Persian Oil Agreement

At last, Iranian oil has begun to flow back into the world oil markets. Persia and the Consortium of eight oil companies negotiating in Teheran have finally reached a settlement of the long standing oil dispute. Both the Majlis and the Senate have ratified the international oil agreement and it has received the assent of the Shah. The agreement is between the Iranian Government, the National Iranian Oil Company (N.I.O.C.) on the one side and the Consortium of eight oil companies on the other. The eight companies are: (1) the Standard Oil Company of California, (2) the Socony-Vacuum Oil Company, Inc. (3) the Texas Company, (4) the Gulf Oil Company, (5) the Compagnie Francaisc des Petroles, (6) the Anglo-Iranian, (7) the Royal Dutch Shell and (8) the Standard Oil Company of New Jersey.

The Iranian oil industry was nationalised in March 1951 during Dr. Mossadeq’s regime. [Prime Minister Mohammad Mossadegh] The nationalisation stopped oil exports from Iran and crude oil production came to a standstill. In 1950, Iran exported 30 million tons of petroleum and the crude oil production stood at 32.3 million tons. Petroleum refining amounted to 24.7 million tons in 1950. The activities of the Anglo-Iranian Oil Company ceased from 1950 and they contributed nearly 10 per cent of Iran’s national income. Since nationalisation the revenues of the Iranian Government suffered seriously and the Seven-Year Plan projects became impossible of implementation.

General Zahedi came to power in August 1953 after a successful coup against Dr. Mossadeq and he inherited almost an empty treasury. [Fazlollah Zahedi] All attempts to bring about a settlement in oil dispute proved a failure. Finally, Mr. Herbert Hoover, President Eisenhower’s special adviser on oil, succeeded in reaching an agreement over [the] oil impasse. [Herbert Hoover, Jr] Of course, the overthrow of Dr. Mossadeq’s regime facilitated in concluding the agreement. The agreement makes a compromise between the Iranian national sentiment and the demand of the Anglo-Iranian Company for economic justice. Under the terms of the agreement, although the effective control of both the Abadan refinery and the main oilfields in Iran passes to the international Consortium, the legal title to ownership retained by the Persian Government.

As part of the Persian oil agreement, the Anglo-Iranian Oil Company, the former concessionary, will receive net compensation of £26 million (free of interest), and this is payable over 10 years starting from January 1957. Besides, it will receive £32.4 million from other members of the Consortium for the sale of 60 per cent of its interest in the Persian oil industry; it will have only 40 per cent interest in the Consortium. In addition, the Anglo-Iranian Oil Company will be paid by the seven other members of the Consortium, 10 cents per US barrel on crude oil and products they export from Iran. This payment will cease when it reaches a total of $510 million. The basis of the agreement is the 50-50 division of the profits of the oil industry between Iran and the Consortium.

Re-development of the Iranian oil enterprise is to be undertaken by two companies formed by the Oil Consortium and the National Iranian Oil Company. One will be responsible for exploration and production and the other for refining. Each company will have seven directors [—] two nominated by Persia and five by the Oil Consortium. Oil revenue for Persia during the first three full years of operation, after an initial starting period of three months will amount to £150 million at present prices and costs. Of this amount Iran will be paid £31 in the first full operating year increasing to £67 million in the third year. Production of crude oil will rise progressively to a total of 80 million cubic metres (68 million tons or 500 million barrels) for the three-year period. After the first three years the Consortium will take from Iran quantities of crude oil which will reasonably reflect the supply and demand for Middle-East crude oil assuming favourable operating and economic conditions in Iran.

The rate of production that will be reached at the end of the three-year period will once again establish Abadan refineries output as being the largest in the eastern hemisphere. The Abadan refinery with its potential output of over 500,000 barrels per day is the largest in the world. The other two refineries on the Persian Gulf — Aramco’s at Ras Tanura [Saudi Arabia] and Bahrein Petroleum Company’s plant at Bahrein — can each put through about 200,000 barrels a day. [Bahrain] Other refineries in the Middle East are small tapping plants only.