Persian Petroleum

Oil, Empire and Revolution in Late Qajar Iran

Leonardo Davoudi

• Publisher: I.B. Tauris
• Year: 2020
• ISBN:
  9781838606862
• Edition: 1
• Topic: History
• Subtopic: Middle Eastern History
• Index: History

Using newly-uncovered private papers, as well as public and private archives in three countries, this book tells the definitive history of the first discovery of oil in Iran - the first discovery of oil in the Middle East. Exploring the formal and informal dealings of politicians, investors, civil servants and intermediaries Leonardo Davoudi charts the development of Persian petroleum from uncertain beginnings to becoming one of Britain's largest oil companies with the British government as its principal shareholder. Assessing the relationship between economic and political forces within the British empire and the relationship of foreign economic forces and domestic political forces in Persia, the book also explores the role of intermediation, informal empire, the Anglo-Russian rivalry over Persia, British naval developments and Persian political developments.

Chapter 1

IMPERIAL SYSTEM

AN INTRODUCTION

Petroleum is a dark, malodorous and viscous liquid formed by millennia of decomposing organic material. For over a century, it has served as the bloodstream of industry by powering the most sophisticated military and civilian machinery ever built. Its numerous industrial applications have led to the creation of commercial behemoths, and securing its supply has sparked acrid rivalries amongst the world’s great powers. Its discovery in the Middle East, at the advent of the twentieth century, has proven one of the most important events in modern history. Peter Frankopan goes so far as to equate its global significance to Christopher Columbus’s journey across the Atlantic.¹

The British Empire

By the turn of the twentieth century, the British Empire ruled over nearly one-quarter of the globe. It dominated the world’s waterways as well as its capital flows. Within its imperial system, economic and political power were inextricably linked. As John Darwin argues, the ‘union of commercial and imperial muscle was the foundation of the British world-system’.² Commercial ventures provided the empire with economic might while the government, with its expanding coffers, secured the vast physical, military and systemic infrastructure required for the seamless continuation of business. Commerce, through trade, exploitation, investment or other, was thus one of the principal forces that drove imperial expansion while government was the ultimate arbiter of who benefitted from the immense, and often vital, resources of the machinery of state. The dynamics governing this important synergy have been at the centre of vivid academic and political debate for centuries.

The pernicious pre-eminence of capitalist impulses on imperial developments was discussed, amongst others, by John Hobson. In his work Imperialism, Hobson discusses the ‘slavers, piratical traders, treasure hunters, concession mongers . . . animated by mere greed of gold or power’, who wreaked ‘havoc with the political economic, and moral institutions of the people’.³ The agents of economic power, he argued, were the ‘parasites of imperialism’, or ‘harpies’, that hijacked public funds and foreign policy for private gain. Financial interests, in particular, manipulated ‘the patriotic forces which politicians, soldiers, philanthropists, and traders generate[d]’, and investments were the most powerful economic drivers of imperialism.⁴ Finance was ‘the governor of the imperial engine’, he added in The Evolution of Modern Capitalism, and the financial class held ‘the seat of authority’ in the British Empire.⁵ The ‘struggle for profitable markets of investment’ thus dominated British politics and its opaque manoeuvrings were the most serious danger to the integrity of the state.⁶ Hobson’s writings eventually became a source of inspiration for Vladimir Lenin, who acknowledged his work in the Russian preface to Imperialism: The Highest Stage of Capitalism.⁷

According to other scholars, the relationship between economic and political power in the British Empire was more complex. Cain and Hopkins’s theory of ‘gentlemanly capitalism’, for example, provides a more nuanced analysis of the workings of the British elite.⁸ They argue that ‘capitalism and tradition came to terms with each other to create a unique domestic “substance”’, which resulted in a distinctive type of imperial governance and expansion. The tradition, rooted in the landed aristocracy, co-opted elements of the capitalist system, which it found most palatable, and out of this union emerged gentlemanly capitalism. In this paradigm, a gentleman needed considerable wealth without the inconvenience and stigma of having to work for it. Apart from this lifestyle being more agreeable to the landed aristocracy, it gave gentlemen time to develop the personal networks, which would allow them to succeed in their commercial endeavours. This restricted acceptable occupations to the higher echelons of the services sector, especially finance.

After 1850, therefore, they argue that there was a difference between wealth acquired through gentlemanly means and that acquired through industry. The ‘former set the cultural tone, was closer to the centre of power and was the dominant influence upon the expression of that power overseas’. Some non-capitalist occupations were also suitable for gentlemen and included the highest levels of politics, the civil service, the military and the diplomatic corps. Gentlemen of a capitalist and non-capitalist variety shared values that were inculcated through elite educational institutions and religious tradition. The British gentlemanly elite in the private and public spheres thus ‘had a common view of the world and how it should be ordered’.⁹ These social underpinnings explain why certain economic interests possessed an innate systemic advantage.

The theory of gentlemanly capitalism has been the subject of vivid academic debate.¹⁰ Of relevance to this book, it has been suggested that it is perhaps ‘too Anglocentric, too essentially metropolitan’, to be able to fully explain the workings of the British imperial world-system.¹¹ This criticism aligns with the ‘collaboration’ or ‘excentric’ theory of imperialism put forward by Ronald Robinson. In this theory, the British Empire is portrayed as a highly adaptive, amorphous entity that manifested differently according to the scenarios it encountered. The type of imperial control that developed in a certain area, therefore, depended on the type of collaboration or non-collaboration that existed with local elites.¹² In order to obtain a better understanding of imperial mechanics, the analytical focus should thus be recentred, or at least rebalanced, away from the imperial metropole towards the periphery.

This book will participate in this important debate, as it scrupulously examines the nature of the formal and informal elite relationships in both Britain and Persia. This will provide a balanced view of the dynamics occurring in the metropole and those in the periphery, while demonstrating their complementarity. Importantly, it will determine whether William Knox D’Arcy, the first investor in the Persian oil venture, received the benefits of a systemic bias in favour of Britain’s investor class and how this bias expressed itself. It will also ascertain who held the ultimate leverage in his relationship with the British government, what the guiding principles of this relationship were and, ultimately, whether his investment affected British policy towards Persia.

Imperial games

In contrast to Britain, Persia was in a desperate situation at the beginning of the twentieth century. Internally, it was fractured by tribes, clergymen and local elites, who challenged the sovereignty of the central government. Externally, it had lost most of the Caucasus and Central Asia to Russia while it suffered further humiliating military defeats to the British in the east. As a consequence, it found itself trapped between two imperial behemoths with increasingly insignificant economic and military clout. This led to the gradual deterioration of its sovereignty, which resulted in most of its political decisions having to be approved by either or both of its neighbouring empires.¹³

Persia was never formally integrated into a foreign empire but, informally, it had been partitioned between Russia and Britain. The concept of ‘informal empire’ put forward by Robinson and Gallagher is invaluable in understanding the dynamics facing Persia in this period.¹⁴ Their theory argues that Britain’s imperial influence over a territory could range ‘from a vague, informal paramountcy to outright political possession’. Britain’s formal empire was thus merely the tip of the imperial iceberg, as British imperialism took different forms depending on the region. The formality of imperial control varied according to a number of factors, which included the commercial value of a territory, the solidity of its existing political structures, the degree to which its elites were willing to collaborate with British designs, the ability of its indigenous population to undergo economic transformation without direct control, the flexibility available to British policymakers at any one time and the extent to which other European powers allowed Britain free action.¹⁵

Within this paradigm, it becomes clear that Persia was independent in name only, as the scope of its sovereign action was impeded by the two strangulating informal imperial influences of Britain and Russia. Lord Curzon, who was viceroy of India at the time, accurately summarized this situation when he stated that ‘within the limits of a nominally still existing integrity and independence so many encroachments upon both these attributes are possible, that by almost imperceptible degrees they pass into the realm of constitutional fiction, where they may continue to provide an exercise for the speculations of the jurist, long after they have been contemptuously ignored by statesmen’.¹⁶

One of the reasons Persia maintained its nominal independence was that it was an integral part of the territorial cordon sanitaire between Britain’s Indian possessions and the Russian Empire. The British government, despite divergences between Whitehall and the Indian government, wanted to maintain an independent Persia, along with Afghanistan and Tibet, because it prevented a contiguous border between Britain and Russia and thus reduced the chances of a direct conflict.¹⁷ The general situation made Curzon conclude, prior to his becoming viceroy, that Persia had merely become one of ‘the pieces on a chessboard upon which [was] being played the game for the domination of the world’.¹⁸ Punch magazine, for its part, illustrated this dynamic more bluntly, at the time, with cartoons depicting a helpless Persian cat being toyed with by a Russian bear and a British lion.¹⁹

This book will provide insights into the strategies used by the British and the Russians to secure imperial dominance in Persia. In particular, it will look at the type of actions the British government took to protect British oil interests in this period and the limitations it faced. It will determine the nature of those limitations and how their change affected the policy and actions of the British government. By understanding the Great Game and Britain’s political objectives in Persia, furthermore, this book will determine if the Persian oil venture complemented Britain’s imperial objectives, how that complementarity developed and how British policy towards Persia affected the venture. It will also provide insights on Persia’s constraints within this paradigm and the way it navigated them to pursue its own objectives.

The Persian Empire

Persia and Britain had radically different political, legal and economic systems. Persia had a largely arbitrary system of government, as the Qajar shahs were absolute monarchs, perhaps, ‘the most absolute in the world’.²⁰ Curzon pithily observed that the shah ‘fused the threefold functions of government, legislative, executive and juridical . . . He [was] the pivot upon which turn[ed] the entire machinery of public life’.²¹ Unlike Britain, therefore, laws could be made and altered according to the shah’s whim. This led to a short-term outlook for official decision-making and a general disregard for contractual obligations.

It was normal practice for the shah’s most senior minister, the grand vizier, to accommodate any of the shah’s requests. This modus operandi only occasionally failed as when Muzaffar al-Din Shah asked for a pension of £3,000 a year, in addition to a lump sum, for his astrologer, ‘because His Majesty had dreamt that he had saved him from drowning’. In this rare instance, the grand vizier refused, as he was managing the country’s growing debts and increasingly precarious situation. He thus retorted that ‘he had raised large sums to pay for the Shah’s tours and toys, but [had to] protest against paying for his dreams’.²²

The concentration of power in the person of the shah led to a distinctive set of dynamics regarding the acquisition of political favour. There was no unspoken, yet powerful and unifying, world-vision, which brought cohesion to a subsection of the political and economic elite like in Britain, but a system that revolved around one person. In this system, the shah’s personal favour had to be acquired by navigating a complex system of Persian protocol, managing ‘the universal intrigue prevailing among the ruling classes’ and obtaining the support of the shah’s vast entourage through personal affinity and money.

Money lubricated the Persian political system at all levels and its gifting had become institutionalized. Pishkesh, as it was called by the donor, or madakhil, by its receiver, ‘became one of the more important practices of Qajar society’, and it was even taxed as irregular revenue, or sursat.²³ Curzon commented that ‘[g]overnment, nay, life itself, in that country may be said to consist for the most part of an interchange of presents . . . Under its political aspects, the practice of gift-making, though consecrated in the adamantine traditions of the East, [was] synonymous with the system elsewhere described by less agreeable names’ and ‘in no country that [he had] ever seen or heard of in the world, [was] the system so open, so shameless, or so universal as in Persia’. This made him conclude, ironically, that Persia was ‘the most democratic country in the world’, as anyone with any level of ability and social standing could escalate to any position, provided they had the necessary financial means.²⁴

As a result of these conditions, Persia was not a fertile environment for the development of industry, a domestic investor base or a thriving economy. The wealthier elements of the political establishment depended on political favours and had no incentive to reform the rent-seeking system of ...

Table of contents

• Cover
• Half-title Page
• Dedication Page
• Title Page
• Epigraph
• Contents
• Illustrations
• Acknowledgements
• Transliteration, Names and Currencies
• Abbreviations of Archives, Collections and Text
• Chapter 1 Imperial system
• Chapter 2 Genesis
• Chapter 3 Set-up
• Chapter 4 Gravity
• Chapter 5 Resistance
• Chapter 6 Upheaval
• Chapter 7 Disintegration
• Chapter 8 Pressure
• Chapter 9 Abuse
• Chapter 10 Aberration
• Chapter 11 Aftermath
• Appendix I The D’Arcy Concession
• Appendix II Biographical Details
• Notes
• Bibliography
• Index
• Copyright Page