Desert Enterprise: The Middle East Oil Industry in Its Local Environment [Reprint 2014 ed.] 9780674184008, 9780674183995

Citation preview

HARVARD

MIDDLE

^bei&it.

EASTERN

STUDIES

£*UebpsUie.

THE MIDDLE EAST OIL INDUSTRY IN ITS LOCAL ENVIRONMENT

11ШШШШШ

^bedesit (stde/up/iUe THE MIDDLE EAST OIL IN ITS LOCAL

INDUSTRY

ENVIRONMENT

mnnmmnn DAVID

HARVARD

H.

FINNIE

UNIVERSITY

Cambridge,

PRESS

Massachusetts

195 8

©

1958, By the President and Fellows of Harvard College

Distributed in Great Britain by Oxford University Press, London

Library of Congress Catalogue Number 58—10401 Printed in the United States of America

FOR N A N C Y (of course)

Qotewond Harvard Middle Eastern Studies will be a series of monographs sponsored by the Center for Middle Eastern Studies in Harvard University. On its establishment in 1954, the function assigned to the new Center was to develop academic teaching and research in relation to the area of the Middle East, with special emphasis upon its modern languages, history, and social and economic institutions. In carrying out this function it operates within, or in close association with, the relevant departments and faculties of the university, at both the teaching and research levels. The research program is conducted mainly through the appointment of experienced specialists to Research Fellowships, maintained by special grants from the Rockefeller and Ford foundations and other institutions. The conditions for appointment to a Research Fellowship require prospective Fellows to have demonstrated a thorough knowledge of their fields of research and control of the techniques needed for effective study on contemporary standards of the selected subjects. The goal of each Fellowship is the preparation for publication of a monograph which will, directly or indirectly, further an understanding among Western peoples of significant features and problems of contemporary Middle Eastern societies in their internal or international aspects. The monographs prepared by Fellows of the Center are expected to constitute the principal source for the eeries of

viii

FOREWORD

Harvard Middle Eastern Studies, which is inaugurated by the present work and will shortly be continued by other works now in course of preparation. It is, perhaps, peculiarly appropriate, although not deliberately planned, that the first work to be issued in the new series should deal with the major American involvement in the Middle East — major not only in terms of business enterprise, but also in respect of the political, social, and economic repercussions within the areas of operation of the oil companies. T h e extraordinarily wide and complex ramifications in a Middle Eastern environment of what would seem to be a simple economic operation were not realized by the companies themselves when they entered the field, and even today are scarcely realized by informed public opinion in this country; nor indeed are they always clearly understood by professional students of Middle Eastern affairs. T h e fact of the existence of the oil companies transforms by itself the political and economic status of the local governments, and each further step creates a widening circle of reactions, unpredictable and often inflammable. It is the great merit of Mr. Finnie's book that into this area of impassioned feeling he brings a calm, disciplined, and wary mind. H. A. R.

GIBB

The Middle East oil industry has often been treated in recent years from the standpoint of political issues, economic possibilities, or strategic implications, and the industry itself has not lacked for biographers, sympathetic and otherwise. The present work attempts something else: a close-up view of the industry as it exists — a snapshot as it were — based largely on personal observation in the year 1955. The problems discussed here are primarily the business problems arising out of the effort, and indeed the necessity, of a modern Western enterprise to operate successfully in a difficult foreign environment. I have made no effort to describe Middle East oil in any other terms. Although the present work is nothing if not what is called in academic circles "cross-disciplinary," my limited competence in such fields as economics, sociology, and anthropology has been painfully apparent to me every step of the way. Nor have I drawn on any "inside" knowledge of the oil business. The opportunity to do the research that has gone into this book was provided by a two-year Foreign Research and Study Fellowship from the Ford Foundation (1954-1956). I completed the project as a Research Fellow at the Center for Middle Eastern Studies, Harvard University. Of the many people in the academic world who have encouraged and assisted me, I would like to mention particularly Professor A. J.

χ

PREFACE

Meyer, Associate Director of the Center, without whose wise counsel and friendly guidance I might not have persevered. Also: Professors D. W . Lockard, C. A. Ferguson, A. H. Cole of Harvard; Professors Albert Badre, Nabih Faris, Paul Klat of the American University of Beirut; Professor Khodadad Farmanfarmaian and Mr. Simon Siksek of Princeton. I am likewise grateful to my instructors in Arabic, Professor Bayly Winder of Princeton and Mr. Yusuf Kiameh of Beirut. Among those in the oil industry who have been most helpful are Colonel William A. Eddy of Aramco; Messrs. Leo Teyssot, John Luttrell, and Michael Cubitt of the Iraq Petroleum Company; and Mr. Edward H. Brown of the Getty Oil Company. Many other people connected with the oil companies have been helpful far beyond the bounds of whatever courtesy may be anticipated by an itinerant researcher. However, I wish to make absolutely clear that none of these individuals or organizations, nor indeed any other, is in any way associated with or responsible for any of the statements, opinions, or conclusions contained herein. In some cases what appears in the book may not be entirely in accord with what the companies or their representatives would have said, and I shall look forward to hearing from anyone who feels he has been misrepresented. In cases where I was given access to an oil company's confidential files, I have sent the relevant part of the manuscript to the company concerned for checking of factual accuracy, but no company has commented upon the manuscript as a whole. My wife has shared in this project from start to finish. Her keen and sympathetic insights into the ways of another culture have been invaluable. Finally, I wish to thank Miss Carol Cross, who patiently converted the manuscript into something at least legible. D. H . F.

ßo4itent& Illustrations follow p a g · 98 1. I N T R O D U C T I O N 2. THE

1

COMPANIES

3. C O N C E S S I O N S : 4. O I L

AND THE

OPERATIONS:

5. S H A I K H S , AREA

KINGS,

OF

6. H U M A N

LOCAL

ECONOMY

SHOUT

9. W H E R E

AND

THINK

RULES

AND

20

BUTTER

STRONG

MEN:

9

52 THE

DIFFICULT

68 THE

PEOPLE

OF

THE

90 POINT

PUBLIC

BREAD

RELATIONS:

7. P R I V A T E

8. TO

THEY

GROUND

POLITICS

INDUSTRY

HOW

OR

FOUR:

THE

NOT

TO

SHOUT:

182

DO

FROM

GO

BIBLIOGRAPHICAL NOTES

201

INDEX

215

INDUSTRY

IN

THE

DILEMMA

OF

142

RELATIONS WE

OIL

NOTE

HERE? 199

THE

193

IcJUu 1. C o m p a n i e s with Interests in M i d d l e East O i l Exporting Countries

10

2. Estimated M i d d l e East O i l Production a n d C o m p a r i s o n with Other A r e a s , 1954-1956

55

3. S u e z C a n a l O i l Shipments by Country of O r i g i n , 1 9 5 5 4. A b a d a n Refinery: N u m b e r of Employees lated to Total Strength, 1 9 4 0 - 1 9 5 5 5. Bapco

Hired a n d

61

Discharged, a s

Re95

Employees by Nationality, 1 9 5 2 - 1 9 5 4

107

6. A r a m c o Employment b y Nationality, 1 9 5 0 - 1 9 5 6

110

7. A r a m c o : N u m b e r of S a u d i A r a b Employees by G r a d e , 1 9 4 9 - 1 9 5 6

112

8. A I O C : British Staff in Relation to Total W o r k Force, by A r e a s , 1 9 5 0

113

9. A I O C : I r a n i a n W o r k March

Force in Relation to Total W o r k

Force, b y

Grade,

1951

113

10. N u m b e r of Employees of Consortium O p e r a t i n g C o m p a n i e s in Iran, S e p tember 1 9 5 5

114

11. Consortium Companies: Foreign Staff b y Nationalities, 1 9 5 5 - 1 9 5 6

115

12. N a t i o n a l Composition of Staff at IPC (Kirkuk), N o v e m b e r

116

1955

13. Composition of B P C Staff at End of Y e a r , 1 9 5 0 - 1 9 5 4

117

14. BPC M o n t h l y Rate a n d Daily Rate Employees by Religion, 1 9 5 3 - 1 9 5 4

117

15. Iraq: Religious Composition of Population

118

16. К О С : N a t i o n a l Composition of W o r k Force, End of 1 9 5 3

119

17. Aminoil: Composition of W o r k Force, 1 9 5 2 - 1 9 5 3

120

18. A r a m c o : N u m b e r of Employees Accommodated General Camps, 1 9 4 7 - 1 9 5 2

in M a s o n r y

Buildings

in 134

19. C o m p a n y H o u s i n g in Iran, September 1 9 5 5

140

2 0 . Estimated Consumption of Petroleum Products in Certain Producing

Coun-

tries

148

2 1 . V a l u e of Imports into I r a q by Selected Y e a r s 2 2 . S h a r e of Direct O i l Producing Countries

Revenue

in Total Government

149 Revenues, M a j o r

Oil 153

TbeA&U CtUebpsUAe. THE IN

MIDDLE ITS

EAST

LOCAL

OIL

INDUSTRY

ENVIRONMENT

ABBREVIATIONS OF C O M P A N Y

NAMES

C O M M O N L Y USED I N THE INDUSTRY ( A N D IN THIS W O R K )

AIOC Aminoil AOC APOC Aramco Bapco BP BPC CFP The Consortium Getty Gulf IPC

Iricon Jersey КОС MPC NEDC NIOC PW QPC Shell Socal Socony

Tapline Texas TPC

Anglo-Iranian Oil Company (formerly APOC) American Independent Oil Company (also sometimes "Amindoil") Aramco Overseas Company Anglo-Persian Oil Company Arabian American Oil Company Bahrain Petroleum Company British Petroleum Company (formerly AIOC) Basrah Petroleum Company Compagnie Frangaise des Petroles The participants in the 1954 agreement with Iran, Getty Oil Company (formerly P W ) Gulf Oil Corporation Iraq Petroleum Company (formerly TPC). The term "IPC" also covers the "Associated Companies" (including BPC, MPC, and QPC). Iricon Agency, Limited Standard Oil Company (New Jersey) Kuwait Oil Company Mosul Petroleum Company Near East Development Corporation National Iranian Oil Company Pacific Western Oil Company Qatar Petroleum Company Royal Dutch-Shell group Standard Oil Company of California Socony Mobil Oil Company (formerly SoconyVacuum Oil Company, and originally Standard Oil Company of New York) Trans-Arabian Pipe Line Company The Texas Company Turkish Petroleum Company

ill 1

Otifoaducüa+i

This book is an attempt to describe and analyze some of the problems involved in the establishment and maintenance of a large, efficient, modern, international industry in an area that is underdeveloped economically yet confident of its cultural and historical position; an area that is just emerging from foreign tutelage yet is coveted more than ever by the great powers of the world. In the Middle East there are six countries, all bordering on the Persian Gulf, that produce oil in such quantities that its exploitation is the dominant industrial activity of the country, in terms of capital invested, labor employed, and income produced. These countries are Iraq, Iran, Saudi Arabia, Kuwait, Qatar, and Bahrain. Oil is also produced for export in the small Neutral Zone between Kuwait and Saudi Arabia. Egypt, Israel, and Turkey produce oil, but not in sufficient quantities to meet their internal requirements. Syria, Lebanon, and Jordan are affected by the industry to the extent that oil pipelines pass through their territory. These last six countries are not included in this study except for occasional references. These areas differ widely in their history, political structure, economic resources, administrative and legal organization, and geography. But among the features they possess in common are the presence of oil in large quantities, and a general social and economic backwardness that qualifies ι

2

DESERT

ENTERPRISE

each of them for the adjective "underdeveloped." (The word "backward" is no longer fashionable, and it seems that even the clumsier "underdeveloped" may soon have to give way to some other euphemism such as "preindustrial.") THE

POLITICAL

CONTEXT

If it can be said that the West is now faced with a "Middle East question" (as there was an "Eastern question" half a century ago), the core of the question is the oil industry. In one sense the industry developed out of nineteenth century economic imperialism. Until recently, and since long before the discovery of oil, the areas of the Middle East where oil has been found were primarily a British preserve, deriving importance fundamentally from the need to keep open routes to India, Britain's proudest foreign possession, and other parts of the empire in the East. With India gone, and with the United States now assuming the paramount responsibility for the stability of the Middle East in the face of the age-old Russian threat, Britain's interest has shifted, but has not declined. Britain's primary concern is now for the oil resources of the region, without which Great Britain, and indeed Western Europe, might well be unable to survive in its present form. But British power has diminished: 1956 saw the departure of Glubb from Jordan and Belgrave from Bahrain; the fiasco at Suez; rebellion in Cyprus. The people of the Middle East had little to do with the world-wide decline in British power and influence, but it coincides with a general movement among them away from "colonialism" or "imperialism" and toward "nationalism" or "independence." These terms cover a vast variety of attitudes, a great deal of history, a great many dimly conceived aspirations — and remarkably little real understanding. To a large extent solutions to the political problems that they symbolize are beyond the competence of the oil companies.

INTRODUCTION

3

Therefore the companies' relations to their home governments, and the policies of these Western governments in the area, become extremely significant to the companies' own operations. And the United States is in the special dilemma of trying to compromise between the world-wide anti-Communist coalition (requiring alliance with Britain and France), and a long anticolonialist tradition hardly shared by its major allies. Throughout the area the companies are flailed in parliaments, press, and public houses as imperialistic Western villains, intimately bound up with the "colonialistic" governments behind them. The companies have difficulty trying to convince the people at large that they are purely business organizations having no connection with their home governments, World Zionism, and the forces of evil in general. This difficulty is due, partly, to the effect of Communist and nationalist propaganda; but partly also to the fact that most companies cannot, even if they would, deny that their interests are closely linked with those of what has come to be called the "free world." The concern evident in official Britain at the time of the Abadan crisis in 1951 was hardly such as to convince Iranians (or Arabs either, for that matter) that the Anglo-Iranian Oil Company was a totally free agent. Only the American companies are owned entirely by nongovernmental investors, and in the Middle East all companies run the risk of being tarred with the same brush. In a sense, then, the cross these companies have to bear is that, in the minds of Middle Easterners, they are identified with the governments of either Great Britain or the United States. Any organization that consciously or unconsciously adopts or maintains a Western, specifically a British or American, flavor operates under a handicap. Anti-Western feelings are very deep indeed in the Middle East. American support of Israel looms about as large to the Arabs as the record of British "colonialism." The fact that the companies themselves

4

DESERT

ENTERPRISE

purport to be, and indeed are, commercial and industrial organizations with no political motives is a distinction that the average Middle Easterner is unlikely to grasp. Western business and Western politics are virtually inseparable in the minds of most Middle Easterners, whose "politics . . . cover the industrial sphere as they cover the whole of corporate life." 1 Stress upon the drawbacks of this link may be unsavory to Americans and Britons justifiably proud of their own countries, cultures, and ways of doing things. But what really matters from now on in the Middle East may not be what Westerners think of themselves, but rather what the Middle East thinks of them. It would be fatuous to suggest that the American and British companies and personnel attempt to slough off their respective national heritages. Nevertheless, it is clear that throughout the area the West is in bad repute, and some of this ill feeling rubs off on the business organizations which operate there. The oil companies and their Western employees are always envied and sometimes respected, but never loved. While they try assiduously to avoid politics, the companies sometimes are caught in its web. The international political problems have their origins in a period long before the advent of the oil industry, but oil makes the problems more crucial. If the oil industry (as presently constituted) entertains hopes for survival in the Middle East, perhaps the hope lies in attempting to make these problems less crucial.

THE

ECONOMIC

AND

SOCIAL

CONTEXT

In many ways the oil industry has conferred blessings on the Middle Eastern areas where it operates. It provides employment at wages hitherto unheard of; it makes capital available for economic development; it contributes widely to the advancement of health and education. It holds promise of

INTRODUCTION

5

breaking the vicious circle of poverty, ignorance, and disease gripping most of the people of the area. Ironically, however, the oil companies themselves have been unwittingly partly responsible for providing the sort of environment where inflamed nationalism flourishes. The industry's problems are self-generating to the extent that the enlightenment and prosperity the companies bring seem often to be accompanied by discontent. A rise in the level of living means more time and energy for thinking, talking, complaining, and agitation. And in the oil areas the situation is particularly acute because of the almost fantastic contrast between life as it has been and the standards imported by Western personnel. The level of aspiration is apt to rise much more rapidly than the level of possible attainment. Of course the companies are in no way responsible for the appallingly low standards in which they find themselves surrounded. Paradoxically, however, in ameliorating these conditions (whether simply as a matter of course or by design) they tend themselves to become targets for social agitation. They are the unhappy scapegoats for centuries of misery. T o state the problem so simply is not to solve it. On grounds of humanity alone, the companies must pay a day's wage for a day's work. In the long term, they must accept almost as an article of faith the proposition that the economic advancement they foster will lead to social and political stability. They are therefore determined that the genie they have conjured up must eventually work with them and not against them. Therein lies the core of their local relations problem. THE BUSINESS CONTEXT

While recognizing these serious political and social problems, the oil companies are also forcefully aware of their position as business organizations. The center of gravity in an oil company obviously lies in the production, refining,

6

DESERT

ENTERPRISE

transportation, and marketing of oil. Oil is its reason for existence: its first obligation is to assure that oil is produced and marketed as efficiently as possible. As custodians of a major portion of one of the world's most important resources, the companies participate in a major way in the international economic scene. Oil is vital for peaceful progress as well as for war. The industry is efficient, well managed, competent, and profitable. It has achieved its present position as the result of a fierce process of natural selection. Its technical problems have been tackled and solved with resourcefulness and acumen that epitomize Western enterprise at its best. As American (and, more generally, Western) society has developed in the twentieth century, the industry has also adapted itself to changing conditions. It yields to no other industry in its concern for good employee and community relations, matters of far greater concern now than they were half a century ago. Abroad, and especially in the Middle East, the industry carries forward this kind of enlightened adaptability in a far more difficult environment. Almost every conceivable type of business problem that may face a company at home is more complex in the Middle East, where even climate and geography affect technical operations, working conditions, and supply problems. The difficulties of adopting modern business policies in this remote and geographically inhospitable region arise to a large extent out of the character of the region itself, which can be understood only with a great deal of patient effort and goodwill. A thoughtful Arab observer has put it this way: "The same ingenuity, imagination, and effort that have so far been devoted to the task of oil exploration, discovery, and production are now needed in the field of human relations." 2 This is not easy. The oil companies are determined to succeed where missionaries, technical assistance administrators, and philanthropists have often failed, even without the con-

INTRODUCTION

7

ditions imposed by operating in a business context. And the stakes are high. The companies realize that they must find their own solutions to local problems; for if the smaller problems grow into big ones, the companies may have no ally powerful enough to rescue them. In most business or political situations there is some common ground: a common culture, a faith in the sanctity of the written agreement, and an assurance that governmental authority will redress injustice. These elements are for the most part lacking in the relationship between the oil companies and the Middle East. The companies and the area represent cultures and societies as diverse as any in the world; the written commitment is often subject to extremes of interpretation extending even to complete rejection; conventional rule of law in the accepted Western sense is often lacking, if only for the reason that one party to each bargain is a sovereign state. But all the companies are constantly trying to develop new and better ways of getting along. The present work will discuss some of the policies and practices that the companies have developed in an effort to create a viable relationship with the areas where they work. Some of the companies have taken steps which deserve recognition and discussion, as possibly indicating profitable avenues of approach to the ultimate problem of acceptance — or, more luridly, the problem of survival. While oil operations in areas other than the Middle East are outside the scope of this work, it should be observed that oil companies were encountering similar problems of adjustment elsewhere well before the rise of the Middle Eastern industry to its present prominence. The most striking case is Venezuela. The experience there of Creole Petroleum, for example, is part of the background of the Middle Eastern story, for this experience doubtless encouraged companies with Middle East interests to adopt similar attitudes and

8

DESERT

ENTERPRISE

policies, or at least to examine them before rejecting them. The details of Creole's programs of training and promoting local personnel, community development, encouragement of local enterprise, and so on, have been well described elsewhere.3 But there is no law (pace "natural law" fundamentalists) that says what is good in Venezuela is good also in the Middle East. Differences in cultural patterns, economic and social conditions, and political realities may well call for different approaches. There may, however, be one parallel between Latin America and the Middle East worth considering. Foreign oil interests were nationalized in Mexico (1938) and in Iran (1951). Creole no doubt profited by a study of the background of Mexican nationalization, just as the companies in the Middle East are seeking to profit by the Iranian experience. Nationalization or expropriation is the bad dream of Western businessmen in the Middle East. As a practical matter, nationalization has not been averted at Abadan or Suez. As a legal matter, it now seems to be accepted that the expropriation (with prompt and adequate compensation) of enterprise by a sovereign government is unassailable by any sanction short of outright war — or gunboat diplomacy. Except for the astonishing way it has fallen into disrepute, gunboat diplomacy might be regarded as rather handy by company management abroad. It would be comforting for a manager to know that whenever a situation became serious enough he could count on his government's intervention. But with gunboat diplomacy demode, to say the least, the concern of the Western oil companies is to stem the tide of nationalization before it reaches them; nationalization, in short, must be made clearly and obviously a less attractive alternative than leaving ownership and control of the businesses where they are. Just how to promote the kind of atmosphere in which nationalization seems unattractive is the major question for the oil companies in the Middle East.

ш 2

*JUe Qamp.anie4, and abtuu "Jkey ^lUink

The story of the oil industry in the Middle East must begin, perhaps tediously, with an idea as to what companies and business interests are actually involved. The "industry," after all, is not an abstract thing, but rather consists of an assortment of corporate organizations. It is also important to distinguish between "parent" companies and "operating" companies, in the usual case where there is a difference. An identification of each of the parent organizations will be followed by a brief description of the companies operating in the Middle East. (For the sake of simplicity, no effort will be made to distinguish between the parent organizations and their wholly owned subsidiaries. Standard Oil Company (New Jersey), for example, operates almost entirely through subsidiaries, all of which will be referred to generically as "Jersey.") # Among the American "parent" companies, no one would dispute the pre-eminent position of Standard Oil Company (New Jersey). Jersey is the largest of all American oil companies, and one of the giants of American industry. It conducts operations or has interests in almost every area of the free world. It is the leading American company in the Middle * Throughout the book, the companies will generally be referred to by the abbreviations or nicknames usually applied to them in the oil industry. A list of these names appears above on p. xiv. 9

DESERT

10

ENTERPRISE

East in terms of investment and the amount of Middle Eastern oil produced for the company's use. Jersey has interests in Aramco (30%), the IPC companies (11%%), 1 and the Iranian Consortium (7%). TABLE 1 C o m p a n i e s With Interests in Middle East Oil Exporting Countries

Country

Operating

Company

Bahrain

Bapco

Socal, Texas

Iran

Consortium

BP, Shell, CFP, Jersey, Socony, Gulf, Socal, Texas, Iricon Iranian Government

NIOC

Participants

Iraq

IPC, BPC, MPC

BP, Shell, Jersey, Socony, CFP, and the Gulbenkian interests

Kuwait

КОС

BP and Gulf

Aminoil Getty

10 American "independents" Getty

Qatar

QPC

Same as IPC

Saudi Arabia

Aramco

Jersey, Socal, Texas, Socony

Kuwait Neutral Zone (KNZ)

Socony Mobil Oil Company is the next largest of the American international companies. Socony is the result of a merger in 1931 of Standard Oil Company of New York (hence "Socony") and the Vacuum Oil Company. Until 1955 its name was Socony-Vacuum Oil Company. Socony has operated for many years in the Middle East, with marketing organizations in Egypt, Turkey, and the Levant. Like Jersey, Socony has interests in Aramco (10%), IPC (11%%), and the Consortium (7%). Both Jersey and Socony also purchase large quantities of oil from BP's production in Kuwait. Standard Oil Company of California and the Texas Com-

THE

11

COMPANIES

рапу have identical interests in Aramco (30%), Bapco (50%), and the Consortium (7%). Until 1936 Socal was the sole owner of Bapco and Aramco (then known as California Standard Oil Company, or "Casoc"); in that year half of its interests in both companies was transferred to Texas. The interest of both in Aramco was reduced to 30% each with the entry of Jersey and Socony after World War II. Gulf Oil Corporation has a 50% interest in Kuwait Oil Company and 7 % in the Consortium. Gulf is probably the most heavily committed abroad of any American oil company: in 1955, five sevenths of its crude production came from overseas, and more than one half from Kuwait alone.2 A great deal of Gulf's Kuwait oil is sold to Shell. American Independent Oil Company (Aminoil), with a concession for the Kuwait share of the Kuwait Neutral Zone, is owned by the following American interests: Phillips Petroleum Co. Hancock Oil Co. Signal Oil and Gas Co. Ashland Oil and Refining Co. Ralph K. Davies J. S. Abercrombie Crescent Corp. Sunray Mid-Continent Oil Co. Globe Oil and Refining Co. Lario Oil and Gas Co.

33.54% 15.08 15.08 12.70 8.25 6.35 3.17 2.65 1.59 1.59

Aminoil also has a minor participation in the Consortium, through Iricon (see below). Getty Oil Company (formerly Pacific Western) holds, since 1949, a concession for the Saudi Arabian rights in the Zone, but most of its operations there have been delegated to Aminoil. Getty nevertheless has its own marine terminal and maintains a small staff in the Zone, including a geologist and accountants. Its Middle East

12

DESERT

ENTERPRISE

representative, an American lawyer and orientalist, maintains his office and residence in Jidda, Saudi Arabia. The company also participates in Iricon (see below). It is controlled through an elaborate corporate structure by J. Paul Getty, one of the most successful, thriftiest, and least known of American oil entrepreneurs. His interests are said to aggregate over $1 billion.3 Iricon Agency, Limited, holds a 5 % interest in the Iranian Consortium. In spite of its name, it is wholly American owned. Companies participating in Iricon are: Richfield Oil Corp. Aminoil Standard Oil Co. (Ohio) Getty Signal Oil and Gas Co. Atlantic Refining Co. Hancock Oil Co. Tide Water Associated Oil Co. San Jacinto Petroleum Corp.

25

%

16% 8%

8% 8% 8 Уз

№ 8% 84

British Petroleum Company, known until 1954 as AngloIranian Oil Company (and before 1935 as Anglo-Persian), was organized in 1909. Its original backers were Scottish financiers, but the British government acquired a controlling interest in 1914, and has retained it ever since. Under the 1914 agreement between the company and the British government, the Treasury appoints two members of the board of directors. Although the Treasury representatives do not normally interfere in business decisions, either of them may veto any resolution of the board. The board may then by majority vote submit the resolution to the Treasury and the Admiralty jointly, whose decision is controlling. The government may appoint persons to visit and inspect the company's physical installations and accounts.4

THE

COMPANIES

13

BP, whose interests have expanded over most of the world, comes close to being the official instrument of British governmental oil policy in the Middle East. As AIOC (and before that, as Anglo-Persian), BP used to hold the concession for southwestern Iran, and operated the gigantic Abadan refinery. It still has a large interest (40%) in that area under the Consortium arrangement. BP also has a half interest (with Gulf) in Kuwait Oil Company. The Royal Dutch-Shell group (commonly known simply as "Shell") is an amalgamation of British and Dutch interests in the proportion of 40% to 60%, respectively. It grew out of the organization in 1903 of the Asiatic Petroleum Company with capital in equal thirds from the Royal Dutch Oil Company, the Shell Transport and Trading Company, and the Rothschild interests,5 to sell oil for the three groups at a commission. In 1907, the properties of Shell and Royal Dutch were transferred into the Anglo-Saxon Petroleum Co. and Bataafsche Petroleum Maatschappij; Anglo-Saxon was to concentrate on transport, storage and distribution, and Bataafsche on production. Although the interests of Royal Dutch and Shell have been merged, the companies themselves are not.® In the Middle East, the group participates in IPC (23%%) and the Consortium (14%). It is not publicly known what interests control the Royal Dutch-Shell group, although some of the shares are publicly held. It is thought that the Dutch royal family has a large interest in the Dutch portion. Compagnie Fran^aise des Petroles (CFP) was specifically created in 1923 to take up the French interest in IPC. Thirtyfive per cent of the shares and 40% of the voting rights are held by the French government, but the government has more extensive control than these figures indicate. CFP's statutes "provide for the State's agreement to the administration and management of the Company and accept regular supervision by the Government's Commissioners." 7 CFP may not withdraw from IPC nor surrender any part of its holdings in the

14

DESERT

ENTERPRISE

company without written permission of the French government, and the government has a preference right in CFP's profits.8 It is to be noted that a Jersey subsidiary holds 9% of the shares of CFP.9 American interests therefore have a financial interest in IPC somewhat greater than their formal 23.75% share. Not to be ignored among the "parents" is the Gulbenkian estate. Calouste Sarkis Gulbenkian, who died in 1955, was a fantastically successful Armenian promoter who has been credited with much of the responsibility for the creation of what subsequently became IPC. The participation of his estate in IPC amounts to a 5 % beneficial interest.10 The Gulbenkian interests apparently do not participate in any Middle Eastern oil ventures other than IPC and its Associated Companies. THE "FIELD"

Iraq Petroleum Company and its associated companies produce oil from Iraq and Qatar. The groups represented are: Royal Dutch-Shell British Petroleum Near East Development Corp. (Jersey and Socony) 11 Compagnie Frangaise des Petroles Gulbenkian interests

23.75% 23.75 23.75 23.75 5.00

In spite of its international character, IPC is operated as a thoroughly British company. In its personnel, finances, and outlook it is largely British. The affiliates of IPC include: Mosul Petroleum Company (MPC), Basrah Petroleum Company (BPC), and Qatar Petroleum Company (QPC). (Other affiliates are not yet in production.) The oil from BPC and QPC is moved out through the Persian Gulf. That of IPC and MPC, the latter's share being relatively small, flows through

THE

15

COMPANIES

the pipelines to the Mediterranean, passing through Syria and Lebanon, where IPC maintains installations. Aramco and Tapline are sister companies 12 of the same American parents: Socal Texas Jersey Socony

30% 30 30 10

Aramco conducts producing and refining operations in eastern Saudi Arabia, while Tapline owns most of the pipeline through which much of the oil is exported. The line passes through Saudi Arabia, Jordan, Syria, and Lebanon. A subsidiary of Aramco, the Aramco Overseas Company (AOC), is responsible for certain ancillary functions such as supply and transport of personnel. Its headquarters is in The Hague, and it maintains offices in Beirut and elsewhere. The Aramco companies are as thoroughly American as are their American parents. There is thus a basis for comparison with the operations of the British-operated IPC group, which will be considered in detail later on. The contrast shows up especially in their policies with respect to industrial relations and local relations. Bahrain Petroleum Company, the first wholly Americanowned (Socal and Texas) oil venture in the Middle East, has been only moderately successful by comparison with its neighbors. Production in Bahrain, which began in the early 193O's, has remained relatively stable in recent years. Bapco's importance as a refiner of Aramco crude, however, remains. Almost as much Aramco crude is refined at Bapco's Bahrain refinery as at Ras Tanura in Saudi Arabia; in 1954 86% of all crude refined in Bahrain was from Saudi Arabia. It is transported from the mainland in one of the longest underwater pipelines in the world. 13 Bapco is in a unique position as a

16

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100% American-owned organization, for the most part British staffed, established in a British-protected state. Kuwait Oil Company, operating in Kuwait, is owned halfand-half by BP and Gulf. Although its general manager for a number of years has been an American, most of the expatriate staff are British. КОС was organized in 1934 as a British company, but production began only in 1950. The interests represented in the Iranian Consortium are: Royal Dutch-Shell BP CFP Socony Jersey Gulf Socal Texas Iricon

14% 40 6 7 7 7 7 7 5

The Consortium is the instrument through which the Iranian oil crisis of 1951-1954 was resolved. There are two operating companies, known as the "Consortium Operating Companies," one for exploration and production, and the other for refining.14 The participating companies purchase oil for their own account. The Consortium as a unit does no exporting or marketing. National Iranian Oil Company is the government-owned Iranian company, organized in 1951 to take over the properties of AIOC. It also operates a small field and refinery near Kermanshah, but not for export. In 1955 NIOC acquired the shares of the Iran Oil Company, which since 1950 had been exploring for oil in Iran outside the AIOC concession area. THE OWNERS AND THE MANAGERS

The primary attribute of the oil companies is that, in common with other business organizations, they normally exercise

THE

COMPANIES

17

rational economic behavior. In this respect they differ from other Western institutions in the Middle East, such as missionary and educational establishments and Point Four. The exercise of rational economic behavior means maximizing profits. Basically the operating companies exist for the benefit of their parents: their function is to provide raw materials for the industry, at as low a cost as possible and over as long a period as possible. There thus arises the possibility of differences of opinion as between home offices and the field. An example might be housing: such facilities obviously raise the cost of oil produced. On the other hand personnel problems in the field may arise if working conditions are not made sufficiently attractive. In some ways Aramco appears to have somewhat more autonomy than the various IPC companies in the field. One indication of this is that Aramco has in the Middle East much larger staffs in departments such as law and public relations. While there are at least half a dozen American lawyers stationed in Dhahran, and Tapline usually has one or two more in Beirut, IPC has no expatriate lawyers whatever in the Middle East. Aramco's public relations department in Saudi Arabia consists of perhaps twenty or thirty people, while IPC has only a handful scattered throughout the area of its operations. Aramco's headquarters since 1952 has been located in Saudi Arabia, at the request of the Saudi government, but the company still occupies a large office building in New York. Relations between Aramco and its parents (all large American oil companies) are obviously conducted primarily in New York, but it is not easy for an outsider to determine to what extent the company's internal management affairs are influenced by the parent companies. IPC's headquarters is in London, and great was the scoffing in IPC circles when Aramco yielded to Saudi insistence that its headquarters be moved to the field.

18

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Be that as it may, much high policy with respect to any of the Western companies operating in the Middle East is made by executives primarily in their capacity as representatives of the parent companies. Under such a system it may often happen that the motives and objectives of the parent companies predominate. This may account for some of the difficulty in conducting local relations. Assume, for example, that a concessionary government prods the local company management to increase production. The government is told that no more oil can be sold than is already being produced. Then why, it may be asked, has shaikhdom X increased its output by 25% while we have increased ours only 5%? Actually the decision has probably been made by top management in N e w York or London, based on the amount of oil the parent companies need for themselves or can sell to others. Local management may therefore have to accept responsibility for an unpopular decision it did not make. A serious situation may also arise where the interests of the parents sharply diverge. This was the case when American companies were seeking admission into IPC with backing from the State Department (see next chapter). The objective of the American companies was to obtain a supply of oil. They did not want to build IPC into a vertically integrated company to compete with their own refining and marketing organizations, and they had no interest in setting the price of crude for sale to themselves so as to make a profit for IPC. But C. S. Gulbenkian, with a 5 % interest in IPC and no refining or marketing facilities of his own, insisted that the profits should be made by IPC; he was not in the least interested in a supply of oil per se. A compromise was effected whereby the Gulbenkian group was entitled to sell its oil to the other groups at a price which gave Gulbenkian a very substantial profit, while only a nominal profit was made on oil sold to the "major" groups, which all represent integrated oil companies.

THE

COMPANIES

19

Thus, rational economic behavior does not necessarily mean the same thing to management in New York (or London) as it does to management in the field. In the field, the political, social, and economic problems of mere survival take first place. While the operating companies are willing to go to considerable expense to maintain good local relations over the long pull, these problems may not always loom so large at home.16 Large private enterprise in Western countries, and especially in the United States, has matured tremendously in the past few decades: qualified observers see a trend toward greater awareness of public responsibilities, and sometimes even profess to find examples where the profit motive is not the exclusive mainspring of company policy. T o what extent this process has spilled over into operations abroad is not easy to judge, nor can it be said unequivocally that the shifts in motives and objectives at home are applicable in an area like the Middle East. At all events, the operating companies are hammering out new policies all the time to make themselves better industrial neighbors, and it might conceivably happen that such policies require a great deal of explanation to headquarters far removed from the scene of operations.

Ill 3

GoMceAAionl THE

GROUND

RULES

In the Middle East, unlike the United States, oil in the ground belongs to the state, rather than to the surface owner. Where this is not specifically spelled out in constitutional provisions, it is generally assumed. Such was the case, for example, with respect to the shaikhdoms of the Persian Gulf, whose rulers (as well as the British authorities) a fortiori regarded the oil deposits as their own domain in agreeing with the British government not to alienate rights to them without British consent. The basic step, then, is to make some sort of arrangement between the oil company and the state whereby the oil can be discovered, brought out, taken away, sold, and perhaps also refined. The kind of arrangement which has been almost universally adopted is the concession agreement. The word "concession" is merely a generic term, and the actual agreements are often designated as "conventions" or by some other name. Executives of the Iranian Consortium, in fact, call their agreement with Iran "an agreement without a name." The word "concession" may carry an overtone of inequality, as though some yielding to the detriment of the granting power had taken place. More vital than the terminology is the kind of relationship created by these agreements. Basically they provide for the right to exploit oil in return for financial compensation. In an underdeveloped country, however, the concession creates 20

CONCESSIONS

21

a much more complicated relationship than simply the financial one: it brings upon the local scene a relatively large modern industrial enterprise with Western ways of doing things, creating a new demand for labor and perhaps a new market for local enterprise. More often than not the company brings with it a closer interest on the part of its home government in the affairs of the concession-granting country. For example, the United States established diplomatic representation in Saudi Arabia in 1939 only as a result of the development of Aramco, and opened a consulate in Kuwait for similar reasons in 1951. A consulate at Khorramshahr, near Abadan, was established in 1955, several months after American firms had obtained an interest in Iranian oil. The concession system is not the only conceivable means by which the Middle Eastern governments and the oil companies might regulate their affairs. In most advanced Western countries, where foreign capital normally competes with domestic under legislation applying equally to all, concessions to foreign companies would probably be regarded as unthinkable. The concession often creates a monopoly in favor of the foreign enterprise; it may raise questions as to the extent to which the government is thereby discriminating against its own nationals; it tends to put a part of the economy of the country under the influence of economic elements outside the government's control. But the concession system can be defended as a reasonable basis for the development of petroleum in a backward area. The countries, for technical and commercial reasons, would have difficulty exploiting their oil and marketing it for their own account. Often, before a concession is granted, they do not even know whether oil exists. Oil production is a highly specialized and capital-intensive business, requiring financial and technical resources which an underdeveloped country would be hard put to provide. It is also risky, as the record of false hopes and disappointments of the companies themselves

22

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shows. It is normal in a capitalistic economy that the companies willing to provide the necessary risk capital should expect commensurate gains if they succeed. Furthermore, business necessity dictates that the companies must be allowed to operate with a reasonably free hand. In the nature of petroleum as a commodity, this requires the establishment of a fullscale technical operation at the place where the oil is found. Nevertheless, some Middle Easterners take the view that a concessionary system is basically incompatible with sovereignty. Their governments, they say, should not be required to deal at arm's length with foreign private business concerns; relations should be governed by legislation rather than by contract. Ideally, there may be merit in this contention. As a practical matter, however, governmental administrative and legislative processes in Middle Eastern countries are apt to be sketchy and unpredictable. To the oil companies, having a specifically negotiated concession adds a great deal of certainty to their day-to-day operations, which are thereby raised to some extent above the welter of local politics. All of the concessions have these features in common: 1. A provision relating to what the company's business in the country is. Normally this includes prospecting and exploring for, producing, transporting, and exporting oil. Some require the construction and operation of refining facilities on certain conditions. 2. A provision as to the area of operations within the country. Normally this is relatively large. КОС, Bapco, and QPC have concessions covering the entire area of the state, while practically the whole of Iraq is covered by the concessions of IPC and its affiliates, BPC and MPC. 3. A provision for the royalty or other payment to the government. Most concessions in the Middle East now assure that net profits of the companies will be split 50-50 between the company and the government; most of the government's share is paid as income tax. There may be other basically

CONCESSIONS

23

financial provisions, such as "security" fees, an option of the government to buy crude oil for internal consumption at favorable prices, and the like. 4. A statement as to duration. Most concessions in the Middle East are for very long periods. For example, QPC's expires in 2010, Aramco's in 1999, Bapco's in 1995, Aminoil's in 2008, KOC's in 2026. It is common to provide that the industry's physical plant within the country becomes the property of the state on termination of the concession. 5. An arbitration clause, to provide for procedures in the event of disagreement as to the terms of the concession itself. These terms, which might be called the "bread and butter" clauses, serve to define the parties' basic legal and business rights with relation to each other. While confusion may sometimes arise with respect to their interpretation, they are generally well understood, and tend to be violated only consciously, as in the case of AIOC's concession in Iran. One matter should be particularly noted: the companies have no jurisdiction, by virtue of their concessions, over how their payments to the state are to be spent, and the governments are likely to resent any suggestion that the situation should be otherwise. Early in 1956, for example, reports from London indicated that Great Britain was putting pressure on the United States government to confer with Aramco as to the possibility of getting the Saudi Arabian government to quit spending its oil money for subversive purposes in Jordan. The Saudi Arab charge d'affaires in Washington huffed: "The temerity of such a suggestion is amazing." 1 What the Saudi Arabian government does with its money may be of great interest to Aramco, but the company rejects any responsibility for trying to influence the government's policies, however nonconstructive they may be to the furtherance of the political aims of Great Britain or any other power. In addition to the "business" clauses referred to above, the concessions usually contain a number of other provisions which

24

DESERT

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bear a direct relation to the company's role as a major economic and social force in the local scene. Some typical provisions are: 1. A commitment relating to the employment of indigenous labor. 2. Exemption from customs dues for goods imported for company purposes. 3. A company obligation to train its local workers to replace foreigners. This may include financing education of employees abroad. 4. A provision relating to the availability of petroleum products within the country. 5. An obligation on the part of the company to contribute to such social services as health and public education, or to share responsibility for the construction and maintenance of basic economic services, such as roads, water supply, and electricity. 6. The right of the government to nominate some directors or other high company officials. No two concessions are precisely alike. But all of them contain a collection of provisions of this kind, and they frequently give rise to issues in the field of company "relations." Such issues reflect the difficulties that are apt to arise when two such diverse forces as a Western oil company and a Middle Eastern government attempt to work side by side. The role of these concession obligations in shaping company "relations decisions" will be examined in detail in later chapters. THE CONCESSIONS IN HISTORY

The concessions in the Middle East are dominated by British and American interests. Of the oil produced in the Middle East in 1955, about 59% was for the account of American concerns, about 30% for British, 6% for French, and 4% for Dutch. The minority interest of the estate of C. S. Gulben-

CONCESSIONS

25

kian in the IPC group accounted for little more than 1 % of all the oil produced. N o other nationalities are represented. Originally the companies were largely British, but American interests have dominated since the Second World War, and will probably continue to do so as long as Western companies are represented at all. Western predominance results primarily from the fact that a sine qua поп of oil production is a large amount of risk capital, which is not available from investors in the area itself. This factor, however, does not entirely explain why the British lead had been yielded to the Americans, nor why such other Western powers as Germany and Italy are not represented at all. The reasons for the present pattern are to be found in the complex political history of the Middle East since the turn of the century. It is a varied and fascinating story, epitomizing in a way the roles of the various nations in Middle Eastern, and perhaps also in world, affairs during this period. We begin in Iran, just after the turn of the century. IRAN

The first of the concessions under which oil has been produced in the Middle East has also had the most troubled history.2 William Knox d'Arcy, an Englishman, obtained what later became the Anglo-Persian Oil Company's concession in 1901. It covered most of the area of southwestern Persia. Although the interests in his group were purely private at first, in 1914 the British government contributed a large amount of capital and gained a controlling interest in APOC, in return for a supply contract to provide the British navy with fuel oil. Even before the British government became interested financially, however, it took an extremely active interest in the affairs of the company. Official representatives of the government assisted in maintaining physical security for the company's property and personnel. The late Sir Arnold Wil-

26

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son, who holds a prominent place in Britain's long line of orientalists cum imperialists, relates that as a young officer of the Indian Army he was sent to the oil area with a detachment of twenty Bengal Lancers, ostensibly as a guard for the British consulate at Ahwaz, "though in practice it was to protect the drillers." 3 Wilson adds: "The Foreign Office and Simla [the government of India] deserve credit for sending a detachment of troops as a foretaste of what will follow if the local tribes try to stop work by a British Company working under a proper concession which, if successfully exploited, will benefit Persia and local tribesmen beyond imagination." 4 By April 1909 the backers of the company had spent ,£225,000 without success, and were ready to quit and cut their losses. Wilson pungently expressed his views as to the proper role of his government in this situation: "It amazes me that the directors . . . should be in a position to risk the complete loss of a concession... without consultation with the F.O. and without telling you [Sir Percy Cox, British Resident at Bushire] or the Minister or the Government of India. . . . They have all the vices of absentee landlords. . . . Cannot Government be moved to prevent these fainthearted merchants, masquerading in top hats as pioneers of Empire, from losing what may be a great asset?" 5 Wilson and his superior, Sir Percy Cox, as senior British official in the area, went so far as to conduct negotiations with the Shaikh of Khuzistan, Khazaal, for the company's proposed refinery installations at Abadan.6 The British even guaranteed Khazaal's hegemony over Khuzistan, which at the time was semi-independent of the Teheran government, thus opening themselves to the later charge of encouraging separatism. APOC operated under the 1901 concession until 1933, when a new agreement was made.7 The 1933 concession was repudiated by Iran and the industry was nationalized in 1951. In 1954 an international consortium took over under a vastly

CONCESSIONS

27

different arrangement from any other in the Middle East. The basic difference is that the petroleum deposits and oil installations remain the property of the government-owned National Iranian Oil Company, the Consortium Operating Companies merely running the installations; most of the oil is purchased at the oilfields by subsidiaries of the Consortium parent companies. In retrospect AIOC's * achievement in remaining in Iran for fifty years seems remarkable, in view of the turbulent history of concessions, especially oil concessions, in the country as a whole. On a number of occasions various foreign interests have attempted to gain concessions in northern Persia. Shortly after World W a r I the Sinclair interests came close to obtaining rights, while parallel with the Sinclair negotiations, Standard Oil (New Jersey) and Anglo-Iranian were competing (in alliance) for the same territory. Neither group was successful. The most recent foreign attempts to win concessions for northern Persia occurred shortly after World War II. Both Russian and American groups made the effort, but the Iranians settled the matter, at least temporarily, by enacting legislation forbidding the grant of any further oil concessions to any foreign interest. NIOC, the government-owned company, has preempted the field for itself, and recently startled the oil world by announcing the discovery of a major field near Qum, not far south of the capital. Under legislation passed in 1957, however, two thirds of Iran (excluding the Consortium area) is to be opened for exploitation. The Soviets are apparently excluded by a provision of the law limiting its application to nationals of countries where Iranian nationals could obtain similar rights. IRAQ

Modern Iraq was until the First World W a r merely a segment of the Ottoman Empire. Its present boundaries approxi* Anglo-Persian Oil Company became Anglo-Iranian in 1935.

28

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mate the former limits of the Ottoman "vilayets" or provinces of Mosul, Baghdad, and Basra. In the late nineteenth century, financial affairs of the "Sick Man of Europe" gradually came under control of Great Britain and Germany. A feature of this control was that Great Britain and Germany were in a position of influence with regard to concessions for economic projects. The most significant of these projects was the famous Berlin-Baghdad Railway, which formed the basis of controversy and eventual agreement between Britain and Germany on the eve of the war. The railway matter has been thoroughly explored elsewhere, and it is only incidental to our story. But the origins of the present Iraq Petroleum Company are to be found in the same controversy.8 In the 1880's reports of the presence of oil in the Mesopotamian vilayets were brought to the attention of the Sultan, who prudently obtained for the Civil List, or his own personal account, a "concession" to exploit whatever oil was to be found there. In 1904 the German interests behind the Railway project obtained from the Civil List its rights in this oil, but in 1909, following the "Young Turk" revolution, the rights were transferred by decree back from the Civil List to the Ministry of Finance, or the Turkish government itself. This set the stage for new attempts to obtain a definitive concession. First among the aspirants was a syndicate comprising British and German interests, which made common cause with the formation of the Turkish Petroleum Company in 1912. In this syndicate, the Shell group was represented by 50%, the (German) Deutsche Bank by 25%, and the (British) National Bank of Turkey by 25%. Shell, however, was not predominantly a British concern, but was controlled by Dutch interests under the powerful Sir Henri Deterding; TPC therefore found that it lacked the complete support of the British government in its bid for a concession. The British were supporting instead the efforts of the all-British AngloPersian Oil Company, whose star had risen as the result of

CONCESSIONS

29

its success in neighboring Iran. The Germans, perhaps correctly, diagnosed the problem as stemming from His Majesty's Government's desire to have Mesopotamian oil exploited by a purely British company, which APOC was and Shell was not.9 The Ottoman government was uncertain as to which way to turn. Negotiations went on for many months in an effort to unite the various conflicting parties so as to present a united front to the Turks, but nothing definite was achieved until, in January 1914, the German embassy in Constantinople reported that representatives of the Standard Oil Company were seeking a concession.10 This report appears to have had a strong effect on the Germans and the British. Cables flew back and forth, and the interested parties shortly convened in London to settle their affairs before it was too late. The result was the famous Foreign Office Agreement of March 19, 1914, by which APOC gained entry into TPC. The British and German ambassadors were then instructed to proceed together, hand in hand, as it were, to the Porte, to say that everything was all straightened out, and to demand the concession which they had previously been seeking separately. Still the Turkish government dallied. A mining law had recently been passed under which the demanded concession would be illegal. Never mind, said the ambassadors; amend the mining law. The Porte objected that this would set a precedent and would open the door for similar demands from the Russians and the French. It is not clear even now what was the deciding factor in this epitome of Byzantine intrigue. C. S. Gulbenkian, the fabulous Armenian promoter, was never far from the scene, although the extent and effect of his influence are still obscure. The Germans and British had a powerful bargaining weapon in their power under the capitulations to regulate the Turkish import tariff. The Turks wanted the tariff raised, and Anglo-German agreement to the increase seems to have paved the way for the promise of a concession.11 In July 1914, the Turkish Petroleum Company

30

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received a letter from the Grand Vizier promising to grant the company a concession for the exploitation of oil in the vilayets of Mosul and Baghdad, on condition that the company would undertake to indemnify third persons "who may be interested in the petroleum resources located in these two vilayets." War broke out before the promised concession could be granted, but Mesopotamian oil was not forgotten. Before the war was well along, the French began to take an interest, and it was agreed between the British and French governments, as part of the proposed general postwar settlement for the Middle East, that the French would take over German interests in Mesopotamian oil. This agreement was ultimately formalized in the San Remo Agreement of April 25, 1920. The American oil interests that had been outrun by T P C in Constantinople in 1914 were still to be heard from. The attention of the State Department was drawn to the San Remo settlement, and a lengthy diplomatic controversy began. The American position was that Britain, as the proposed mandatory power in Iraq, should provide equal economic opportunity to nationals of all nations. This was the "Open Door" policy which dominated American foreign policy in the Middle East throughout the 1920's. When the American ambassador in London raised the point, the response was that while the British were just as much in favor of the Open Door as the Americans were, the T P C had a concession from the former Ottoman Empire which Britain was bound to respect. The State Department countered with the assertion that the Grand Vizier's letter of 1914 did not amount to a concession, but if there was any dispute about it, the matter should be turned over to arbitration. A basis was laid for compromise when the British agreed to allow American interests to participate in TPC. A number of American companies formed the Near East Development Corporation ( N E D C ) for this purpose. T P C seems to

CONCESSIONS

31

have implicitly conceded that the Vizier's letter did not constitute a concession on which they were willing to rely, by negotiating a new concession with the government of Iraq. This was granted in 1925. The terms of the American participation have been a subject of dispute in recent years between the American oil companies concerned and the Department of Justice;12 much of the controversy revolves around a significant provision of the 1928 inter-group agreement between the various interests involved. This is the wellknown Red Line Agreement, whereby the participants of TPC pledged themselves not to operate within the area of the former Ottoman Empire except through TPC itself. From the start, the American companies seeking State Department assistance in joining TPC reciprocated by furnishing the Department with details as to the negotiations. It seems to have been understood from the beginning on both sides that the United States government was championing not the rights of the specific companies involved, but all American interests similarly situated. The Department was assured that all American companies had been invited to consider joining, and none that had shown an interest had been excluded. The Department was further concerned lest in the future other American fcompanies might be excluded, and the American negotiators therefore proposed to TPC a rather elaborate subleasing system. As first drafted, this would have required TPC to put up great parts of its concession area to public bidding. This idea was stoutly resisted by the other groups, and in the end the "Open Door" concept was greatly watered down. It was eliminated altogether in the concession revision of 1931. The way thus seemed clear for TPC in Iraq. Then B.O.D.* appeared upon the scene. This company represented interests which not only were not included in TPC but were * The initials apparently stand for "British Oil Development," but the name of the company was simply "B.O.D. Company."

32

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even foreign. It was noted with alarm that B.O.D. had German and even Italian backing. The situation was complicated when B.O.D. actually succeeded in obtaining a concession for Iraq west of the Tigris and north of the 33 rd parallel. IPC (which had been T P C before 1929) lost little time in buying up B.O.D. and turning its concession over to the newly formed Mosul Petroleum Company, a coordinate company with IPC, being owned by the same interests in identical proportions. In 1938 another IPC coordinate company, Basrah Petroleum Company, obtained a concession for southern Iraq. This rounded out the supremacy of IPC and its affiliates in the country.13 For the record, it should be noted that the Red Line Agreement was dissolved in 1948. But as far as Iraq was concerned, it served no further purpose, since the entire area had long since been taken up by the IPC group. The story of oil concessions in Iraq would not be complete without reference to two other sets of claimants, neither of which was successful. First there was the so-called "Chester concession," claimed by the late Admiral Colby M. Chester, an American, on the basis of a promise of a railway concession with mining rights, allegedly made to him by the Ottoman government. Chester unfortunately was unable to produce adequate documentary evidence of his concession, and furthermore lacked sufficient capital to back his demands. When the State Department inquired as to whether he had sought to join the American group negotiating for admittance to TPC, Chester was evasive. This did not prevent Chester and his representatives from pounding on State Department doors for some time, but his importunities came to be regarded with increasing impatience and even levity.14 Also on the scene were the heirs of the late Sultan of Turkey, whose demands were based on the concession granted by the Turkish government to the Civil List of their ancestor.

CONCESSIONS

33

Their claims were energetically but fruitlessly put forward by their attorneys on many occasions from New York to Istanbul, with no visible effect. When, at San Remo, the French were in principle admitted to Mesopotamian oil, there was another side of the agreement: the French, as mandatory power in Syria and Lebanon, guaranteed to facilitate the granting of transit rights for oil to be transported by pipe line from Mesopotamia to the Mediterranean. This was accomplished in 1934. At the same time, IPC seems to have had no difficulty in persuading the government of Palestine, over which the British held a mandate, to grant similar privileges for pipeline rights. Under these concessions, Iraqi oil was piped through two sets of lines, one to Haifa in Palestine (now Israel) and the other through Horns in Syria, finally separating to reach the sea at Tripoli and Baniyas. Both these concessions were granted to IPC, although it was contemplated that MPC oil and possibly also that of BPC might use them.

BAHRAIN

T o understand the tangled story of oil concessions in Bahrain and Kuwait, it is necessary to appreciate the historic interest of the British in the Persian Gulf, which developed out of Britain's rule over India. During the latter part of the nineteenth century it was a basic point of British policy to maintain communications and supply routes between the British Isles and the eastern part of the empire. No intrusion in the Gulf could be suffered. The machinery for maintaining British supremacy consisted of naval control of Gulf waters plus a series of treaties between Great Britain (usually through the government of India) and the various Shaikhs. The treaties date from as early as 1820. They covered first a prohibition of piracy, and later a prohibition of slave trade. Bahrain was drawn into the

34

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system in 1880 and 1892 with treaties which gave the Britiish extensive control. 15 For Bahrain's oil history the most significant development was the commitment on the part of the Shaikh in 1914 neither to grant any petroleum concession nor to exploit his own oil without British consent. "If there is any prospect of obtaining kerosene oil [petroleum] in my territory of Bahrain," wrote the Shaikh to the British political agent, "I will not embark upon the exploitation of that myself and will not entertain overtures from any quarter regarding that, without consulting the political agent in Bahrain and without the approval of the High [His Majesty's] Government." 16 The British regarded both the Arabian and Persian sides of the Persian Gulf as part of the same problem. A political residency in the Persian Gulf, located at Bushire in Persia, had jurisdiction over British interests in the whole Gulf. Arnold Wilson, who regarded the interests of APOC in Persia as almost a personal concern,17 reported to Percy Cox, the Resident at Bushire. Similarly, a political agent was posted in Bahrain shortly after the turn of the century, who also reported to Bushire. In the 1920's a New Zealander, Major Frank Holmes, organized the Eastern and General Syndicate, which succeeded in 1925 in obtaining a petroleum concession from the Shaikh of Bahrain. It seems that Holmes received his concession with the approval of the British government under the Shaikh's 1914 commitment. In any case, with the presence of oil in commercial quantities not yet established, he tried to interest British oil interests in acquiring his option, with no success. Having exhausted the British possibilities, in 1927 Holmes granted an option covering his interests to Gulf, an American company. Gulf, however, was at the time a member of the Near East Development Corporation, in which American interests in IPC were united. It will be remembered that the IPC par-

CONCESSIONS

35

ticipants were committed to joint operation by the Red Line Agreement. Since Bahrain fell within the Red Line area, Gulf reluctantly but dutifully offered its rights to IPC. IPC was not interested; Gulf therefore transferred (with the consent of the Holmes group) the option to the Standard Oil Company of California, a newcomer to the area which was not involved in IPC. The transfer from Gulf to Socal took place on December 21, 1928. Under the terms of the option contract, Eastern and General was to obtain from the Shaikh a renewal of its concession, which would then be transferred to Socal. This presented a novel situation: the Shaikh was committed not to grant rights without British consent; with Bahrain in the Red Line area the islands were barred to IPCs participants individually, although the group as a whole was not interested; Standard of California was threatening to upset the system. In this situation the British government at first declined to permit the renewal of the concession except on terms whereby the assignee would be required to be British and British managed. The State Department was alerted, and once again it brought pressure on the British government. The result was a compromise: Socal's operating subsidiary, which the British would have preferred to be of British nationality, was to be incorporated in Canada (this had tax advantages for the American parent); the top management was to be British; and dealings with the government of Bahrain were to be conducted only through the British political agent. But the concession-holding company, Bapco, was, and still is, entirely American owned.

SAUDI

ARABIA

Although nominally a part of the Ottoman Empire before the First World War, what is now Saudi Arabia was rapidly coming under the control of the ambitious Abdul Aziz ibn Saud, who was steadily expanding his power and influence.

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He had not been included in the British treaty system for the Persian Gulf, apparently because his territory originally did not reach the Gulf itself. When the British awoke to the fact that Ibn Saud had conquered Al Hasa and was threatening the already protected territories of Kuwait, Qatar, and Bahrain, they hastened to draw him in. In 1915 Ibn Saud signed an agreement with the British subjecting the grant of oil concessions in his territories to British veto. In return Ibn Saud received a modest subsidy through British channels. In 1923 the ubiquitous Major Holmes received for Eastern and General a concession covering Al Hasa (which has since become the Eastern Province of Saudi Arabia). The 1915 agreement between Ibn Saud and the British was superseded in 1927 by another treaty specifically repudiating Britain's control over the granting of concessions. At about the same time Eastern and General granted an option on its concession to Gulf, simultaneously with the similar option with respect to Bahrain. Gulf's situation with regard to the Red Line Agreement was precisely the same in Saudi Arabia as in Bahrain, and the option passed to Socal in the same way. In the view of Ibn Saud, however, the original rights he had granted to Eastern and General had lapsed, and the field was open for other prospective concessionaires. Socal by this time had been encouraged by success in Bahrain and thought prospects on the mainland looked equally good. They also looked good to the IPC, which sent competing negotiators. In 1933 Ibn Saud chose Socal. British observers, on the whole, are inclined to feel that the choice was based on the fact that the American company simply offered him more money;18 there is some opinion among Americans that Socal was favored because Ibn Saud preferred to have Americans working in his country.19 The fact that the British were actively supporting the Hashemites, Ibn Saud's bitter enemies, may have been a factor.20 In 1936 the Texas Company, another non-IPC concern,

CONCESSIONS

37

was brought in by Socal on an equal basis. In 1939 the concession was amended and the territory extended. The Red Line Agreement posed a problem at the end of World War II, when Jersey and Socony, the only remaining N E D C participants, sought entry into Aramco. In 1948, after much controversy, the other IPC partners permitted the American companies to take up their Aramco participation, in return for substantial adjustments in the structure of IPC. KUWAIT

Kuwait was drawn into Britain's Persian Gulf treaty system in 1899. A political agency was established in 1904. The oil question arose in principle shortly before the outbreak of the first world war. The rich fields of southwestern Iran had been found as early as 1908; Abadan refinery went on stream in 1912. While the presence of oil in Kuwait, whose border lay only some forty miles to the southwest, had not been established, there were surface indications of asphalt. T h e 1899 agreement had made no reference to oil (d'Arcy had not even obtained his Persian concession until 1901), but the British in 1913 filled the gap with a commitment from the Shaikh of Kuwait specifically relating to oil. It reads as follows: With the hand of friendship we received your esteemed letter dated the 26th Zu-al-Kada 1331 and in it you stated that with reference to the conversation which passed between us yesterday if we saw no objection therein it would be desirable for Your Honour to inform the British Government that we were agreeable to the arrival of His Excellency the Admiral. W e are agreeable to everything which you regard advantageous and if the Admiral honours our (side) country we will associate with him one of our sons to be in his service, to show the place of bitumen in Burgan and elsewhere and if in their view there seems hope of obtaining oil therefrom we shall never give a concession in this matter to any one except a person appointed from the British Government. This is what was necessary and I pray for the continuance of your high regard and may you be preserved. 21

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In the context of the general subject of "relations" with Middle Eastern governments, this communication is of some interest. Its addressee was Sir Percy Cox, then the British Political Resident in the Persian Gulf. Cox was an orientalist of distinction, in addition to his other talents, and preferred to draft his communications to local officials first in Arabic, a feat of which few Westerners are capable.22 In view of the rather exotic style of this agreement, it is very probably one of Cox's own compositions, presented to the Shaikh for him to sign. Its substance is clear: (a) The Shaikh will see that the British are shown where the oil is; and (b) no one but a person appointed by the British government is to be granted an oil concession. As in Bahrain and Al Hasa, the Eastern and General Syndicate of Major Frank Holmes obtained an option for an oil concession from the Shaikh in the early 1920's. In 1927, Eastern and General transferred its option to Gulf, 23 after having unsuccessfully offered it to Anglo-Persian in about 1926.24 Since Kuwait had been specifically excluded from the Red Line area,26 Gulfs participation at the time in IPC was not in issue, but the British government nevertheless fell back on the 1913 agreement in refusing to permit the Shaikh to grant a concession except under such qualifications as would exclude Gulf — namely, a so-called "nationality clause" requiring that the concessionaire be a British company. Gulf informed the State Department late in 1931 that the Shaikh himself was willing to grant them a concession on the basis of the Holmes option, on terms acceptable to Gulf, but that the British Colonial Office had intervened, refusing to grant a concession except with the inclusion of the "nationality clause." The agreement between Holmes and Gulf provided that the Gulf operating subsidiary was to be either

CONCESSIONS

39

Canadian or British, at Gulf's option. Gulf was amenable to this arrangement. Furthermore, Gulf informed the British government (through the Department of State) that the Bahrain nationality terms were acceptable. In the case of Bahrain, it will be recalled, the British had compromised to allow American interests operating through a Canadian subsidiary to obtain the concession. With respect to Kuwait, however, the British were not willing to do this.26 Diplomatic negotiations proceeded between London and Washington. In the meantime Gulf reported to the State Department, and a complaint was registered with the Foreign Office, that geologists for Anglo-Persian had arrived in Kuwait with drilling equipment to begin exploration work.27 This, coupled with continued British procrastination, indicated to Gulf that the British were trying "to bring pressure upon the Shaikh of Kuwait to alter his attitude with consequent advantage to the Anglo-Persian Oil Company." 28 Anglo-Persian's anxiety to obtain the concession for itself was now evident. The Americans complained bitterly that APOC had already turned down an opportunity for a Kuwait concession. Now, however, the situation was changed: APOC was having difficulties in Persia itself, and within a few months the 1901 d'Arcy concession was to be cancelled by the Persians.29 In March 1932 it was erroneously reported that APOC and the Shaikh had signed an exclusive concession. The British conceded that APOC had been exploring, but offered by way of explanation the fact that Eastern and General was aware that APOC was considering applying for a concession, and that after all APOC had shown an interest in Kuwait long before Eastern and General had.30 After further diplomatic exchange, the British announced that they were willing to yield on the nationality clause, in view of the fact that it now appeared that the Shaikh himself was willing to do so. They assured the Americans that they were willing to have Eastern and General submit an

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application for a concession, to be considered along with other applications, without the need for a nationality clause.31 This note from the British, dated April 9, 1932, seemed to clear the way for Gulf, if its proposed concession were more attractive than APOC's. Nevertheless the British government still seemed in no hurry to reach a decision. In November the embassy in London became extremely frank, telling the Foreign Office that the delay over Kuwait was becoming "exasperating." Finally, in November 1932, the Foreign Office informed the Americans that the draft concessions of both AngloPersian and Gulf had been forwarded to the Shaikh, along with the comments of the British government. The Shaikh received them on January 9, 1933, but neither was accepted.32 On December 14, 1933, the two competing companies settled the question by agreeing to accept a concession jointly. The APOC-Gulf agreement provided for the setting up of the jointly-owned Kuwait Oil Company, owned and financed equally by the two companies.33 К О С obtained its concession about a year later. QATAR

Shortly after Socal's successful invasion of Bahrain, AIOC obtained exclusive oil rights in Qatar which, like Bahrain, was within the Red Line area. In 1916 its ruler had similarly bound himself not to grant concessions without British consent. AIOC, as Gulf had done in Bahrain, offered its rights to the IPC as a whole, and this time they were accepted. What steps, if any, were taken by the State Department to advance the interests of American companies in Qatar has not been revealed. It is likely that no American company was interested in competing individually for a concession in Qatar; United States interests are represented, of course, through IPC.

41

CONCESSIONS KUWAIT

NEUTRAL

ZONE

The Kuwait Neutral Zone was formed in 1922 by agreement between Kuwait and Saudi Arabia, under British auspices. In 1924 Ibn Saud and the ruler of Kuwait jointly granted a concession to Eastern and General, which transferred an option on the concession to Gulf in 1927. The concession lapsed, however, and in 1939 Ibn Saud granted to Aramco oil rights in his half interest in the Zone. These rights were relinquished by Aramco in November 1948, but three months later the King granted a new concession covering his half interest to Pacific Western Oil Company (now Getty Oil Company). In the meantime the American Independent Oil Company had in 1948 acquired a concession covering Kuwait's share of the Zone. The two companies operate jointly. Getty's concession is unusual in that it provides that Getty may dispose of the concession only to an American or Western European oil company approved by the Saudi Arabian government. REMAINDER

OF

THE

ARABIAN

PENINSULA

Oil rights elsewhere in Arabia have not yet been commercially productive, and need be mentioned only briefly. IPC affiliates have concessions for the Trucial Coast shaikhdoms and the sultanate of Muscat. IPC interests are also operating in Aden and the Hadramaut. The Cities Service Company obtained a concession in 1953 in Dhofar, on the southern shore of the Arabian peninsula, where recent drilling results have been encouraging. A one-half interest has been assigned to Richfield Oil Corporation.34 A German group, Deilmann Montan, and an American syndicate (Yemen Development Corporation), led by George Allen, are prospecting independently of each other in Yemen. BP, through D'Arcy Exploration Company, recently acquired an exploration permit for Karaman and other islands off the coast of Yemen in the Red Sea.35

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OFFSHORE

AREAS

In recent years a great deal of interest has been shown in the possibilities of finding oil under the waters of the Persian Gulf itself. While some of the concessions described above cover waters beyond territorial limits, others do not. There are therefore a number of separate concessions covering the water areas. Among them are the concessions of Abu Dhabi Marine Areas, Ltd. and Dubai Marine Areas, Ltd., for the offshore areas of Abu Dhabi and Dubai respectively. Both companies are owned two-thirds by British Petroleum and one-third by CFP. Similarly, Shell has been prospecting in the waters off Qatar. The legal and political problems involved in offshore concessions in the Persian Gulf are bound to be very complex. N o general agreement has yet been reached as to the extent of the areas which belong to the respective countries,36 and it is possible that concessions when granted will conflict. The problem is complicated with a great deal of legal lore which may or may not be relevant. Since, however, it seems extremely likely that oil in commercial quantities will be found under the waters of the Persian Gulf, it has been suggested that it might well be in the interests of all concerned to try to reach a general settlement before the stakes become so high that reasonable negotiations become impossible.37 In this respect, at least, the Persian Gulf is no longer a British lake. T H E CONCESSIONS TODAY

This brief history of oil concessions in these areas of the Middle East illustrates as much about the governments behind the various oil interests as it does about the companies themselves. But it sheds some light on the basis for the companies' relations with Middle Eastern governments, which are rooted in the concession agreements.

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43

The present pattern has evolved out of the British position of supremacy in the Middle East at the turn of the century. Where possible, the British government has seen to it that British interests have obtained the concessions, either alone or in the IPC combination, which has always had strong official support. This occurred in Iran, Iraq, Qatar, the Trucial Coast, and elsewhere. In Kuwait and Bahrain the British yielded to American pressures for participation, but the management of the operating companies in both areas is British. Aramco was the first American-managed company to produce oil in the Middle East. The only others are Getty and Aminoil in the Kuwait Neutral Zone. The management of the Consortium, on the other hand, is rigorously international. American share-holding interests in the oil companies operating in the Middle East are much greater than the extent of American operating management. The fact that American companies are actually run by British management means that British and American interests are more closely allied on the commercial level than might otherwise be the case, and this undoubtedly is reflected in American policy in the political sphere. The key development in the history of oil concessions in the Middle East has been the rise of the American interest. In 1936, only 12% of the oil produced in the Middle East was for the account of American companies. In 1946 this percentage was about 30%, and by 1956 it was almost 60%. Yet in the latter year only 37% of the oil was produced by American-managed concerns. The question may arise eventually as to whether American interests are being adequately represented by British management. American business management has made tremendous theoretical and practical advances in recent years; yet to a large extent the new ideas and approaches must filter through the perhaps more conservative British managerial framework. A contrast is also evident between American and British

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official policy with respect to business operations of nationals abroad. The British government has always taken a very close interest in oil operations in the Middle East. The pattern was set even before the acquisition of control of APOC in 1914, and in spite of disclaimers about not interfering in dayto-day operations, the company (now known as British Petroleum) is nevertheless in a very close alliance with its government. This is not true in the case of the American companies, which have generally had to shift for themselves in their relations with Middle Eastern governments. True, the State Department has come to their assistance on occasions when British interests tried to exclude them, but the one great attempt of the government to participate actively in Middle East oil — during World War II — was never consummated. To the British, the running controversy between the companies and the Department of Justice is a source of wonder. In no area has a British company obtained a concession without that area's being under effective British political control. American companies have obtained concessions in Saudi Arabia, the Neutral Zone, Dhofar, and elsewhere without being able to depend on administrative or political control, and they now have interests in every producing concession regardless of the political structure of the area concerned. It has never been fully explained why the British were willing to let American interests participate in IPC, nor indeed why they yielded to American pressures with respect to Bahrain and Kuwait. If this was in the nature of a quid pro quo for American concessions elsewhere, or was a recognition of the "if-you-can't-beat-'em-join-'em" principle, or resulted from uneasiness over the British position on the "Open Door," the full story has not yet appeared.38 The British may have realized that their own power was limited, and in such a situation the best of the possible partners was the United States, which had followed a general policy of taking a back

CONCESSIONS

45

seat politically to the British in this remote and difficult area, and could presumably be counted on not to disrupt British policies. In any case, the decline of British economic power in the Middle East, as reflected in oil history, more or less parallels the decline of the British Empire throughout the world. Future historians may well be able to perceive in the Bahrain and IPC negotiations of the 1920s the beginnings of British consciousness of their own economic weakness in the area. As a practical matter, the harmony between Britishmanaged companies and their home government has meant that for good or ill the two have been closely identified. For the American companies this is not quite so true. Americanmanaged companies have taken the initiative in solving their own problems, whereas the British-run companies have in the past been confident of government support to liquidate their difficulties. Probably this has conditioned policies and practices more than is generally realized. The neutral observer in the Middle East hears a great deal of criticism by Western employees of the policies of other companies operating in other areas. Much of this criticism reflects lack of appreciation of the differences in the political conditions under which the respective companies were organized and conduct their operations. The industry's view of concession agreements has been well stated by a Jersey executive: W e feel that a foreign government that lets oil concessions to private individuals or companies may rightfully expect: (1) That an adequate participation in the proceeds from the enterprise should accrue to the government. (2) That operations shall be so conducted as to contribute to the domestic economy of the nation. (3) That domestic demands for oil shall be fully satisfied before any oil is exported. (4) That development and production proceed in an orderly manner with no avoidable waste of the natural resource.

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(5) That the enterprise give to local citizens training and employment at fair rates of compensation. (6) That oil and oil products be available for export to markets in fair volume at fair prices. On the other side, we believe that the foreign government should assure continuously for the period of the concession to the company: (1) Security for title to the property or rights conceded. (2) Managerial control of the company's operations. (3) The opportunity to make a reasonable profit from the enterprise.39

T o the oil companies and their executives the concessions, while somewhat unusual in scope, are primarily commercial deals. They are quite naturally regarded in the light of AngloAmerican jurisprudence, in which the concept of "sanctity of contract" is perhaps one of the most important guiding principles. The concessions represent a considerable financial investment, and of course they are made with the expectation of financial gain. The companies are therefore understandably firm in maintaining their right to the benefit of their bargains. Not only are they scrupulous in living up to their concessionary obligations, but they expect the governments with which they have contracts to be equally scrupulous. It sometimes comes as a shock when they are not. At least one indignant American oilman regards it as part of the American obligation in advancing underdeveloped areas to instill the concept of sanctity of contract, with particular reference to the oil agreements. In terms of Western society this position may be in theory basically unassailable, if the contracts are truly pure commercial arrangements made at arm's length. In various aspects, however, the concession agreements are unlike normal commercial contracts. First and most obviously, they are made between commercial companies and sovereign governments. This relationship implies a number of things: (a) The concession agreements get involved in local politics. They normally have to be ratified by whatever repre-

CONCESSIONS

47

sentative or quasi-representative body exists (possibly the parliament or council of ministers). Sometimes, as in Turkey before the First World War, statutes regulate the power of the government to grant concessions, but where there is no such legislation (as, for example, in Kuwait), the decision is up to the ruler and his advisors. Where parliaments exist the concessions may become political footballs. Where no representative forum exists, the granting of concessions may nevertheless be a focus for agitation. (b) There may be difficulty in enforcing concession terms under local law. Hence it is usual to insert an arbitration clause, in an effort to escape the problems of local jurisdiction. Even under these arbitration provisions, however, it may be difficult to bring the local government into the prescribed arbitrating forum, if the government considers the entire contract including the arbitration clause to be invalid or unenforceable. This is what happened when AIOC brought its Iranian concession to the International Court of Justice at The Hague. Iran denied jurisdiction, and was upheld by a majority of the Court, including its British member. On the other hand, the arbitration clause in Aramco's agreement with the government of Saudi Arabia has been successfully invoked by Aramco and accepted by the Saudi government in the Onassis matter. (c) Although the point is not likely to be raised in legal terms, it is possible that from the Middle Eastern standpoint certain of the concessions may be attacked as having been made with governments which have since been replaced. Of course, an incoming regime may specifically adopt the contractual obligations of its predecessor, as happened when the new nation of Iraq took over the former Ottoman vilayets of Mesopotamia. But this is not always done. And the presentday governments of Syria and Lebanon, for example, bear no more than a formal relation to their governments under French mandate, when the IPC transit concessions were ob-

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tained. These transit concessions were promised by the French government at the San Remo Conference in 1920, at which no countries of the Middle East were even represented. The concessions originally provided for no compensation whatever in return for the transit privilege. The transit concessions have since been amended to the advantage of Syria and Lebanon, respectively, but they basically still exist in their original form. In addition to the governmental aspect of the concession agreements, they also, more generally, represent a point of friction between Anglo-American and Islamic jurisprudence. The first point to note is that in Islam the Western distinction between the religious and secular spheres theoretically does not exist. The whole of life on earth is supposed to be regulated by the Koran. Thus both business and politics are intermingled with religious affairs, and they are also hardly separable from each other. In Islamic law there is no concept of the corporation or company in the Western sense. Islamic law distinguishes between contracts between Muslims and Muslims, Muslims and the "people of the book" (dh'vmmi), and Muslims and the "people of war" (Harbi). Western oil companies are obviously not Muslim, but they would be hard put to describe precisely what their religion is. T o the extent that the Ulema, or learned religious men, still influence legal development in Middle Eastern countries, there may therefore yet be uncertainty as to the validity of agreements with foreign companies. Fortunately for Western partners to the oil agreements, however, in most Middle Eastern countries the company law is governed by statutes imported and superimposed on the Islamic system. The notable exception is Saudi Arabia. Even where the concession is carefully drafted with respect to the question of the applicable law, difficulties might arise. The following clause from the 1954 agreement with Iran could well become a lawyer's nightmare:

CONCESSIONS

49

In view of the diverse nationalities of the parties to this Agreement, it shall be governed by and interpreted and applied in accordance with principles of law common to Iran and the several nations in which the other parties to this Agreement are incorporated, and in the absence of such common principles, then by and in accordance with principles of law recognized by civilized nations in general, including such of those principles as may have been applied by international tribunals.40

It seems to be conceded on all sides that a country has the right to nationalize property at its own discretion, provided only that reasonable and prompt compensation be paid. At least this position is conceded by the Department of State. During hearings before Congress in 1955 on the Iranian Consortium arrangements, the following exchange occurred: "[Question]: Does the Department of State have any position with respect to the right or the power of the Iranian Government to nationalize its industries, particularly the oil industry, within its borders? "Mr. Kalijarvi [of the State Department]: Our position, I think, is pretty clear on that. Any government can nationalize its industries; but in nationalizing its industries, if it does so, to the disadvantage or to the harm of American citizens, we expect them to pay compensation for the damage done." 4 1

It is sometimes said that the oil companies' legal position is improved because they operate under concession agreements: they have contractual rights in addition to their property rights. This point no doubt has some validity, but even the most enthusiastic proponent of the adoption of AngloAmerican legal standards would have to concede that in the Western system the usual remedy for breach of contract is monetary damages rather than specific performance. Only in unusual circumstances will a court hold a party to the specific terms of a contract — generally only when a monetary remedy would not be adequate. Hence the question may arise as to the remedy of oil companies against the governments with which they contract in case of a breach of the terms of a concession by the latter. Even assuming Anglo-American

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jurisprudence, it would seem unrealistic of the companies to reckon in terms of being able to enforce specific performance. Yet this is what is commonly meant by "sanctity of contract." Complaints may arise as to concessions purely on the vague grounds of unreasonableness or unfairness. T o the companies a satisfactory concession must provide for reasonable freedom to conduct its business operations free of governmental restrictions, an opportunity to repatriate earnings, security for the company's property and personnel, and so on. T o the local government the advantages to be gained by the concession are somewhat less precise. Most obvious are the payments the company makes to the government. But this is by no means the whole story. Money is important to Middle Eastern rulers and peoples, but it would be a mistake to assume that this is the only element in their value system, and in any case the distribution of the monetary benefits within the country concerned is not always ideal. Thus the governments usually insist on other things as well — priority in employment to local employees, opportunities for advancement within the company, respect for historical and religious premises, representation of nationals on the board of directors, and the like — all of which reflect the sensitivity of an area with a long history of alleged domination by Western (and infidel) enterprise and politics. Middle Eastern nationalism is a developing thing, and a concession acceptable a generation ago may now be criticized as neglecting "national aspirations." Because of these intangibles, as well as the financial arrangements, pressures for revision of concessions constantly arise. Most companies have found that they are more likely to have happy relations with their contracting governments if they keep an open mind about the possibility of such revisions, rather than insist rigidly that "a contract is a contract" without regard to changing conditions. Unquestionably the main problem is financial: the present 50—50 profit-sharing

CONCESSIONS

51

pattern is a fairly recent development. Whether this pattern will prove to be enduring, or whether on the other hand the companies will have to yield even further to retain their interests, is a question for the future.

Ill 4

O i l

Ö p & u d ü u U

BREAD AND

BUTTER

It has not yet been explained satisfactorily why oil is found primarily in areas notably inhospitable to man. Yet, outside the United States, this is almost universally true: efforts to find oil in temperate climates have been only modestly rewarded, whereas the great oil fields have mostly been discovered in trackless wastes of desert, wild mountains, or virtually impenetrable jungles. It would be difficult to conceive of more rugged territory than the foothills of the Zagros mountains, or more barren wastes than the Arabian desert, or a less salubrious climate than that of the Persian Gulf. The climate accounts for an important fact about the oil industry in the Middle East: Western oil men go there only because to do so is more profitable than to stay at home. Without oil, 95% of the Europeans and Americans would come home, leaving only a handful of worthy missionaries and overheated consuls. Conditions like this make oil exploration difficult, but the companies have done well in surmounting their problems. New types of vehicles and other equipment, air conditioning, frozen food, airlifted supplies, and so on, bring exploration for oil in the Middle East back across the border from the intolerable to the tolerable. (Just one example: IPC recently acquired eight special tractors for use in exploring the southern desert of Arabia. They were described as having "special dust proofing equipment, 40-gallon drinking water tanks, dual fuel tanks for 140 gallons of diesel oil, sand tires, and 52

OIL

53

OPERATIONS

special hollow bumper bars for carrying additional water.") 1 So far the explorers have been sensationally successful. In most areas of the Middle East the ratio of dry holes to producing wells is very low. It is said that Aramco has drilled only one dry hole since the war. It should be noted, however, that so far exploration has not been demonstrably successful in some Middle Eastern countries. Even in Iraq, MPC's concession has probably not yet repaid its investment. The Kuwait Neutral Zone may still be on the borderline. The oil companies justifiably point out that the failures in many areas tend to counteract the profitability of the more successful concessions. The companies do not, however, make public sufficient data to enable an outsider to compute total profitability with any degree of accuracy. The average depth of wells is not great.2 The explorers have located so far more oil than there is in the entire rest of the world. An informed estimate for 1955 was 126 billion barrels, or 71% of known world reserves.3 Even these figures may be conservative, since the true status of reserves is not always made public immediately. At all events, the published figures for Middle Eastern reserves are constantly increasing. Reserves were estimated as follows for mid-195 6 by an authoritative American petroleum trade journal: 4

Country Kuwait Saudi Arabia Iran Iraq Qatar Kuwait Neutral Zone Egypt Bahrain Turkey Trucial Coast Total

Reserves (barrels) 50,000,000,000 40,000,000,000 26,000,000,000 15,000,000,000 1,500,000,000 390,000,000 300,000,000 175,000,000 85,000,000 50,000,000 133,500,000,000

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At current price levels (f.o.b. port of loading) and assuming a market could be found, these reserves would sell for about $250 billion, or almost as much as the United States national debt. But even these seemingly fantastic estimates may be low. Early in 1956 Mr. Wallace Pratt, a former geologist for Jersey, estimated before a congressional committee that reserves in the Middle East amounted to 230 billion barrels, out of a total of 306 billion barrels for the whole world. Pratt insisted that his estimates were "conservative" and included only "proven" reserves.5 Boundary problems sometimes cause difficulties for the explorers. An Aramco party probing the desert in the southern Rub al-Khali ("Empty Quarter") was recently challenged by agents of Her Majesty's Government on the ground that it had strayed into the Aden Protectorate. (The authorities confiscated the party's equipment.) β The uncertainty of the borders of the Kuwait Neutral Zone causes concern to the Getty Oil Company, inhibiting exploration in areas which may be subject to dispute. The leading producing countries in the Middle East in 1956 were, in order of amount produced: Kuwait, Saudi Arabia, Iraq, Iran, Qatar, Egypt, the Kuwait Neutral Zone, and Bahrain. (See Table 2.) The parent companies sharing in this production are, in descending order: BP, Gulf, Jersey, Socal and Texas (tied), Shell, Socony, the Gulbenkian interests, Getty, and Phillips, followed by the other American "independents" participating in Aminoil or Iricon or both.7 Volume of total production depends, of course, primarily on demand. The structure of the industry is such that supply and demand can be rather closely coordinated, in view of the fact that most of the oil produced is ultimately sold to the public by affiliates of the same companies that produce it. In other words, the oil industry is largely vertically integrated. It would make little sense for the right hand of the oil companies to produce oil in quantities that the left hand

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55

TABLE 2 Estimated Middle East Oil Production and Comparison With Other Areas, 1954-1956

(thousand metric tons) Area

1954

Kuwait 47,723 Saudi Arabia 46,875 Iraq 30,667 Iran 3,000 Qatar 4,778 Egypt 1,995 Kuwait Neutral Zone 851 Bahrain 1,505 Turkey 59 — Israel Middle East 137,453 USA 312,025 Venezuela 98,586 World

685,893

Per cent of world production 1956

1955

1956

54,756 47,535 33,648 16,205 5,438 1,823 1,362 1,499 202 162,468 334,931 112,379

54,982 47,874 31,325 26,530 5,876 1,800 1,600 1,500 300 30 171,817 351,647 129,000

20.6 42.1 15.4

770,070

835,707

100.0

—

Source: PPS, February 1957, p. 44.

is unable to market. Furthermore, total global demand for oil is relatively inelastic. The amount of oil actually produced in the Middle East therefore bears little necessary relation to the amount of oil that could be produced. It has been said (though with some exaggeration): "Under the agreements the governments of the oil-producing countries have no influence over the commercial policy of the concessionaires. In particular, they have no means of influencing the decision as to the scale of development and exploitation of the oil deposits in their own country." 8 Production therefore also has political aspects. Nothing does more for local company relations than constantly increasing government revenues from constantly increasing production. With Iran out of the picture from 1951 to 1954, the other Middle Eastern countries — especially Kuwait, as BP's chief alternative source of supply — fared well. It is still

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too early to say whether the rate of increase achieved in Kuwait, Saudi Arabia, and Iraq during those years is likely to be maintained. Production from those three countries soared from 73.7 to 135.5 million metric tons from 1951 to 1954, an increase of 84%. It is hard to see how this rate of increase can be maintained in view of a world demand which increases only by some 5 or 6% annually. Part of the political problem in recent years has involved imports into the United States, which consumes more than half of the world's oil. The United States could produce more than it does. The reason it does not is that state regulatory bodies (of which the Texas Railroad Commission is the most significant) limit production from the thousands of privately owned American wells. Indigenous American producers view with alarm any indication of increased imports, which might reduce their own output quotas still further. Other opponents of imports have traditionally included the coal interests, eastern coal-hauling railroads, the railroad brotherhoods, and the United Mine Workers. Their appeals for federal controls on imports of crude and residual fuel oil have met with some sympathy in Washington. Their major argument is that in the national interest the American industry must be encouraged to expand and thrive and that overdependence on foreign sources is risky in an emergency. The importing companies argue that the national interest dictates just the opposite course: let us, they say, save our own oil and take it from Venezuela and the Middle East as long as it is available there. They might also add that a serious decline in movements of oil from the Middle East might well spell disaster for their own organizations there, since revenues to the governments would decline in proportion. "No one," says one observer wryly, "is so restive as a Shaikh who can no longer afford to trade in his last year's Cadillac on a new one." The concern of Middle Eastern governments over production levels is sometimes reflected in provisions of concession agreements providing for annual production minimums. Provisions

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57

along these lines appear, for example, in the agreements between the companies and the governments of Iraq and Iran, respectively. Estimates as to the costs of production in the Middle East vary widely. The costs of production would seem to be essential for many industry calculations, such as computing the amount of profit to be split with the concession-granting power, and in setting the price of crude under certain of the long-term supply contracts between the companies. Such information might be of interest to those trying to determine the value of pipeline transportation for the purpose of computing payments to transit countries. It also affects the United States import problem in view of the charges of American producers that the country is being flooded with "cheap" foreign imports. Yet in spite of the theoretical and practical importance of these costs, not much is known about them, even within the industry. An outsider could guess, however, that they are surely a great deal lower than production costs in the United States. Among other things, wages are low in the Middle East by American standards (certainly no more than a quarter of the rates in the United States.) 9 But the distinctive feature of the Middle East industry is the output per well, which is literally hundreds of times as high as in the United States. Here are some recent figures: 10 No. of producing wells, Average production Country end of 1955 (barrels per day) Kuwait 185 5,945 Saudi Arabia 154 6,265 Iran 39 10,255 Iraq 60 11,300 Qatar 32 3,595 Kuwait Neutral Zone 29 835 Bahrain 106 284 Total 605 Weighted average 5,474

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By contrast, daily production per well in other areas has been authoritatively set as follows: United States, 12.4 bbl.; Canada, 35.4; South America, 112.3; Middle East as a whole, 3027.8.11 Obviously drilling and exploration costs tend to vary with the number of wells drilled. Against this must be measured the increased supply and operating costs resulting from operating in a remote and difficult area. But on balance, costs per barrel are undoubtedly rather low, largely because of the vast volume of production per well. Oil production is the very heart of the oil business — more so than marketing or refining. As such the sources of production are the highest prize, both between companies and between nations. "Fundamentally, the profits of a major oil company are derived from producing oil; all other divisions actually are an outlet for production." 12 Nevertheless, oil is not a useful commodity until it has been refined into petroleum products. As far as the countries of the Middle East are concerned, the primary question is whether refining shall take place there or elsewhere. For local consumption, of course, local refining makes good business and economic sense, if the market to be served is broad enough to make operations economic. The Middle East is dotted with small refineries manufacturing primarily or entirely for consumption locally or in neighboring countries. In this category are the following: Country Iraq

Lebanon

Location Daura (Baghdad) Muftiah (Basra) Alwand Tripoli Zahrani (Sidon)

Kuwait

Mina al-Ahmadi

Market Iraq Iraq Iraq Lebanon, Syria, Jordan Lebanon, Syria, Jordan Kuwait

OIL Country Egypt Qatar Iran

OPERATIONS

Location Suez Umm Said Kermanshah

59

Market Egypt Qatar Iran

Refineries for local consumption are under consideration for Syria (at Horns) and Jordan (at al-Farka). Of greater significance are the larger export refineries in the area, which refine the crude oil which later enters into international trade. These are:

Country

Location

Operator

Saudi Arabia Bahrain Iran Aden

Ras Tanura Sitra Abadan Aden

Aramco Bapco Consortium BP

Capacity in 195613 ( barrels per day) 189,000 210,000 460,000 120,000

The Abadan refinery is not only the largest but the oldest: it was started in 1909-10, and "normal operations" began in 1913.14 The Kuwait refinery at Mina al-Ahmadi may soon have to be shifted from the former list to the latter. Early in 1956 it was announced that the К О С refinery was to be expanded to six times its present capacity by the end of 1957, with a yearly output of 8,500,000 tons (about 175,000 barrels per day). 15 Government revenues from refining operations do not approach in magnitude the receipts from production. (Bahrain is an exception, as Bapco refines a great deal of Aramco crude from Saudi Arabia, and about one third of Bahrain's oil revenue consists of charges paid for importing and refining.) Nevertheless refining is significant economically to the countries where it is carried on. It provides employment for

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thousands of workers. The refinery is an industrial citizen, a consumer of local goods and services, a stimulant to the rest of the economy. For these reasons as well as the obvious objective of refining for internal use, Middle East governments regard with favor the refining of oil on their own premises. Some concessions, like that of Getty in the Kuwait Neutral Zone, provide for construction of refining facilities when production reaches a specified level. When Getty's production reaches 75,000 barrels per day, the company has agreed to build a refinery with a capacity of 12,000 barrels per day. Nevertheless, the trend in refining of Middle Eastern oil has been in the other direction. Capital investment in refining facilities since World War II has been primarily in areas away from the sources of crude and nearer the markets for products. The reasons are partly strategic. The companies are understandably reluctant to invest in permanent physical plant in the face of danger of strikes, sabotage, or expropriation. With refineries at home, Western European countries can choose among alternative crude sources. Companies are sometimes under pressure from consuming countries in search of national economic self-sufficiency. The shift may also be explainable in pure business terms.1® These reasons are not always thoroughly understood, and some Middle Eastern critics of the industry maintain that the failure to build export refineries results from some obscure desire to oppress the people of the area, or at least from the lack of a desire to assist them to develop economically. S U E Z AND T H E

PIPELINES

While some Middle East oil reaches every part of the world, most of it is transported for use in Western Europe, either by sea around the Arabian Peninsula and through the Suez Canal and the Mediterranean, or through one of the two great pipeline systems to the Levant coast, and thence by

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tank ship. Most of this oil is transported as crude and refined in Europe. Nearly one half of it goes through the Canal. A major portion of the Canal's normal northbound traffic is oil (64% of the total in 1955),17 so that the oil industry and the Canal normally complement each other very closely. Use of the Canal varies among the different producing countries, as can be seen in Table 3. Kuwait in 1955 was by far the heaviest user country, and КОС was therefore the company most heavily dependent upon availability of the Canal. The major countries receiving oil through the Canal in 1955 were Britain, France, the United States, Italy, and the Netherlands, in that order.18 Oil is shipped in tankers especially constructed for the purpose. They vary in size, but the trend these days is to larger tankers, for reasons of economy of operation. Even before the 1956 dispute over the Suez Canal, there were indications that the Canal was becoming partly obsolete, in that some tankers recently built or under construction are too large to go through when fully loaded. A possible compromise is to send supertankers loaded around the Cape, and return them through the Canal in ballast. Oil companies themselves control or own a relatively high proportion of the world's tanker fleet. While some are owned TABLE

3

Suez C a n a l Oil Shipments b y Country of Origin, 1955

Shipments Total Production (mil. bbl.) Kuwait Saudi Arabia Iraq Iran Qatar Bahrain Others

405 351 250 117 40

11

Total (mil.bbl.) 315 50 29 37 29

0

37

through

19

Suez Canal

Per cent of Per cent of country's total oil production shipments 78 14 12

32 72

0

64 10 6 7 6

0 7

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by the companies directly or through subsidiaries, others are engaged on long term charters, sometimes covering the entire life of the vessel (perhaps twenty years). Some tankers are nevertheless available for single-voyage or "spot" charters, and the rates for these short-term charters swing widely. One of the most intricate logistics problems of the oil companies is the planning of tanker movements so as to hold spot chartering to a minimum, while keeping occupied the tankers under the company's control. Late in 1953 the government of Saudi Arabia made an agreement with the Greek shipping magnate, Aristotle Onassis, whereby Onassis was to construct a tanker fleet to be operated under Saudi flag, which in due course would have a monopoly over ocean movements of Saudi oil. Aramco objected strenuously to this agreement, as a violation of the exclusive rights granted in its own concession. The company invoked the arbitration clause of its concession agreement, and in the summer of 1956 arbitration proceedings were undertaken in Switzerland.20 Oil is transported by pipeline to the Mediterranean only from Saudi Arabia and Iraq. (Oil from other producing areas moves into international markets by sea.) The only existing pipelines are: (a) Tapline, operated by the Trans-Arabian Pipe Line Company, running 754 miles from northeastern Saudi Arabia, through Jordan and a corner of Syria to a point about six miles south of Sidon, Lebanon. (If Aramco's "gathering system" is included, the total length of the line is over 1000 miles.) The line has four pumping stations, all in Saudi Arabia, at Qaisumah, Rafha, Badana, and Turaif. The capacity of the line is about 325,000 barrels per day, and it might be expanded somewhat by the addition of pumping stations 21 or by "looping" the line.* The Tapline company is owned by * "Looping" consists of adding a parallel line or lines to part or all of the existing line.

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the same parents (Jersey, Socal, Texas, and Socony) as own Aramco, in the same proportions. T o a large extent its policies, personnel, and operations coordinate very closely with those of its sister company, Aramco. Indeed, its sole function is to transport Aramco oil to the Mediterranean. At any given moment, interestingly enough, Tapline and its gathering system hold roughly five million barrels, or as much oil as Saudi Arabia itself consumes in two or three years. (b) IPC's pipeline system running from near Kirkuk to Tripoli (Lebanon) and Baniyas (Syria). The total capacity of this system is about 520,000 b/d, of which Tripoli receives some 165,000 barrels and Baniyas about 355,000 barrels. The lines are served by several pipeline stations unromantically known as T - l , T-2, etc. Another line, from Kirkuk to Haifa, has been closed at the instigation of the Iraq government since the Palestine troubles of 1948, although its pipeline stations are still maintained on a skeleton basis. ("H-4" was the scene of a meeting between King Faisal of Iraq and his cousin, King Hussain of Jordan, in early 1956.) These lines are the property of, and are operated by, IPC. In recent years there have been strained relations between both pipeline companies and the governments of Syria and Lebanon, respectively. The issues revolve around the question of payments to the governments for the right to transport oil. Over the years, and particularly since about 1951, these two countries have viewed with increasing envy the vast riches accruing to their eastern neighbors, and have sought ways to increase their own wealth; their basic view was that the countries through which oil was transported to the West were entitled to compensation beyond that provided merely by local employment and expenditures by the company. Syria achieved an agreement with IPC in the fall of 1955, and negotiations were in progress (perhaps "progress" implies too optimistic a view of their status) with Lebanon when the question became academic, at least temporarily, with rupture of the line

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in its Syrian section in November 1956. IPC had announced that a proposed "loop" from Horns would be built to Baniyas (Syria), rather than Tripoli (Lebanon), as originally planned. The Lebanese government, for its part, had imposed a retroactive income tax on IPC operations in Lebanon. IPC insisted that this tax was contrary to the terms of its concession. The pipeline stations present special organizational problems for the companies which maintain them. In the first place, most of them are far removed from settled communities and are utterly dependent on the outside world for supplies. The only decent roads across the desert were built by the companies to supply their pipeline stations. The stations are also served by frequent, regular company airplane flights, and by telecommunications systems. Equally important is the psychological element: the work is routine, the staffs are small, the environs deserted. No assignment is less sought after by oilmen in the Middle East than service "on the line." The question arises as to the relative advantages of shipping oil by tanker as opposed to pipeline transport. A primary factor is expense. Even without having access to company figures, one can say with assurance that under ideal political circumstances the direct route across the desert by pipeline would be preferable to the circuitous route by sea, involving as it does the payment of Suez Canal tolls. The existing pipelines have probably already paid for themselves. True, the initial cost is substantial (Tapline cost somewhere around $200 million), but since it was opened in 1950 Tapline has transported some 600 or 700 million barrels of oil. Suez Canal dues alone for ships to carry that much oil would have been upwards of $60 million. However, ocean transportation is gradually becoming more efficient with the development of supertankers too large to pass through Suez in any case. Tapline views the situation cautiously: "No one can know whether Tapline will be able to maintain its present scale of operations or will have to shrink them. It all depends on

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whether the line will be able to compete successfully with new fast, large capacity tankers." 22 IPC has recently considered constructing a new pipeline from Kirkuk through Turkey to the Mediterranean, avoiding Iraq's Arab neighbors. Another, more grandiose, scheme would involve the building of a pipeline system connecting the fields of Saudi Arabia, Iran, and Kuwait (as well as Iraq) with the Eastern Mediterranean. Such a pipeline was discussed by representatives of seventeen oil companies meeting in London early in 1957. The existing pipelines will doubtless continue to be used if possible. On the other hand, political factors may weigh against construction of further lines, at least for the foreseeable future. The tense Palestine situation and the instability of local governments are compounded by the fact that each line must traverse a number of countries. From the military standpoint, pipelines are sitting ducks. It is impossible to patrol them effectively over their entire length; yet a squad of men can render a pipeline useless (at least temporarily) in a matter of hours or even minutes, and at any one of an infinite number of points. The vulnerability of IPC's pipeline system was definitively demonstrated by the Syrian army in November 1956. With the Suez Canal and the IPC pipelines out of commission for several months, the world's petroleum supply system had to be drastically revised. Tankers were re-routed to supply Europe from the Western Hemisphere. A Middle East Emergency Committee (MEEC), whose membership included most of the large American international oil companies, was established to cope with the unprecedented situation. Perhaps the most significant feature of this situation was its demonstration of the degree to which Middle Eastern producing countries depend on satisfactory routes to their major markets. While no production facilities were directly affected, Middle East production nevertheless declined about

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38%, almost overnight. Iraq, in the most vulnerable position because the important Kirkuk field is landlocked, suffered tremendously from the financial standpoint. Oil revenues to the Iraq government declined from ID 20.9 million ($58 million) in the third quarter of 1956 to ID 10.0 million ($28 million) in the fourth quarter.23 OIL

AND

THE

MIDDLE

EASTERN

CONSUMER

Although a large part of Middle Eastern oil is removed from the area as crude, some is refined and marketed locally. In Iran, distribution is handled by NIOC, whereas it used to be done by Anglo-Iranian. The products come either from the Abadan refinery (operated by the Consortium) or NIOC's own refinery at Kermanshah. Marketing in Iraq is closely controlled by the Iraq government, which grants franchises to retailers. In Saudi Arabia, Aramco has set up a distribution system consisting of a number of bulk depots from which products are distributed to some eighty-one private retailers throughout the country.24 Bapco, with a marketing monopoly, in 1952 appointed sixteen retail kerosene dealers in Bahrain towns and villages. Since then distribution of products generally has been turned over to local dealers.25 КОС is the only marketer in Kuwait. It operates through six service stations in Kuwait town; four more are planned. In Syria, Lebanon, and Jordan, marketing is carried out by subsidiaries of Western oil companies; the cursive Arabic signs on service stations are as familiar to the motoring public as their counterparts are at home.

OPERATIONS

AREN'T

EVERYTHING

Paradoxically, the oil industry is at once very complicated and relatively simple. Petroleum must be located, brought to the surface (produced), transported away, refined, transported

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again, and marketed. The technical problems are fairly well solved (although research continues constantly), and the industry is highly efficient. The oil industry has been outstandingly successful in meeting its internal problems. Inventiveness and enterprise in the best sense have guided its technical progress. But the technicians, however vitally important, can provide solutions to only a part of the industry's problems. The questions which come much closer to determining the industry's ultimate success or failure are entangled with some of the thorniest problems of twentieth century civilization. The oil companies are concerned not only with geology, chemistry, and engineering, but also with wars, revolutions, and political and economic philosophies and realities, and with the thoughts, actions, and emotions of millions of people all over the world. American oil companies with Middle East holdings must take account of the administration in Washington, and also (among others) of Colonel Nasser, the CIOAFL, Nuri Said, the Texas Railroad Commission, the British Cabinet, and whoever controls oil production in Soviet Russia. Dealing with such a galaxy of conflicting interests calls for industrial statesmanship of the highest order. If the problems involved were as easily solved as the technical problems, the future of the industry would be secure. It is, then, ultimately the broader problems that control the industry's technical and business fortunes. In considering — however superficially — the operations of the oil industry, it is essential to bear in mind constantly the outside factors which play a part in business decisions. Nowhere in the industry's far-flung operations is this more true than in the Middle East.

Ill 5

SluUkUi, fCUufl, and Sbuuuj, Мен THE

DIFFICULT

AREA

OF

POLITICS

In the early days in Iran, Arnold Wilson observed: T h e position of a Company which is working under a Concession f r o m one Government (Persian) but depends on the good will of a provincial administration ( A r a b and Bakhtiari) and the military and moral support of a third (British and Indian), with a head office in Glasgow, dealing with the Foreign Office (in L o n d o n ) and a Foreign Department (Simla) through local officers (in Persia) is not easy. 1

The relationship between the companies and Middle Eastern governments is complex. In one sense they are partners, united in a common effort to develop the oil resources of the country. Again, the companies are business entities dealing at arm's length through the concession agreements. But the companies are also "guests" on foreign soil, and frequently this is the status which they find most difficult to get used to. This accounts for a great many of the problems which arise in government relations. On the other hand the governments concerned sometimes have a mistaken idea of what the companies' function is. On both sides misunderstandings may arise. T h e companies in the Middle East enter the lists with an important political fact already determined: they are, for good or ill, identified closely with the West, and to that extent in the eyes of Middle Easterners lack political independence. If the West is "imperialistic" or "colonialistic,"* then * Professor Charles A. Ferguson of Harvard has pointed out that the two Western concepts, "imperialism" and "colonialism," are represented in Arabic by the same word: "isti'mariyya." 68

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the companies are agents of imperialism or creatures of colonialism. If, on the other hand, a Western power finds itself (at least temporarily) in favor, the company or companies identified with it are treated with tolerance. No more graphic illustration of this situation has yet been presented than in the Suez conflict of November 1956, when the IPC pipeline was put out of commission (IPC seems more British than it actually is), while Tapline and Aramco were unscathed. Aramco, however, was enjoined by the Saudi government not to supply oil to Britain and France, and the Saudis stopped the flow of oil to British-protected Bahrain. Perhaps the fact that the West is considered imperialistic and colonialistic is more relevant than the extent to which this opinion is justified by the facts. Nevertheless, before rejecting the charge as groundless propaganda, one might pause to examine what there has been in the role of the Western powers which may give at least some color of plausibility to the view shared by the vast majority of the people in the Middle East. It is not unrealistic to go as far back as the Crusades. Although they occurred almost a millennium ago, the Crusades are as close as yesterday to the tradition-oriented Middle East. They are still seen as a Western attempt to break up the Islamic nation in a day when Islam was the state. Much later, when France moved on Egypt in 1798, and unsuccessfully tried to sweep northward along the Levant coast, the Arabs received their first modern contact with the West. The results were not all bad, to be sure, but it was clear that an alien power was seeking domination. In the meantime, the capitulatory system, which expanded gradually from the fifteenth century to the nineteenth, gave European powers commercial and political powers in the Arab provinces of the Ottoman Empire, and, incidentally, helped IPC gain a foothold in Mesopotamia even before World War I. Furthermore, harmless and worthy as

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they may seem to Westerners, even missionaries have been deeply resented in Muslim countries, and their good works tolerated only grudgingly. As with the Crusades, the fact that their emphasis is primarily religious is a distinction not appreciated in the Islamic world, since in Islam religion and the state are synonymous, and apostacy is therefore tantamount to treason.2 During the First World War, hopes for independence from Western political control soared, encouraged by rash British promises growing out of wartime expediency. But at Versailles Iraq, Palestine, Lebanon, and Syria were assigned as Class "A" mandates to Britain (Iraq, Palestine) and France (Lebanon, Syria). Their Class "A" status meant that the countries were to be guided toward independence as rapidly as possible. In practice, however, the mandated territories took on many of the aspects of colonial territories, at least in the Middle Eastern view. And this view is to some extent borne out by the facts that Syria and Lebanon achieved independence from French mandate only as a result of international pressures in World War II; Iraq's mandate was traded in 1931 for a preferential British alliance which was liquidated only recently; and Palestine was released by Britain only at the point when the creation of the state of Israel covering the territory was practically a fait accompli. In the meantime, IPC had been firmly established under the aegis of the mandatory regimes. Finally, the creation of the state of Israel was "imperialism" and "colonialism" par excellence in the minds of most Arabs. Until 1948, the United States had a relatively clean record throughout the area, but all at once American prestige plummeted. The continuation of work on Tapline throughout the Palestine troubles of 1947 and 1948 is a tribute to the diplomatic efficiency of American business enterprise when put to the test. On the other hand, the creation of Israel caused the blocking of IPC's Haifa pipeline, which has never since been reopened.

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In the Middle East, then, the past is generally thought of (correctly or not) in terms of a glorious history extinguished only by oppression at the hands of invaders and conquerors, largely from the West. The glory-extinguished-by-oppression theory has been in a sense self-generating. It was born in the latter half of the nineteenth century by a small but vigorous group of self-styled Arab "nationalists." The core of the theory is that either the Arabs or the Muslims, or both — according to divergent interpretations, depending partly on whether the theorist is a Muslim or a Christian — constitute one "nation." The evidence for the nation concept generally includes a common language (Arabic); a common religion (Islam); and a common "heritage." This last concept is in a way self-serving, because it assumes precisely what is sought to be proved. The concept is thus somewhat amorphous and indeed often takes on an emotional, fervid quality, but it is nonetheless real and a factor to be considered seriously in coping with the Middle Eastern concept of history. Against this passionate search for evidence of unity must be placed a number of elements which tend toward diversity. Among these are: (a) Dynastic diversity. The Hashemites of Jordan and Iraq and the Saudis, for example, have never been able to agree even among themselves as to their respective jurisdictions. (b) Religious diversity. The dominant religion of the area is indeed Islam, but Christianity of numerous varieties is far from insignificant. Indeed, Lebanon is (or is said to be) predominantly Christian. Christians elsewhere sometimes seem influential out of proportion to their numbers. Even in Islam a basic split exists between the Sunni and the Shia. While Iran is the only predominantly Shia country, there are large Shia minorities in Iraq and Bahrain, and smaller proportions of them elsewhere. (c) Linguistic diversity. Although Arabic is spoken in

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varying dialects as the lingua populi in all the countries of the Middle East save Turkey and Iran (and now also Israel), the dialects diverge in different areas so as in some cases to be virtually incomprehensible to each other. On the other hand, it is true that the standard written languages in the "Arab" countries is the Arabic of the Koran, with relatively minor variations and accretions. (d) Social diversity. Perhaps most important of all is the fact that the society of the area had always been sharply divided in the past between a small relatively wealthy oligarchy and a submerged agricultural or nomadic element. The latter, partly because of the rise of the oil industry itself, are gradually taking on some of the familiar characteristics of a Western urban or semi-urban proletariat. In a few cases the beginnings of an intelligentsia, professing a profound social conscience, are being produced. The idea of social progress is becoming endemic. Whatever its merits, this idea serves further to emphasize a basic source of disunity among the people of the area.3 At all events, Arabs of all political persuasions give at least lip service to the concept of Arab unity, and use the concept as the basis for drawing attention to the alleged malfeasance of the Western powers. The idea is that in the absence of Western imperialism the Middle East would be strong and united. However one may quarrel with this concept, it is still at the root of Middle Eastern attitudes toward the West. Any indication that a Westerner is disposed to argue or contest this view is evidence of continued prejudice, lack of sympathy, and oppressiveness. This deliberately one-sided sketch is presented only to show some of the background of Middle Eastern sentiment about East and West; for that, rather than the complete facts, is what the oil companies must contend with. In their political relations the oil companies are fighting an up-hill struggle against bitterness and resentments that have deep roots in history.

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A possible way out might be constant emphasis on the company's political independence of its mother country. If attempted, however, it would doubtless be greeted with skepticism or hostility, born of long acquaintance with the alliance between Western, and especially British, political and business interests in the Middle East. Aside from adopting the extremely difficult course of trying to amend the attitudes firmly rooted in this indigenous concept of history, the only further thing the oil companies can do is to try to live with them. As if their problems were not sufficiently exacerbated by history, the companies must also cope with the fact that in Middle Eastern politics nothing is so constant as change itself. Governments rise and fall like tenpins. Alignments and alliances are a kaleidoscope. When IPC and Tapline deal with the Jordanian government, is their true vis-ä-vis King Hussain, or the prime minister of the moment, or the head of the army, or the Egyptian embassy? For Aramco, what are the relative positions of King Saud, his brother Faisal, the governor of the Eastern Province, or the Ulema in Riyadh? Are the Hashemite Kingdoms of Jordan and Iraq going to go their separate ways, or is Hashemite blood thicker than water? Does the severance of the Lebanese-Syrian customs union signify a lasting jealousy or mere momentary pique? What Iraqi politician will ever be as friendly as Nuri Said? Do the Persians identify themselves more with the Arabs or with the Turks? Has Nasser been seen with the Russian ambassador? Could Sir Charles Belgrave have stayed on in Bahrain if he had gotten rid of his riding horses? And so on. T h e aim of the companies is to ride out political vicissitudes based on considerations like these. T h e situation changes from day to day, and a company must constantly bear in mind that it may find itself at any time doing business with someone else. There is a risk involved in identifying the company so closely with the existing regime that if the regime topples the company will share its fall. If this choice is adopted, it

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may imply taking whatever reasonable steps are possible to maintain the status quo, such as, for example, gifts, subsidies, or assistance with public projects. Such steps may be charged against the company if political power shifts. Some different and perhaps more broadly based future government might resent (in retrospect) the alleged fact that the company maintained a feudal oligarchy in power and encouraged its whims. On the other hand, a company might identify itself with elements not currently in power, but which show a fair chance for success. Again this could involve subsidies and the like, with the added onus of subversion in the case of discovery. A more cautious course may be to maintain a studied neutrality as between the relevant political elements, in the hope that the company can emerge on top in any event. (In the United States, although the analogy may not be exact, astute citizens sometimes contribute to the campaign funds of both major political parties.) T h e gamble is that a change may bring more harm than good to the company's own interests. These are difficult alternatives. T h e y require not only an intimate knowledge of political detail, but also an assessment of trends so as to be able to judge the possibilities of the future. Perhaps the biggest question mark is the general direction in which the people of the Middle East are heading, in a political sense. Many observers assert that democratic forms of government in the area have never been more than a sham, and that it would be useless to hope that the countries of the Middle East will ever be governed otherwise than by small groups of powerful men intent on their own interests. Again, it is frequently held that the most that can be expected in the foreseeable future is energetic dictatorships of the Nasser type. A more optimistic view, perhaps, is that democracy and sound government are on the increase, and that it is far too early to write off the political development of the area as a total failure.

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This is no place for a reasoned assessment of these matters. T h e point here is that it is such basic considerations as these that concern local relations staffs in the oil companies, and which must lie behind their decisions. This kind of knowledge and judgment is not produced overnight, and the companies often have on their staffs experts on Middle Eastern affairs of many years standing. Before we turn to the political atmosphere in each of the producing countries individually, one very important practical matter ought to be emphasized. Standards of public adminstration in the area are generally low. This affects the companies to the extent that they must deal with governments on a day-to-day basis. Executives expecting "Western" efficiency are apt to become frustrated. At one point Freya Stark, a long-time resident of the Arab world, noticed in one of her Western friends "the patience, the apparent absence of reaction to accidents and delays which the West finds exasperating — the sure sign of an habitue of the East." 4 Oil company officials with a job to do may find difficulty in fitting into this pattern, but to the extent they can do so their relations with local administrators are often the more pleasant — and perhaps, in the long run, the more successful. Another feature of public administration generally in the Middle East is nepotism. Baffling as it may seem to the Westerner, nepotism is not only prevalent but is regarded as a desirable thing, in view of the paramount character of family loyalty in the society of the area. An official who failed to take care of his relatives would be criticized for his heartlessness more than he would be praised for his efficiency. T o the extent that company affairs depend on observance of local legislation it is important to know not only the details of the laws, but also the degree to which they are strictly applied. Normally the companies lean over backwards to comply with the letter of legislative requirements, even when it is perfectly obvious that they are not being observed by the rest of the commercial community. Labor laws are an ex-

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ample. Local legislation as a means of control over foreign business is increasing throughout the area, and in some cases is even being attempted as a substitute or supplement to the concession system. It is significant, for example, that minimum wage legislation in Saudi Arabia applies only to the oil companies, by royal decree. Another example is the recent income tax legislation in Lebanon, from which the oil companies are supposed to be exempted by the terms of their concessions. Whether the tax laws will be applied despite the concessionary exemption is still problematical, but the situation serves to emphasize the importance for the companies of keeping in close touch with the proceedings of the legislative bodies. SAUDI ARABIA AND ARAMCO

O f all Middle East oil-producing countries Saudi Arabia appears to Westerners to have the most unpredictable and arbitrary governmental system, which in a way makes Aramco's government relations problems the most difficult in the entire area. T h e government is, of course, a monarchy. T h e present king, Saud, ascended to the throne on the death of his father, Abdul Aziz ibn Saud, in November 1953. T h e king is aided by a Council of Ministers, most of whom are members of his own family. T h e Minister of Finance is one of the most potent, and it is his responsibility to grant and administer concessions, including Aramco's. He is assisted by the Director General of Petroleum Affairs and Mining, at present Abdullah Tariki, with whom Aramco must primarily deal. (Tariki has an American advisor, James MacPherson, formerly a high executive in Aramco and then in Aminoil.) On the other hand, the country is divided into provinces for administrative purposes, and Aramco, being in the Eastern Province, must also do business with its governor. Many of the company's problems arise out of restrictions

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by the government on the behavior of the company and its Western employees. The possession or use of alcohol, a criminal offense, is one of the most frequent causes of difficulty. Less obvious in its implications, perhaps, is the prohibition of overt Christian religious activity. Various other controls, such as the ban on the driving of cars by women, have been accepted by the company. As pointed out above, several years ago the headquarters of Aramco was moved from New York to Dhahran at government request. In all these cases and in many others, the company has bowed to the government's wishes, sometimes at the expense of the morale of the foreign staff. It has done so because it conceives that the most indispensible element of Aramco's success is getting along with the Saudi Arabian government. Aramco has also been called upon by SAG (as the government is known in Aramco) to do other things. The railroad from Dammam to Riyadh was built by the company and operated by it until the end of 1952.5 It was financed "partly" by advances from Aramco which are scheduled to be repaid "within some years." 6 At SAG's request the company has dug many water wells in the desert. It organized and then operated the Al Kharj experimental farm until the end of 1954. An American Aramco employee has even served as steward to the Court in Riyadh. Aramco employees have been assigned to study improvement of drainage in the Qatif oasis, and have been requested to advise the government on its projected agricultural schools. While the government itself controls the exploitation of water by issuing well-drilling permits, the permits are actually written and approved in each case by Aramco, at SAG's request. The Contractors Workmen's Compensation Fund, basically a governmental organization, has on its board as "advisor" one Aramco employee, who is appointed (and may be removed) by the Minister of Finance.7 The board of the Fund is authorized to request advice from Aramco's Arab Industrial Develop-

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ment Department on any proposed amendments to the bylaws of the Fund. 8 The company handles the Fund's finances.9 In 1954, at government request, Aramco began building ten primary schools with total facilities for 2400 boys. The company pays for the construction, operation, and maintenance costs of the schools, while the Saudi Arab Ministry of Education directs and operates them as part of the school system of the Eastern Province.10 Aramco has also provided technical assistance to neighboring municipalities like Dammam, Al Khobar, and Al Thugbah, in laying out streets, water and drainage systems, and in public health.11 IRAQ AND

IPC

By comparison to Aramco's role in Saudi Arabia, IPC stands relatively aloof from the government of Iraq. Iraq has the advantages of a relatively stable government and a working administrative organization, derived largely from the former British mandate. Like Saudi Arabia, it is a monarchy, but political power rests primarily with the Prime Minister, Nuri Said, an old friend of the British who rules intelligently with an iron hand. Alone of the Arab countries, Iraq has joined the Western-sponsored Baghdad Pact, thus isolating itself to a great extent from its fellow members of the Arab League. It is at least problematical whether Iraq would have joined the Pact in the absence of Nuri, and popular sentiment in the country is probably basically no more pro-Western than in the rest of the Middle East. Be that as it may, a friendly political atmosphere renders IPC's government relations problems much more simple than those of Aramco in Saudi Arabia. IPC receives a great deal more support from Her Majesty's Government than Aramco receives from the government of the United States, whose policy is widely considered to be to let foreign American investments sink or swim. With the power of the British government behind it, IPC is in a position to regulate its affairs

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with the Iraq government much more easily. This is essentially a logical relationship, in view of the fact that IPC is not only partly owned by the British government but provides Britain with one of its major sources of oil from nondollar areas. Britain needs IPC as much as IPC needs Britain. The government of the United States, perhaps partly for internal political reasons, has been more reluctant to specify the undoubted importance of Aramco to the nation. In some cases IPC has assisted the government in matters where it has special competence. In 1954, for example, it placed at the government's disposal information acquired by its geologists with regard to water resources.12 BPC has cooperated with the Department of Posts and Telegraphs in improving telephone and radio communication in southern Iraq.13 IPC built, on behalf and for the account of the government, a pipeline to supply crude oil to the government's Daura refinery near Baghdad, and also laid, at company expense, with pipe provided by the Development Board, a water line from the Lesser Zab River to Kirkuk town.14 IPC provides some technical assistance and supervision to municipal and army authorities for various building construction. IPC is a major consumer of the Iraq government's public services. It is said that the oil companies are the largest freight customers of the Iraqi State Railways. The Basra Port Directorate, in addition to receiving a substantial portion of its revenue from BPC's loading terminal facilities, also supplies water and electricity to the company.15 BPC also uses the facilities of the Port Directorate for training workers. Kirkuk's oil fields since 1950 have been guarded by the Iraqi state police force, which receives compensation from IPC for its services.16 BAHRAIN

AND

BAPCO

If anything, government relations for Bapco should be even smoother than IPC's in Iraq, since Bapco deals with

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the British political agent rather than with the Shaikh himself, in accordance with stipulations laid down by the British government at the time the concession was granted.17 Having everything in the family, so to speak, presumably makes everything somewhat easier. It is said that Bapco employs no Westerner with a sufficient command of Arabic to communicate directly with the Shaikh, but this, apparently, is not really necessary. Until recently the single most important figure in Bahrain was unquestionably Sir Charles Belgrave. In addition to his position as adviser to the ruler, he was also the commandant of the state police, a strategic post. Among other administrative posts held by Europeans (chiefly British) are: Director of Customs; State Medical Officer; State Engineer; Officer in Charge of Public Works Department; and Officer in Charge of Transport Department.18 Whether or not it is fair to say that Belgrave ran the government, as has been flatly asserted,19 he undoubtedly exerted a tremendous influence during his three decades in Bahrain. The capital, Manama, has an aspect totally different from any other town in the Middle East. Traffic moves on the left. Smartly uniformed traffic patrolmen guard the intersections. The government has provided public conveniences, and attempts to prevent women of the town from using them as communal laundries. Markets are without flies. Buildings are clean and whitewashed. A visitor might notice a superficial resemblance to Hamilton, Bermuda. Belgrave's influence, though, was more than superficial. Bahrain has become, administratively, very like a British colony. It possessed government departments of various kinds long before they appeared elsewhere in the surrounding area. Among Belgrave's achievements was a very lucid annual report, marked by that combination of efficiency, humanity, and paternalism which characterizes British colonialism at its best.

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Belgrave was employed by the ruler, not technically by the British government. His leaving in 1956 was accomplished with a minimum of loss of face by the British, who had regarded with great concern the somewhat similar dismissal of General John Bagot Glubb from Jordan's Arab Legion only a few months earlier. It is hard to say what the effect of Belgrave's departure will be upon Bapco. It is probable that his successor (if any) will not be a Briton, and he might conceivably be an Egyptian; this could have the effect of drawing the ruler closer to the Nasser orbit, conceivably making Bapco's position somewhat less comfortable. So far, however, the company has succeeded fairly well in avoiding the nationalistic crossfire that is on the increase in Bahrain. Bapco contributes in some ways to public projects in Bahrain. Much of the equipment at the Bahrain radio station is reported to have been presented to the government by Bapco.20 In 1953 the government itself reported that standards of English instruction in its Secondary School had been improved, due to teaching by a British teacher loaned to the government by the company. 21 One of Bapco's major contributions has been cooperation in the development of water resources and water conservation. The company supplied technical assistance and helped launch an educational program in water conservation.22 The company has minimized its own fresh water consumption by substituting salt water in its operations wherever feasible.23 KUWAIT

AND

КОС

A similar but not identical situation exists in Kuwait. The British political agent, as in Bahrain, acts more or less as a go-between in KOC's dealing with the Kuwait government. Many government officials are British. (Among Britons in the Kuwait government are: Controller of the Development Board, Port Superintendent, and Assistant Controller of Fi-

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nance; all department heads are Kuwaitis.) There is very little direct dealing between КОС and the ruler or his ministers, and in fact it is said that КОС has an explicit policy of declining to become entangled with local affairs. An example appeared in early 1954, when КОС was invited to join a committee set up by the Shaikh to study proposed labor legislation. Representatives were present from five government departments and Aminoil. But КОС declined to attend, and it was reported at the time that its absence was noticed and commented upon unfavorably. Government relations is a problem which so far for КОС hardly seems to exist at all, of its own choice. So far this approach seems to have been successful; indeed one American in Kuwait believes that Aramco's troubles arise primarily from dealing too closely with the Saudi government. Statements attributed to Ashraf Lutfi, a representative of the ruler of Kuwait, just before the Franco-British attack on Egypt in October 1956, illuminate the Kuwaiti view of the curious relationship between Kuwait, Britain, and КОС. Although not a member of the Arab League, said Lutfi, Kuwait would have no choice but to join a League boycott of Western nations at war with Egypt. He pointed out that in the past Kuwait had abided by the Arab League's boycott of Israel.24 It seems, however, that liftings of Kuwait oil for Britain and France were not, as a matter of fact, cut off by the Kuwait government when Syria and Saudi Arabia took steps to prevent shipments to the two Western powers. The question therefore remains as to precisely who has the power to make and enforce such a decision in the shaikhdom. QATAR

AND

QPC

The general situation in Qatar, also in treaty relations with Britain, is similar. The dynastic situation is difficult; when the present ruler's father died, the eldest son was passed over in favor of one of his brothers. The latter, however,

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met an untimely death, and the elder son, having been once rejected, became the present ruler. T o a large extent it seems that de facto internal control was turned over to one Abdullah Darwish, a wealth Bahraini trader and contractor. (According to unconfirmed reports, however, Darwish was banished from Qatar in 1956.) In addition to the British political agency staff, the shaikhdom has British advisors (ostensibly selected by the ruler) at the head of the three special government departments established thus far: the Engineering Department, the Medical Department, and the Police Department. 25 The precise relationships of QPC with the ruler and the British are not clear to the uninitiated.

IRAN:

АЮС

AND

CONSORTIUM

Much has been written about the failure of AIOC's relations with the government of Iran, which are said to have led to the disaster of 1951. The theories advanced to explain the Abadan debacle are varied, but underlying most of them is the obvious fact that the company failed to get along with the government then in power to such an extent that its expulsion became inevitable. In a sense the current government relations policies of all Middle Eastern oil companies must be viewed against this background in Iran, for all the companies are acutely aware of what happened to AIOC, and have partly shaped their own policies as a result. The Consortium arrangement has been in existence only since 1954. So far relations seem to be correct and cordial between the Western Consortium companies on the one hand and the government and N I O C on the other.

AREA

POLITICS

The unity-disunity polarization is an obvious oversimplification in Middle Eastern politics. Perhaps the very terms

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are misleading to describe the rapidly shifting groupings and alliances which characterize the tangled political scene in the area. While it would not be relevant to attempt to unravel these tangles here, it should be noted that they are of vital concern to the oil companies, especially those that operate in more than one country. It would seem that good relations between the various countries where they do business would be to the long-term advantage of such companies. But it is quite possible that some Westerners still would like to take a leaf from the "divide-and-conquer" book of generations of canny officials in Whitehall. The trouble is that divide-andconquer as a political technique depends either on vast diplomatic skill (as with Bismarck) or overwhelming power (as with the British in the Middle East in days gone by). The oil companies are not, generally speaking, in so enviable a position. They are, or must be assumed to be in the absence of a direct showdown of the Suez or Abadan type, present in the area at the sufferance of the concession-granting governments. Take, for example, the recent example of the transit operations of IPC and Tapline. The basic situation arose out of the demand by the transit countries for increased revenue: Syria and Lebanon from IPC; and Syria, Lebanon, and Jordan from Tapline. IPC was confronted first by demands from Syria, and made a deal which was negotiated and ratified without the official knowledge of Lebanon. IPC then turned around and offered Lebanon an arrangement on the same basis, that is, the amount of revenue was to be dependent not only on the volume of oil transported but also on the length of the pipeline. (A substantial amount for use of sea terminal facilities was to be added.) The Lebanese, with only a small fraction of Syria's mileage, objected strenuously. Some Lebanese attacks took on not only an anti-IPC but also anti-Syrian character, on the ground that Lebanon had been betrayed by its neighbor. Tapline, on the other hand, announced that it was prepared

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to divide the profit from pipeline operations 50-50 with the transit countries, but left it up to the governments themselves to work out an equitable sharing of the 50% earmarked for them as a group.26 To some degree this plan — an escrow arrangement, as it were — lifted Tapline above the level of combat, and as such it is the kind of negative coup which oil companies in the Middle East rarely enjoy. Furthermore, this strategy represents something of a new departure in that the company was deliberately seeking to deal with a number of countries as a group. It would be difficult to find a parallel case in the history of oil company relations in the Middle East. Such a policy flies in the teeth of the whole divide-and-conquer theory. It is an interesting experiment. Essentially, the individualism that characterizes personal relations among Middle Easterners extends also to the governmental level. No amount of chanted slogans about unity can entirely efface the fact that the Arab states have so far conceived of nationalism primarily in a local, rather than regional, context. If some degree of political and economic collaboration can be regarded as a stabilizing factor, such collaboration might be viewed with favor by the oil companies and those who wish them well. Those Westerners who argue for unity conceive the problems of the Middle East primarily in terms of the threat of Soviet communism. Fragmentation in the area, they contend, gives the Soviets an opportunity to play the countries off not only against the West, but against each other. The Western powers have attempted to follow the unity line at various times in the past; actually the Arab League was originally a British idea. More recently, a Middle East Treaty Organization along the lines of N A T O was proposed (but got nowhere); its remnants survive in the Baghdad Pact. The exploitation of oil itself, however, has not as yet been a unifying influence. The prosperity it brings is parochial

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rather than regional. Before the days of oil the "have" countries were those with water: the lands of the Fertile Crescent and Egypt; the Persian Gulf was "the backyard of the Islamic house." 27 Now the former "haves" (with the exception of Iraq) are the "have-nots," and the "haves" are the oil-producing countries. The reversal of economic roles has shaken the political balance of the area as a whole. If political unification was remotely possible in the past, the economic assumptions have now changed, largely because of the growth of the oil industry. In the face of these difficulties, there nevertheless exists some formal and informal collaboration among the Middle Eastern countries with respect to oil matters. The Arab League has an Oil Committee, apparently formed on the basis of its mandate to promote "the close cooperation of the member states, with due regard to the organization and circumstances of each state, on . . . economic and financial affairs, including commercial relations, customs, currency, and questions of agriculture and industry." 28 The Oil Committee so far has been concerned primarily with preventing the smuggling of Arab oil into Israel. It might, of course, develop much more extensive functions in coordinating policies and promoting the industry. The committee reportedly met for four days in Cairo in November 1955 with these aims ostensibly in view.29 Another meeting of the Oil Committee was scheduled for October 20, 1956, in Baghdad. The governments of Qatar, Kuwait, and Bahrain were invited to participate, although they are not members of the League.30 It was reported that the League was prepared to extend to the three shaikhdoms "any advice on oil." If for "League" one can read "Egypt," such advice may be welcome, but then it may not. Egypt is a "have-not" trying to be a "have." The possibilities are interesting. It was announced at the same time that the Arab League was in the process of studying oil concessions and

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regulations "preparatory to laying down a plan for a united Arab policy on them." But the qualification was added that the League would "take into consideration the private circumstances of each Arab State concerned." 31 Then in the summer of 1956 it was announced that the first "Arab Oil Week" was scheduled to begin in Cairo on December 3, 1956. The announcement stated: This will provide the Arabs with the first opportunity of its kind to point out the value to the world of Arab oil and to draw the attention of world public opinion to the importance of Arab oil and its influence on the future of the Arab World and of Arab Sovereignty. . . . The Arab League Oil Committee will meet, and speeches will be delivered and studies carried out on oil by Arab Governments' representatives and by experts of oil companies operating in the Arab World. . . . An exhibition will be held showing all matters relating to oil, and films will be shown about the production of oil and the oil industry. . . . The Arabs will now be able to draw up their policies to serve their own national interests and sovereignty.

At the same time it was reported that Muhammad Salman, director of the Arab League Permanent Petroleum Bureau,32 would tour the Arab states and shaikhdoms.33 He was accompanied on his tour by Muhammad Ali Nimazi, director of the Arab League's Economic Bureau. It was reported that they had drawn up the Oil Committee's agenda for the Cairo meeting; characteristically, the first item was the matter of tightening the Israeli boycott. But the Committee was also to "draw up recommendations for the conduct of Arab League Member States in relation to the oil companies and the foreign powers in which these companies are incorporated." 34 As with the Baghdad meetings scheduled for October, the shaikhdoms of Kuwait, Bahrain and Qatar were invited to attend.35 While the Baghdad meeting took place as scheduled, the Cairo meeting was postponed because of the Suez crisis.36 But, characteristically, more is often accomplished informally than through such a committee. There is a very effective grapevine operating along the Persian Gulf, and

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more than one company official complains that there is infinitely better liaison among the oil-producing states than there is among the companies themselves. T h e basic obstacle to complete cooperation is that while the political center of gravity of the Arab League is and has always been Cairo, the oil center of gravity is further east. Indeed, of the six oil-exporting states, only Iraq and Saudi Arabia are members of the League; Kuwait, Bahrain and Qatar, as British "protected" states, are presumably ineligible; and Iran is not even Arab. There are reports that King Saud was not terribly amused by the destruction of the IPC line in Syria as a result of the Suez affair, and that he brought pressure on Cairo to convince the Syrians not to allow a similar fate to befall Tapline. On the other hand, Saud demonstrated sympathy for Egypt by decreeing that no Aramco oil should go to France or Great Britain, and the Aramco-Bapco pipeline was closed, presumably at Saudi instigation. N o such similar step has been taken in the shaikhdoms, but Bahrain and Qatar have recently specifically joined the Israeli boycott. 37 T h e enforced economic isolation of Israel from its Arab neighbors has been relatively successful, particularly with respect to oil. Israel has had to import from as far away as Venezuela; oil imports require some $40 or $50 million in foreign exchange annually, or more than is earned by all the country's exports. T h e large Haifa refinery operates at only a fraction of capacity, its supply by pipeline from Kirkuk having been cut off since 1948. Strangely enough, the discovery of oil in Israel in 1955 attracted only casual notice in Arab countries. T h e view was sometimes heard that the oil strike, even if it proved commercially successful, was made only a few miles from the borders of Jordan and Egypt: presumably oil could be found in those countries too. But the Arab nations collectively already have more oil than they can produce and sell; it is the preclusion of Israel from Middle Eastern sources rather than Arab oil riches that has made Israel's isolation effective. T h e

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political effect of the discovery therefore is yet to be determined. THE

COMPANIES

AGAIN

The oil companies, as commercial enterprises, are faced with a dilemma in trying to adjust to political considerations. On the one hand, they often see great advantages in complete isolation from politics both at home and abroad; on the other, their own position and function make complete isolation impossible. In a sense, of course, this is true of business everywhere. To say that a company must take into consideration political and governmental affairs in conducting its operations is only to say that in the complex society of today corporations are citizens as surely as individuals are. In the United States, for example, the companies pay taxes, are awarded government contracts, must comply with state and federal labor laws, and so on. But the political factors involved in operating in a foreign area, especially when the subject matter of the business is a vital, internationally-traded commodity such as oil, means that politics looms even larger in management calculations than at home. The dilemma of isolation vs. involvement is never completely solved, but basic industry policy can probably be said to be to avoid involvement in political affairs except where the results of isolation would be more harmful to a company's interests than intervention would be. This is generally equally true in the local, home, and international political arenas. It is perhaps more conspicuously true of the American companies than of the British, partly because the American companies have learned through experience that they cannot count on effective and consistent political support from Washington in the same way that British companies have been able to count on London. On the other hand, it means that to the extent that American companies decide on a policy of involvement in Middle Eastern politics, they are more or less on their own.

ш 6

сМшнаи, RelcUixubi THE PEOPLE OF THE

INDUSTRY

Any company requires a staff and work force large enough, skilled enough, and with sufficiently high morale to conduct the company's operations with efficiency. High productivity is an obvious objective of management in the Western industrial economy at large, of which the oil companies in the Middle East are a part and from which they derive their standards. The kinds of specialties needed are extremely diverse, not only because of the complexity of oil technology, but also because the companies are relatively more self-sufficient than similar organizations at home. Oil companies everywhere need engineers, chemists, geologists, drillers, tool pushers, and so on. But how many domestic oil companies employ an agronomist (Aramco has one)? Or a pediatrician, a radio announcer, an undertaker, a baseball coach, an arithmetic teacher? Even less exotic specialties are required in greater abundance abroad: cooks, drivers, mechanics, carpenters. One large Western oil organization in the Middle East included on its payroll in early 1956: 17 6 24 22 9 15

bookbinders divers printers signwriters tailors typesetters

8 cinema operators 5 barbers 231 waiters 151 gardeners 80 postmen 12 bath attendants 90

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in addition to thousands of others falling into some 170 job categories. Oil company jobs are not only diverse; they are demanding. For most jobs above the most menial, literacy is desirable if not essential. Literacy is, of course, taken for granted in the United States and England, where an illiterate is something of a curiosity. Literacy is the exception in the Middle East oil areas, and a local Arab literate in English (in which most company business is conducted) is a phenomenon. With some sort of literacy as a base, the pyramid of available skill tapers rapidly. T h e acquisition and maintenance by an oil company of a staff properly trained to handle its manifold functions is a serious challenge. Aramco in recent years has tackled the problem of the selection and testing of local personnel with typical American ingenuity and energy. T h e company used to maintain recruiting offices in Dammam, H o f u f , and Riyadh, where applications for employment were handled by an Aramco Saudi employee. Once a week the field offices were visited by a representative from company headquarters to screen applicants approved by the local office. U p to 100 Saudis were processed every week, and because of the crowds many literate and otherwise qualified Saudis tended to avoid the recruitment offices. Employees, once selected, were picked by supervisors from a company labor pool. Often the basis of selection was merely a recommendation by the director of the labor pool to the effect that the man "had not gotten into trouble." Because supervisors were unsure of the quality of the workmen available, they often took more men than they needed, in the hope of finding some who were suitable. 1 In due course Aramco developed a more efficient selection system, whereby the supervisor may ask for the type of trainee he wants, and have some assurance that the employee will suit his needs. T h e basis for selection is the so-called Saudi General Classification Test, developed by Aramco in 1953

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after three years of study. Since most Saudi recruits cannot read or write, the test is administered individually and orally. The test has five parts, consisting of mental arithmetic ("If Yusuf has five camels . . ."); providing antonyms for given words; spatial relations (involving the folding of paper and punching of holes); "similarities" ("In what way is a camel like a goat?"); and a "story," where the instructor reads a short piece about an unfamiliar subject — for instance, baseball — and then asks questions about it ("What does the man at the big sack try to do with the stick?"). 2 Aramco has discovered that the tests must be administered with care. They are given only by Saudis, in order to establish "cultural rapport." It has been noted that "The Saudi has a different set of attitudes towards a test than an American. He likes to treat the questions as though they were part of a game." 3 Industry in the West goes to great pains to keep its trained and valuable workers from leaving, partly by fringe benefits, attractive working conditions, and the like. These inducements to stay with the employer arise to some extent out of organized demands of unionized labor, but also through the employers' own efforts in a competitive labor market. Up to the present, these two conditions have generally not been major factors in the Middle East labor market: labor in the oil fields has not been formally organized for bargaining purposes,4 and the oil companies until recently have been almost the sole employers of skilled (desirable) labor. But competition is beginning to impinge on the stability of their payrolls, especially in areas where the state — either itself or through contractors — is undertaking development or public works projects requiring technical skills. A microcosm of this development is Kuwait, where a shortage of skilled workers has led to keen competition between К О С and the Kuwait Public Works Department, the two largest employers in the shaikhdom. Higher wages alone do not necessarily provide a solution, and the company is faced with a substantial annual loss of skilled labor.

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Labor competition is sometimes acute internationally as well. There is an unknown but considerable degree of migration of labor between the various oil areas. A n official description of the w a y this kind of migration affected Bahrain several years ago is worth quoting: The rapid growth of the oil industry in Kuwait, Saudi Arabia and Qatar has produced a demand for almost unlimited numbers of skilled and unskilled labourers and owing to the shortage of man-power both oil companies and contractors working for companies and for the Saudi Arabian government paid very high wages to the people they employed. Bahrain Arabs heard that men who were doing the same work as themselves in other parts of the Gulf were earning twice or three times as much as they received in Bahrain. They did not compare the difference in conditions and in the cost of living between Bahrain and other parts of the Gulf. The Bahrain Petroleum Company, the biggest employer in the country, granted a substantial increase in wages and the Bahrain Government did the same. . . . Unfortunately however the higher rates of pay did not check the rapid flow of labour out of Bahrain to other States in the Gulf where carpenters, motor drivers, masons, youths with a year or two's experience in an office and even inexperienced school boys could be sure of finding highly paid posts.

Restrictions which had been imposed by the Bahrain Government on people leaving the country in order to work in Saudi Arabia were lifted during the summer and over 1300 Bahrain subjects crossed to Saudi Arabia because they were attracted by the prospect of higher wages than those which they earned at home. It was thought that unskilled labourers were being paid twice the amount which they received in Bahrain for work near the Kuwait-Saudi Arabia border. Many of the young men who went abroad have since returned as although they found the wages higher than at home they found the cost of living still higher.5 A Bapco official has mentioned having discovered Bapcotrained welders at work on the construction of Tapline in Saudi Arabia, where they presumably had been lured b y higher wages. There are thousands of Persian, Iraqi, and Palestinian laborers in Kuwait. T h e closing down of Abadan brought a migration of Persians and Arabs from Khuzistan

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to Kuwait and other neighboring areas, where oil operations were expanding rapidly. An intangible factor in workers' morale in the past has been that employment in an oil company has been attended with a certain degree of prestige. Little stigma has attached to association with a foreign company, and indeed in some areas quite the reverse, especially in a Westernized community like Beirut. One oil company's office there was troubled some years ago by the fact that an interviewer in the personnel department demanded a substantial contribution to expedite job applications. It is hard to say whether this aura of desirability surrounding oil company jobs is universal, or whether it is apt to persist in the face of deepening political animosity toward the West. It is quite possible that politically-oriented changes in public attitudes may be significant factors in the future in the industry's attempts to attract the kind of labor it needs. On occasion governmental action with respect to company employees may impair efficiency and affect morale. The arrest early in 1955 of more than a hundred valued Palestinian employees of Aramco for alleged political activity was a severe blow to Aramco not only because of the loss of trained men, but because of the deterrent to other Palestinians who might be seeking employment with the company. The oil companies generally welcome Palestinians in their organizations because of their superior education and general advancement as compared to the Arabs of the peninsula. At one time they were also welcomed by the Saudi government. In 1949 Ibn Saud asked Aramco to hire 1000 Palestinian refugees, and more than 2000 have been recruited by the company in Beirut.® The only available figures are fragmentary, but labor turnover in the oil companies clearly is high by Western standards. About one Bapco worker in three has been with the company continuously for more than six years, one in six

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for more than nine years, and only one in twenty for more than fifteen years.7 Aramco figures are similar. At the end of 1954, about one worker in three had been with Aramco for six years or more, one in seven for nine years, and one in forty for fifteen years.8 It is said that before 1953, when Aramco selection methods were revised, the company had to hire 600 Saudis each month to replace workers who had left. 8 In the course of a year this must have amounted to about half of the total local work force. By the end of 1955 Aramco's annual turnover had been reduced, but was still about 12%. Some 160,000 Arabs have worked for Aramco at one time or another.10 Abadan refinery has seen tremendous variations in the rate of turnover of its employees. In one World War II year, hirings reached 96% of total strength. (See Table 4.) Tribesmen, peasants, and villagers, of course, have no TABLE 4 Abadan Refinery: Number of Employees Hired and Discharged, as Related to Total Strength, 1940-1955. Hirings Year

Total strength

Number

1940 1941 1942 1943 1944 1945 1940 1947 1948 1949 1950 1951 1952 1953 1954 1955

14,150 13,350 19,045 21,666 25,964 28,011 28,123 29,954 32,036 32,207 30,246 27,662 26;778 26,346 26,009 25,600

5,318 6,533 15,390 18,503 25,076 17,230 10,824 9,786 9,977 5,769 2,105 1,207 617 557 380 204

Discharges Per cent of strength

Number

Per

36.65 48.93 80.80 85.40 96.57 61.51 38.48 32.66 31.14 17.91 6.96 4.36 2.30 2.11 1.46 0.80

7,226 5,499 7,308 18,721 19,185 17,651 10,179 7,636 8,227 6,526 4,858 3,072 990 1,020 696 569

cent of strength 49.80 41.19 38.37 86.40 73.89 63.01 39.19 25.48 25.68 20.26 16.06 11.10 3.73 3.87 2.69 2.22

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conception of what oil companies require in the w a y of industrial discipline. Professor Carleton C o o n observes: One of the greatest differences lies in our concern for the value of time. We pay workmen by the hour; they pay by the job . . . Nothing in the nature of his [a Middle Eastern craftsman's] work requires a close synchronization between his efforts and those of other kinds of specialists, as in a Western factory. 11 O f t e n a man will join an oil company, attracted b y wages out of all proportion to anything he has previously experienced, only to leave w h e n the m o n e y he has already earned begins to burn a hole in his pocket. Oil c o m p a n y surroundings are unfamiliar. T h e w o r k m a y be more arduous than expected or be considered degrading. A sympathetic observer has described the situation in K u w a i t : There have always been many, even of the noble tribes, who have been driven by desperate poverty to seek work in the town. This is not considered dishonorable for a sharif badawin so long as he shuns certain types of work which are forbidden by custom. He must not, for instance, tan hides, purvey meat for sale in the town, or burn lime, for these and certain other occupations are held to be unclean, and are usually undertaken only by townsfolk or badawin of lower standing . . . There was a time, before the growth and development of Kuwait offered countless opportunities for work, when a high-born tribal Arab would not have considered working as a labourer. . . . Today, however, there are numerous badawin from every tribe, high and low, who are working as labourers with the oil company or with contractors carrying out state development projects. If he can get it, a badawin will still prefer a job as a guard, nightwatchman, driver or technician, for he does not take kindly to hard physical labour, but if such work is not available or higher wages are being paid to labourers, the temptation of wealth such as he has never known will lead him to set aside the pride which once restrained him from taking work as a common coolie.12 Perhaps the problems f o r the nomadic Bedouin are greatest, but even among a settled population the adjustment to oil-camp life m a y be difficult. T h e Bahrain government noted

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in 1945: " T h e Bahrain Arabs are both insular and domesticated; they dislike being away from their families and for this reason many prefer lower paid posts in the towns to higher paid posts with the oil company." 13 Thus the movement from a tribal or village life of almost prehistoric simplicity to that of a modern industry may simply be too great a wrench. Some of the companies are obviously aware of the problems of adjustment. T h e y have discovered that trying to set up a human organization rigidly along the lines of a Western corporation is not totally successful. Many of the workers simply can't take it. It would be ludicrous, of course, to try to run the company like an oasis village or a Bedouin tribe. But it is interesting to note how management sometimes does yield to local customs and conditions to promote happier labor relations: (a) Ramadhan is the Muslim month of fasting. N o Believer may touch either food or water between dawn and sunset. Nor may he smoke. "Tempers run short during Ramadhan. It is an angry season, and a good one to avoid if possible." 14 T o visit a town like Jidda during Ramadhan is an experience: although there is no religious obligation to rest, very little work goes on during the day, when sensible people are resting their parched throats and aching bellies. But after dark the town comes alive. Social calls may be paid up to two o'clock in the morning. T h e postman may appear at three or four a.m. A trip to the bazaars at midnight finds merchants and craftsmen hard at work by the eery light of a small naked light bulb. N o w it would be very difficult for a Western company to turn day into night and night into day in this way. But many of the companies cut short daytime working hours during Ramadhan. It is "suggested" that Aramco employees refrain from smoking openly. T h e work tempo does relax, and company officials whose duties require contacts with governmental officials resign themselves to evening appointments.

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(b) Although the Muslims, strictly speaking, have no Sabbath in the Western sense, Friday rather than Sunday has come to be the weekly day of rest. In predominantly Christian Lebanon, Tapline and IPC keep to the Western schedule, but elsewhere offices are more apt to be closed on Thursday afternoon and Friday. Professor Coon says: Most of [the archeologists] w h o excavate in the Middle East lay off their men on Fridays. T h i s never fails to puzzle new workmen, who inevitably ask: "Aren't we going to be paid f o r Friday? W e are ready to w o r k then, like any other d a y . " Something that the workmen appreciate more is giving them time off on T h u r s d a y afternoon, so that they can g o to the steam bath ( h a m m ä m ) and purify themselves for the services which, in many communities, take place that evening. 1 5

The companies are aware of this situation and follow suit. (c) One feature of Arab social organization is the idea that even the lowliest peasant or bedouin has the natural right to appeal directly to his Shaikh or headman. The idea of going over the head of his immediate supervisor is not frowned upon, although there is some indication that even here such a technique for the redress of grievances causes just as much resentment and inefficiency as it would in a Western corporation.16 Western executives get used to being approached directly and take it in good grace. One story is told of an Arab employee who was refused admission to the "staff" cinema, although he had recently been promoted to a grade which entitled him to admission. He picked up the telephone and called the president of the company away from his dinner, and the matter was shortly straightened out. THE

WESTERNERS

There are perhaps three or four thousand Americans (mostly with Aramco or Tapline), and a similar number of Britons (mostly with КОС, Bapco, or the IPC companies) employed directly by the oil companies in the Middle East.

A w o r k e r at A b a d a n . I r a n i a n Oil Participants Ltd.

A g r o u p o f B a h r a i n i kerosene dealers visit B a p c o ' s p r o d u c i n g field. The c o m p a n y several y e a r s a g o turned over kerosene distribution to local private enterprise. Caltex.

Mohammed

Nagadi

block

in

plant

headquarters

is

the

Dammam, at

Dhahran.

owner not

far

The

a

masonry

from

of

Aramco'j

company

h i m g e t s t a r t e d ; it a l s o b u y s s o m e o f h i s Arab

Information

E m p l o y e e s l e a v i n g the r e f i n e r y o f the B a h r a i n P e t r o l e u m C o m p a n y Ltd.

Center,

helped products

New

York

Caltex

A n A m e r i c a n car gets service at a n A r a m c o - s p o n s o r e d g a s station o w n e d by a J i d d a entrepreneur. C o n t r a r y to p o p u l a r belief, not all cars in S a u d i A r a b i a a r e Cadillacs.

An

oil c o m p a n y

A r a b I n f o r m a t i o n Center, N e w Y o r k .

accountant

(hands

O w n e r s h i p Scheme h o u s e in B a s r a .

on

hips)

surveys

progress

on

his

Home

B a s r a h Petroleum C o m p a n y .

M a r k e t d a y in a P e r s i a n G u l f t o w n . D e s p i t e its m o d e s t a s p e c t , s u c h a m a r k e t a s t h i s m a y English Arab

woolens, Information

silver

jewelry

Center,

New

from York.

the

Far

East, a n d

Coca-Cola.

provide

These thirsty camels are d r i n k i n g w a t e r f r o m a well drilled b y the oil c o m p a n y in S a u d i A r a b i a . A r a b I n f o r m a t i o n Center, N e w Y o r k .

" B r e a d a n d Butter": a p r o d u c i n g well in a Persian Gulf s h a i k d o m . Wells such a s this produce h u n d r e d s of times the d a i l y v o l u m e o f A m e r i c a n counterparts. Petroleum Week.

Low-flying c o m p a n y p l a n e s m a k e w e e k l y flights to inspect the pipeline that carries oil to the M e d iterranean. A r a b i a n A m e r i c a n Oil C o m p a n y .

K h a l i f a ibn A h m a d , h e a d o p e r a t o r a t A r a m c o ' s Ras T a n u r a refinery, conducts his y o u n g s o n I b r a h i m on a tour. A r a b i a n American Oil Company.

Students at K u w a i t Oil C o m p a n y ' s technical T r a i n i n g Centre, M a g w a .

K u w a i t m e r c h a n t ' s office.

Kuwait Oil C o m p a n y

Kuwait

Oil C o m p a n y

Ltd.

Ltd.

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99

Most of them have had oil company experience elsewhere, sometimes in the employ of one or another of the parent oil companies. In fact a common method of recruitment is through the owner companies. It is surprising to note how many of the British are "alumni" of Abadan, jobless after Anglo-Iranian was nationalized in 1951. The adjustment of Westerners within the oil industry as such obviously is less of a problem than it is for local workers, because they either are already familiar with corporations' ways of doing things, or have the background to find out fairly painlessly. In any case, personnel and management specialists find their problems at least intelligible, if not soluble. But the Westerners often find that adjusting to life in the area is not easy. And here it is necessary to separate the British from the Americans, since for some reason they react in patterns which are fundamentally different. What is the typical American oil employee like? One can start with the premise that he is very much like other Americans elsewhere. This is not entirely true. For example, both Roman Catholics and southerners are represented more heavily than in the American population at large. Furthermore, Aramco, at least, makes it a general rule to hire only college graduates. Most of the American employees have never lived abroad before. Those who make more money than they could at home have a very American regard for the value of a dollar. Many develop expensive tastes. (Here are three notices posted on the same day on the bulletin board in the dining hall at Dhahran: (1) "For Sale: Young Arab Stallion about five years old. Excellent disposition. S R 975 [$260]."; (2) "Lost: one gold earring — rubies, sapphires and pearls, in the vicinity of Dhahran Theatre."; (3) "Special flight to Beirut — $150 round trip — over Id al-Fitr holidays." At least one American oil employee in Beirut (by no means a tycoon) confers by phone with his broker in San Francisco regularly twice a week.) Very few of them know

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much about the Middle East before they go there. Most have the peculiarly American problem of not being able to amuse themselves alone. There is much gambling: crap-game pots in the thousands are not unusual. Some like the idea of traveling abroad and associating with foreigners, but most find it confusing and frustrating; most Americans are distressed if they discover they are not especially liked or appreciated. For an American, it is not easy to be entirely objective in describing the Britons he meets in the Middle East. Nevertheless, perhaps a few impressions can be forgiven. In the first place, going to the Middle East is not nearly so great an adventure for a Britisher as it is for an American. There is an honorable old tradition of service abroad (especially in India) with government or private concerns. These days economic opportunities in the United Kingdom are widely regarded as even less favorable than usual, and if all the British abroad were suddenly to come home there would doubtless be serious unemployment. Employment with a Middle East oil company thus is a much more accepted and less unusual thing than it is for Americans. In the individual Briton there seems to linger a bit of the "white man's burden" complex. Most of the British in the oil companies feel sincerely and earnestly that they are superior to the locals; that they know more and are more sophisticated than the people they deal with. While the American yearns to be liked, the Englishman prefers to be respected. Whether for these or other reasons, the Englishman seems to be better adjusted to his oil company life than does his American colleague. The American is more likely to have emotional problems: the incidence of mental illness is high in Saudi Arabia, but negligible in Iraq. Turnover in Aramco is far higher than turnover in IPC. But suppose, one might ask, the British were in Saudi Arabia and the Americans in Iraq? It is impossible to say, but one can venture the guess that Britishers would adjust more easily to the considerably more difficult Saudi environment than many Americans have.

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Many Americans at Dhahran sincerely feel that it is exceedingly unfortunate that liquor is outlawed in Saudi Arabia. Emotional problems and requests for medical care have increased tremendously since the ban was introduced. Furthermore, the ban makes social life very difficult; the dance patios, the pleasantly-conceived little bars offer no special attraction when only soft drinks are served. What drinking is done must be clandestine, for the penalty upon discovery is expulsion from the country and (obviously) termination of employment. Nevertheless, some take the risk. The company management can neither condone drinking nor entirely put a stop to it. Aminoil's seventy-five American employees in the Kuwait Neutral Zone live aboard a reconditioned LST, which provides but few amenities. There is very little to do except play cards. A man works seven days a week for a full calendar year and is then entitled to a thirty-day vacation plus six days' travel time; although the company provides the fare ($1900) for a round trip to San Francisco (the company's headquarters), many employees save most of the money by taking their leaves in the Middle East. Only a few families of Aminoil or Getty employees are allowed in the Zone. An average American worker has no trouble saving at least $10,000 in a year under these conditions. When his year's contract is up, the employee may be induced by United States tax legislation to sign up again; if he returns home within seventeen months his income is subject to tax. But more than a year on the LST brings a decline in efficiency and perhaps more serious problems; it is said that no one has been known to stand the life aboard the ship for more than two years. LABOR

TROUBLE

Labor stoppages in the oil companies appear to be becoming more and more common. They never seem to involve Western personnel, but always only the local employees.

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They can be exceedingly costly. Loss of one day's production from a major producer like К О С or Aramco might cost something over a million dollars. A week of idleness per year would probably be more expensive than doubling the wages of all local employees. Because work stoppages are costly also to the governments under the 50-50 profit-sharing arrangements, they are generally frowned upon officially. A BPC strike in late 1954 was the occasion for martial law being declared in the area of Basra. The instigators of the Aramco strike in the fall of 1953 were arrested and severely punished — much more severely, indeed, than Aramco officials themselves would have preferred. Some of the work stoppages appear to be motivated more by political considerations than disputes with the employers. Early in 1956 a general strike in Bahrain was said by Arab sources to be part of a campaign to get rid of Sir Charles Belgrave, British advisor to the ruler.17 Even before the British military action against Suez in 1956 workers at the T-2 station of IPC temporarily stopped the flow of oil through the pipeline out of sympathy for Egypt. 18 SUPERVISION

The Arabs are nothing if not individualists, even where a foreign employer is not concerned. Levels of authority in Arab society are part of a kind of hierarchy whose criteria may include birth, position, virility, bravery, sagacity, luck (hazz), and so on. There is no background in the experience of these people for the concept of doing what someone tells you to do simply because he has been hired to do so. This obviously raises problems of supervision. A company has a number of alternatives, each of which is used in some degree. First, the supervisors can be Westerners — British or American, as the case may be. This is excellent from the standpoint of management's need to be reasonably

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sure that projects will either be carried out as planned or know the reason why not. T h e disadvantages are expense (an American tradesman with the wit to be a foreman may receive twice what he could earn at home), the language barrier, and the fact that company policy normally provides for the advancement of local employees to just such positions of intermediate responsibility as these. T h e second alternative is to have other foreigners such as Palestinians or Indians in supervisory positions. This is less expensive and the language barrier may be less, but it does not solve the problem of nationality. Often British and American supervisors are resented less than foreigners from neighboring countries. Finally, the company can (and does) make efforts to put nationals in supervisory jobs, in an effort not only to meet its localhiring obligations but also to solve the problem of discipline, on the theory that employees will more willingly work for one of their own kind. Unfortunately this is not always the case. Arab workers may not pay sufficient heed to a boss whose social position does not entitle him to respect. While it is difficult for the company to know whether the man they propose to make a foreman has the status to make him an effective leader, it is some help to know every man's religion, tribe, etc., so that these difficulties can be minimized. A solution might be to select for training as supervisors local employees with the proper kind of status to command respect. But only rarely does a person with sufficient standing in the local hierarchy also possess either the aptitude or the inclination for such training. A plumbing foreman must, obviously, be a plumber; and nothing about the shaikhly Arabs suggests that they could become good plumbers, or would want to if they could. Another possibility is to contract out as many company functions as possible to local notables, and let them solve their own labor problems. This sometimes works out rather well, and it fits in with the increasingly significant policies of the companies to throw business in the

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direction of local entrepreneurs, discussed in the next chapter. LOCAL

VS.

IMPORTED

LABOR

The oil producing companies employ something over 100,000 people. The breakdown by companies is about as follows: Approximate Number of Country Company Employees Aramco Saudi Arabia 20,000 IPC, MPC, BPC Iraq 15,000 Kuwait кос 8,000 Iran Consortium 48,000 Bapco Bahrain 8,500 Qatar QPC 4,500 Kuwait Neutral Aminoil, Getty Zone 600 The force is generally divided into three categories, corresponding roughly to supervisory and administrative staff, clerical staff and skilled workers, and labor. IPC uses the terms "Staff," "M.R." (Monthly Rate — meaning those who are paid on a monthly basis) and "D.R." (Daily Rate). AIOC used "Senior Staff," "Junior Staff," and "Labour." Aramco has chosen — perhaps unfortunately — the terms "Senior Staff," "Intermediate," and "General." Other companies have their own terminology. These categories appear to persist throughout the industry, regardless of what they are called. These employees come from literally all over the world. With the possible exception of the world's merchant shipping industry, there may be a wider distribution of employment by nationality in the Middle East oil companies than in any

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other industry. The necessity to recruit 100,000 people globally to work in six countries whose total population exceeds thirty million results from the tremendous discrepancy between the skills and knowledge required in the industry and the existing abilities of the native populations. The people of these countries had never been exposed to Western industrialization before the oil companies moved in; most of them had never seen an automobile, much less an airplane. Many were unaware of the existence of door handles, clocks, pencils, typewriters, glass windows, cigarettes, light bulbs, and thousands of other articles which Westerners have unconsciously accepted as part of their environment since infancy. If this was the case, how much less they knew of meters and gauges, routing slips and requisitions, generators and pumps — all the essential paraphernalia of a modern industry. Shortly after the nationalization of the oil industry in Iran, a cartoon in the New Yorker depicted two crouching Iranians against a background of the huge and gleaming but idle pipes and towers of the Abadan refinery. As they watch a single drop of oil slip off the end of a disconnected pipe, one of them inquires: "Should it gurgle?" While this jest surely does the Iranians less than justice, it contains a germ of validity. Except, then, for purely manual labor (the phrase "coolie" is out of fashion but survives in the Persian Gulf) the overwhelming majority of the labor force originally came from outside. They came from the United States and the United Kingdom, Italy and India, Palestine and Pakistan, and a score of places from California to Calcutta. (Recent estimates of numbers of people of Indian descent in Middle East oil countries include Bahrain, with 3000; Kuwait, 2500; Saudi Arabia, 2400; and Qatar, 800.19 Most of them are in employment connected with the oil industry in one way or another. Household servants at Dhahran are exclusively Indians or Pakistanis.)

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This situation was generally regarded as unsatisfactory by all concerned. The companies' personnel problems were complicated in a hundred ways by having to cope with large numbers of men of varying nationalities. (One example from Saudi Arabia: in 1955 Aramco lawyers were involved in deciding the proper distribution of payments to a deceased employee's kin, all of whom were home in Pakistan.) Local governments resented the introduction of foreign labor when their own peoples were poverty stricken and underemployed. And the local population, generally unaware of the practical necessity of bringing in outsiders, saw little benefit from the presence of the new industry coming their way. While they were the most numerous, the local employees were at the bottom of the heap in terms of wages, facilities, and prestige. Although the common laborer in the company might be unaware of the reasons for the fact that his bosses were foreigners, he nevertheless was in a position to observe daily how his own treatment suffered by comparison with theirs. A cadre of nationals of the company's country of origin is probably essential, for reasons of loyalty, security, and "talking the same language," required for the successful operation of a large industry in a foreign area. Harmony and efficiency depend to some extent on cultural homogeneity, a coin whose opposite face is provincialism. But the major problem is competition for jobs between the local population and nationals of other countries in the vicinity. T o help their own nationals find work in the new industry, most of the governments involved have insisted on the inclusion in the concession agreements of clauses giving priority to local labor. Such provisions as these are frequently vague. In the last analysis the companies still retain a great deal of discretion, in that they can determine who is suitable for a particular job. This stipulation was most recently spelled out specifically in the 1955 transit convention between Syria and IPC:

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The Company's employees in Syria shall, as far as possible, be of Syrian nationality but, notwithstanding any contrary provisions of any legislation at present or in future in force, the Representative, the managers, as well as advisers, administrative, technical, and other expert employees may be of other nationality if the Company does not find among Syrians those who possess the requisite experience and qualifications, of which

the Company

judge.20

shall be the sole

In addition to provisions in the concessions, there is sometimes legislation providing for a specific ratio or percentage of nationals to foreigners. BAPCO

The composition of Bapco's work force in three recent years can be seen from the accompanying table. (Table 5) The term "Bahrainis," representing more than two-thirds of the total work force, certainly includes many naturalized citizens, who may come from any of a number of neighboring areas. While visas have been required for immigrating Persians since 1927, and are now very difficult to obtain, it TABLE 5 Bapco Employees by Nationality, 1 9 5 2 - 1 9 5 4 2 1 1952

Nationality

Number of employees

Australian 52 Bahraini 5770 British (UK) 1016 Canadian 20 Indian and Goan 621 Iraqi 7 Irish 15 Scandinavian 13 Pakistani 160 South African 6 American 35 Other 1001 8716 Total

1953

Per cent Number of of employees total 0.6 66.2 11.7 0.2 7.1 0.1 0.2 0.2 1.8 0.1 0.4 11.4 100.0

50 6049 1033 16 583 5 10 —

139 4 34 930 8853

1954

Per cent Number of of employees total 0.6 68.3 11.7 0.2 6.6 —

0.1 —

1.6 —

0.4 10.5 100.0

44 5829 1002 14 612 5 18 —

132 7 42 827 8532

Percent of total 0.5 68.3 11.7 0.2 7.2 —

0.2 —

1.6 0.1 0.5 9.7 100.0

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is still very simple for Arabs in neighboring areas to immigrate to Bahrain and assume Bahraini nationality. Recent regulations permit nationals of the Trucial shaikhdoms, Muscat and Oman, Kuwait, Saudi Arabia, and Yemen to enter without visas. In one recent year it is estimated that no fewer than 9075 immigrants from Oman and the Trucial Coast entered Bahrain in order to find work. 22 Many of these, as well as others before and since, undoubtedly found work at Bapco, by far the largest employer in Bahrain (the government itself being a distant second). How many of these became Bahraini citizens, swelling the total to 5829 Bahrainis employed by Bapco in 1954, and how many fall into the category of "other" (827 of them in 1954), is not known. But the proportion of native-born Bahrainis to the total work force is surely considerably lower than the above table indicates. (Incidentally, the listing of about 10% of the work force as "other," while six nationalities with less than 2 % of the total force between them [in 1954] are listed separately, leaves the picture somewhat clouded. Three hundred and forty-four of the "others" were in the personnel department in 1954.) It is interesting to note that the government itself does not consider the nationality question especially important: "The Government has no wish to restrict Arabs from other parts of the Gulf from coming to Bahrain, where there is still a demand for unskilled labor." 23 Bahrain is still, however, strongly opposed to the immigration of Iranians, probably because of the continuing claim of sovereignty by Iran over the islands, which Bahrain and its British "advisers" firmly reject. One factor complicating Bapco's effort to "nationalize" its w o r k force as completely as possible is the demand for skilled labor elsewhere. Trained Bahrainis have sometimes turned up on company payrolls in Saudi Arabia, Kuwait, and Qatar, where wages are generally more liberal than in their own country. ( A t the beginning of 1954 the average [not mini-

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mum] daily wage for Bapco local employees in the lowest category ["Non-Contract Daily"] was 4.25 rupees, or about $.90, while at about the same time Aramco's minimum daily wage was raised to SR 6, or over $1.60.) Only 42 out of 8532 employees in 1954 were Americans, in spite of the fact that the company itself is owned entirely by two American parent companies, Socal and Texas. The reason for this anomaly is found in the history of the concession, which provides that as many employees as consistent with efficiency must be subjects of Bahrain or Britain. Britons and Bahrainis together accounted in 1954 for 6831 of 8532 employees, which is probably a reasonable compliance with this term of the concession; it also explains why there are no more than a few dozen Americans employed by Bapco. ARAM CO

The composition of Aramco's labor force is somewhat less "national" than Bapco's, which is not surprising in view of the fact that the company has been in full-scale operation for a shorter period, and training of local employees takes time. The Saudi Government Residence Regulations provide: The number of Saudi employees in [a foreign] employer's enterprise shall not be less than three-quarters of the number of foreigners, whether of the same nationality as the employer or of other nationality, unless they have qualifications not found among Saudis as a practical matter.24

It can be seen from the accompanying table that Aramco easily complies with this regulation. (See Table 6: note the decreasing numbers of Palestinians in recent years.) Aramco's concession provides that Saudis are to be given preference over all foreigners where Saudis are available. In addition, the so-called "Royal Decree" of January 1954, issued shortly after the major labor dispute at Aramco the preceding autumn, provides:

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