Red Line Agreement
Encyclopedia
The Red Line Agreement is the name given to an agreement signed by partners in the Turkish Petroleum Company
(TPC) on July 31, 1928. The aim of the agreement was to formalize the corporate structure of TPC and bind all partners to a self-denial clause that prohibited any of its shareholders from independently seeking oil interests in the ex-Ottoman
territory. It marked the creation of an oil monopoly
, or cartel
, of immense influence, spanning a vast territory. The cartel preceded easily by three decades the birth of another cartel, the Organization Petroleum Exporting Countries (OPEC
), which was formed in 1960.
It has been said that, at a meeting in 1928, Calouste Gulbenkian
, an Armenian businessman and philanthropist, drew a red line on a map of the Middle East demarcating the boundaries of the area where the self-denial clause would be in effect. Gulbenkian said this was boundary of the Ottoman Empire he knew in 1914. He should know, he added, because he was born in it and lived in it. The other partners looked on it attentively and did not object. They had already anticipated such a boundary. (According to some accounts, the “red line” was not drawn by Gulbenkian but by a French
representative.) Except for Gulbenkian, the partners were the supermajors of today. Within the “red line” lie the entire ex-Ottoman territory in the Middle East
including the Arabian Peninsula
(plus Turkey
) but excluding Kuwait
. Kuwait was excluded as it was meant to be a preserve for the British.
Years later, Walter C. Teagle
of Standard Oil of New Jersey remarked that the agreement was “a damn bad move”. However, it served to define the sphere of operations of TPC's successor, the Iraq Petroleum Company
. The writer Stephen Hemsley Longrigg
, a former IPC employee, noted that "the Red Line Agreement, variously assessed as a sad case of wrongful cartelization or as an enlightened example of international co‑operation and fair-sharing, was to hold the field for twenty years and in large measure determined the pattern and tempo of oil development over a large part of the Middle East". Apart from
Saudi Arabia and Bahrain where ARAMCO and BAPCO prevailed, IPC monopolized oil exploration inside the Red Line during this period.
American oil companies Standard New Jersey and Socony-Vacuum were partners in IPC and therefore bound by the Red Line Agreement. When they were offered a partnership with ARAMCO to develop the oil resources of Saudi Arabia, their partners in IPC refused to release them from the Agreement. After the Americans claimed that World War II had ended the Red Line Agreement, protracted legal proceedings with Gulbenkian followed. Eventually the case was settled out of court and the American partners joined ARAMCO. Although the Red Line Agreement was effectively a dead letter after this date, IPC continued to operate.
Iraq Petroleum Company
The Iraq Petroleum Company , until 1929 called Turkish Petroleum Company , was an oil company jointly owned by some of the world's largest oil companies, which had virtual monopoly on all oil exploration and production in Iraq from 1925 to 1961...
(TPC) on July 31, 1928. The aim of the agreement was to formalize the corporate structure of TPC and bind all partners to a self-denial clause that prohibited any of its shareholders from independently seeking oil interests in the ex-Ottoman
Ottoman Empire
The Ottoman EmpireIt was usually referred to as the "Ottoman Empire", the "Turkish Empire", the "Ottoman Caliphate" or more commonly "Turkey" by its contemporaries...
territory. It marked the creation of an oil monopoly
Monopoly
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...
, or cartel
Cartel
A cartel is a formal agreement among competing firms. It is a formal organization of producers and manufacturers that agree to fix prices, marketing, and production. Cartels usually occur in an oligopolistic industry, where there is a small number of sellers and usually involve homogeneous products...
, of immense influence, spanning a vast territory. The cartel preceded easily by three decades the birth of another cartel, the Organization Petroleum Exporting Countries (OPEC
OPEC
OPEC is an intergovernmental organization of twelve developing countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. OPEC has maintained its headquarters in Vienna since 1965, and hosts regular meetings...
), which was formed in 1960.
It has been said that, at a meeting in 1928, Calouste Gulbenkian
Calouste Gulbenkian
Calouste Sarkis Gulbenkian was an Armenian businessman and philanthropist. He played a major role in making the petroleum reserves of the Middle East available to Western development...
, an Armenian businessman and philanthropist, drew a red line on a map of the Middle East demarcating the boundaries of the area where the self-denial clause would be in effect. Gulbenkian said this was boundary of the Ottoman Empire he knew in 1914. He should know, he added, because he was born in it and lived in it. The other partners looked on it attentively and did not object. They had already anticipated such a boundary. (According to some accounts, the “red line” was not drawn by Gulbenkian but by a French
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
representative.) Except for Gulbenkian, the partners were the supermajors of today. Within the “red line” lie the entire ex-Ottoman territory in the Middle East
Middle East
The Middle East is a region that encompasses Western Asia and Northern Africa. It is often used as a synonym for Near East, in opposition to Far East...
including the Arabian Peninsula
Arabian Peninsula
The Arabian Peninsula is a land mass situated north-east of Africa. Also known as Arabia or the Arabian subcontinent, it is the world's largest peninsula and covers 3,237,500 km2...
(plus Turkey
Turkey
Turkey , known officially as the Republic of Turkey , is a Eurasian country located in Western Asia and in East Thrace in Southeastern Europe...
) but excluding Kuwait
Kuwait
The State of Kuwait is a sovereign Arab state situated in the north-east of the Arabian Peninsula in Western Asia. It is bordered by Saudi Arabia to the south at Khafji, and Iraq to the north at Basra. It lies on the north-western shore of the Persian Gulf. The name Kuwait is derived from the...
. Kuwait was excluded as it was meant to be a preserve for the British.
Years later, Walter C. Teagle
Walter C. Teagle
Walter Clark Teagle , was responsible for leading Standard Oil to the forefront of the oil industry and significantly expanding the company's presence in the petrochemical field.-Biography:...
of Standard Oil of New Jersey remarked that the agreement was “a damn bad move”. However, it served to define the sphere of operations of TPC's successor, the Iraq Petroleum Company
Iraq Petroleum Company
The Iraq Petroleum Company , until 1929 called Turkish Petroleum Company , was an oil company jointly owned by some of the world's largest oil companies, which had virtual monopoly on all oil exploration and production in Iraq from 1925 to 1961...
. The writer Stephen Hemsley Longrigg
Stephen Hemsley Longrigg
Stephen Hemsley Longrigg was a British military governor, petroleum company manager and a leading authority on the history of oil in the Middle East...
, a former IPC employee, noted that "the Red Line Agreement, variously assessed as a sad case of wrongful cartelization or as an enlightened example of international co‑operation and fair-sharing, was to hold the field for twenty years and in large measure determined the pattern and tempo of oil development over a large part of the Middle East". Apart from
Saudi Arabia and Bahrain where ARAMCO and BAPCO prevailed, IPC monopolized oil exploration inside the Red Line during this period.
American oil companies Standard New Jersey and Socony-Vacuum were partners in IPC and therefore bound by the Red Line Agreement. When they were offered a partnership with ARAMCO to develop the oil resources of Saudi Arabia, their partners in IPC refused to release them from the Agreement. After the Americans claimed that World War II had ended the Red Line Agreement, protracted legal proceedings with Gulbenkian followed. Eventually the case was settled out of court and the American partners joined ARAMCO. Although the Red Line Agreement was effectively a dead letter after this date, IPC continued to operate.
Sources
- Demirmen, "Oil in Iraq: The Byzantine Beginnings: Part II: The Reign of a Monopoly", Global Policy Forum, April 26, 2003.
- Black, Edwin. Banking on Baghdad (John Wiley and Sons, New York 2003) and the only available map and transcription see www.bankingonbaghdad.com http://bankingonbaghdad.com. For a complete minute to minute history of the Red Line Agreement see the referenced book.
- Black, Edwin. British Petroleum and the Red Line Agreement: The West's Secret Pact to Get Mideast Oil (Dialog Press, scheduled for publication Jan 30, 2011).