line; excluding Saudi Arabia and Bahrain, where
Aramco and the
Bahrain Petroleum Company obtained concessions. On June 8, 1929, the TPC was renamed the
Iraq Petroleum Company Limited. The owners of IPC had conflicting interests: the Anglo-Persian Oil Company, Royal Dutch/Shell and Standard Oil had access to major sources of crude oil outside Iraq, and therefore wanted to hold the Iraqi concessions in reserve, whilst CFP and the other companies pushed for rapid development of Iraqi oil as they had limited crude oil supplies. These competing interests delayed the development of the Iraqi fields, and IPC's concession eventually expired because the companies failed to meet certain performance requirements, such as the construction of pipelines and shipping terminals. The concession was renegotiated in 1931, however, giving the company a 70-year concession on an enlarged area east of the
Tigris River. In return, 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—something CFP had demanded for a long time, in order to get its share of the oil quickly to France. Different routes and terminal locations on the Mediterranean coast were sought by the French, who favored a northern route through
Syria and
Lebanon terminating at the city of
Tripoli on the Lebanese coast, and the British and the Iraqis who preferred a southern route, terminating at
Haifa, in what then was
Palestine. The issue was settled by a compromise which provided for the construction of two pipelines, each with a throughput capacity of 2,000,000 tons a year. The length of the Northern line would be , that of the Southern line .
The pipeline materializes The pipeline was built in 2 years between the summer of 1932 and 1934, oil first arrived in Tripoli on July 14, 1934, and in Haifa on October 14, 1934 (seven years to the day after oil was first struck at the Baba Gurgur No. 1 well). Only in 1936, nine years after the discovery, did IPC export oil at the full capacity of the system. Tax matters: since IPC was a British-chartered company, the British groups would not have been subject to double taxation. The non-British groups, however, did not relish the idea of having the earnings of IPC taxed once by the British Government and again by their own governments. Eventually the groups agreed to transfer all pipeline operations to IPC, and price crude to the groups on the basis of management's estimate of British income tax cost plus 1 shilling profit per ton. Under this plan IPC's profits were nominal and its tax liability to the British Government was relatively small. Eventually the case was settled out of court in November 1948 and the American partners joined ARAMCO. The French Government and Gulbenkian had withdrawn their objections in exchange for a greater share of IPC's output. IPC oil was to be allocated to the partners based on requirements, not fractional stake in the company, satisfying the most urgent French demand. Gulbenkian was given a bigger allowance to buy low and resell high. IPC committed to increase production. The laying of the long considered
30-inch loop to the Mediterranean was definitely decided on. In exchange, the Red Line agreement boundaries were redrawn to exclude Saudi Arabia, Yemen, Bahrain, "Egypt", Palestine, and the western-half of Jordan, i.e. areas in which IPC had no presence already. With the agreement, Jersey Standard and Socony, in effect, retroactively became shareholders in Aramco since March 12, 1947. Both had signed an agreement by which they guaranteed a $102 million loan at 2% interest taken on by Aramco. They were obligated to buy upon favourable settlement by the court for $76.5 million (Jersey) and $25.5 million (Socony) a respective 30% and 10% stake in Aramco, the proceeds of which to be used to repay the loan. And since Aramco could not refuse the eventual stock purchase, Socony and Jersey held an
option with the right
and the obligation to exercise on the stock. A separate loan of $125 million was arranged at the time for financing the construction of the
Trans-Arabian Pipeline, for which Jersey and Socony also in part stood in with guarantees. The pipeline loan was however a standard financing instrument not connected to a stock purchase and was scheduled to be repaid at a rate of $5 million semi-annually between 1951 and 1961. A stock option on Trans-Arabian Pipeline Co. was however part of the deal of March 12, 1947.), the two American companies also paid $3,456,501.66 to settle a royalty controversy with the Saudi government and forfeited their share on a total of $367,234,758 of dividends paid by Aramco in the following years. who was assassinated in 1958.This atmosphere did not continue to the negotiations held between the IPC and revolutionary governments that followed the overthrow of the Hashemite monarchy in 1958. Relations between the two can be examined on two major factors. First, oil was a vital part of the Iraqi economy. Because of this, the IPC had a huge impact on the amount of revenue that the government generated and thus had a certain amount of influence over the government. The second major factor was inability of the Iraqi government at that time to source the technical knowledge and skill necessary to take over oil operations in the country.
The Qasim era Beginning in the early 1950s, as the strength of nationalism in Iraq grew, the focus came to bear on foreign control over the oil production of the country.
Abd al-Karim Qasim was a nationalist Iraqi Army general who seized power in a 1958 coup d'état in which the Iraqi monarch was murdered. He ruled the country as Prime Minister of Iraq until his downfall and death in 1963. Before the coup, he used the fact that the IPC was producing oil for western nations rather than for the benefit of Iraqi citizens as one of his main points of contention with the Iraqi government. Once in power, he was critical of several aspects of the IPC. First, he was critical of the monetary arrangement between the IPC and the government. He also did not appreciate the monopoly that the IPC had been granted. However the economic situation at the time did not permit Qasim to nationalize the IPC – western nations had boycotted Iranian oil when
Mosaddegh nationalized its oil company and could be expected to do the same in this case. (It is likely that nationalization would have been Qasim's favored route had he had the necessary capabilities). Further, Iraqis lacked the technical and managerial capabilities to run the IPC. Qasim needed the oil revenues to run his government and to keep the military satisfied. Therefore, Qasim resorted to many other tactics including increasing transit rates at Basra by 1,200%. In response, the IPC stopped producing oil that used Basra as a shipping point. The ensuing confrontation was the lowest point in relations between the two up to this point. Law 80 did not impact the IPC's ongoing production at
Az Zubair and
Kirkuk, but all other territories, including
North Rumaila, were returned to Iraqi state control. One major difference between these negotiations and those of 1952, was the stance of the Iraqi government. Whereas it had been more willing to accommodate the IPC in 1952, the government's positions under Qasim were largely non-negotiable. However this should not be surprising because it was expected that Qasim would take advantage of growing Arab nationalism and a sense amongst many ordinary Iraqis that they were being exploited by the west. ==Affiliated companies inside Iraq==