An Unacceptable Breach

House of Lords | May 1, 1951

The Mossadegh Project | November 4, 2021                      

A discussion in the British House of Lords on the recent nationalization of the AIOC oil works in Iran.

British Oil Interests In Persia

4:04 pm

VISCOUNT ADDISON [Dr. Christopher Addison, Labour Party]
My Lords, it might be convenient if the noble and learned Viscount on the Woolsack took this opportunity of making a statement on Persia.

THE LORD CHANCELLOR [William Jowitt, Labour Party]
My Lords, this is a Statement which is being made by the Foreign Secretary in another place, probably at the present time.

[Reading a statement by Herbert Morrison, which Morrison read the same day in the House of Commons]

“The Anglo-Iranian Oil Company’s Concession in Persia dates from 1911. In 1932, the late Shah threatened unilaterally to cancel the Concession, and His Majesty’s Government took the matter to the Council of the League of Nations. As a result, the dispute was settled and in 1933 the present Concession was signed. It is valid until 1993, after which the company’s assets in Persia would be transferred without payment to the Persian Government. Article 21 of this Concession provides that no change may be made in the position of the company under the Concession, even by legislation, except by agreement between the Persian Government and the company. Article 22 provides for recourse to arbitration in the event of a dispute between the Government and the company.

“In 1948, changes in world conditions suggested that some modification of the rates of payment made by the company to the Government might be justifiable, and the company therefore offered to negotiate, within the framework of the Concession, a revised agreement. After long negotiations, an agreement known as a “Supplemental Agreement” was signed in July, 1949. This Agreement was retroactive in character and under it the Persian Government would have received large increases of royalties per year. The Agreement was retrospective and, therefore, would have produced immediately a large sum. This Agreement required ratification by the Persian Parliament (the Majlis), but neither the then Persian Government, nor their successors, were willing to recommend it to the Majlis for ratification until the late Mr. Razmara did so in October, 1950. [Premier Ali Razmara] At no time, however, was the Agreement, and the benefits which Persia would have derived under it, explained to the Majlis or to the Persian people, and uninformed opposition to it was consequently allowed free rein. The Oil Commission of the Majlis in due course reported that the Agreement was not in Persia’s interest, and eventually Mr. Razmara found it necessary to withdraw it from the Commission.

“The company then intimated to Mr. Razmara its willingness to discuss a new Agreement based, if he preferred it, on the principle of an equal share of profits in Persia. In the meantime, however, an extreme Right-wing group of deputies pressed a demand for complete nationalisation of Persia’s oil industry. At this point, Mr. Razmara was murdered by a fanatic, and in the confusion arising out of his murder both the Majlis and the Senate were induced to pass a resolution accepting the principle of the nationalisation of the oil industry and giving the Oil Commission a period of two months in which to work out means of putting it into effect.

“His Majesty’s Government, who had been in close touch with the company and the Persian Government throughout the negotiations, on March 14 delivered a Note, which has since been published, to the Persian Government. The Persian Government on April 8 replied throwing doubt on the right of His Majesty’s Government to intervene in a matter which they held of to be the concern only of themselves and of the company. His Majesty’s Government cannot, of course, accept this contention.

“All this background needs to be borne in mind if the present events are to be seen in their proper perspective. The present position is that on April 26 the Oil Commission produced a series of proposals. These have now been endorsed by the Majlis and Senate. They will then presumably become law. The full text of these proposals is not yet available, but they appear to provide for the assumption of control by the Persian Government over all the company’s assets and operations in Persia, the revenues from which would be regarded as belonging to Persia. The proposals apparently contain some provision for compensation of the company, to be made by placing a proportion of these revenues in a bank, but these provisions are obscure. The effect of the proposals would seem to involve a complete change in the company’s position as provided for in the existing Concession Agreement, which was made in 1933 and is valid until 1993. This change would, moreover, be made unilaterally, although the Concession Agreement itself provides that it should not be altered, even by legislative action, otherwise than by agreement with the company. As the House will be aware, the Persian Government under Mr. Hussein Ala resigned immediately after these proposals had been made known and before they had been voted upon by the Majlis. [Interim Premier Hossein Ala] A new Government has now been formed by Dr. Musaddiq, the leader of the extreme Right-wing group of deputies known as the National Front. [The new Premier, Dr. Mohammad Mossadegh]

“I turn now to consideration of the issues involved in this development. During the past thirty years the Anglo-Iranian Oil Company, on the strength of the contractual obligations into which the Persian Government entered with it, has made in Persia an immense investment, which must be assessed in terms not only of money but of scarce materials and technical skill. It has consequently built up an industry which forms the most important element, and the main stabilising factor, in Persia’s economy. It has provided employment for many tens of thousands of Persians, and has been the means of creating employment for many more. Through this employment many Persians have been able to acquire technical skills which could not otherwise have been available to them. Its record as an employer of labour has been a good one, and the conditions under which its employees live and work are not only far in advance of ordinary Persian standards but, as the International Labour Office have borne witness, compare favourably with those existing in any part of the Middle East. The benefits which it has been the means of conferring on Persia cannot, therefore, be measured in terms of money alone.

“All these benefits are now placed in jeopardy. It must not be forgotten that the company’s operations consist not only of extracting oil from the ground, but of the extensive refining operations undertaken in the great Abadan installations and in a wide-spread marketing organisation, including a great fleet of tankers. It would clearly be a matter of the greatest difficulty for the Persians, even if they were unilaterally to take over production themselves, to acquire the ability to operate and maintain installations. Furthermore, by taking over production, they could not acquire the company’s world-wide marketing and distribution facilities, which they would find it even more difficult to replace. Any interruption of the company’s operations would inevitably result in unemployment and a creation of just those conditions from which the Communists could profit. The recent disturbances in the Abadan area, which the Persian Government were obliged to repress with a firm hand, were, undoubtedly, of Communist inspiration, and are a timely reminder of their ability to fish in troubled waters.

“I now wish to make clear His Majesty’s Government's attitude in the matter. The United Kingdom has a long-standing friendship with Persia, whose political independence and territorial integrity we have consistently helped to preserve, and which remain a matter of deep concern to us. Persia’s economic life is intimately linked with our own, as her Government well realise. Our only desire is to see Persia strong, prosperous and independent, and to co-operate with her to these ends in so far as she may desire such cooperation. As I have shown, we consider that the continued operations of the Anglo-Iranian Oil Company are vital to Persia’s well-being, even as they contribute to our own. We recognise that Persia’s evolution, to which we ourselves have contributed and are still contributing, has created a new situation in which it is natural and right that the Persian people should now take a greater share in the operation of their main industry. But we cannot admit that the contractual obligations under which the company has operated and has made this great investment in Persia can be abrogated unilaterally. Before Mr. Ala resigned, we had, with the full agreement of the company, authorised His Majesty’s Ambassador at Teheran to put to him unofficially the lines on which we thought a satisfactory agreement between the Persian Government and the company could be worked out. [Amb. Francis Shepherd] In general terms, these were based on the principle of association between the Government and the company, and provided for the transfer of the company’s operations in Persia to a new British company on the board of which the Persian Government would be represented; for a progressive increase in the already great proportion of Persians employed by the company throughout its operations; and for an equal sharing of the profits of these operations between the Government and the new company. It was not possible for these suggestions to be pursued before the Oil Commission’s new proposals were issued and the Ala Government resigned.

“We are still most anxious to settle this matter by negotiation; but we cannot negotiate under duress. We do not, of course, dispute the right of a Government to acquire property in their own country, but we cannot accept that the company’s whole position in Persia should be radically altered by unilateral action when the agreement into which the Persian Government freely entered with the company itself provides against such action. We have no wish that this question should become an issue between ourselves and our Persian friends, and we are only anxious to sit down with them and work out a solution in a reasonable atmosphere. Our long standing ties of friendship with them and our many mutual interests, political as well as economic, convince us that such a solution can be found.”

4:16 pm
THE MARQUESS OF SALISBURY [Robert Gascoyne-Cecil aka Viscount Cranborne, Conservative Party]
My Lords, I should like to thank the noble and learned Viscount the Lord Chancellor for the full statement which he has made on behalf of the Government. I am afraid that this is, clearly, a very bad story indeed. It means unilateral repudiation of a solemn contract which was of extreme value not only to this country but to Persia herself. The noble and learned Viscount has not said—perhaps it was impossible for him to do so to-day—exactly what His Majesty’s Government propose to do about it. I would only submit, with all diffidence, this view: that this Persian question is, clearly, a case where it is vital that His Majesty’s Government should show that they are entirely determined to protect British interests in this important area. Weakness on an issue of this kind at a time like this would be fatal, and, in my view, might have very serious repercussions. I am quite certain that if His Majesty’s Government show that they mean to act firmly—and, as I understand it, they have levers which they can use—they will receive the support of all Parties in this House, and, I have no doubt, throughout the country. I do not want to ask for any further information today, because, clearly, the time is not ripe for that. I hope, however, that we shall have information as early as possible as to the steps, diplomatic or otherwise, which His Majesty’s Government propose to take.

4:18 pm
VISCOUNT SAMUEL [Herbert Samuel, Liberal Party]
My Lords, on behalf of noble Lords on these Benches, I should like to join in thanking His Majesty’s Government for the full statement which has just been made in your Lordships’ House on a matter on which, I believe, public opinion has been greatly disturbed. I cannot believe that, on fuller consideration, the Persian Government and Parliament will fail to realise how gravely the credit of the Persian State throughout the world must be affected by high-handed action such as this in plain breach of a legal instrument into which they had voluntarily entered. I feel sure that the House will support His Majesty’s Government in any steps they may think well to take in order to secure an equitable issue from a situation which is of great immediate and still greater ultimate importance.

• Source: Parliamentary Debates (Hansard): House of Lords Official Report
[Annotations by Arash Norouzi]


Related links:

Anglo-Persian Diplomatic Relations (Resumption) | December 7, 1953

Persian Oil Agreement | House of Commons | November 1, 1954

A Lesson In Oil | The Toledo Blade (Ohio), May 4, 1951

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