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Once Upon a Red Line - the Iraq Petroleum Company Story

A consortium of four oil majors (today’s BP, Shell, Total and ExxonMobil) and oil magnate Calouste Gulbenkian, the Iraq Petroleum Company (IPC) was designed to explore and extract oil in the Middle East. Amid controversy about its role as the ‘Red Line Cartel’, its pioneering contribution to the oil development of the region is often overlooked.
This article appeared in GEO ExPro iPad App 6 - 2013

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IPC made only enough profit to cover its running costs, depreciation, and the expected expenses of future exploration and development. It was concerned with ‘upstream’ operations and delivered crude oil under contract to its shareholders. They either sold the oil to third parties or passed it on to their affiliated companies for eventual sale as refined products – petrol, lubricating oil, heating oil and the rest.

Opening Doors

Brand names of the IPC shareholders in 1954 (logos displayed for illustrative purposes only) The origins of IPC lay in Anglo-German rivalry over oil concessions in Mesopotamia, then part of the Ottoman Empire, in the early 20th century. After negotiations with the Ottoman government proved inconclusive, the parties joined forces. Their chosen vehicle was the Turkish Petroleum Company (TPC), with the following shareholdings: the Anglo-Persian Oil Company (50%) and Royal Dutch Shell (25%), from which they each gave Gulbenkian a 2.5% beneficial interest, and Deutsche Bank (25 %). On 28 June 1914, the Ottoman grand vizier promised to grant TPC a concession but the outbreak of World War I put everything on hold.

Shortages of petroleum during the war highlighted the importance of oil. In 1920, by the San Remo Oil Agreement, the French gained Deutsche Bank’s share in TPC as the spoils of war. However, the excluded Americans mounted a campaign to participate in Middle Eastern oil. In 1921, the Republican administration invoked an ‘Open Door’ policy and demanded equal access for American capital and business abroad. Although the British initially resisted the move, they conceded in order to ‘tranquilise’ the US government, as one official put it.

In 1928, after TPC had gained a concession for Iraq and struck oil at Baba Gurgur, a working agreement set out a new division of shares in TPC, with 23.75% each to Anglo-Persian, Royal Dutch Shell, Compagnie Française des Pétroles (CFP) and the Near East Development Corporation (NEDC). Gulbenkian retained his 5% share. Anglo-Persian gained a 10% overriding royalty as compensation for losing half of its share in the company. The NEDC represented American oil interests, which by 1934 comprised two companies – Standard Oil of New Jersey (Jersey Standard) and Socony-Vacuum.

In 1929, TPC was renamed the Iraq Petroleum Company, or IPC.

The Red Line Agreement

Map showing the extent of the Red Line Agreement, 1928. In 1928, the shareholders agreed to explore and develop the oil resources of the Middle East. Gulbenkian, according to his own account, drew a red line on a map along the boundaries of the former Ottoman Empire to denote the company’s area of operations. It was settled that one shareholder could not act within this area without the consent of the others.

This so-called ‘self-denying’ clause can be traced back to the early 1900s, when European banks and oil companies were anxious to counter Standard Oil’s commercial penetration by creating protective cartels. For Gulbenkian and the French, it guaranteed a share of Middle East oil but, for the American oil companies, it proved to be a straitjacket.

There were few companies in the world capable of developing Iraq’s oil resources and, even if there had been, it is unlikely that they would have entered into direct competition with each other. But the multi-national character and divergent global objectives of the IPC shareholders made for a difficult mix.

Iraq and Beyond

Over a period of 27 years, the IPC group made many oil discoveries in Iraq. These included the super-giant oilfields of Kirkuk, Zubair and Rumaila, which came to provide 90% of Iraq’s production. Three separate pipeline projects were undertaken, all connecting the Kirkuk oilfield with the Mediterranean coast, together with the necessary infrastructure to prepare and pump the oil. Starting with 12-inch diameter pipes, the work culminated in a 32-inch pipeline that the oilmen called ‘The Third River’, a river of oil to complement the two great waterways of Iraq, the Tigris and Euphrates.

In 1932, Petroleum Concessions Ltd was incorporated to negotiate oil concessions beyond Iraq. Through associated companies, the IPC group extended its operations to cover an area larger than Texas, Oklahoma, Arkansas, and Louisiana combined. Major oilfields were discovered at Dukhan in Qatar in 1940 and at Murban, Bu Hasa, Asab, Sahil and Shah in Abu Dhabi in the 1960s.

There were some missed opportunities, the most notable being Saudi Arabia. The shareholders could not agree on the bidding for the Al-Hasa concession, which was awarded to the company that subsequently became Aramco. By the 1960s, however, the IPC group of companies controlled some 20% of the world’s known oil reserves.

The group drew on the technical knowledge and skills of some of the most advanced oil companies and leading academics in the world. In 1958, it had 15,000 employees in Iraq and 4,500 in Qatar. IPC personnel left an impressive body of work recording the enormous changes that occurred in the 20th-century Middle East. The contribution of IPC geologists and palaeontologists to the petroleum geology of the region was immense and is preserved in books, scientific papers, rock samples, specimens and notebooks. A bibliography of 222 publications can be found in the BP Archive at Warwick University.

Exploring for Oil in the 1950s

  • Drillers at work in Iraq, 1955. Source IPC

  • 1956: IPC chief geologist, F.E. Wellings, at the Fahud No.1 well in Oman, which proved dry. Source Mike Morton

  • In the early 1950s, chief geologist of Anglo-Iranian, Norman Falcon (wavy hair at the centre of the picture), presided over the annual ‘circus’ when geologists from the IPC partners visited the various company geological centres in Iraq and the Gulf. The author’s father, Mike Morton, is in the back row (second from right) with fellow geologist Harold Dunnington (spectacles and wavy hair, third from left). Source Mike Morton

The End of the Red Line

There were many behind-the-scenes disagreements between the IPC shareholders, leading one observer to describe the company as ‘a five-headed hydra with heads all facing in different directions’.

Matters came to a head after World War II. The American shareholders, Jersey Standard and Socony-Vacuum, wished to participate in Saudi Arabia but were frustrated by the Red Line Agreement. Relying on the fact that CFP and Gulbenkian had been deemed ‘enemy aliens’ during the war, the Americans argued that the agreement was invalid. They bought off Anglo-Iranian (formerly Anglo-Persian) and Shell with lucrative oil deals, leaving the French and Gulbenkian to settle their claims. A new ‘Heads of Agreement’ was drawn up, leaving the Americans free to join Aramco, although they continued to work with their IPC partners in respect of the existing group concessions. As far as future oil deals were concerned, the Red Line was history.

Nationalisation 

Oil of map Iraq in 1955. Source Q. Morton After the 1958 Iraqi revolution, relations between IPC and the Baghdad government became increasingly strained. Law No. 80, passed in December 1961, confiscated the non-producing areas of the country – effectively 99% of the original concession territory. In February 1964, the government created its own oil company, the Iraq National Oil Company, to operate those areas.

In June 1972, all IPC’s assets and rights in Iraq were nationalised. The Mosul and Basrah Petroleum Companies met a similar fate. The Qatar Petroleum Company was nationalised in 1975, and the Abu Dhabi government took a 60% share in their concession in 1974. However, the IPC partners retained their 40% share in the Abu Dhabi Company for Onshore Operations (ADCO), which expires in January, 2014.

In the bidding process that followed the Second Gulf War, the IPC shareholders returned independently to Iraq and are now involved in oil exploration and production in the country again.

Acknowledgements

The author thanks Alan Heward and Peter Morton for their assistance

  • ADCO headquarters in Abu Dhabi - the company logo at the top echoes the ‘oil rig’ logo of IPC. Source I. J. Anderson

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