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The Tragic But Comic Story Of Iranian Oil

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The story of Iranian oil unfolds with two strokes of luck, not for Iran but for a gentleman from Great Britain, called William Knox D’ Arcy whose father became bankrupt in Devon, England and the family moved to Rockhampton, Australia. There William Knox D’Arcy qualified as a lawyer and started law practice at the local level. In 1882, William and two of his accomplices entered into partnership with three Morgan brothers for exploiting potentially large gold find at Ironstone Mountain, just over 20 miles from Rockhampton. The Morgan brothers soon lost their nerves, rattled by the rate at which their funds were being expended; and sold their interest to the three partners. including William D’ Arcy .

They sold at just the wrong time. The gold deposits at what had been renamed Mount Morgan turned out to be among the richest in history. Shares shot up 2000 fold in value, while over a ten year period, the return on the investment was 200,000 per cent. William D’Arcy, the major shareholder, went from being a small town lawyer to one of the richest men in the world. He headed back to England, settled there in a big way and started enjoying the riches of life.

Another development was taking place in Persia where first systematic surveys conducted in 1850’s pointed to the likelihood of substantial resources below the surface which led to series of concessions being given to investors. One such was to Baron Paul Julius de Reuter, founder of the world famous Reuter News Agency, who moved in on Persia.


In 1872, Reuter gained ‘the exclusive and definite privilege’ to extract whatever he could from ‘the mines of coal, iron, copper, lead and petroleum’ across the whole of the country, as well as options on the construction of roads, public works and other infrastructure projects. The contract was, however, rescinded after a year because of the fierce local opposition and international pressure. The second concession was granted to Reuter in 1889 but it lapsed as no oil could be discovered by his company within the stipulated period of ten years.

It is at this point of time that William D’Arcy was convinced to step in this potentially rich venture. Amazing to note that in return for 20’000 British Pound Sterling, with the same amount in shares to be paid on the formation of the company, plus an annual royalty of 16 percent, William was awarded ‘a special and exclusive privilege’, to search for, obtain, exploit, develop and render suitable for trade, carry away and sell natural gas, petroleum, asphalt and ozokerite throughout the whole extent of the Persian Empire for a term of 60 years”. In addition, he received the exclusive right of laying pipelines, establishing storage facilities, refineries, stations and pump services. A Royal Proclamation that followed announced that D’Arcy and ‘all his heirs and assigns and friends’ had been granted full powers and unlimited liberty for a period of sixty years to probe, pierce, and drill at their will the depths of the Persian soil and entreated ‘all officials of this blessed kingdom’, to help a man who enjoyed ‘the favor of the splendid Court’. Knox D’Arcy had been handed the keys to the kingdom, the question was whether he could now find the lock.

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As no headway was being made, the British Government brokered an agreement between William D’Arcy and the Burma Oil Company so as to utilise their expertise and capital in the exploration of oil in Persia as well. Even this failed to deliver any positive results. So, on 14 May, 1908 a word was sent to George Reynolds, leader of the operations in the field, to prepare to abandon. But again to the good luck of William D’Arcy, the oil was struck on 28 May, 1908.

On a human level, Knox D’Arcy’s concession is an amazing tale of business acumen and triumph against odds, but it’s global significance is on a par with Columbus’s trance- Atlantic discovery of America in 1492. There too, immense treasures and riches had been expropriated by the conquistadors and shipped back to Europe. The same thing happened again. Most important, however, was that it enabled British ships to move faster. In 1914, the British government bought 51 percent stake in the Anglo-Persian Company (now named British Petroleum) and secured through secret agreement supply of oil for the Admiralty for a period of 20 years. Just 11 days after this agreement, Franz Ferdinand was shot dead in Sarajevo , opening the doors to the start of the First World War.

Conversion to oil made British vessels faster and better than their rivals, but the most important advantage was that they could stay out at sea. Lord Curzon in a speech in London in November, 1918 rightly said that the “Allied cause had floated to victory upon a wave of oil “. Germany had paid much attention to iron and coal, and not enough to oil which, in fact, was the blood of the earth and the blood of victory.

Before the First World War ended in 1918, the British Foreign Secretary said: ” I do not care under what system we keep the oil, whether it is by perpetual lease or whatever it may be, but I am quite clear it is all important for us that this oil should be available “. At the start of the war in 1915, the Admiralty had been consuming 80, 000 tons of oil per month. Two years later the figure was 190,000 tons . The needs of the army too swelled up. By 1916, the strain all but exhausted Britain’s oil reserves. The stocks of petrol which stood at 36 million gallons on 1st January, 1916 plummeted to 19 million gallons six months later, further falling to 12.5 million just four weeks after that.

By 1920’s the challenge of oil rich countries like Persia and Iraq was to free themselves of outside interference , and be able to decide their own futures. The challenge for Britain was how to prevent them from doing so. The Iranians thought that Britain was the architect of all of their problems and could not be trusted. It considered only its own interests and was imperialist in the worst sense of the word. The elision of Iranian identity with anti-western sentiment, therefore, took strong roots. There were to be profound long term implications, first during the period of Mosaddiq who became Prime Minister in 1951 and out rightly nationalised oil business, and who was the spiritual father of many heirs across the Middle East, and then with the coming of Khomeini as a hurricane of reversal and change. Since then, there has been a breakdown in trust and a collapse of credibility between United States (who replaced Great Britain as the new overlord) and Iran. Much depends on what lesions America is prepared to learn from what has unfolded since 1951.

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Why all this happened ? How could the European powers dictate such shameless terms to the Muslim rulers? It would be clear if we look at what the Muslim World was by the middle of the 19th century .

By 1850’s , Europeans controlled every part of the world that had once called itself Dar al- Islam. They lived in these countries as an upper class, they ruled them directly or decided who would rule them, they controlled the resources, they dictated the policies, and they circumscribed the daily lives of their people. In places such as Egypt, Iran, India , there were clubs that the native people could not enter because they they were Egyptians, Iranians or Indians. Europeans had achieved this dominance without any grand war or broad scale assault.
The Europeans were scarcely even aware that there had been a struggle and that they had won. But Muslims noticed because it is always harder to ignore a rock you are under than a rock you are on.

Europeans never invaded Persia, never made concerted war on it. They just came to sell, to buy , to work, to ‘help’. But there they were when the things came apart. And like opportunistic viruses that lurk in the body unnoticed but flourish into illness when the immune system breaks down, the Europeans flowed into whatever cracks opened up in the fragmenting society, growing ever more powerful as the cracks grew under, until at last they were in command.

The heightened level of loot, plunder, and rape of the resources of Persia took place during the rule of Qajar dynasty (1785–1925) and the Pehlavi family. The rulers were invariably lazy, rapacious, shortsighted, week, thoroughly corrupt and debauch. The people were literally at the mercy of vultures, local as well as from the Imperial lot.

Look at the level of exploitation, arrogance and indifference:
In 1950, although Abadan was home to the refinery that was by now the largest in the world, the town itself had as much electricity as a single London street. Barely a tenth of the 25000 children of school age were able to attend classes, such was the dearth of schools. No amount of pleas, requests, agitation or strikes could move the Imperial elite which controlled every thing there with an iron hand.

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