March 25, 1951

World Eyes Iran on Oil Seizure Bid

By J. H. CARMICAL

ction of both houses of the Iranian Parliament in voting to nationalize the oil industry again had focused attention on the Middle East to which the center of gravity of the world's oil production is being shifted rapidly. Coming in the midst of negotiations with the Anglo-Iranian Oil Company, Ltd., to revise the present agreement, the proposed nationalization move may be for the purpose of getting better terms from that company, the only important factor in oil operations there.

Since Anglo-Iranian is owned by British interests, with the British Government holding a majority of the stock, nationalization of the Iranian oil properties would be a severe blow to the British economy. With current production about 700,000 barrels of crude oil daily, the loss of revenue to the British would sharply reduce the amount of exchange available for the purchase of raw materials. Already hard pressed to obtain enough foreign exchange to make the necessary purchases of raw materials abroad, Britain had been relying largely on its foreign oil operations to meet the exchange deficiency over the next few years. To do this, a vast expansion of its Middle East oil operations, including those in Iran, had been projected.

U. S. Aid Recalled

Realizing the importance of Middle East oil to British economy, the United States Government, since the end of World War II, through Marshall Plan funds and other aid, has been pushing the expansion of refineries in Europe for the processing of that oil. Through this program, it had been hoped that by the end of 1952, Europe would have a refining capacity capable of meeting its oil needs and that the crude oil to be processed by the refineries would come from the Middle East where British interests have roughly one-half of its estimated petroleum reserves, which represent probably one-third of the world's total.

Involved in the proposed Iranian nationalization project is the world's largest refinery at Abadan. Processing around 560,000 barrels of crude oil daily, this refinery manufactures a complete line of petroleum products, ranging from aviation gasoline to heavy fuel oil. Although some of the products are moved through the Suez Canal to the United Kingdom and Europe, a large part are marketed in India and Pakistan, other areas in the Far East, Australia and Africa.

The British have been active in the development of Iranian oil resources for the past half century. The original concession was obtained by W. K. D'arcy in 1901. Soon after the discovery of the first production in 1908, the Anglo-Persian Oil Company, now the Anglo-Iranian Oil Company, was formed. A pipeline from the discovery site to Abadan was completed in 1911 when the new refinery also was placed in operation. During World War I, Winston Churchill, then First Lord of the Admiralty, placed a long-term contract with the company for fuel oil. Simultaneously the British Government also bought a majority stock interest in the company.

With the steadily increasing demand for oil products throughout the world, operations were constantly expanded. However, early in 1933 the Iranian Government canceled the concession, which covered the entire country except the five northern provinces. A new agreement, which gave the Iranian Government greatly improved terms was arrived at in March of that year and the contract extended to the end of 1993 when all oil facilities, including the refinery, were to revert to the Iranian Government. The area of the concession also was reduced to 100,000 square miles. In July, 1949, the company agreed to a further increase in royalty payments to the Iranian Government.

In the development of Iran's oil resources, the British have used Iranian nationals so far as possible. However, technical details of the vast operation have been worked out almost entirely by British personnel and it is considered doubtful if Iran could supply the necessary "know-how" for the vast operation in case nationalization is accomplished.

Speculation on Nationalization

In the event of nationalization, it is hardly likely that any of the British personnel would remain. Iran then would have to turn either to the United States or Russia to furnish the necessary technical skill. No United States organization, particularly one holding a foreign concession, would be likely to furnish the "know-how" since it would give the impression of supporting Iran's breach of faith with the British and also would place the United States Government in an awkward position with respect to supporting its nationals in any controversy over foreign concessions the latter might hold.

One of the dangers in the Iranian situation involves the possible intervention of Russia. While oil industry officials see no signs now of Russia entering the picture, there is a feeling that she might gradually step in should Iran have difficulty in operating the properties. For years Russia has had an eye on the oil resources of the five northern provinces around the Caspian Sea, but in the past two or three years has been significantly quiet on that score.

Unless Iran should pay in cash for the value of the property involved in the nationalization of Anglo-Iranian's property in that country, it is quite possible that its seizure would be objected to forcibly. In that event, most any thing could happen, particularly if Russia should resent the British effort.

While the British Government in recent years has nationalized some of the industries within the United Kingdom, adequate compensation has been paid to the owners. If Iran were prepared to do that, Britain would be in a rather awkward position if it should refuse. However, it is not believed that Iran could raise sufficient funds to pay a reasonable value for the properties without outside aid, and this could be furnished by only one or two nations.

Value of the oil properties in Iran is difficult to estimate. At present prices, output of the wells will gross about $500,000,000 a year. Reserves are estimated to compare favorably with those in the United States. Production costs are among the cheapest in the world. In the event of an all-out war between the East and the West, Iran's oil reserves might be invaluable to the side that controlled them.

The action of the Iranian Parliament must be approved by Shah Mohammed Riza Pahlevi. At least two months is expected to elapse before any actual seizure is attempted. The British Government meanwhile is attempting to arrive at some satisfactory arrangement. With agitation over the proposed nationalization also likely to subside, the oil industry here would not be surprised that within that time some settlement may be negotiated.