Global Policy Forum

By Peter Sluglett

Peter Sluglett, one of the world's foremost scholars on Iraq, here discusses the central influence of oil in British policy in the period after World War I. The text contains a number of interesting quotes and it analyzes British Foreign Secretary Lord Curzon's statement that oil's influence was "nil" on the posture of the British government in Iraq. The book was published in a monograph series of St. Antony's College, Oxford.

pp. 103-116

Great Britain and Iraqi Oil

Although Britain's dominant role in the exploitation of Iraqi oil has been the most enduring result of her involvement in the country's affairs, it has always been rather bad manners to say so, largely, perhaps because of the vigorous public denials of the connection made by statesmen at the end of the War and in the early 1920's. Few commentators have explicitly examined the role of oil in British policy either in the context of one of the stated objectives of I.E.F. ‘D' or in the context of British efforts to secure the Mosul wilayet for Iraq. Until recently, only Gerig and some German historians writing between the wars have subjected British motives to this line of examination, but new evidence used extensively by Mejcher, reveals beyond reasonable doubt that oil as much as strategic considerations dominated British official thinking towards Iraq. It is certainly true that Britain's subsequent interest in Iraqi affairs has approximated very closely the interest of the Iraq Petroleum Company. For a closer understanding of the events of the post-war years it is necessary to consider the evolution of British oil policy and trace the development of British commercial interest in Middle Eastern oil.

The Basis of British Oil Policy

Once oil began to be widely used by the world's navies, it was considered essential that supplies and reserves should be freely available, that the Great Powers should be able to ensure that their own access to sources would not be impeded. Hence the guidelines of British oil policy were formulated very quickly: that Britain should be in a position of political influence or control in the territories where oil was known, or equally important, thought likely, to exist, and that other Powers should be excluded as far as possible, both politically and commercially from these areas.

The appreciation of the potential usefulness of oil as a fuel for the British navy antedates the beginning of this century. Professor Marder tells us that Admiral Fisher was known as the ‘oil maniac' as early as 1886 ‘in naval and departmental circles'. In the years before World War One, when Fisher was First Sea Lord, Churchill First Lord of the Admiralty, this enthusiasm was translated into more practical terms. In 1912 a Royal Commission was appointed to investigate the question of oil supplies in the context of naval requirements. It agreed with Churchill that:

‘We must become the owners or at any rate the controllers at the source of at least a proportion of the oil which we require'.

a point of view put forward again in almost identical terms by Admiralty spokesmen at the time of the Lausanne Conference. At this time, the great bulk of world supplies came either from the U.S.A. or Mexico, then entirely dominated by the U.S.A. However, smaller quantities of oil were also being produced in Rumania and Russia, and, since 1909, a small trickle from Persia, where production and marketing was being carried out by a single British company. The Anglo-Persian Oil Company had been formed by W.K. D'Arcy in 1909 to exploit a concession which he had been granted by the Shah in 1901, and the Abadan refinery produced 273,000 tons of oil in 1914, its first year of operation. It should be remembered that Anglo-Persian remained the sole oil producing undertaking in the Middle East until 1927; its operations were first confined to Persia itself and then extended to the Naft-Khana fields in the former Persian territories transferred to the Ottoman Government as a result of the Perso-Turkish Frontier Commission of 1913.

In the Ottoman Empire, numerous rival international groups made bids for oil concessions between 1900 and 1914. Their persistence may have caused the Imperial authorities to realize that they had powers of disposal over a commodity of more than passing value and to temporize accordingly. Eventually, in 1912, a group consisting of British, Dutch and German interests managed to combine to form the Turkish Petroleum Company which was given, in rather obscure circumstances, a concession to prospect for oil in the Baghdad and Mosum wilayets just before the outbreak of the war. German interests had already obtained mineral rights over the land on either side of the prodposed Baghdad railway line by a convention dating from 1903. The participants in the Turkish Petroleum Company agreed that they would not interest themselves in the production of oil in any part of the Empire ‘otherwide thn in association with their T.P.C. colleagues'. This was partly an attempt to prevent U.S. interests gaining access to the area, France having not as yet seriously sought a foothold, and partly an attempt to force the hand of the Ottoman authorities by reducing the number of concessions hunters. In April 1913, in the course of the Turkish Petroleum Company's negotiations with the Ottoman authorities, the Turkish Ambassador in London was handed a statement of intent by the Foreign Office:

‘H.M. Government . . . rely on the Ottoman Government to make without delay arrangements in regard to the oil wells of Mesopotamia which will ensure British control and meet with their approval in matters of detail.'

However, the most important expression of the British Govenrment's interest in oil was its decision to purchase 51% of the shares of the Anglo-Persian a few days before the outbreak of war in 1914, a transaction which automatically gave the Government a large interest in the Turkish Petroleum Company at the same time.

All possibility of the T.P.C. being actually able to take up its concession had to be abandoned following the outbreak of war. No prospecting was undertaking during the war itself, but surveys, whose general indications were highly favourable, were carried out in slightly sub rosa circumstances in 1919. During the war, as is stated in the Curzon/Colby correspondence, a certain amount of oil-working took place to provide for the daily requirements of both the British and Turkish armies. A Cabinet Memorandum of June 1921, Petroleum in Mesopotamia and Palestine, referred to the German-worked wells at Qaiyara yielding 10,000 gallons a day in wartime, with lesser quantities being extracted at Tux Karmatli, Qala' Naft and Zakho. The Report admitted that deep drilling had yet to be undertaken, but stressed the close geological correlations between the areas north of Baghdad and the Maidan-i-Naftun field in Persia:

‘It is not possible to give any estimates of the potential production of Mesopotamia as this can only be determined when deep drilling has been carried out over a wide area. There is no doubt however, that this region can safely be regarded as extremely promising. The actual output of the Maidan-i-Naftun field in Persia is a present two mission tons per annum, and this quantity could if necessary be very materially increased from the wells already drilled.

Post-War Policy

In the period after the war, the question of British control of Middle Eastern petroleum was a subject of intense concern to several departments in Whitehall. It was above all vital that no power should be in a position to deny access of supplies to Britain. A Foreign Office Memorandum of March 1919 had noted that this was a matter which:

‘ . . . cannot be treated as a purely commercial venture but must be envisaged as a national responsibility, which admits of no half-measures or ill-considered action.'

At a conference at the India Office later in the year, Colonel A.T. Wilson explained that:

‘ . . . oil in the only immediately available asset of the Occupied Territories, the only real security that Iraq administration are in a position to offer for the loan which they will undoubtedly require in the near future from the British Treasury.'

He committed himself a little more specifically a year later:

‘The capital value of the oilfields of Mesopotamia is £50 missions, based on a conservative estimate.

As we have seen in Chapter I, ‘every effort was made to score as heavily as possible on the Tigris before the whistle blew', with the result that General Marshall, following instructions from the War Office, captured Mosul (thus gainiang formal control over Mosul wilayet) some three days after the Armistice of Mudros.

The immediate problem facing the British Government was that of devising circumstances under which the oil could actually be exploited. In the world which emerged after 1918, in which the principle of ‘economic equality' was paramount, no one country could be seen to dominate the trade of another, especially if the dominating country was not the United States of America. From this arose the long struggle which developed after the war for the control of the oil resources in the Middle East, especially those of Iraq. As a consequence of political control being so long disputed, prospecting and surveying had to be suspended as well.

British surveyors had visited Iraq in 1919 and American companies were pressing Britain through the American Embassy in London for the grant of similar facilities. It seems eventually to have been decided that the adoption of a policy of non possumus to all comers was the least offensive solution, and after an India Office conference in October 1919 all prospecting and surveying in the Occupied Territories was halted. Curzon wrote to the American Ambassador:

‘ . . . the provisional character of the military occupation does not warrant the taking of decisions by the Occupying Power in matters concerning the future economy and development of the country . . . we have also felt that to open the Occupied Territories to prospectors during the period of military tenure would be most undesirable as it would lead to a rush of speculators and others who, under the guise of simple investigators, would aim at securing definite and exclusive rights or options from native landowners.'

Nevertheless, in spite of this self-denying ordinance, international negotiations over tIraqi oil took place on the implicit assumption that Britain would have the controlling voice in its development. In April 1919, before the signature of the Treaty of Versailles, a provisional oil agreement had been signed by the British and French petroleum Ministers, Long and Bérenger. The French had handed over Mosul to Britain in December 1918 (it had been designated as part of the French sphere under the terms of the Sykes-Picot Agreement) and had not received anything in return: the Long-Bérenger agreement solved the problem by making over the Deutsche Bank's former 25% share in the Turkish Petroleum Company, (confiscated during the war by the Custodian of Enemy Property) to French interests. This action was formalized a year later in the San Remo Oil Agreement.

These Anglo-French negotiations did not escape the notice of the United States Government, which protested sharply to Britain against what it considered to be the exclusive nature of the arrangements; the Americans particularly objected to the assertion in the San Remo Agreement that the company working the Iraqi oilfields should be ‘under permanent British control.' The State Department pointed out that the agreement was in clear breach of the ‘Open Door', the principle that all countries had equal rights in former enemy territories. Furthermore, they went on to challenge the basis of the Turkish Petroleum Company's claim, by questioning the validity of the whole concession. The original concession had in fact been issued in the form of a grant from the Grand Vizier, rather than a firman of the Sultan. It was not, in Longrigg's words, a ‘legally sanctioned concession', and it remained in force largely because it was supported by H.M. Government. Curzon asserted that Britain supported the claim; Colby countered that the U.S. Government did not.

Thus an impasse existed. In a Cabinet paper early in 1922 Churchill noted:

‘ . . . There is some reason to believe that neither the United States nor France would be sorry to see the Turks back in Mosul in a position to give to their nationals the oil concessions which are at present claimed by H.M. Government for the Turkish National Petroleum Company.

He feared that the continued American opposition was likely to jeopardize the whole future development of Iraqi oil. Churchill argued that the vigour with which the T.P.C.'s claim had been supported in the past made a sudden withdrawal on Britain's part impossible, and that since the claim rested on a diplomatic rather than a legal basis, it was unwise to submit the matter to arbitration. This left two possibilities; either the Company's activities could be restricted to a limited concession area within Iraq, or the United States, and possibly also Italy, should be invited to participate in it. The latter alternative was ultimately adopted, and by 1923 provisional accommodation for United States interests had been agreed, to the extent of approximately a quarter of the Company's share capital. Little more was heard about the Open Door after that.

While these inter-Allied disagreements were taking place, the business of maintaining British control over the areas in question continued, not without opposition and difficulty. Tensions were further aggravated, as has been mentioned, by the vigorous ‘Quit Mespotamia' campaign waged in the Northcliffe Press. However, by 1921, after Cairo and the installation of Faisal, the pattern of the general strategy followed over the next few years is discernable. Control of the areas in which oil was strongly suspected to exist was to be vested in the Britain through the agency of the Mandate. If other powers attempted to gain participation for their nationals, Britain would be prepared to surrender some part of the T.P.C.s interest in order to maintain her political position. Until the status of the disputed territories had finally been decided, no oil prospecting or surveying was to be allowed. Lastly, ratification of any concession would have to be made by the Iraq Cabinet and the Iraq Parliament.

Inevitably, all the problems surrounding the development of Iraqi oil depended on the permanent inclusion of Mosul within Iraq. Oil and the frontier award are so inextricably mixed that it is difficult to discuss one except in terms of the other; in spite of all the denials, the Lausanne Conference was as concerned about oil as it was about Mosul. A letter from the Admiralty to the Foreign Office, written a few days before the opening of the Conference, underlines the nature of Britain's interest, and provides the key to British policy:

‘ . . . from a strategical oint of view the essential point is that Great Britain should control the territories on which the oilfields are situated . . . provided this can be secured the composition of the company or companies which work the oilfields is a matter of less importance.'

The Mosul Frontier and Iraqi Oil

It was rightly anticipated that the Mosum question would prove the most intractable of all the problems of the Turkish peace settlement, and the subject was therefore postphoned to the later sessions of the Lausanne Conference. [H.N.] Nicolson [the biographer of the Foreign Secretary] has described Lord Curzon's rhetorical and diplomatic skill in undermining the Turkish case, but he points out the great delicacy of the situation, especially in view of British fears of provoking another crisis with Turkey. Of particular interest was the Foreign Secretary's attempt to disclaim any connection between the oil of Mosul and the inclusion of the area within the Iraq State. In his speech on 23 January 1923, Curzon argued that the existence of the oil was no more than hypothetical, and that in any case T.P.C. had invited inter-allied participation in its activities:

‘It is supposed and alleged that the attitude of the British Government to the wilayet of Mosul is affected by the question of oil. The question of the oil of the Mosul vilayet has nothing to do with my argument. I have presented the case on its own merits and quite independently of any natural resources that may be in the country. I do not know how much oil there may be in the neighborhood of Mosul, or whether it can be worked at a profit of whether it may turn out after all to have been a fraud . . . but both the British government and the T.P.C. itself recognize that oil is a commodity in which the world is interested and as to which it is a great mistake to claim or exercise a monopoly. Accordingly, the Company, with the full knowledge and support of the British Government, took steps and negotiations have ever since been proceeding to associate the interests of other countries and other parties in this concern so that all those who are equally interested may have a share. If the enterprise is successful, Iraq will be the main gainer and I have no doubt that Anatolia will profit in turn. That is the substance of the oil affair which I have explained to the Conference in order that they may know the exact amount of influence, and that is nil, which has been exercised in respect of oil on the attitude which I have ventured to take up on the question of Mosul.

The tentative nature of the first part of this passage was at variance with most of the information available to Curzon, especially the 1919 surveys, and the 1921 Report on Palestine and Meopotamian Oil, both of which indicated the extremely high probability of the existence of oil in commercial quantities. Furthermore, the Admiralty letter quoted above, and [Prime Minister] Mr. [Andrew] Bonar Law's fears as expressed by Nicolson, contrast strangely with the whole tenour of the Foreign Secretary's speech, as does his conversation with the Italian representative at the Conference a few weeks earlier:

‘I told marquis Garroni that when we have definitely settled the question of Mosul (which we had no intention of relinquishing0 we would give them a share of the oil. And he expressed the most unbounded gratification.'

The Conference broke up without an agreement on the boundary questions, and the Mosul dispute was referred to the League. Inevitably, Turkish Petroleum's prospecting operations were further delayed, but a temporary surplus of world oil supplies cushioned the company from any adverse effects of postponement. However, while the Conference was still in session, the British Government began to put pressure on Iraq in the hope of facilitating the bargaining with Turkey. It had been agreed at San Remo that the Iraq government should be allowed an option of 20% equity participation in the Turkish Petroleum Company. It was now suggested, early in 1923, that this option should be surrendered to the Turkish (or Turkish and Italian) Government, in exchange for Turkish recognition of Iraqi sovereignty over the Mosul wilayet. The Colonial Office telegraphed to [Sir Henry] Dobbs [the British High Commissioner in Iraq]:

‘You should point out that definite assurance of possession of the Mosul wilayet is Iraq's main interest in Turkish treaty and is worth serious sacrifice . . . H.M. Government think that Iraq will benefit by showing that they are more concerned about integrity of their country than about oil dividends.'

At this stage, the ‘sacrifice' was not required, because of the Conferences' failuare to come to an agreement, but later on, in 1924, the negotiations between the Iraq Government and the T.P.C. reached a serious impasse on the same question, of whether Iraq should be allowed the promised participation, or simply be given royalties. Payment on a royalty basis left the Government far more dependent on the Company, over whose affairs it would have no control, and meant that the country's oil income would be determined by the amount of production which the Company considered to be in its own, rather than Iraq's, best interests. The Minister of Finance, Sasun Hasqayl, made very possible effort to secure equity participation but failed, due to the determined opposition of the T.P.C. and his Government's inability to raise the necessary capital.

As a result, negotiations between the Government and the Company were suspended between May 1924 and February 1925; by the latter date, it seemed that no Iraqi cabinet could be formed willing to take responsibility for granting a concession on the terms offered, and the Company was being equally obdurate. The points of disagreement seemed fundamental. For its part the Iraq Government wanted, apart from equity participation, a gold rather than sterling basis for its royalties. It wanted to retain for its disposal all lands outside the plots selected for exploitation by the Company. It wanted a sliding scale introduced so that more production would bring a higher percentage of royalties. Finally, it was not prepared to waive import duties on materials for the company's exploratory operations for fear of massive abuses. Dobbs advised the Colonial Office that the normal tactic of forcing the Government's resignation simply would not work, since the terms were so widely unacceptable. The [Iraqi] Cabinet added more fuel to the flames by refusing to pay its contribution to the Ottoman Public Debt.

Eventually, compromises were made and accepted, closely following a curious episode in which Count Teleki, the President of the [League of Nations] Boundary Commission, offered to act as intermediary between the T.P.C. and the Iraq Government. It is impossible to assess the influence he may have had on the Cabinet, but it is a fact that the agreement was reached very shortly after his meeting with them. The Iraqi demand for a gold basis was agreed to and the sliding scale for royalties introduced. A combination of these concessions, the Count's intervention, and a a renewed awareness of the necessity of British support in the struggle to retain Mosul, seems ultimately to have had the desired effect. The Cabinet's assent was obtained by Dobbs and the Company's negotiator, E.H. Keeling (though very nearly lost again after a disagreement over the Company's local selling price) and the Concession was signed on 14 March 1925.

Although some prospecting was undertaken in the areas of the Company's concession in the Baghdad wilayet in the course of 1925, work in the richer areas of the Mosul wilayet had to await the award of the region to Iraq by the Permanent Court of International Justice. Final ratification of the concession by the Iraq Parliament did not take place until June 1926, partly because of the continuing uncertainties along the Northern frontier, and partly because the British Government, apparently intent on agreement at any price, had once more raised the spectre of Turkish participation in the Company. This curiously inept suggestion, most probably a brainchild of the Foreign Office, provoked considerable dismay in Whitehall but the difficulty was finally resolved by a provision in the Turco-Iraqi treaty giving Turkey 10% of Iraq's oil royalties for 10 years.

Nearly nine years after the end of the war, in April 1927, exploratory work began in earnest in the most promising areas, and on 15 October of that year oil was found in enormous quantity at Baba Gurgur near Kirkuk. In spite of this important discovery, the general surplus of oil to world requirements ensured that development would proceed for the next few years at a leisurely pace, a fact of less concern to the Company (renamed the Iraq Petroleum Company in 1929) than to the Iraq Government; with very little production the Government received correspondingly little revenue, while the value of the Company as a major potential supplier gradually increased. To compensate for all this lack of revenue, the Iraq Petroleum Company agreed to lend the Government £400,000 in 1931, in form of an advance against royalties, which saved the country from serious financial difficulties, but initiated the Government's almost permanent dependence on the Company for ordinary revenue. It was not until the early 1950's that oil receipts began to make a substantial contribution to the economy of Iraq.

The two most enduring consequences of Britain's intervention in Iraqi affairs wwere first that imports, at least until 1958, came mainly from Britain and secondly that the oil resources of the country were controlled until 1972 by a British dominated company. British concern for Iraqi oil was more profound in the early days of the mandate than has been thought, and denials by statement that oil played any major part in British calculations seems to have been given exaggerated credence by historians. This seems partly to have been due to the impression that the existence of large quantities of oil was at best very hypothetical and partly due to the fact that the importance of the matter was unlikely to have been obvious at the time to contemporary administrators who wrote letters at the time or books later, since they would inevitably have been concerned with more day to day issues. However, it is now possible to find the archival evidence which suggests that the War Office, Admiralty, Foreign Office and Colonial Office had a very good idea indeed of the oil potential of Iraq, and that it had been a matter of constant concern to high officials in England at least since the beginning of 1918. Curzon's ‘lusty denials' at Lausanne and elsewhere were probably essential in view of the state of international, and particularly American, opinion at the time.

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