Britain, Persia and Petroleum
Roger Howard asks how the discovery of oil affected relations between Britain and Persia in the early twentieth century.
Dramatic events in a remote Persian wilderness over a century ago heralded the beginning of a new era in the Middle East. A wealthy British entrepreneur, William Knox D’Arcy (1849-1917), had secured a concession to prospect for oil in the country in 1901. After several years of exhausting andsy seemingly fruitless work, a drilling team led by a maverick British explorer, George Reynolds (1852-1925) was about to strike gold. During the early hours of May 26th, 1908, a short distance from an ancient settlement known as Masjid-i Suleiman, in south-western Persia, the ground suddenly started to rumble and, as men shouted with excitement and fear, a gushing, stinking black torrent spurted high into the air.
Within minutes, news of the great discovery was cabled to the British legation in the Persian capital, Tehran. Poetically, it was written in Biblical code and ran ‘See Psalm 104 verse 13 third sentence and Psalm 114 verse 8 second sentence”. Intrigued, the legation official reached for his Bible and was astonished by what he found. ‘That he may bring out of the earth oil to make him a cheerful countenance,’ went one of the Psalms, while the other referred to ‘the flint stone into a springing well.’
The news would equally have reverberated through the corridors of political power in Tehran. Traditionally only the shah, or monarch, and his senior ministers had exercised real influence, but by 1908 Persia was in the midst of a ‘Constitutional Revolution’. Less than two years before, a dying Mozaffar al-Din had bowed to massive popular protest and agreed to the establishment of an elected parliament, or Majlis, which went on to establish a new constitution that placed the shah ‘under the rule of law’.
It was foreign powers that really pulled the strings of power in Persia, however. In particular, British and Persian fortunes were already closely linked. Over the course of the preceding century London had established a political, administrative and military grip – in effect a protectorate – over huge swathes of territory in the kingdom’s southern and south-westerly regions. The Russians had also carved out their own sphere of influence in five northern provinces, while in between these two protectorates was a neutral zone over which both powers kept a close eye but within which neither overtly interfered. Prior to the discovery of oil, the British had not been interested in Persia for any indispensable resources or assets it may have harboured. The kingdom was considered to be a largely barren, poverty-stricken, lawless and bankrupt backwater over much of which the shah exerted powers that were merely nominal. What mattered to the British was Persia’s proximity to the jewel in their imperial crown – India. Whitehall had long been alarmed that Russia, its rival in the ‘great game’ of central Asia, could use Persia as a launchpad for an attack on India. The Russian fleet could conceivably have used Persian ports to disrupt shipping to and from the Indian subcontinent, while a land force might perhaps have forced its way across Afghanistan and into India’s turbulent North-West Frontier. At the height of the Indian Mutiny in 1857, indeed, rumours were rife on both sides that the Persian army was marching towards India to link up with the rebels and throw the British out: ‘we cannot verify the news’, one journalist in India wrote, ‘but it is not an impossibility’.
The security of India was high on the agenda of a conference held at Balmoral in the summer of 1907, when the British foreign secretary Sir Edward Grey made a proposal to his Russian counterpart, Sergei Sazonov. So that the two powers could remain on good terms at a time of growing German power, he suggested, they should formalize the existing spheres of influence in Persia: the British zone of influence would run from the Afghan frontier, east of Birjand, to Kerman further west and then to Bandar Abbas on the south coast while the Russians could maintain their grip in the far north. Both would continue to respect the neutrality of what lay between. Despite this agreement, by 1914 south-west Persia was ‘neutral’ only in name. Britain asserted control over the areas immediately surrounding the wells and their supply routes to and from the coast. The Anglo-Persian Oil Company (APOC) had been founded in 1909, and it set to work building a 130-mile long pipeline, which was completed in 1912, to take the crude oil to the new refinery that was speedily being built at Abadan on the Persian Gulf. By this time all the main towns in this central region – Kerman, Isfahan, Shiraz and Yazd – had fallen under the sway of the British. The Russians watched this with dismay but were still too busy recovering from military defeat against Japan in 1905 and dealing with their growing political troubles at home to stop the British from strengthening their grip.
By 1912 APOC, or ‘Anglo-Persian’, was pumping out Persian oil at a rate of 750 tons a day. Whitehall began to take a serious interest, and in October 1911, not long after he was appointed First Lord of the Admiralty, Winston Churchill took the ‘fateful plunge’ of deciding to fuel a new generation of Royal Navy battleships with oil instead of coal. Oil promised to deliver speed, power and efficiency, giving the British ships a competitive edge over the rapidly growing German fleet. It is possible that the voluminous output from the wells at Masjid lay behind his decision to start the lengthy process of converting the vessels: but what was certain was that in order to instigate these naval reforms, a steady, long-term oil supply would have to be guaranteed. The strongest argument against conversion was that Britain had its own indigenous supply of coal that could sustain the Royal Navy in the event of any national emergency: if it was forced to import oil, supplies would be vulnerable to enemy disruption in times of war. Purchasing oil on the open market was equally risky and did not guard against sudden spikes in the price of a barrel. ‘We must have the certainty of being able to buy a steady supply of oil at a steady price’, as Churchill told the Commons in July 1913. The Far East offered another source but moving oil over such long distances was expensive and vulnerable to enemy attack. Latin America had become a major producer but was politically unstable: between 1912-14 four dictators had risen and fallen in oil-rich Mexico. Persia was the only other possible source (major discoveries were not made elsewhere in the Middle East until 1927, and on the Arabian peninsula only in the 1930s). Persian oil could be transported with relative ease through the Gulf Straits and the Suez Canal, to the British mainland. On October 11th, 1912 the APOC chairman, H.D.S. Greenway, recorded that the Foreign Office and Admiralty ‘are unanimously agreed that it is absolutely essential to maintain British control over the Persian oilfields’. Less than two years later, recognising its crucial strategic significance, the British government went on to purchase a majority shareholder stake in the Anglo-Persian Oil Company, buying 51 per cent of its equity and acquiring a right to appoint two of its directors.
However, as Masjid lay not within the British sphere of influence as defined under the 1907 Anglo-Russian Convention, but in the neutral zone of south-western Persia, the oilfield would be highly vulnerable to enemy assault in the event of war. On the outbreak of war in Europe in August 1914, the oilfields around Masjid were producing oil at a monthly rate of 25,000 tons, and British strategic planners were determined to maintain their influence in Persia. The potential threats to their position were from the Turkish empire and from Russia. In 1915 London secretly made an offer to St Petersburg, whereby Russia would recognize British control over Persia’s neutral zone, while in return the British would allow the Russians to take Constantinople and the Dardanelles from Turkey. Whitehall was equally concerned to prevent Turkey, which controlled Mesopotamia and had an outlet on the Persian Gulf at Basra, from attacking the refinery at nearby Abadan and its tanker traffic, or even the fields themselves. The Turks certainly recognized the importance of oil to the British war effort. They wasted no time in seizing Anglo-Persian’s oil stocks in Basra and Baghdad and despatching agents into Persia to stir up rebellion against the British. British troops were despatched to several places in southern Mesopotamia, including the head of the Shatt al-Arab waterway, Ahwaz, Basra and Qurna, to guard access to India and the Persian Gulf and also to defend the output from Masjid and Abadan. Persia’s Shah Ahmad (r.1909-25) proclaimed his kingdom’s neutrality in the war, but preserving British influence in the neutral zone and elsewhere nevertheless proved testing. In 1915 a Turkish general, Raouf Bey, led a column north-eastwards from Baghdad that raped and pillaged its way towards the Persian town of Kermanshah, for the British a place that seemed too close for comfort to the oil-producing regions to the south.
Meanwhile, German secret agents were whipping up anti-British sentiment among the Persians. In the summer of 1915, the German consul Wilhelm Wassmuss (1880-1931) managed almost single-handedly to rouse several mountain tribes into a state of rebellion, planning and instigating a number of heavy raids on local garrisons, one of which, Shiraz in the south of the country, was forced to surrender on humiliating terms. By the end of the year there were no British left in the neutral zone. In 1916 Sir Percy Sykes was despatched to Persia to restore the British position; based in Shiraz, he formed the South Persia Rifles, a paramilitary force mainly comprising indigenous fighters which eventually numbered about 8,000 men. Sykes fought back to reimpose British rule by 1917.
By the end of the First World War, Persia had become a vital source of oil supply to the Royal Navy, providing it with more than 400,000 tons in the course of 1918, considerably more than the minimum amount agreed between APOC and the Admiralty under a supply contract of 1914. Oil was now the central factor in determining British policy towards the region. The chief broker of postwar policy towards Persia was Lord Curzon, former viceroy of India and foreign secretary from January 1919 to early 1924. His main concern was to ensure the security of both the oilfields and India against the emergence of a new enemy in Russia – the Bolshevik revolutionary government. In a memo to the Cabinet of August 9th, 1919, Curzon argued that London should now take advantage of its strong postwar position by striking a deal with Tehran ‘by which British interests in that part of the world should be safeguarded in future from a recurrence of recent shocks’. Against the advice of some colleagues in Whitehall and Delhi, Curzon pushed for an ambitious deal with Persia. Under his plan, Britain would provide advisers, administrators and loans, effectively establishing a protectorate over the whole of Persia, while nominally respecting its territorial sovereignty. The Persian government was virtually bribed into signing this agreement in August 1919.
The agreement was conceived in terms that were unsuited to the new postwar world: the sixty-year-old Curzon had referred in his memo to Persia as ‘incurably feeble and unable to stand by herself’, words that clearly echoed a fast vanishing imperial age. Nationalist sentiment was gathering, and news of the agreement provoked a wave of anti-British anger which Russian sympathizers and agents readily exploited. On June 27th, 1920, amid violent protests, the British envoy in Tehran Hermann Norman wrote in a despatch to London, ‘it is essential to realize the bitter and widespread feeling against everything British at the present time’. In less than a year, Curzon’s ambitions had been dashed. In Tehran the parliament, the Majlis, refused to ratify the agreement, a refusal that marked the end of Britain’s efforts to impose its own rule on the kingdom. From now on, the British would abandon the policy of establishing a protectorate, instead allowing the Persians nominally to rule themselves while trying to influence their course of action and, above all, striving to keep others out. Yet the enforcement of law and order in a kingdom that was, in many parts, wild and lawless, was still a matter of vital concern to Anglo-Persian. Various tribes had long carved out their own fiefdoms, particularly in the wild, mountainous regions of central and south-western Persia, that they had always fought bitterly to defend.
Ever since the discovery of oil in 1908, enforcing the authority of the central government throughout the kingdom was a pressing challenge for the British. Negotiating with numerous tribes was far more complex than dealing with a central authority, and many of the tribal leaders were powerless to suppress the bandits and gangs that had occasionally disrupted the flow of oil from the fields to Abadan – most notably in February 1915 when tribesmen managed to cut the main pipeline. As the British ambassador in Tehran commented, ‘Persia will never be really independent and orderly until the whole country is brought under a single and unquestioned authority’.
It is unclear, however, what involvement British officials had in the events of February 21st, 1921, when a virtual nonentity, Major Reza Khan, at the head of a force of 3,000 Cossacks hostile to the new Bolshevik government in Moscow, marched into Tehran and, without a shot being fired, overthrew the government. Some Persian newspapers immediately pointed an accusatory finger at General Edmund Ironside, the British military attaché in Tehran, and there is some evidence that, at the very least, he nodded his assent to Reza’s coup: in his diaries he noted that the young Cossack would make exactly the right leader for Persia and, days before the event, also indicated that he had some prior knowledge of what was about to happen in Tehran.
What is certain, however, is that British officials would have applauded the drive for law and order that Reza, acting as the new government’s war minister, now imposed. In 1922 Anglo-Persian’s officials, watching the situation carefully, felt that the coup could be ‘of benefit with a properly constituted central administration in Tehran’, although they were concerned that in the short term fighting in the vicinity of the oilfields might imperil production and output. Dr Morris Young, an Anglo-Persian representative, for example, wrote that ‘... our salvation lies in a strong central government, and if we cannot support one ourselves, we should at least do nothing which might prejudice the formation of one in the natural struggle towards this end.’ He was particularly pleased that the war minister ‘seemed to bear our interests well in mind, for he mentioned that before all else he would take effective measures ‘to protect our works and pipeline’.
Anti-British sentiment in Persia had been inflamed by the 1919 agreement, and it continued even when Reza officially revoked the deal in February 1921. Throughout the next two decades, these sentiments were aggravated by the presence of a British oil company on Persian soil. Meanwhile, in 1923 Reza Khan deposed the shah and in 1925 took the throne himself as Reza Shah Pahlavi. It is easy to see why Anglo-Persian attracted ill feeling. At the now-massive Abadan refinery, European expatriate staff lived in far better conditions than the Persian labourers. As one government minister commented in 1927, ‘I see that you people have provided a much better way of living for yourselves here in the midst of this desert than exists for 99 per cent of the people of Tehran’. The company was seen as guilty of the worst form of exploitation, stripping the country of its assets while giving almost nothing back. Under the terms of the 1901 oil concession, Tehran was allowed to take only ‘a sum equal to 16 per cent of the annual net profits’ of the Anglo-Persian Oil Company. By 1930, when oil was already making up more than half of the country’s exports, many Persians felt that its return was paltry and later also noted that the concessionary terms were far less generous than elsewhere in the Middle East, notably Bahrain and Iraq, where foreign oil companies had started to split any profits on a 50:50 basis. For its part, APOC argued that it had to offer such incentives to recruit and retain highly skilled European staff, used to a far higher standard of living than most Persians. Other oil companies had to divide their profits on an equal basis because, unlike Anglo-Persian, they were not involved in other global ventures whose operations, and profits, had nothing to do with their Middle Eastern interests.
During the worldwide slump of the 1930s, ministers in Tehran urged Anglo-Persian to guarantee a high level of output, suggesting they did not appreciate the basic principles of supply and demand. But accusations of unjust treatment made a powerful rallying cry for many Persians, including government ministers wanting to subsidize the huge debts incurred by their own profligacy, politicians seeking to revive their careers and communists hoping to replace London’s influence with the Kremlin’s. Because APOC was indistinguishable from the British government in Persian eyes, the perception that it was exploiting Persian national assets inflamed Tehran’s relations with London throughout the 1920s and ’30s, particularly during 1929-32, when Reza Khan ended up cancelling the 1901 concession. As a result of the subsequent renegotiation he won a guaranteed minimum payment, and reduced the area in which APOC could work. Relations between the two capitals were also strained by disputes over Tehran’s claim to the British protectorate of Bahrain and the Shatt al-Arab (the vital waterway linking the Tigris and Euphrates). The official recognition of Iraq (granted its independence from the British mandate in 1932) and landing rights for Persia’s Imperial Airways were other points of contention – all of them exacerbated by the controversy over oil. In the course of the 1930s, trade links developed between Persia – which Reza Shah renamed Iran in 1935 – and the Germans, who were able to take advantage of anti-British sentiments as well as the kingdom’s rapid industrialization, to gain a strong commercial presence (though Britain continued to monopolize oil production).