The development of the oil industry in Iran

In 1990, Middle Eastern Oil reserves were believed to account for 65.5 percent of the world total. This region is of, if now declining, importance to the global economy, and within the region, Iran has played an important part. In this article, I look at the development of the oil industry in Iran from 1900 until its attempt at nationalisation in 1951. Here I present an examination of the infrastructure of the region and how this has affected the industry’s development.

Although various authors are disagreed about his nationality; identified as an Australian by Melamid, a Scotsman by Findlay, and British by Edens; all are agreed that Iran’s oil industry began with William Knox D’Arcy. In 1901, he obtained a 480,000 square mile concession from the Persian government, which allowed Britain to control Iranian oil throughout the region, except in the five northern provinces which bordered on Russia. The history of events up to 1951 can be summarised into a number of stages. In 1908, sufficient oil to warrant development was discovered for the first time at Masjid-i-Sulaiman. In 1909, the Anglo-Persian Oil Company (later to become the Anglo-Iranian Oil Company, or AIOC) was set up to exploit this discovery. The British Government had been persuaded that it should have an interest in the region, at a time when it was converting its Navy Fleet’s fuel from coal to oil, eventually determining that AIOC would become British Petroleum (BP). Elwell-Sutton suggests that at the outset, British involvement in Iran appealed to the Persian and Ottoman rulers, who saw the benefits that they could reap. However, this oil industry was “to cause Persia more trouble than all the political manoeruverings of the great powers put together.” Iran has, therefore, justifiably felt, because of its involvement in the oil industry, that it was exploited by Britain.

Between 1920 and 1940, the impact of motor transport was felt for the first time, accompanied by the rising demand for oil. When oil was discovered in Iraq, both the people of the region and the British, who wanted to control the oil, began to realise that the whole region might be oil rich. While the region recognised the importance of its resource, a consortium developed between French, British, Dutch and, for the first time, US companies. When it became clear that the consortium might spread throughout the region, Britain hastily drew up a border around what was thought to be the old Ottoman empire. Because oil was becoming the fuel of choice during this period of increased car production, the regional governments found themselves in positions of relative wealth, after previously being very poor.

In 1951, a nationalist government came to power in Iran, under the leadership of Premier Mossadeq, after shifts in its infrastructure, including the opening of the Trans-Iranian railway. The Iranian government’s attempt to nationalise the oil industry in 1951 marked a turning point for Iran’s oil industry. Prior to this, its development had been largely dependent on Iran’s infrastructure. From then on, however, the industry’s course was to be affected more deeply by politics.

At the time when his concession was granted in 1901, there were no sound geological records available to D’Arcy. The extent of knowledge about the oil resource was limited to the location of various seepages. The Persian government granted D’Arcy the right to search for and exploit oil resources in its territory on the condition that the operating company would pay it £20,000 in cash and £20,000 in stock, an annual payment of £4,000 and sixteen percent of the annual net profits. With the knowledge that the majority of the seepages were on the western foothills of the Zagros mountain range, which separate the Persian Gulf and the Mesopotamian plains, D’Arcy went about organising his first drills. Melamid notes that “difficulty of access” prevented D’Arcy and his successor companies from searching east of the Zagros Range. This is the first indicator that the development of any oil industry is affected by accessibility.

The first drill took place close to the main land route from Baghdad to Tehran, at Chiah Surkh, where all supplies had to be imported through what is now Iraq. The development of the oil industry is not only constrained by accessibility in terms of exploration, but also the ease by which supplies can be obtained. Melamid records that “supplies were brought by ocean-going vessels to Basra and from there by river steamers to Baghdad. Wagon carriage was required for the last hundred miles from Baghdad to the drilling site.” By 1904, this site had been abandoned for two reasons. The first reason being that production cost plus transport costs would barely allow for profit in sale. Here, the quantity of twenty-five barrels per day was inadequate to justify building a transport route between Chiah Surkh and either Baghdad or the Persian Gulf. The other reason was that the development of the oil industry would be obstructed by the fact that all supplies and export traffic would have to pass through foreign territory.

Following the cessation of drilling in this region, D’Arcy began exploration in Khuzistan, the province immediately north of the Persian Gulf as it meets both the Shatt-el-Arab and the Khor Musa. At this location, there was no reason for transportation to pass through non-Iranian territory, which would be advantageous for development. There was the benefit here that supplies could be brought in via a steamer operation established in 1887 on the river Karun, from ports on the Shatt-el-Arab. Beyond Ahwaz, however, the pros-pective oil fields had to be reached by mule or camel, which could take a few days. Nevertheless, such a site had great potential for development; when several drills failed to produce adequate results, it was likely to cause disappoint-ment.

In a final attempt in this region, D’Arcy struck oil at Masjid-i-Sulaiman in 1908. According to Longrigg, this location was “a broken and uncultivable waste, with a climate of extreme severity and totally devoid of resources”, where the land was used for “rough grazing by nomadic Bakhtiari tribesmen”. As a result, the specific site’s infrastructure had to be developed. This had been calculated to be profitable, baring in mind the quantities of oil discovered, where each of its wells would go on to yield in excess of 2000 barrels per day. When commercial production began in 1912, 14 wells had been sunk. By 1914, the number had doubled and the development of “permanent housing, amenities and a settled social life were made at the oil field; dry stream beds were made passable, a water supply provided, gathering lines and tankage erected… and a hospital appeared”.

Without the import of supplies from overseas, Masjid-i-Sulaiman’s infrastructural geography would not have been able to sustain the fledgling industry. Although the plains of Khuzistan bore many rivers, suitable for human and industrial consumption of water, agriculture would not produce enough food to provide for the oil workers. Instead, ships from the Persian Gulf would transport supplies up the Shatt-el-Arab to Khorramshahr. At this point, their cargoes would be transferred to three hundred tonne capacity barges travelling 114 miles up the river Karun to Ahwaz. Again, the cargoes would be transferred to land routes around one mile of unnavigable rapids, and then back into two hundred tonne capacity barges for 90 miles to Dar-i-Kazina, which was the nearest port to the oil fields. From here, mule-drawn wagons had to tackle rugged terrain. Not only was the oil industry affected by a relatively complicated set of journies over a considerable distance, but it was also faced with the prospect of tackling varying elevations. Dar-i-Kazina, for example, was at 140 feet above sea level and the oil field at 1000 feet. In between, the road reached a height of 1317 feet, and declines to 600 feet. Furthermore, transport required a supply of mule-drawn wagons, and the overall journey from the Shatt-el-Arab to the oil fields took five days. It was not until 1923 that they were replaced by a railway. Water supplies were later supplemented by the construction of a twelve mile long pipe line to the Karun.

The above represents the import of necessary supplies alone. It can be seen that the topography of the region played a role in determining the development of the oil industry. The existence of navigable waters in the Shatt-el-Arab and the Karun aided transportation considerably, without which access would have been poor and, perhaps, unfeasible. However, this says nothing about the export of oil from Masjid-i-Sulaiman, which also faced a number of geographical constraints, involving the construction of its pipe line.

In order to export oil from Iran, AIOC found it necessary to build a pipe line to an island now known as Abadan on the Shatt-el-Arab. Considerations not only involved utilizing the shortest route, but also its ease of construction. Again, as in the construction of the oil field, supplies were required from overseas, which needed to be moved to the site of pipe line construction. Therefore, it was located close, where possible, to landing stages on the Karun. Further considerations involved the mountainous terrain through which the pipe line passes. As this does not produce a single decline from Masjid-i-Sulaiman to the Persian Gulf, four pumping stations were required along the route. Melamid also notes, although this is not necessarily a complication, that the salinity of the soil meant that the pipe line could not be buried, as usual, because of corrosion. Instead, it was built on pillars above ground level.

There were numerous advantages in building a pipe line to and tanker terminal on the Shatt-el-Arab. The island, actually an uninhabited mudflat according to Odell, initially housing a site of one square mile, accommodated expansion to five square miles within its 104 square miles. Deep water close to the shore on a bend in the Shatt-el-Arab allowed tankers to lie alongside short jetties on the island. Two other advantages were found in the fact that the island was firm enough to support heavy foundations, and where the specific site was located above tidal flood ranges that could affect the rest of the island. Melamid notes that these elements were unique to this situation, offering good access to both navigable waters and the Persian Gulf.

The capital necessary to establish the oil field and its import-export network was supplied by the British government. Heiss notes: “To ensure adequate and affordable oils supplies in the event of war First Lord of the Admiralty Winston S. Churchill convinced the British government in 1914 to purchase 51 percent of APOC’s stock and to arrange for the Royal Navy to purchase oil from the company at a discount.” It was these action, which enabled the establishment of the oil fields, that would cause political difficulties in the 1950s. Oil production increased from 273,000 tonnes in 1914, to 897,000 tonnes in 1918, and 1,385,000 tonnes in 1920. By 1950, Majid-i-Suleiman was producing 61,000 barrels per day. The above marks the first stage in the development of the oil industry, with relation to its infrastructural geography.

A second stage emerged for a twenty-five year period from 1923. It was at this point that mule transport was generally replaced by motor transport, necessitating the development of more suitable roads. Fesharaki reports that from “the mid-1920s, in the reign of Reza Shah the Great, the government decided to modernize the transport network and concentrated on making transport widespread and efficient”, and that “the government adopted an ambitious road construction policy in the late 1920s.” The journey that had taken five days from the Shatt-el-Arab terminal to Masjid-i-Suleiman could now be completed within eight hours. Nevertheless, most supplies continued to be transported as before. The use of motor transportation elsewhere, however, meant greater consumption of refined oil and, therefore, greater demand. Masjid-i-Sulaiman could no longer be Iran’s only oil field, if its oil industry was to continue to grow. Thus further geological exploration began.

By 1928, an oil field had been discovered thirty-five miles south of the previous site, at Haft Kel. Because of its location, this site had the advantage that it could utilise previously developed supply routes. As it was both close to Ahwaz on the Karun and Masjid-i-Sulaiman, supplies could be brought in by road. Export of oil was achieved through the construction of a sixty mile long branch of pipe line, which would feed into the existing pipe line at Ahwaz. Facing less difficulties, where the infrastructure already existed, unlike at Masjid-i-Sulaiman, commercial production began within one year of the discovery of oil.

In 1928, a separate region was opened for exploration when a road was built from the Persian Gulf at Ganoweh to Garan Saran on the Zagros range, now known as the Golden Staircase. Without the use of motor transport, exploration in this region would have been difficult, if not impossible. In the same year, oil was discovered here, but commercial production did not begin until 1940, because production was initially limited to areas where the export infrastructure already existed. It is clear, however, that infrastructure was not the only constraint, for the oil field at Naft Safid discovered in 1934 was also not utilised, though it was closer to the existing transportation route than Haft Kel. The same was true of Agha Jari, discovered during 1937. Development was also affected by economic and political conditions, and, at this point specifically, the global economic recession of the 1930s. The main implication of the above is that growth in development was affected by the appearance of motor transport. It was also around this time that the oil industry became more politicised in relation to the Iranian government, for relative ease of access revealed the extent of the industry to them for the first time.

The final stage in the development of the oil industry in relation to its infrastructural geography, as far as this article is concerned came with the construction of the Trans-Iranian Railway, and further expansion to the southeast from 1938 until the middle of the 1950s. At the end of the 1920s Reza Shah ordered that a railway be built between Ahwaz and Andimeke. This part was completed in 1931. By 1938, after the completion of a new port in the marsh region on Khor Musa, at Bandar Shapur, the railway was extended to meet this site, connecting it with Ahwaz, Tehran and the Caspian Sea. By 1939, rail was the preferred mode for the transportation of oil, with one hundred and fifty 45,000 litre capacity tankers in service. The cost of transportation by rail was exactly half that of transportation by road.

With the planned establishment of a new tanker and pipe line terminal on the Khor Musa, expansion into the southeast of Iran was to be furthered. Khor Musa was found to be of sufficient depth and free of silt deposits, so that a site seven miles up the inlet would be accessible to tankers. Construction here, of course, was met by similar constraints to those faced by the first oil project in Iran. Materials and equipment for construction were required from outside, although there was an adequate water source to supply the workers. Construction material could be “obtained from the Suweira quarries, about 35 miles away.” Increased demand for oil during World War Two created a need for further development of pipe lines and utilization of the Trans-Iranian railway. Through use of the railway, it was possible to abandon barge transportation on the Karun by 1950. What this shows is that access to a new route and port could have significant outcomes for ensuing developments in Iran’s oil industry. Melamid argues that the opening of the railway increased Iranian migration into the oil producing region. As a result, the government would find it easier to carry out nationalisation in 1951.

This analysis brings out a number of points. Firstly, that the development of any oil industry in Iran was affected by accessibility, both in terms of exploration and in terms of development. Access via the Karun was particularly advantageous. The second point is that the industry’s development was affected by the appearance of motor transport, which ironically was to become the greatest consumer of refined oil, after warfare. The third point is that the appearance of the railway made transportation more efficient, to the affect that the oil industry could expand. However, it would be wrong to conclude that the region’s infrastructure was the only actor in the development of the oil industry in this region. Elwell-Sutton, for example, examines in his book the political dimension of Iran’s industry, while Fesharaki examines the economic dimension. Melamid shows how the events of World War Two affected the industry’s infrastructural decisions. Analysis of the infrastructural geography of the oil industry alone is insufficient to allow conclusions to be drawn on its pattern of development. Nevertheless, I have attempted to show that the development of the oil industry in Iran was affected by the availability of transportation more than any other factor.

Sources

Edens, DG (1979) Oil and Development in the Middle East [Praeger Publishers, New York and London]

Elwell-Sutton, LP (1955) Persian Oil: A Study in Power Politics [Lawrence and Wishart Ltd., London]

Fesharaki, F (1976) Development of the Iranian Oil Industry [Praeger Publishers, New York and London]

Findlay, AM (1994) The Arab World [Routledge, London and New York]

Heiss, MA (1996) Empire and Nationhood: The United States, Great Britain and Iranian Oil, 1950-1954 [Columbia University Press, New York]

Longrigg, SH (1961) Oil in the Middle East

Melamid, A (1991) Oil and the Economic Geography of the Middle East and North Africa [The Darwin Press, Inc., Princeton, New Jersey]

Odell, PR (1965) An Economic Geography of Oil [G.Bell and Sons, Ltd., London]

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