Red Line Agreement
RED LINE AGREEMENT
Part of the post–World War I reorganization of the Turkish Petroleum Company (TPC) as the Iraq Petroleum Company (IPC).
TPC was formed in 1914, shortly before the outbreak of World War I. Fifty percent of TPC was owned by the Anglo-Persian Oil Company (later British Petroleum). A 5 percent beneficial interest was owned by the Armenian entrepreneur Calouste Gülbenkian, who had put together the TPC consortium. The remainder was split between the Deutsche Bank and a subsidiary of Royal Dutch Shell. The original TPC agreement included a clause pledging the principals to refrain from seeking additional concessions in the Ottoman Empire except through TPC.
At the San Remo Conference in 1919, the German share of TPC was transferred to France. The Americans, also victors in the war, demanded a share as part of their spoils and accepted 20 percent in 1922 (later enlarged to 23.7 percent). However, this did not end the disputes impeding the company's reorganization. Gülbenkian insisted that the "self-denying clause" be retained in any new agreement. The French, with their 23.7 percent share, supported Gülbenkian; the other participants did not.
The final agreement establishing IPC was signed in July 1928 at Ostend, Belgium. It included the self-denying clause. However, the principals declared themselves unsure of the actual boundaries of the Ottoman Empire. Legend has it that Gülbenkian, then and there, took a red pencil and drew a line around what he meant by "Ottoman Empire"—the Red Line. With the exception of Kuwait and Iran, the Red Line encompassed most of what would become the great oil-producing areas of the region.
The Red Line, along with the As-Is Agreement, shaped the structure of foreign ownership and the tempo of development of Middle Eastern oil. For example, Gulf Oil (now owned by Chevron), an original party to the IPC agreement (it later dropped out), became an active contender for a share of the Kuwait concession, in part because its participation in IPC prevented it from seeking promising concessions elsewhere in the Gulf. Gulf's success in winning a share thwarted expectations that Anglo-Persian (APOC) would be able to monopolize Kuwait, then a British protectorate. The Red Line prevented APOC and the U.S. partners in IPC, chiefly Standard Oil of New Jersey (now Exxon) and Standard Oil of New York (now Mobil), from seeking concessions in Saudi Arabia. The rich fields in the eastern part of Saudi Arabia were discovered by Casoc, a subsidiary of Standard Oil of California (now Chevron). Texaco purchased half of Casoc in 1936. Neither was a Red Line company.
The need for additional capital to develop the oil fields of Saudi Arabia led to the end of the Red Line. Once again, a world war provided the opportunity to reorganize oil concessions in the Middle East. After the Germans occupied France in 1940, the IPC holdings of Gülbenkian and the French were sequestered under British law. The IPC board in London was notified that the IPC agreement might have been invalidated by having become a contract with an enemy power. The IPC principals chose not to pursue this possibility during the war, but afterward, Standard of New Jersey's legal counsel brought the issue before U.S. officials, who joined the corporation in pressing for a revision of the IPC agreement to eliminate the self-denying clause. The successful conclusion of these maneuvers in 1947 ended the Red Line and allowed Standard of New Jersey and of New York to take shares in ARAMCO while retaining their shares in IPC.
see also as-is agreement; gülbenkian, calouste; royal dutch shell.
Sampson, Anthony. The Seven Sisters: The Great Oil Companies and the World They Shaped. New York: Viking, 1975.
mary ann tÉtreault