D’Arcy Concession

Explanation and Analysis of the Document

The D'Arcy Concession was negotiated and signed by representatives of the Persian government under Shah Mozaffar al-Din Shah Qajar and representatives of the English businessman William Knox D'Arcy. The document allowed D'Arcy, identified in the agreement as “the Concessionaire,” to form a company (or companies) with the express purpose of searching for, drilling for, refining, and selling oil found almost anywhere in Persia, with some territorial exclusions. In return, the Persian government (meaning the shah himself) would receive fixed payments in cash and stock as well as subsequent payments based on the net profits of the enterprise. The concession guaranteed that the concessionaire (D'Arcy) and his company could take an unlimited amount of oil, refine it, and sell it domestically and overseas, as long as they adhered to the conditions contained in the concession. The parties to the agreement are identified in the document's opening paragraph.

Articles 1–3

The first article stipulates that D'Arcy, as concessionaire for a period of sixty years, could search for, extract, prepare (that is, refine), transport out of the country, and sell natural gas, petroleum, asphalt, and ozokerite (a type of paraffin). Article 2 specifies that D'Arcy would receive the exclusive right to lay all of the necessary pipelines from wherever petroleum or natural gas was found to the Persian Gulf, where oil would be refined and then transported. He also had the right to construct any wells, reservoirs, holding facilities, factories, and other infrastructure necessary for his operation. Finally, the third article granted to D'Arcy (for free) any uncultivated land necessary to construct any of the facilities identified in Article 2. In instances where land was needed but under cultivation, he could have it but would have to purchase it at fair market value. D'Arcy could also purchase any other land or buildings needed. No construction would be allowed within “200 Persian archines” of any holy place; an archine (sometimes spelled arshin) was a unit of measurement equal to about twenty-eight inches, so two hundred archines is just over 460 feet.

Articles 4–7

At the time of the agreement, three petroleum operations were already operating in Persia. D'Arcy, according to Article 4, could take these facilities but would be required to pay to the government an additional sum in tomans each year; the toman was Iran's unit of currency until 1932. While it is difficult to attach a modern value to the toman, its valued was pegged to the French franc at a rate of one toman to five francs, making it at the time worth very roughly twenty U.S. dollars.

Article 5 allows D'Arcy and his engineers to determine the routing and direction of all pipelines. However, Article 6 declares that provinces in northern Persia close to the border with Russia are off limits. The Persians did not want to alienate the Russians, who were exerting heavy influence in Persia because of their subsidies to the shah. Persia had lost the Baku region (at the time of the concession the world's major oil producer) some years previously The article specifies, however, that no one else, specifically the Russians, would be allowed to explore and drill and that the restriction on D'Arcy would apply only for as long as no one else was allowed in the region. Finally, Article 7 specifies that the concessionaire would be relieved of all import and export tax liabilities. He would not be taxed on any equipment brought into Persia.

Articles 8 and 9

By Article 8, D'Arcy agreed to send out immediately, and at his own expense, a party of experts to survey the regions and search for oil. In the event of finding oil, he would immediately send the equipment and facilities (and required staff) to begin drilling wells. To this end, Article 9 authorizes D'Arcy to form one or several companies. The names of these companies and the regulations governing them would be determined by the concessionaire, who would also name the board of directors. He would inform the Persian government of the names and makeup of these companies, and the regulations governing them, through the imperial commissioner (whose duties are describe in Article 11). These companies would share in all of the privileges awarded to the concessionaire but would also have to meet all responsibilities levied on the concessionaire in this agreement.

Article 10

Article 10, at least from the Persian point of view, is the heart of the agreement. It specifies that within a month of any contracts between the concessionaire and any company or companies, the Persian government would receive a payment of £20,000 in cash and a further £20,000 in stock (paid for by the company). At the time, the British pound was equivalent to just under five U.S. dollars. Further, the company would pay to the Persian government 16 percent of the annual net profits. The original amount offered had been 10 percent, but the shah refused to sign until the increase was agreed to. The amount of the percentage and even the definition of “profit” would be the subject of arguments and negotiations through the years. It would be a major sticking point in the early 1930s, when the Persian government demanded more revenues. The demand was triggered by two factors. First was the realization that 16 percent was not a fair return. Further, because of the effects of the Great Depression, oil revenues were not stable. In 1930 profits had been over £1,250,000; the following year profits had fallen to slightly over £303,000. It was this last drop in the payments that caused the shah to declare in 1932 that the agreement would be terminated. Through the years, the amount of payment percentages would increase in favor of the Persian and then the Iranian governments.

Articles 11–18

The remaining articles of the concession address an assortment of important details. Article 11 states that the government of Persia would appoint an imperial commissioner to advise the concessionaire and his company. The company and it directors would be compelled to work with this person, whose major role would be to safeguard the Persian government's interests. The commissioner's salary was originally proposed to be £60 per year, but the agreement raised it to £1,000, to be paid by the concessionaire. The duties and powers of the commissioner would be specifically set forth in any regulations governing the companies. The first commissioner was General Antoine Kitabgi, who played a major role in the negotiations.

Article 12 specifies that with the exception of senior and technical staff such as engineers, managers, oil-drilling technicians, and foreman, all employees would be Persian subjects. Article 13 requires that in any area exploited for petroleum where the inhabitants were already acquiring and using it, the concessionaire would have to supply to them the amount they had received in the past for free. The amount to be provided would be determined by the people who had been acquiring it. Meanwhile, Article 14 obligated the Persian government to protect all facilities and the concessionaire's staff, although the concessionaire would have no rights to claim damages from the Persian government in the event of any harm. The concessionaire, in other words, was to bear the full risk and responsibility.

Article 15 states that at the end of the sixty-year term of the concession, all buildings and facilities would become the property of the Persian government, which would receive them without paying any costs. Article 16 requires D'Arcy to have established a company to search for and develop the petroleum within two years of the signing of the concession or it would be null and void. Article 17 sets the ground rules for settling disputes between the concessionaire and the Persian government. Arbitration of disputes would take place in Tehran. There would be two arbitrators, each party selecting one. The two arbitrators would appoint an umpire to make the final decision in the event that they could not agree. The decision by the arbitrators or, if necessary, the umpire would be final. Finally, Article 18 simply specifies that identical copies of the concession would exist in French and Persian. If there were a conflict between the two versions, however, the French version would take precedence.