Negotiations to reach a settlement after “AIOC” nationalisation


From “Oil Nationalisation and Managerial Disclosure: The Case of Anglo-Iranian Oil Company, 1933-1951”

Chapter 2: AIOC History, oil and Iranian politics

AUTHOR: NEVEEN  ABDELREHIM | THE UNIVERSITY OF YORK

The last of the employees of the Anglo - Iranian Oil Company seen here arriving at London Airport from Abadan, following the British staff of the company rejected the Persian governments offer to employ them in the nationalised oil company. 4th October 1951 (Photo by Daiy Herald / Warner/Mirrorpix/Mirrorpix via Getty Images)
The last of the employees of the Anglo – Iranian Oil Company seen here arriving at London Airport from Abadan, following the British staff of the company rejected the Persian governments offer to employ them in the nationalised oil company. 4th October 1951 (Photo by Daiy Herald / Warner/Mirrorpix/Mirrorpix via Getty Images)

The AIOC was one of the largest companies quoted on the Stock Exchange and Britain feared that Iran might use its oil as a political weapon.
Therefore Britain was looking to reach a settlement and to receiving compensation for the loss of future profits or having at least a new oil concession. The Anglo-Iranian Oil Company sent a communication to the Iranian Prime Minister claiming a breach of agreement between the Iranian government and the company[281].

The company representative stated that the principles of mutual goodwill and good faith should not be altered by any legislative, administrative or executive acts and it should be remembered by the Iranian Prime Minister that the company had worked for 18 years to develop the oil industry in Iran and had assisted the Iranians in their economic progress[282]. Further, the company representative emphasised the importance of the AIOC to Britain by saying “not only because of its magnitude as an element of our balance of payments…but also because of the power it gave us to control the movement of raw materials and as a bargaining weapon” and stressed the importance of Iranian oil to Britain‟s defence and the effect of losing it[283]. He explained that the Royal Navy was dependent on Iranian oil and that 85% of its furnace oil requirements came from Abadan, so this was Britain‟s motive for wanting to maintain control over Persian oil[284]. This heavy dependency was also voiced by the Foreign Office when it admitted that, since 1923, “the company‟s worldwide business had been built on Persian oil”[285].
The AIOC was aware that replacing the crude oil would not be a big problem, but replacing the refined products would be quite difficult “in which the Ministry of Fuel has confirmed to cost an annual additional amount of $350 million”[286]. Reinforcing the drastic effects of nationalisation and loss to the British, it was stated by the British Prime Minister in the Times that Britain was really affected by the act of nationalisation: we were out of Iran; we had lost Abadan; our authority throughout the Middle East had been violently shaken[287].

The British government referred the nationalisation issue to the International Court and awaited its decision. Meanwhile, they warned the Iranian Government that if they persisted in driving out the AIOC then “they will be killing the goose that lays the golden eggs, they will be cutting off their principal source of income and they will be signing their own death warrant”[288]. Britain and the United States were jointly concerned about nationalisation and at the possible loss of oil and thus were jointly interested in the possible repercussion of events in Persia on neighbouring oilbearing countries[289]. In the light of these concerns the British government sought to highlight two important facts for Musaddiq, to make him aware that he must negotiate with the company. One was that, except for the revenues from the AIOC, the Iranian government had no reliable income. The second was that, without British staff and services of the company to produce and market the oil, the company would have no revenue[290].

Most officials in the Foreign Office believed that it would be impossible to work the oilfields without the support of the Iranians, and surrounded by a hostile country[291]. The AIOC was aware of the fact that the Iranians would fail to obtain effective control of the oil industry because much of the world‟s processing and distributing facilities were in the hands of the major companies who would refuse to handle the expropriated oil. The AIOC threatened legal action against anyone who did so[292]. The AIOC argued that they had made an enormous investment in Iran in terms not only of money but of scarce materials, technical skills and the employment of thousands of Iranians so the calculation of benefits to Iran could not therefore be measured in terms of money alone[293]. To sum up, Iran‟s strong resentment and mistrust of the AIOC led to deep bitterness towards imperialism. These sentiments, carried to their ultimate conclusion, (that is, the cancellation of the oil concession and creation of a National Oil Company) would result in Iran facing the bleak prospect of being permanently left out of the world oil market.

Notes & References 
281. The Times, April 30, 1951, 4(C), Issue 51988.

282. Ibid.

283. Elm, Oil, Power, and Principle: Iran’s oil nationalisation and its aftermath, 87.

284. Ibid.

285. Ibid, 107.

286. Ibid, 144.

287. The Times Friday, Jan15, 1960; pg. 4; Issue 54669; Col B.

288. House of Commons, Parliamentary debates 30 July 1951, 1039.

289. The Times, April 30, 1951, 5(B), Issue 51988.

290. The Times, May 1st, 1951, 4(E), Issue 51989.

291. Sampson, The Seven Sisters: The Great Oil Companies and the world they made, p.119.

292. Penrose, The large International firm in developing countries, p.67.

293. The Times, May 2nd, 1951, 6(A), Issue 51990.

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