D’Arcy Concession

Impact

The D'Arcy Concession's influence on the history of the twentieth and twenty-first centuries cannot be overstated. It was, however, the concession itself that was significant, not D'Arcy. While he had the good luck to be the first major entrepreneur in the area, someone else very well could have been. In fact, D'Arcy was not the Persians' first choice; General Kitabgi offered the opportunity first to Royal Dutch Shell, but they turned the offer down.

After seven years of effort and at the cost of nearly all of D'Arcy's fortune, engineers finally found oil in commercial quantities in Persia on May 26, 1908. As a result of this discovery, the Anglo-Persian Oil Company (APOC) was formed on April 14, 1909; the company was jointly owned by D'Arcy and additional investors, for D'Arcy had been forced to seek investors to cover the costs of continued exploration and development. In 1912, APOC began a campaign to persuade the British government to give it a contract to supply oil for British warships, which were converting from coal-burning to oil-burning engines. Then, on May 20, 1914, the British government purchased a controlling stake in APOC, ensuring that Britain would have a reliable source of oil in the event of war; World War I broke out a month later. In 1916, APOC completed a 120-mile pipeline from the oil fields to a new refinery at Abadan, Persia.

In the years between the world wars, dissatisfaction with the original agreement led to changes in the original D'Arcy Concession and modifications of other contracts. The Persian government and APOC agreed to changes to the concession on December 22, 1920. The most significant change was a recalculation of the formula defining net profits, allowing Persia to receive a greater amount of money. Then, in 1928, the Persian government and APOC opened discussions for further major revisions to the concession. Although the Persian government was receiving a larger percentage, fluctuations in world demand caused significant variations from year to year. On November 27, 1932, the Persian government announced that it was cancelling the D'Arcy Concession, but on May 29, 1933, the shah, Reza Shah Pahlavi, approved a new agreement limiting the land area holdings of APOC. The agreement allowed the Persian government to grant new concessions, although APOC was allowed to select which holdings it would retain. The Persian government received 20 percent of the profits, with a guaranteed payment amount each year regardless of fluctuations in world demand. The agreement was to extend until 1993. In 1935, APOC changed its name from the Anglo-Persian Oil Company to the Anglo-Iranian Oil Company to conform to the state name change from Persia to Iran.

Dissatisfaction with the concession's original terms became even more intense in the years following World War II. The desire to take a larger share or all of the revenues, combined with a growing sense of nationalism and a distrust of the West, led to changes that left the oil companies more vulnerable to threats of nationalization, lost profits, and Western dependence on oil and the possibility that the flow of oil could be cut off. These fears grew in April 1951, when the National Iranian Oil Company was founded. This was a government-owned and -operated entity that nationalized facilities in Iran, taking control from the Anglo-Iranian Oil Company. The consequence of this event was the coup on August 19, 1953, against Mohammad Mossadeq, the Iranian prime minister, who supported nationalizing the oil industry. The British drew in the U.S. government, which was at first unwilling to assist in the process. But because the United States needed British support for the war in Korea, it found itself assisting in effecting the 1953 coup that placed the shah solidly on the throne and guaranteed British and American oil interests in Iran. From that step the United States became more and more heavily involved in the politics of the Middle East.

Fears were lessened after the coup. In 1954 the Anglo-Iranian Oil Company was renamed British Petroleum, and in September of that year a consortium between the National Iranian Oil Company and British Petroleum was formed to exploit oil reserves in Iran, with some lower-level participation by Shell and several American oil companies. A new payment schedule was agreed upon, with Iran receiving 50 percent of the profits. This period of stability was not to last. In 1979 the Iranian Revolution overthrew Mohammad Reza Shah Pahlavi (the son of the former shah) and created the Islamic Republic of Iran. All British Petroleum assets were nationalized by the new Iranian government, ending a presence that had started with the signing of the D'Arcy Concession in 1901.

What happened as a result of that agreement profoundly affected Persia, the Middle East region, and the entire world in many ways. First, it helped solidify a British presence in the Persian Gulf region while at the same time counterbalancing Russian (and later Soviet) power. In 1919, after World War I, Britain would come to exercise control over the former Turkish territory of Iraq. That action was taken not so much for oil (for it was not discovered there until the late 1920s) but rather to ensure that British oil enterprises in Persia would be safe. The discovery of Iraqi oil and subsequent oil strikes throughout the Middle East only reinforced the importance of the first D'Arcy strike in 1908.

From a global perspective, the effects of the D'Arcy Concession and its success added a new dimension to economic, political, and military conflict. Oil conferred upon its possessor the ability to project military power over greater distances. Possessing control over this resource and the ability to use it militarily successfully secured economic as well as political advantages. However, in the years after World War II, Middle Eastern nations began to exercise their own control over what had been exploited by outsiders, causing what seemed to larger powers a disconcerting change in power relationships.

In the 1970s the control of the oil supply exercised by the Organization of Petroleum Exporting Countries brought the new reality to the Western industrialized powers with a shock. Middle Eastern states were no longer compliant and could project their own power by withholding oil or charging more for it. The overthrow of the shah and the rise of the Islamic Republic of Iran resulted in intense hostility toward the United States. That hostility was in large part a consequence of the U.S. efforts to overthrow the Mossadeq government in 1953, all to preserve the security of the Anglo-Iranian Oil Company.

The presence of large oil reserves gave Venezuela an importance in world affairs it would not otherwise have. Russia in the post-Soviet world managed to regain much of its lost power and influence through the economic benefits of large oil reserves. A major portion of U.S. and Western foreign policy has been affected by the issue of oil availability and prices. Thus, far beyond what D'Arcy or any oil entrepreneurs might have imagined, petroleum came to exert an important influence in many aspects of life—and will continue to do so until the use of petroleum as a fuel decreases.