Post-war until the 1970s, the global oil business was dominated by American and British oil companies. In 1901, London socialite William Knox D'Arcy negotiated a concession with the Qajar Shah of Iran to grant him exclusive rights to prospect for oil in Iran in exchange for £45,000 and 16% of future profits. A large oil field in southwestern Iran was discovered in 1908 and the following year the Anglo-Persian Oil Company (APOC) was founded. In 1913 the Abadan refinery was built on the coast of the Persian gulf. By 1950 it was the largest refinery in the world.
In 1921 a coup d’etat occurred in Iran, overthrowing the Qajar dynasty which had ruled Iran since 1789. By 1925, Reza Shah Pahlavi ruled as Shah of Iran. Upset by terms negotiated by a previous dynasty, negotiations between Abdolhossein Teymourtash, Iran’s minister of court, and John Cadman, chairman of the APOC, were held between 1928 and 1932 to revise the oil rights agreement. Upset with progress in the negotiations, Reza Shah himself participated and appointed a new minister Hassan Taqizadeh. By 1933, it was agreed that the concession area be reduced by 75%, Iran would receive 20% of APOC’s global profits, 4 shillings per ton of oil sold, a payment of £750,000 per year, and APOC agreed to begin to hire more Persian employees. The duration of the concession was extended to end in 1993 rather than 1961.
Nationalism grew in Iran following APOC’s failure to live up to promises to develop infrastructure in Iran and western military occupation of parts of Iran during World War II. In 1949, the APOC offered increased payments to appease tensions. Iranian prime minister Ali Razmara held issue with the fact that this did not give Iran the greater voice in company management or right to audit APOC’s financials. APOC chairman Sir William Fraser refused to negotiate further. In 1951 Razmara was assassinated by Shia fundamentalists. In the subsequent election, Mohammed Mossadegh, an anti-western nationalist, was elected prime minister.
A vote was held in the Iranian parliament (Majlis) to nationalize the APOC. What followed is known as the Abadan crisis. This was overwhelmingly popular in Iran. Britain imposed sanctions restricting exports to Iran, access to its assets held by British banks, and they blockaded Abadan. All but 300 personnel left Abadan. Iran was confident it could hire people to replace British workers who ran the fields, but all Western nations except Italy refused to work with Iran. There were essentially no oil exports out of Iran due to the blockade and lack of technical capability. In 1952, Mossadegh made a complex agreement with the USA, but Britain rejected it. Despite the crisis, Mossadegh remained popular among the Iranian people, but his popularity waned as people became less willing to tolerate declining economic conditions.
Mossadegh began to exercise emergency powers, circumventing the political process. In 1953 a fraudulent referendum to dissolve parliament was passed. Not tolerating the instability and paranoid of Soviet influence, the United States CIA planned a coup. The Shah Mohammad Reza Pahlavi was more sympathetic to western causes than Mossadegh, but only agreed to the coup after the CIA threatened he too could be deposed. The Shah ordered Mossadegh to be removed from office and replaced by Fazlollah Zahedi, a loyal military general. Mossadegh’s supporters protested violently and the coup failed. With the help of Ayatollah Mohammad Behbahani, Zahedi organized protests against Mossadegh. Zahedi ordered military involvement to squash counter-protesters Mossadegh surrendered after a tank shell was shot into his house. The crisis ended, the Shah, who was in Italy, flew back to Tehran with Allen Dulles, the director of the CIA.
APOC changed its name to British Petroleum (BP) in 1954 and tried to return to its previous position, but the Iranian public was so opposed, a deal had to be made. The consortium of 1954 split ownership of a new holding company called Iranian Oil Participants (IOP) 40% to BP, 40% to American companies, and the remaining 20% between Shell and CFP. In addition a sum and a royalty of was paid. Importantly, the new company agreement acknowledged that Iran owned all fields and facilities, only that the western companies would operate these facilities. Iran would receive 50% of the profits of the corporation, but would not get access to its finances. IOP would continue to operate Iranian oil production and refining according to this agreement until the Iranian revolution overthrew the Shah in 1979.
In 1912 Calouste Gulbenkian brokered a deal for the Anglo-Persian Oil Company to purchase 50% of the Turkish Petroleum Company, which controlled oil resources in the Ottoman empire. In 1927, a huge source was found in Northern Iraq and thereafter the company was renamed Iraq Petroleum Company (IPC). After this discovery, the company was split between BP, Shell, Compagnie Française des Pétroles (CFP), and a consortium of American oil companies in what was known as the Red Line Agreement, where these companies agreed to non-competition from the Arabian peninsula to Anatolia. Until nationalization, this company controlled essentially all of Iraq’s oil production. The company also obtained rights to oil in various other Middle Eastern nations and territories, including Oman, Lebanon, Palestine, and Qatar among others.