August 6, 1954

Iran And Oil Group Initial Agreement To Resume Output

By WELLES HANGEN

EHERAN, Iran, Aug. 5--Iran and eight international oil companies initialed today an agreement ending the long dispute over Iran's oil.

The agreement will give Iran at least $420,000,000 in revenue in the next three years and restore her to the ranks of the world's major oil-producing nations.

[The settlement was hailed by President Eisenhower in a message to the Shah of Iran as possibly marking the start of "a new era of economic progress and stability for your country." The accord was viewed by Secretary of State Dulles as a gain for the entire free world. The British Foreign Office and the Anglo-Iranian Oil Company professed to be satisfied with the agreement.]

The consortium of eight of the largest oil companies in the world undertook to extract, refine and market the products of Iran's nationalized oil industry and give the country approximately one-half of the net profits.

Simultaneously it was announced that Iran would pay £25,000,000 ($70,000,000) over ten years as her share of compensation to the Anglo-Iranian Oil Company whose assets here were nationalized in 1951.

Companies in Consortium

The United States companies in the consortium are the Standard Oil Company (New Jersey), Standard Oil of California, Socony Vacuum, the Texas Company and the Gulf Oil Corporation. The others are Anglo-Iranian, Royal Dutch Shell and the Compagnie Francaise des Petroles.

The oil agreement, which will be converted into a full legal contract, was signed by Dr. Ali Amini, Finance Minister and chief Iranian negotiator, and Howard N. Page, vice president of the Standard Oil Company (New Jersey) and chairman of the consortium delegation.

The compensation agreement was signed by Dr. Amini, Sir Roger B. Stevens, British Ambassador, and H. E. Snow, managing director of Anglo-Iranian.

Each of the five United States companies in the consortium has an 8 per cent interest in the enterprise, Anglo-Iranian holds 40 per cent, Royal Dutch Shell 14 per cent, and the Compagnie Francaise des Petroles 6 per cent. The other members of the consortium are paying Anglo-Iranian undisclosed sums as "quit claims" entitling them to share in profits.

Compensation Is Fixed

These payments are, in effect, compensation to Anglo-Iranian for the loss of its 100 per cent control of the enterprise it erected in this country since 1909.

Both the consortium and the compensation agreements must be ratified by the Iranian Parliament which reconvenes Aug. 24. The consortium contract must also be approved by the board of directors of each of its members.

The agreement on compensation and "necessary points" of the production and marketing contract wound up more than three years of intensive effort by the Western world to heal one of the bitterest disputes that has afflicted the post-war Middle East. It represented a major victory for British-American diplomacy and laid the basis for a viable Iranian economy.

The two agreements were initialed this afternoon in a simple ceremony at the Elahiyeh Villa in suburban Shimran, formerly the official residence of the Teheran representative of the Anglo-Iranian Oil Company.

A joint statement issued by Page and Dr. Amini predicted that "large volumes of Iranian oil" would again be flowing to world markets "in about two months."

In the interim, the statement declared, "preparations for the resumption of activities will commence."

The consortium has guaranteed to export in the first three years of operation a minimum of 80,000,000 cubic meters (500,000,000 barrels) of crude oil and refined products. In addition, 5,000,000 cubic meters will be produced for internal consumption.

Exportable production in the first year will be at least 17,500,000 cubic meters--somewhat less than half Anglo-Iranian's output in 1950, the last year of uninterrupted production. The guaranteed minimum output is 27,500,000 cubic meters in the second year and 35,000,000 in the third year.

Thus it appears that it will require three years of consortium operation for Iran to reach the 1950 output level.

To Restore Abadan Refinery

The consortium pledged today to restore the Abadan refinery in three years to the position of the largest producer of refined products in the Eastern Hemisphere.

Following a three-month start-up period the refinery will process 35,000,000 cubic meters (220,000,000 barrels) of crude oil for export in the first three years. The third-year output of 15,000,000 cubic meters is slightly more than half of Abadan's pre-nationalization capacity.

However, the consortium plans to change the output from predominantly low-grade fuel oils to higher quality products such as aviation gasoline. Company representatives declare that the planned output is actually in excess of the refinery's balanced capacity for high-grade products.

The consortium's contact with the Iranian Government has a basic twenty-five-year term, with a provision for virtually automatic renewal for fifteen years. At the beginning of each five-year extension the consortium will be required to relinquish explusive exploitation rights to 20 per cent of the area it then controls.

The companies will also be bound to devote a specified amount of money for exploration and development work to maintain Iran's petroleum reserves somewhere near the present estimated level of 8,000,000,000 to 13,000,000,000 barrels.

The consortium will pay approximately half of the net operating revenue to Iran as income tax. It will pay the refinery a commission of two shillings, one and one-half pence (about 30 cents) a cubic meter of crude utilized in exported refined products.

These payments are to be made exclusively in sterling. Subject to ratification of the oil agreement by the Iranian Parliament, the British Treasury will restore the convertibility privileges enjoyed by Iran before nationalization.

A joint British-Iranian statement, issued today, said Britain had agreed to remove immediately "certain restrictions existing on sterling payments between Iran and the non-dollar world."

An Allusion to Mossadegh

Dr. Amini told the gathering at the villa that resumption of large-scale oil exports would mean "considerable improvement" in the country's economy and finances. He asserted that the agreement would not have been possible without "the moral support of the great Western powers in making recommendations to their oil companies."

He praised the nationalization movement but said its true objective had been lost sight of "in the tornado of political designs and struggles * * * leading inevitably toward decline and total ruin of the country."

This was an allusion to former Premier Mohammed Mossadegh, who led the nationalization fight and is now serving a three-year sentence for rebellion against Shah Mohammed Riza Pahlevi.

Page praised the consortium companies for "submerging their individual interests at a time when both crude oil production and refinery capacity are at potentials greater on the world-wide scale than present market requirements."

Page left Teheran this evening accompanied by Snow and J. E. Brouwer, chief negotiator for the Royal Dutch Shell. Page will report to his own company and to the four other American members of the consortium before returning to London for final negotiations on the inter-group agreement that will formally establish the consortium.

The consortium will set up two operating companies, to be incorporated in the Netherlands and registered in Iran.