The Prize, Chapter 10 Overview

The Prize, Chapter 10 Overview

Chapter 10 highlights the breakup of the Ottoman Empire, and the entry of what is now Iraq into the world oil market. We also see in this chapter various arrangements such as the Sykes-Picot Agreement. The growing complexity of who was in charge of what required some degree of collaboration and to an extent, “sacrifice” for the greater good. The British, German, and Royal Dutch/Shell common goal was to get as much access as possible to the speculated petroleum. Under the agreement, the Turkish Petroleum Company (TPC) became the only entity with access to concessions in the area within the Ottoman Empire, and all oil production had to be done jointly as all parties had to agree to the "self-denying clause." This clause required all parties included in the agreement to work together or not at all. The investment would be shared, and the profits would be shared. The only areas of the Ottoman Empire exempted from the clause were Egypt, Kuwait, and territories on the Turco-Persian border.

America, fearing the exhaustion of petroleum under their own land and the return of "Gasolineless Sundays" sought access to the brightest prospects – the Middle East. To add to the fears, demand for oil in America increased by 90% from 1911-1918 and the number of registered cars went from 1.8 to 9.2 million from 1914-1920. George Otis Smith, the director of the U.S. Geological Survey, warned that the known American reserves would be gone in exactly nine years and three months-which would have been before 1930. This influenced the price of oil to increase and encouraged the government to support the oil companies in their quest for foreign supplies. Thus, the fear of shortage and competition helped to push American companies to now explore for oil wherever they could find it with support of the US government - and that meant the Middle East.

Britain had much economic and strategic collaboration with the US and was not willing to jeopardize its relationship with America and reconsidered. Besides, they also realized that entry of American capital and technology would accelerate the development, and the presence of America would also improve the political climate and strengthen the position of the companies in any political conflict. In the words of the Permanent Undersecretary of the British Foreign Office, according to the Prize, "it would be better to have the Americans inside than outside competing and challenging the concessions."

In the ultimate irony when viewed against the early days of trust busting and the downfall of Standard Oil, Herbert Hoover, the Secretary of Commerce, suggested that a syndicate of companies should be formed to operate in Mesopotamia. It felt remarkably like the dragon that had been slain by the Supreme Court was back to life… and Standard Oil of NJ sat at the top! A few years back, the group would have been a target of the government for antitrust and restraint of trade, but now they were being cheered on as the champions for promoting the Open Door policy!

The US constantly refused to recognize the 1914 granting of concessions to the TPC. Eventually, however, a new concession agreement was signed on March 14, 1925, between the TPC and the Iraqi government that satisfied the Open Door policy after lengthy and contentious negotiations. Despite all the controversy between the oil companies, ethnic groups, and the British appointed king, a joint geological expedition in Iraq started drilling in April 1927. Six months later in October 1927 at Baba Gurgur, six miles northwest of Kirkuk, oil was gushing 50 feet above the derrick into the air. The oil flowed until capped at 95,000 BPD.

With the availability of oil in the area proved, the final settlement of the negotiations that was to bring the American companies into the TPC had to be completed with urgency. This happened on July 31, 1928, with Royal Dutch/Shell, Anglo-Persian, the CFP (French), and the Near East Development Company (which held the interests of the American companies) each receiving 23.75% with the remaining 5% going to Gulbenkian.

The "self-denying" clause still remained, and at one of the negotiation meetings a red line was drawn around the old Ottoman (Turkish) Empire on a map, and the "self-denying" clause became known as the "Red Line Agreement." Within the Red Line that included the entire Middle East, except Kuwait and Persia, the group was bound to operate together. As expected, the Red Line Agreement continued to be a focus of tension and bitter conflicts for many years to come, as it constrained exploration and development by requiring all the partners to work together in all oil production.

Note that the events in this chapter were between the two world wars, when countries had found out in WWI that access to oil was of critical strategic importance to national security and strategies. Also, note that Kuwait and Iran were the only parts of the Middle East not included within the Red Line.