Anglo–Iranian Oil Company
ANGLO–IRANIAN OIL COMPANY
The history of the Anglo–Iranian Oil Company (AIOC) goes back to 1901 when a British engineer, William Knox D'Arcy, obtained a concession from Persia's shah giving him exclusive rights for the discovery, exploitation, and export of Petroleum in return for 16 percent of his annual profits and 20,000 pounds sterling in cash and another 20,000 pounds sterling in paid-up shares of stock in the venture enterprise. Oil was discovered in 1903. In 1905, D'Arcy became a part owner of the newly founded British Oil Company. In 1908, the British government bought D'Arcy's shares. In
1909, the Anglo–Persian Oil Company (APOC) was formed.
Because of its bias, the 1901 concession was not ratified by the parliament of the Constitutional Revolution of 1905–1911. Moreover, APOC did not consistently follow the terms of the agreement. For example, during World War I from 1914 to 1920, oil output had increased from 274,000 to 1,385,000 tons (250,000 to 1,255,000 t) annually; by 1933, the company had made a profit of 200 million pounds sterling. By contrast, Persia had received only some 10 million of the 32 million pounds sterling due contractually—less than one-third of the share to which it was entitled by the concession.
In 1933, Reza Pahlavi terminated the concession of 1901 and concluded a new agreement with the British that reduced the area of concession from 400,000 to 100,000 square miles (1,036,000 to 260,000 sq. km), assured a minimum payment of 225,000 to 300,000 pounds sterling annually as a tax on the production of crude petroleum, and provided for a specific royalty of 4 shillings per ton of the oil sold. Iran was also to receive 20 percent of the net profit over and above a dividend guarantee of 671,250 pounds sterling. The agreement changed the company's name to the Anglo–Iranian Oil Company and, in 1935, Persia officially became Iran.
For Britain, the new agreement had certain advantages over the 1901 concession. It extended British control over Iranian oil for an additional thirty-two years, until 1993, while the previous concession was due to expire in 1961. Unlike the concession of 1901, the 1933 agreement was not a contract between a private individual and the shah of Iran, which could be terminated without much difficulty. The 1933 agreement had the character of public law because it had been ratified by the Iranian parliament; it could not be annulled without entailing political complications. The 1933 agreement, however, was not as beneficial to Iran, and some of its terms were particularly disadvantageous. For example, prices for refined petroleum products in Iran were based upon average Romanian or Gulf of Mexico f.o.b. (free on board) prices—whichever was lower—plus actual transportation and distribution costs, less a 10 percent discount. The bias of the agreement was argued based on the production cost of oil in the Middle East averaging only US $1.2 per ton compared to US$12.45 per ton in the United States. The AIOC's labor and housing policies were also less than satisfactory from the Iranian perspective.
The Anglo–Iranian oil disputes were not resolved amicably; they culminated in the nationalization of the British-run Iranian oil industry in 1951 under the premiership of Mohammad Mossadegh. AIOC then became the National Iranian Oil Company.
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