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BL Oil & Gas History, Economics and Geopolitics OENA8433

Topic 2, Lecture 3: The Arabian Concessions and the Red Line Agreement

Dr. Karin Oerlemans

CRICOS Provider No. 00126G copyright © The University of Western Australia

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Unit Overview
ƒ Topic 1: Introduction – The Founders
ƒ Topic 2: The Global Struggle
ƒ Lecture 1: World War One
ƒ Lecture 2: The Age of Gasoline
ƒ Lecture 3: The Arabian Concessions and the Red Line Agreement
ƒ Topic 3: War and Strategy
ƒ Topic 4: Oil and Gas Economics
ƒ Topic 5: Oil and Gas Technology in context
ƒ Topic 6: The Energy Industry Today

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Lecture Outcomes
ƒ Upon successful completion of this lecture you should be able
to:
ƒ Describe some of the events leading up to the Red Line Agreement
ƒ Understand some of the important characters who influenced the
development of the agreement
ƒ Begin to understand the role of the Red Line Agreement and its
importance in the development of Middle Eastern oil

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Recommended Reading
ƒ Yergin, D. (1991). The prize: The epic quest for oil, money and
power. New York: Free Press.

ƒ Economides, M. & Oligney, R. (2000). The colour of oil. Katy:

Round Oak.

ƒ http://www.gulbenkian.pt/index.php?section=2&artId=8&langId
=2

ƒ http://countrystudies.us/iraq/53.htm

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Story so far …
ƒ The development of Anglo-Persian
ƒ D’Arcy
ƒ Oil at Drilling at Shardin and Maidan-i-Naftan – the plain of oil
ƒ May 25, 1908 gusher
ƒ On April 14, 1909 public float of AP provided capital for:
ƒ Refinery at Abadan in the Shatt-al-Arab extended estuary of the
Tigris, Euphrates & Kurun Rivers
ƒ Pipeline from oilfield to refinery (138 km)
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ƒ Development of large oilfield (10km )

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Story so far …
ƒ But still not enough capital & difficulties were just as
demanding
ƒ June 17, 1914 appropriations bill passed for purchase of shares
in Anglo-Persian Oil Company
ƒ Made a large investment in Anglo-Persian Oil Company
ƒ Injected £2.2 million
ƒ 51 per cent interest
ƒ Guaranteed 20 year fuel oil contract
ƒ Beginning of British Petroleum
ƒ By end of WW1 was producing 18,000 barrels of oil per day

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Turkish Petroleum Company

ƒ Gulbenkian – Armenian, Mining
Engineering Degree and oil
“expert” and sales rep for Baku
oil
ƒ Allied with Royal Dutch/Shell
and Deterding
ƒ Refused Persian concession
ƒ “Never give up an oil
concession”!
ƒ 1907 – Moved into Mesopotamia

http://en.wikipedia.org/wiki/Calouste_Gulbenkian

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Turkish Petroleum Company
ƒ 1912 – Deutsche Bank, Royal Dutch/Shell, and the Turkish
National Bank
ƒ 1914 – agreed on a unification strategy between British and
German govts
ƒ 50% shares to Anglo Persian,
ƒ 25% each to Deutsche Bank and Shell,
ƒ 5% beneficiary interest shares to Gulbenkian
ƒ Self–denying clause
ƒ To have the concession for Mesopotamia
ƒ Then came World War 1

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WW1 to WW2
ƒ WW1 finished in 1918
ƒ Germany but also Turkey was a loser: the Ottoman Empire was no
more
ƒ Established the Anglo-Saxon culture – ideal and language, as the
dominant influence in the world

ƒ WW2 began in 1939

ƒ Between the two World Wars the Middle East partitioning began
to gel
ƒ Driven by a mixture of big power politics, intertwined with raw
commercialism focussing on (potential) new oil sources in the
Middle East
ƒ Competition ‘rationalised’ – the ‘Red Line Agreement’

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WW1 to WW2
ƒ Excluded
ƒ Turkey
ƒ Persia & Kuwait
ƒ Betrayed the Arabs who
were persuaded to fight the
Ottoman Empire (Turkey) in
return for “promised
independence”
ƒ See Lawrence of Arabia

Front cover of DVD release.

Source: www.mvps.org/.../ details/5653.html

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France and Britain

ƒ French Premier George
Clemenceau
ƒ France wanted Mosul (present
day Northern Iraq)
ƒ British Prime Minister Lloyd
George
ƒ Britain wanted Mesopotamia
(Iraq)
ƒ Britain ‘traded’ Syria for Mosul

ƒ London meeting – ƒ Beginning of great post war

ƒ Title: How to make the peace & power struggle for new oil
reorganise a world in shambles sources in the Middle East, in
ƒ Subtitle: how to carve up particular, in Mesopotamia
Mesopotamia

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Mesopotamia - Iraq
ƒ 3 provinces

ƒ Many people groups: Shia and Sunni Arabs, Jews, Kurds and Yazidis

ƒ Baghdad as capital

http://www.bbc.co.uk/history/ancient/cultures/mesopotamia_gallery_01.shtml 13
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A Power Struggle
ƒ Post war power struggle for oil
ƒ Mesopotamia
ƒ Diplomatic and commercial competition
ƒ Concessions
ƒ French vs. England vs. Americans
ƒ Commercial players

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American Oil shortages
ƒ Consumption after the war increased by 90%
ƒ Car registrations 9.2 million by 1920
ƒ Fear that oil would “run out” – maximum production to be
reached by 1924! Reserves to be exhausted by 1928
ƒ Prices once again increased
ƒ 1920 saw the first of the post war fuel shortages
ƒ Focused on overseas oil – Mesopotamia
ƒ Brought into direct conflict with British interest
ƒ Until Gulbenkian stepped in – persuade British to negotiate

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The Players
ƒ Anglo-Persian Oil Company
ƒ Burmah Oil and British Government
ƒ Turkish Petroleum Company
ƒ Royal Dutch/Shell
ƒ Turkish National Bank – British controlled
ƒ Calouste Gulbenkian
ƒ French (CFP)
ƒ 25% French Govt
ƒ American consortium - Standard Oil of New Jersey’s Walter
Teagle as head
ƒ Americans would not recognise 1914 Turkish Concession

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Faisal I
ƒ Faisal I (1885-1933) – king of Iraq,
ƒ Mecca, Arabia, third son of Husein
ibn Ali, the first king of Hejaz (Al
Ḩijāz, now part of Saudi Arabia)
ƒ World War I Faisal served with the
Turkish army in Syria and
participated in the capture of
Damascus from the Turks
ƒ March 1920 Syrian national
congress proclaimed him king of
Syria – deposed in July, when the
French entered the country under
the terms of a League of Nations
mandate.
ƒ August 1921 Faisal was elected first
king of Iraq, receiving 96 per cent of
the votes
ƒ National assembly of Iraq conferred
title of constitutional monarch upon
Faisal in 1924
ƒ Succeeded by his son Ghazi I.

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The Concession
ƒ 1925 a new concession was signed allowing all to participate

ƒ 1927 drilling began

ƒ Oct, 1927 Baba Gurgur Number 1 at 1500 feet gushed 50 ft into

the air

ƒ Country side drenched with oil and poisonous gas filled the
hollows (p.204), tribesman were recruited to built dams to
contain the oil – est 95,000 b/d – took 8 ½ days to cap

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The Red Line Agreement
ƒ Final agreement signed in July,
1928
ƒ Royal Dutch/Shell, Anglo-
Persian, French and Americans
(Near East Dev Co) 23.75%
ƒ Gulbenkian 5% - sold oil to
French
ƒ Competition ‘rationalised’
participants agreed to work
together inside a defined area:
defined as the ‘Red Line
Agreement’ – the old Ottoman
Empire

Source: D. Yergin (1991), p. 205

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In Summary
ƒ Post World War 1 to 1928 the Red Line Agreement
ƒ Powerful players fought over the oil rich resources of the old
Ottoman Empire

ƒ Next topic –
ƒ Second World War
ƒ Impact of oil on allies and axis powers
ƒ Innovations of war

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Topic Assessment
ƒ Questions for reflection and online discussion:

ƒ Create a timeline of the events leading up to the settlement now

known as the Red Line Agreement. Demonstrate, drawing on a
number of different sources, how the Agreement set the future for
the development of OPEC.
ƒ The Standard Oil group of companies was accused of price setting,
using its size and its control over crude oil production and refining,
to establish price stability. However, this would not be the last time
this was attempted. Identify and describe at least two other
occasions in the lead up to the Second World War when price
setting was attempted. How can these episodes be viewed as a
forerunner for OPEC?

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