University of Southern California Dissertations and Theses

Economics Of The Oil Industry In Iraq

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Economics Of The Oil Industry In Iraq

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Content This dissertation has been
microfilmed exactly as received 6 8 -1 3 ,5 6 0
AL-ALI, Mohammed Salih Abdul Rahman, 1934-
ECONOMICS OF THE OIL INDUSTRY IN IRAQ.
University of Southern California, Ph.D., 1968
Economics, comm erce-business
University Microfilms, Inc., Ann Arbor, Michigan
ECONOMICS OF THE OIL INDUSTRY IN IRAQ
by
Mohammed S a l i h A bdul Rahman A1-A1I
A D i s s e r t a t i o n P r e s e n t e d t o t h e
FACULTY OF THE GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
I n P a r t i a l F u l f i l l m e n t o f t h e
R e q u ire m e n ts f o r t h e D e g ree
DOCTOR OF PHILOSOPHY
(E c o n o m ic s)
J u n e 1968
UNIVERSITY OF SOUTHERN CALIFORNIA
T H E GRADUATE SC H O O L
UNIVERSITY PARK
LOS A N G ELES. C A L IF O R N IA 9 0 0 0 7
This dissertation, written by
M oham m ed S a lih Abdul Rahman A l-A li
under the direction of //A ? .... Dissertation C o m
mittee, and a p p ro v ed by all its m em bers, has
been presented to and accepted by the G raduate
School, in partial fulfillment of requirements
for the degree of
D O C T O R O F P H I L O S O P H Y
( f Dean
D ate........
DISSERTATION COM MITTEE
A < 0
TABLE OF CONTENTS
Chapter Page
I . INTRODUCTION .............................................................. 1
P u r p o s e o f t h e S tu d y
S co pe o f t h e S tu d y
I m p o r ta n c e o f t h e S tu d y
L i t e r a t u r e and S o u rc e o f D a ta
O r g a n i z a t i o n o f th e S tu d y
I I . A BRIEF HISTORY OF THE OIL INDUSTRY
IN I R A Q ........................................................................ 8
The P e r i o d B e fo re W orld War I
The T u r k is h P e tr o le u m Company
The P e r i o d A f t e r W orld War I
F re n c h I n t e r e s t
I r a q ' s N a t i o n a l G overnm ent and
C o n c e s s io n s
T u r k is h P e tr o le u m Company
fled L in e A greem en t
I r a q P e tr o le u m C o n c e s s io n
M osul P e tr o le u m C o n c e s s io n
The B a s ra h P e tr o le u m C o n c e s s io n
The P e r i o d A f t e r W orld War I I
End o f t h e Red L in e A g reem en t
The 1952 A g re em en ts
Law No. 80 o f 1961
Law No. 80 o f 1961 F i x i n g C o n c e s s io n
A re a s o f O i l C om panies
I I I . THE STRUCTURE OF THE OIL INDUSTRY IN IRAQ 38
The P r e s e n t O p e r a t i n g C om panies
S i z e o f t h e C om panies I n v e s tm e n t
E x p l o r a t i o n and R e s e rv e s
P ro v e d R e s e rv e s
P r o d u c t i o n
G e o g r a p h ic a l D i s t r i b u t i o n o f P r o d u c t i o n
C a u se s o f P r o d u c t i o n D e c lin e
P r o d u c t i v i t y
ii
Chapter Page
C o s ts o f P r o d u c t i o n
Low C o s ts o f P r o d u c t i o n
The G e o l o g ic a l S t r u c t u r e
The N a tu re o f t h e C o n c e s s io n s
Cheap L a b o r
C o n s e r v a t i o n P o l i c y
IV . TRANSPORTATION AND MARKETING .......................... 68
T r a n s p o r t a t i o n
P i p e l i n e s
C a p i t a l C o s ts o f P i p e l i n e s
P o t e n t i a l O i l F i e l d and A s su re d
T h ro u g h p u t
A d v a n ta g e s o f P i p e l i n e s
P i p e l i n e s i n I r a q
E x p o r tin g and M a r k e tin g
B a la n c e o f P ay m en ts and F o r e ig n E xchang e
N a t i o n a l P o l i c y
V. OLIGOPOLY IN THE OIL INDUSTRY.......................... 89
J o i n t C o n t r o l O v er M id d le E a s t e r n O il
T h ro u g h Common O w n ersh ip
J o i n t M a rk e tin g C o n tr o l
P r i c e D e t e r m in a t io n i n t h e O i l I n d u s t r y
The B a s in g P o i n t S ystem
The P e r s i a n G u lf B a s in g P o i n t
P o s te d P r i c e s o f I r a q i C rude O i l
P r i c e L e a d e r s h i p
The O r g a n i z a t i o n o f P e tr o le u m
E x p o r ti n g C o u n t r i e s (OPEC)
V I. THE IRAQ NATIONAL OIL COMPANY.......................... 135
I n t r o d u c t i o n
I r a q ' s P o s i t i o n Among O th e r M id d le
E a s t e r n P r o d u c in g C o u n t r ie s
The I r a q N a t i o n a l O i l Company
I n t e g r a t i o n i n t h e I r a q N a t i o n a l
O i l Company
E conom ies o f V e r t i c a l I n t e g r a t i o n
E x p l o r a t i o n O p e r a t i o n s
D i r e c t I n d i c a t i o n s
G e o l o g ic a l and G e o p h y s ic a l
E x p l o r a t i o n M ethods
i i i
Chapter
V I I .
V I I I .
Page
P r e l i m i n a r y R e c o n n a ls s n c e
P r o s p e c t i n g
D u r a ti o n o f E x p l o r a t i o n O p e r a t i o n s
a n d C o s ts
M ethod o f F in a n c in g t h e P e tr o le u m
I n d u s t r y
REFINERIES AND REFINING INDUSTRY
IN I R A Q ................................................................................... 17?
W orld R e f i n i n g C a p a c ity
L o c a l Demand on P e tr o le u m P r o d u c t s
D i s t r i b u t i o n o f P e tr o le u m P r o d u c t s i n
I r a q
S t o r a g e F a c i l i t i e s
R e f i n e r i e s
B a ck g ro u n d an d O b s t a c l e s
A t t r a c t i o n s o f a N a t i o n a l R e f in i n g
I n d u s t r y
The D u ra R e f i n e r y
NATURAL GAS AND PETROCHEMICALS . . . . . 20k
N a t u r a l Gas
Im p o r ta n c e o f N a t u r a l Gas
U ses o f N a t u r a l Gas
T r a n s p o r t a t i o n o f N a t u r a l Gas
S o u r c e s o f N a t u r a l Gas i n I r a q
N a t u r a l Gas from Gas F i e l d s
C om ponents o f N a t u r a l Gas I n I r a q
P r i c i n g o f N a t u r a l Gas f o r N a t i o n a l
C o n su m p tio n
T r a n s p o r t a t i o n o f N a t u r a l Gas i n
■ I r a q
Gas P r o j e c t s i n I r a q
P e t r o c h e m i c a l s
C h a r a c t e r i s t i c s o f P e t r o c h e m i c a l
I n d u s t r y
T y pes o f P e t r o c h e m i c a l s
P e t r o c h e m i c a l s i n I r a q
P e t r o c h e m i c a l P l a n t s U nd er C o n s t r u c t i o n
P e t r o c h e m i c a l P l a n t s U n der S tu d y
iv
Chapter Page
IX . SUMMARY AND CONCLUSION.......................................... 236
Summary
C o n c lu s io n
BIBLIOGRAPHY........................................................................................ 259
v
LIST OP TABLES
Table Page
1 . The D i s t r i b u t i o n o f t h e C a p i t a l o f t h e
A f r i c a n and E a s t e r n C o n c e s s io n , L t d . ,
i n 1 9 1 1 ...................................................................... 11
2 . The D i s t r i b u t i o n o f t h e C a p i t a l o f th e
A n g l o - P e r s i a n O i l Company an d th e
T u r k is h P e tr o le u m Company i n 1914 . . . 12
3 . The C hanges o f S h a r e s o f t h e T u r k is h
P e tr o le u m Company A f t e r W orld War I . . 15
4 . The D i s t r i b u t i o n o f S h a re s i n t h e T u r
k i s h P e tr o le u m Company A f t e r t h e A m eri
c a n G roup E n te r e d i n 1928 ................................ 19
5 . The New O i l E x p l o i t a t i o n A r e a s ............... 37
6 . D i s t r i b u t i o n o f S h a r e s Among C o m p a n ie s. . 40
7 . I P C 's F ix e d A s s e t s , 1 9 4 6 - 1 9 6 3 - .................... 42
8 . B reakdow n o f T o t a l I n v e s tm e n t by B ra n c h e s
i n S e l e c t e d M id d le E a s t e r n C o u n t r i e s . . 45
9 . F o o ta g e D r i l l e d by O i l C om panies i n
I r a q (1 9 5 1 -1 9 6 3 ) 47
1 0 . I r a q P ro v e d R e s e r v e s i n C o m p ariso n w ith
S e l e c t e d C o u n t r i e s .......................................... , 50
1 1 . C rude O i l P r o d u c t i o n i n I r a q by
C om panies (1 9 5 2 -1 9 6 5 ) .......................................... 53
1 2 . M id d le E a s t D a i l y A v e ra g e O i l P r o d u c
t i o n , 1 9 5 9 -1 9 6 4 ......................................................... 55
vi
Table Page
1 3 . D a ta o n I r a q i O i l F i e l d s , i 9 6 0 ........................... 58
1 4 . C o m p ariso n B etw een C o s t o f C rude O i l
P r o d u c t i o n i n t h e U n ite d S t a t e s ,
V e n e z u e la an d I r a q .................................................... 6l
1 5 . E s tim a te d C o s t and Incom e o f I r a q
P e tr o le u m Company P i p e l i n e s .......................... 74
1 6 . P r i n c i p a l C ru d e O i l P i p e l i n e s o f I r a q
P e tr o le u m Company .................................................... 76
1 7 . O i l E x p o r ts by I r a q O i l C o m p an ies, 1 9 5 1 -
1 9 6 4 - ........................................................................................ 79
1 8 . C ru d e O i l P r o d u c t i o n D u rin g Q u a r te r s o f
1 9 6 2 /1 9 6 3 81
1 9 . C ru d e O i l E x p o r ts to M ain E u ro p e a n
C o u n t r i e s , 1 9 5 1 -1 9 5 3 ..................... . . . . . 83
2 0 . F o r e i g n E xch an g e E a rn e d by I r a q From
th e O i l I n d u s t r y a n d i t s R e l a t i o n s
to t h a t E a rn e d by O th e r Goods and
S e r v i c e s ......................................................................... 86
2 1 . M a jo r O i l C o n c e s s io n s i n t h e M id d le
E a s t .................................................................................. 92
2 2 . P o s t e d P r i c e o f C ru d e O i l o f M id d le E a s t
a n d V e n e z u e la , 1 9 5 4 - 1 9 6 4 ......................... 115
2 3 . P r i c e s o f I r a q i C ru d e f . o . b . , T r i p o l i -
B a n ia s a n d t h e B o rd e r V a lu e , 1 9 5 2 -
1964 ........................................................................................ 121
2 4 . O i l P r o d u c t i o n i n S e l e c t e d C o u n t r i e s ,
1 9 6 0 -1 9 6 5 137
O i l P r o d u c t i o n i n S e l e c t e d C o u n t r i e s ,
1960-1965 (C o n tin u e d ) . ............................... 138
v i i
Table Page
2 5 . P ro v e d R e s e rv e s i n S e l e c t e d C o u n t r i e s ,
1 9 6 0 - 1 9 6 4 ......................................... 141
2 6 . G ra v im e tr y C o s ts i n t h e F ra n c Zone i n
1959 15?
2 7 . E s tim a te d P e tr o le u m E x p l o r a t i o n an d P r o
d u c t i o n C o s ts i n C a n a d a , 1 9 ^ 7 -1 9 5 8 . . 162
2 8 . E x p l o r a t i o n and D e v elo p m en t C o s ts i n th e
U n ite d S t a t e s , 1 9 4 8 -1 9 5 6 164
2 9 . R e f i n i n g C a p a c it y i n I r a q and t h e W orld . 183
3 0 . Consumption of Oil Products in Iraq,
1 9 5 1 -1 9 6 3 .................................... 186
3 1 . P r i c e s o f G a s o lin e I n C o m p ariso n t o O th e r
F u e l s ................................................................................... 188
3 2 . A v e ra g e M o n th ly C o n su m p tio n o f P e tr o le u m
P r o d u c t s and S t o r a g e C a p a c it y ..................... 192
3 3 . O i l R e f i n i n g i n I r a q , 1965 201
3 4 . C hanges i n M ethods o f T r a n s p o r t a t i o n o f
L i q u i f i e d N a t u r a l Gas (1 9 5 3 -1 9 6 2 ) . . . 208
35* N a t u r a l Gas P ro d u c e d and U t i l i z e d i n
I r a q , 1 9 5 1 -1 9 6 0 ......................................................... 210
3 6 . C om ponents o f N a t u r a l Gas i n I r a q . . . . 212
3 7 . The S t a t e o f P e t r o c h e m i c a l s i n t h e W orld 220
3 8 . The C o s t o f E s t a b l i s h i n g A P l a s t i c P l a n t 227
3 9 . W orldw ide C o n su m p tio n o f P l a s t i c s ( e x
c l u d i n g C h in a and t h e E a s t e r n B l o c ) ,
1957-1960 228
4 0 . W orldw ide C o n su m p tio n o f R u b b e r ( e x c l u d
in g C h in a and t h e E a s t e r n B l o c ) , 1 9 5 9 -
1960 230
viii
LIST OF FIGURES
Figure Page
1 . The Kinked. Demand C u r v e ..................................... 12?
ix
CHAPTER I
INTRODUCTION
P u r p o s e o f t h e S tu d y
Day a f t e r d a y p e tr o le u m i s a ssu m in g a n e v e r -
i n c r e a s i n g r o l e i n t h e l i f e o f m odern s o c i e t y . I t c a n
be r e g a r d e d now adays a s , by f a r , t h e b a ck b o n e f o r th e
e n e rg y r e q u i r e m e n ts o f t h e r a p i d l y - i n c r e a s i n g p o p u l a t i o n
a l l o v e r t h e w o r ld .
T h e re h a s b e e n a n a m a z in g a d v a n c e a n d p r o g r e s s i n
t h e p e tr o le u m i n d u s t r y . A l l o f t h e s e Im p ro v em en ts and
p r o g r e s s — w h e th e r t e c h n o l o g i c a l , o r g a n i z a t i o n a l o r e c o -
n o m ic - -h a v e one i m p o r t a n t i m p l i c a t i o n , n am ely t h e im p ro v e
m ent o f p e o p l e 1s w e l l - b e i n g , e s p e c i a l l y i n u n d e rd e v e lo p e d
c o u n t r i e s .
I t i s t h e p u rp o s e o f t h i s s t u d y , t h e r e f o r e , t o
o u t l i n e b r i e f l y t h e h i s t o r i c a l b a c k g ro u n d o f t h e o i l i n
d u s t r y I n I r a q . T he s t r u g g l e o f d i f f e r e n t o i l c o n c e rn s
an d g ro u p s t o s e e k a n d s e c u r e o i l c o n c e s s i o n s fro m th e
O tto m a n E m p ire i n t h e e a r l y d a y s , a n d l a t e r from I r a q ,
w i l l be r e v ie w e d . T h e s e a t t e m p t s w ere s u b j e c t , i n a lm o s t
a l l c a s e s , t o t h e s u p p o r t o f t h e g o v e rn m e n ts t o t h e i r
1
co m p a n ie s a n d t h e p r e s s u r e s e x e r t e d on I r a q by t h e
c o m p a n ie s .
M o re o v e r, I t I s t h e p u r p o s e o f t h i s s t u d y t o d e s
c r i b e a n d a n a l y z e t h e s t r u c t u r e o f t h e o i l I n d u s t r y i n
I r a q , i t s o r g a n i z a t i o n , t h e s o u r c e an d o w n e rs h ip o f t h e
in v e s tm e n t f u n d s , e t c e t e r a .
F i n a l l y , I t w i l l be t h e p u rp o s e o f t h i s s t u d y to
exam ine c l o s e l y an d a n a l y z e t h e r o l e o f t h e I r a q N a t io n a l
O i l Company i n t h e o i l i n d u s t r y o f I r a q , a n d to d e te r m in e
t o w hat e x t e n t I t c o u ld e n t e r t h e i n t e r n a t i o n a l p e tr o le u m
m a r k e t, a n d t h e c o u r s e s o f a c t i o n o p e n t o I t a n d i t s p r o s
p e c t s .
S c o p e o f t h e S tu d y
T he sc o p e o f t h e s t u d y w i l l b e c o n f in e d m a in ly t o
t h e e c o n o m ic s o f p e tr o le u m i n I r a q , T he p e r i o d t o be
s t u d i e d i s t h a t fro m 1 9 5 0 -1 9 6 5 . The r e a s o n f o r s e l e c t i n g
t h i s tim e s p a n l i e s i n t h e f a c t t h a t t h e s t a r t i n g y e a r
was t h e b e g in n in g o f i m p o r t a n t c h a n g e s i n t h e o i l i n d u s t r y
a l l o v e r t h e w o r ld , a n d i n t h e M id d le E a s t i n p a r t i c u l a r .
F i r s t , i t was t h e y e a r i n w h ich c h a n g e s i n te rm s a n d c o n
d i t i o n s o f o i l c o n c e s s i o n s b e g a n t o t a k e p l a c e , w h ic h
u l t i m a t e l y g a v e b i r t h t o t h e 5 0 /5 0 p r o f i t - s h a r i n g i n i t i a
t e d i n 1 9 5 2 . S e c o n d , up t o t h i s y e a r , o i l p r o d u c t i o n h a d
re m a in e d a t a v e r y low l e v e l . T h i r d , t h e B a s r a h P e tr o le u m
Company commenced i t s e x p o r t s a t t h e end o f t h a t y e a r ,
a n d was f o llo w e d by e x p o r t s o f o i l fro m t h e M osul o i l
f i e l d l a t e r o n . F o u r t h , i n t h e y e a r t h a t f o llo w e d , t h e
G overnm ent O i l R e f i n e r i e s an d A d m i n i s t r a t i o n was c r e a t e d
and e n t r u s t e d w ith t h e t a s k o f b u i l d i n g a n d o p e r a t i n g
r e f i n e r i e s t o m ee t t h e l o c a l dem and.
T he c h o ic e o f 19&5 a s t ^ie e n d in g y e a r was som ew hat
a r b i t r a r y . B u t o n e m ig h t f i n d j u s t i f i c a t i o n f o r i t i n
t h e a v a i l a b i l i t y o f d a t a , a n d s e c o n d l y , b e c a u s e i t ro u n d s
o u t a f i f t e e n - y e a r p e r i o d .
F i n a l l y , i t i s w i t h i n t h e s c o p e o f t h i s s t u d y to
exam ine a n d a n a l y z e t h e I r a q N a t i o n a l O i l Company an d i t s
p r o s p e c t s i n t h e i n t e r n a t i o n a l m a r k e t.
I m p o r ta n c e o f t h e S tu d y
O i l h a s assum ed a n I m p o r ta n t and v i t a l r o l e i n th e
w o rld econom y a n d i n t h e p e r s o n a l l i v e s o f a l l i n d i v i d u a l s .
I f t h e r e I s a n y on e t h i n g w h ich t h e o i l I n d u s t r y may be
p ro u d o f i t i s t h e i n c r e a s i n g i n t e r e s t shown by b o th p r i
v a t e a n d g o v e rn m e n t s e c t o r s i n t h e p r o d u c in g a n d con su m in g
c o u n t r i e s i n t h i s i n d u s t r y i n tim e s o f w ar a n d p e a c e a l i k e .
T he h i s t o r y o f t h e I n d u s t r i a l R e v o lu t i o n h a s r e c o r d e d many
g r e a t a c h i e v e m e n t s . Many g i a n t i n d u s t r i e s h a v e em erged
s i n c e i t s tim e , b u t n o n e w ere s u b j e c t t o s u c h a c o n t r o
v e r s y a s t h e " b l a c k g i a n t " — t h e o i l i n d u s t r y . I t i s o n ly
b e g in n in g now, b u t t h e p o l i t i c a l I n t e r e s t I s c e r t a i n t o
i n c r e a s e i n t h e f u t u r e , b e c a u s e t h e im p o r ta n c e o f t h e
o i l i n d u s t r y I n t h e e v e ry d a y l i f e o f t h e w o rld i s g o in g
t o I n c r e a s e . The r e c e n t c r i s i s i n t h e M id d le E a s t i s a
good e x am p le ; o r a s R a th b o rn e p u t i t :
I t i s d i f f i c u l t t o f i n d a p l a c e i n t h e
w o rld now w h ere a l a c k o f o i l wouldn* t p l a y
h a v o c w ith d a i l y l i v i n g . O i l i s a p p r o a c h in g
fo o d a s one o f t h e e s s e n t i a l p r o d u c t s o f
m odern l i f e . T h in k o f w hat k i n d o f l i f e we ,
w ould h a v e i n t h e U n ite d S t a t e s w i t h o u t o i l .
O i l w i l l h e l p t o s o l v e t h e p ro b le m o f i n c r e a s i n g
p o p u l a t i o n a n d p o v e r t y b y p r o v i d i n g p r o t e i n s . A g a s o i l
f r a c t i o n , c o n s t i t u t i n g a p p r o x i m a t e ly o n e - t e n t h o f a
b a r r e l o f c r u d e , c o n t a i n s a b o u t 10 p e r c e n t wax w h ic h i s
p a l a t a b l e to m ic r o - o r g a n i s m s . T h e se m in u te c r e a t u r e s
f e e d o n t h e u n w a n te d wax a n d l e a v e t h e g a s o i l u n to u c h e d .
I n so d o in g t h e y r e p r o d u c e th e m s e lv e s a n d p ro d u c e p r o
t e i n s . F o r e v e r y t o n o f wax e a t e n by t h e m ic r o - o r g a n is m s ,
on e to n o f p r o t e i n i s p ro d u c e d a t a r a t e w h ich i s a p p r o x -
i m a t e l y 2 ,0 0 0 tim e s f a s t e r t h a n n a t u r e 's cow c a n do i t .
I n d r y a n d d u s t y r e g i o n s , o i l p r o d u c t s h a v e b e e n
s u c c e s s f u l i n p r e v e n t i n g s o i l e r o s i o n . D u n e - s t a b i l i z i n g
^The O i l a n d Gas J o u r n a l ( T u ls a , O klahom a: F e b
r u a r y 22, 1 9 6 5 ) , p . 8 3 .
2
O i l a n d Gas I n t e r n a t i o n a l ( A p r i l , 1 9 6 5 ) , p . ^ 6 .
f i e l d t r i a l s h a v e b e e n c a r r i e d o u t i n L ib y a , T u n i s i a an d
P a k i s t a n . T h is p r o c e s s w ould p r o v i d e n o t o n l y enorm ous
b e n e f i t s t o t h e I n h a b i t a n t s o f s u c h r e g i o n s , b u t w ould
a l s o c r e a t e new m a r k e tin g o u t l e t s f o r t h e o i l c o m p a n ie s .
M o re o v e r, a s f a r a s I r a q i s c o n c e rn e d , t h e o i l
i n d u s t r y i s t h e m o st i m p o r t a n t s o u r c e o f r e v e n u e f o r t h e
G overnm ent o f I r a q . T h e r e f o r e , t h i s I n d u s t r y e x e r t s a
d i r e c t e f f e c t on I r a q ' s econom y, an d t o some e x t e n t , d e
t e r m in e s t h e r a t e o f g ro w th a n d d e v e lo p m e n t o f i t s e c o n
omy. T h is h a s become a p p a r e n t s i n c e t h e f i f t i e s , when
t h e s h a r e o f g o v e rn m e n t i n th e c o u n t r y 's p r o f i t s i n
c r e a s e d n o t a b l y .
L i t e r a t u r e a n d S o u r c e o f D a ta
I n c o m p ilin g d a t a f o r t h i s d i s s e r t a t i o n , th e
w r i t e r c o n s u l t e d a g r e a t many v a l u a b l e b o oks a n d a r t i c l e s
A lm o st a l l o f t h e s e books an d a r t i c l e s w e re f o r e i g n p u b
l i c a t i o n s . The d o m e s tic l i b r a r y i s w o e f u lly I n a d e q u a te
i n t h i s a r e a . Some U n ite d N a tio n s p u b l i c a t i o n s h a v e b e e n
c o n s u l t e d a n d u t i l i z e d w h e n ev e r t h e y seem ed t o be h e l p f u l
P u b l i c a t i o n s o f t h e O r g a n i z a t i o n o f t h e P e tr o le u m E x p o r t
i n g C o u n t r i e s (OPEC) h a v e a l s o b e e n u t i l i z e d . A lm o st
e v e r y r e c e n t p u b l i c a t i o n I n t h e f i e l d o f p e tr o le u m h a s
b e e n c o n s u l t e d a n d f u l l y u t i l i z e d .
3I b i d .
6
O th e r s t a t i s t i c a l d a t a w ere t a k e n from d i f f e r e n t
g o v e rn m e n ta l s o u r c e s , w h e th e r p u b l i s h e d o r n o t . T h e s e
I n c l u d e d r e p o r t s o f t h e M i n i s t r y o f O i l , M i n i s t r y o f
D e v e lo p m e n t, a n d t h e M i n i s t r y o f P l a n n i n g . The A n n u al
R e p o r t o f t h e D e v elo p m en t B o a rd , t h e S t a t i s t i c a l A b s t r a c t ,
t h e C e n t r a l B a n k 's A n n u a l R e p o r t , an d a g ro u p o f m aga
z i n e a r t i c l e s an d p u b l i c a t i o n s o f v a r i o u s I r a q i c o m p a n ie s .
O r g a n i z a t i o n o f t h e S tu d y
The p u r p o s e o f C h a p te r I I i s t o g iv e t h e r e a d e r a
b r i e f h i s t o r y o f t h e o i l i n d u s t r y and i t s d e v e lo p m e n t from
t h e e a r l y d a y s u n d e r t h e O tto m an E m p ire . The p e r i o d p r i o r
t o 1952 i s s t u d i e d f i r s t , t h e n f o llo w e d by t h e 1952 A g re e
m e n t, Law No. 8 0 , w i t h g e n e r a l t y p e s o f I n t e g r a t i o n , a n d
f i n a l l y , t h e i n t e g r a t i o n o f t h e o i l i n d u s t r y r o u n d in g o u t
t h e c h a p t e r .
C h a p te r I I I I s d e v o te d t o t h e s t r u c t u r e o f t h e
o i l I n d u s t r y i n I r a q . I t c o v e r s o i l I n v e s t m e n t, e x p l o r a
t i o n a n d r e s e r v e s , p r o d u c t i o n , p r o d u c t i o n c o s t s a n d c o n
s e r v a t i o n p o l i c y .
C h a p te r IV c o v e r s t r a n s p o r t a t i o n an d m a r k e ti n g o f
I r a q i o i l .
C h a p te r V s t u d i e s o l i g o p o l y i n t h e o i l i n d u s t r y .
I t t r e a t s s u b j e c t s s u c h a s p r i c e an d o u t p u t d e t e r m i n a t i o n ,
s e l l i n g c o s t s a n d p r o d u c t d e t e r m i n a t i o n , a n d f i n a l l y ,
p r o f i t r a t e s .
7
C h a p te r VI d e a l s w ith t h e I r a q i N a t i o n a l O i l
Company; i t s r o l e i n d e v e l o p in g o i l p r o d u c t i o n i n I r a q
a n d i t s sc o p e o f o p e r a t i o n : p r o d u c t i o n , m a r k e tin g , and
r e f i n i n g .
C h a p te r V II d e a l s w ith r e f i n e r i e s and t h e r e f i n i n g
i n d u s t r y i n I r a q .
C h a p te r V I I I I s d e v o te d t o n a t u r a l g a s a n d p e t r o
c h e m ic a l s . I t c o v e r s n a t u r a l g a s p r o d u c t i o n , p r i c i n g ,
t r a n s p o r t a t i o n , u t i l i z a t i o n , a n d p e t r o c h e m i c a l s .
C h a p te r IX su m m arizes t h e s t u d y an d draw s c o n
c l u s i o n s .
CHAPTER II
A BRIEF HISTORY OF THE
OIL INDUSTRY IN IRAQ
The P e r i o d B e f o r e W orld War I
The T u r k is h P e tr o le u m Company
E u ro p e a n i n t e r e s t i n I r a q , an d t h e p o s s i b i l i t i e s
o f o i l d i s c o v e r y i n t h e V i l a y a t s o f M osul and B aghdad,
d a t e b ack t o t h e end o f t h e n i n e t e e n t h c e n t u r y . The
O tto m an a u t h o r i t i e s becam e a w a re o f th e p o s s i b i l i t i e s o f
e x p l o i t i n g t h e s e o i l f i e l d s a n d , t h e r e f o r e , S u l t a n A bdul
Hamid a d d ed t h e two V i l a y a t s t o h i s p e r s o n a l o w n e rs h ip i n
1888 an d 1898 r e s p e c t i v e l y , th u s m aking a n y a g re e m e n t o r
n e g o t i a t i o n s h i s p e r s o n a l b u s i n e s s . I n 1 9 0 3 . t h e y e a r
o f t h e B aghdad R a ilw a y C o n v e n tio n , th e -O tto m a n a u t h o r i t i e s
g a v e t h e A n a t o l i a n R a ilw a y Company ( c o n t r o l l e d by t h e
D e u ts c h e Bank) d e f i n i t e r i g h t s o v e r a tw e n ty k i l o m e t e r
s t r i p on e i t h e r s i d e o f t h e r a i l w a y l i n e w h ich th e company
was t o c o n s t r u c t th r o u g h A n a t o l i a t o t h e A r a b ia n G u lf ( t h e
same ty p e o f r i g h t s t h e U n ite d S t a t e s h a s to t h e la n d
b o r d e r i n g t h e Panam a C a n a l, f o r i n s t a n c e ) .
8
9
I n 1904-, a c o n t r a c t was s ig n e d w i t h t h e A n a t o l i a
H a llw a y Company to c o m p le te a p r e l i m i n a r y s u r v e y i n th e
two V i l a y a t s — M osul a n d B agh dad— w ith a n o p t i o n t o s i g n
a n a g re e m e n t w i t h i n two y e a r s a f t e r c o m p le tio n o f t h e
s u r v e y g r a n t i n g a f o r t y - y e a r c o n c e s s i o n i f o i l w ere f o u n d ,
t h e p r o f i t s to be d i v i d e d b e tw e e n th e S u l t a n a n d t h e com
p a n y i n p r o p o r t i o n s t o be s e t f o r t h l a t e r .
I n 1 9 0 7 , t h e O tto m an a u t h o r i t i e s c o n s i d e r e d t h e
a g re e m e n t w ith t h e company t e r m i n a t e d b e c a u s e th e o p t i o n
was n o t e x e r c l s e d - - p r o b a b l y b e c a u s e o f l a c k o f fu n d s t o
c a r r y o u t su c h a l a r g e p r o j e c t . H ow ever, n e g o t i a t i o n s
b e g a n a f t e r t h i s w i t h W illia m D *A rcy, who o b t a i n e d h i s
P e r s i a n c o n c e s s i o n i n 1 9 0 1 , By t h e tim e th e n e g o t i a t i o n s
w ere b e in g c o n d u c te d , t h e T u r k is h H e v o lu tio n b ro k e o u t
a n d a l l o f t h e S u l t a n * s p r o p e r t y was t u r n e d o v e r t o t h e
M i n i s t r y o f F in a n c e , w ith whom D*Arcy c o n tin u e d h i s t a l k s ,
b u t w i t h o u t r e a c h i n g a n y a g r e e m e n t.
By 1 9 1 2 , t h e r e w ere f o u r d i f f e r e n t g ro u p s s e e k in g
c o n c e s s i o n s i n I r a q : (1 ) t h e G e rm a n -D e u tsch e B ank; (2)
t h e D 'A rc y G roup (w h ic h i n 1909 h a d m erged w ith t h e n e w ly
form ed A n g l o - P e r s l a n O i l Com pany); (3 ) t h e D u tc h -A n g lo -
S a x o n O i l Company; a n d (*!-) t h e A m e ric a n C h e s t e r G ro u p ,
A l l o f t h e a b o v e g r o u p s , e x c e p t t h e C h e s t e r G roup, w ere
E u ro p e a n ; t h e r e f o r e , t h e y u n i t e d i n one g ro u p i n o r d e r t o
10
k e e p t h e A m e ric a n g ro u p o u t o f t h e s c e n e a n d g a i n f o r
th e m s e lv e s a l o n e t h e I r a q i o i l concession."*"
I n 1 9 H » th e N a t i o n a l Bank o f T u rk e y ( w i t h B r i t i s h
c a p i t a l ) an d t h e D e u ts c h e Bank fo rm ed t h e A f r i c a n and
E a s t e r n C o n c e s s io n , L t d . , i n L ondon, i n o r d e r t o n e g o
t i a t e w ith T u rk e y t o g a i n t h e I r a q o i l c o n c e s s i o n . The
c o m p a n y 's c a p i t a l was 8 0 ,0 0 0 po u n d s s t e r l i n g , d i s t r i b u t e d
a s shown i n T a b le 1 . I n 1 9 1 2 , t h e company c h an g ed i t s
name t o t h e T u r k is h P e tr o le u m Company.
I n 191^» th e A n g l o - P e r s i a n O i l Company an d t h e
T u r k is h P e tr o le u m Company re a c h e d a n a g re e m e n t w h ic h p r e
v e n te d t h e A n g l o - P e r s i a n Company fro m a c t i n g i n d e p e n d e n t
l y . The c a p i t a l was r a i s e d t o 1 6 0 ,0 0 0 poun ds s t e r l i n g ,
a n d t h e s h a r e s w ere c h a n g e d , a s shown i n T a b le 2 .
The A m e ric an i n t e r e s t i n t h i s a r e a , r e p r e s e n t e d
by th e C h e s t e r G roup, e n d ed when t h e i r a t t e m p t s c e a s e d i n
1911 i n t h e f a c e o f o p p o s i t i o n fro m T u r k is h a u t h o r i t i e s ,
g e n e r a t e d by B r i t i s h a n d German G overnm en ts i n a n e f f o r t
to p r e v e n t g r a n t i n g o f o i l c o n c e s s i o n s t o a n y p a r t i e s
o t h e r t h a n t h e m s e lv e s .
B e n ja m in S h w ad ra n , T he M id d le E a s t O i l a n d t h e
G r e a t P o w ers (New Y ork: C o u n c il f o r M id d le E a s t e r n
A f f a i r s P r e s s , 1 9 5 ^ ) , p . 1 9 ^ .
11
TABLE 1
THE DISTRIBUTION OF THE CAPITAL OF THE AFRICAN
AND EASTERN CONCESSION, LTD., IN 1911
G roup P o u n d s S t e r l i n g
D e u ts c h e B anke* 2 0 ,0 0 0
N a t i o n a l Bank 2 8 ,0 0 0
R o y a l D u tc h S h e l l Group 2 0 ,0 0 0
G u lb u n k ia n (5 p e r c e n t) 1 2 ,0 0 0
T o t a l 8 0 ,0 0 0
* I n r e t u r n f o r I t s v a l u e l e s s o p t i o n s a n d o u t
d a t e d p r i o r i t i e s .
12
TABLE 2
THE DISTRIBUTION OF THE CAPITAL OF THE
ANGLO-PERSIAN OIL COMPANY AND THE
TURKISH PETROLEUM COMPANY IN 191^
Group Pounds Sterling
Anglo-Persian Oil Company 80,000
Deutsche Banke 20,000
Anglo-Saxon 20,000
Gulbenkian* 8,000
Total 160,000
* F o u r th o u s a n d , o r 2 ,5 p e r c e n t from A n g lo -
P e r s i a n a n d t h e o t h e r 2 .5 p e r c e n t fro m A n g lo -S a x o n .
13
I n 1 9 1 ^ , b e f o r e t h e o u tb r e a k o f W orld War I , a n
a g re e m e n t was s ig n e d b e tw e e n t h e T u r k i s h P e tr o le u m Company
a n d t h e M i n i s t r y o f F in a n c e to l e a s e t h e p e tr o le u m d e
p o s i t s , a l r e a d y d i s c o v e r e d o r y e t t o be d i s c o v e r e d , i n
t h e V i l a y a t s o f M osul a n d B ag h d ad , t o t h e Company, a n d
r e s e r v e d t o I t s e l f t h e r i g h t t o d e te r m in e t h e r o y a l t i e s
a n d te r m s o f c o n c e s s io n s l a t e r . H ow ever, t h e a g re e m e n t
was d e la y e d b e c a u s e o f t h e o u t b r e a k o f W orld War I . The
T u r k i s h P e tr o le u m Company n e g o t i a t i o n s w ith t h e G o v e rn -
2
m ent o f I r a q b e g a n a f t e r t h e w a r.
The P e r i o d A f t e r W orld War I
The o u t b r e a k o f W orld War I was a f a c t o r w hich
c a r r i e d fo r w a r d t h e 191^ a g re e m e n t; t h e c o n d i t i o n s r e
m a in e d t h e same a f t e r t h e w ar e n d e d . T h e re w ere s t i l l
c o n d i t i o n s o f u n c e r t a i n t y p r e v a i l i n g i n I r a q u n t i l t h e
b e g in n in g o f t h e t w e n t i e s .
F r e n c h I n t e r e s t
The p o s i t i o n o f t h e T u r k is h P e tr o le u m Company was
d e l i c a t e d u r i n g an d a f t e r t h e w a r. The German s h a r e s i n
t h e com pany w ere t a k e n o v e r by t h e B r i t i s h G o v ern m en t.
D u rin g t h e l a s t y e a r o f t h e w a r, t h e F re n c h G overnm ent
2
S te p h e n H. L o n g r ig g , O i l i n t h e M id d le E a s t
(L ondon: O x fo rd U n i v e r s i t y P r e s s , 1 9 6 1 ) , p p . 3 0 - 3 1 .
14
h o p e d f o r t r a n s f e r o f German s h a r e s i n t h e T u r k is h P e t r o
leum Company t o F r e n c h s h a r e h o l d e r s . T h is i s j u s t w hat
h a p p e n e d when t h e L o n g -B e re n g e r A g reem en t was r e a c h e d ,
t r a n s f e r r i n g German s h a r e s t o F r e n c h , w h ile F r a n c e , i n
t u r n , f a c i l i t a t e d t h e p a s s a g e o f o i l t o t h e M e d i te r r a n e a n
a c r o s s F re n c h -m a n d a te d t e r r i t o r y o f S y r i a . T he s h a r e s
w ere ch an g e d a s shown i n T a b le 3*
I r a q ' s N a t i o n a l G overnm ent
a n d C o n c e s s io n s
T he c o n t r o v e r s i a l i s s u e on M osul V i l a y a t , w h ic h
s t a r t e d i n 1917* t h e B r i t i s h o c c u p a t i o n o f I r a q a n d t h e
T u r k i s h s u r r e n d e r , w ere a l l s e t t l e d a t t h e end o f 1925
a s a r e s u l t o f a p l e b i s c i t e c o n d u c te d i n M o su l. I n 1 9 2 6 ,
a t r e a t y was s ig n e d b e tw e e n B r i t a i n , T u rk e y a n d I r a q i n
t h i s r e s p e c t .
On t h e f a c e v a l u e , t h e T u r k is h c la im was b a s e d on
t h e a rg u m e n t t h a t t h e B r i t i s h t r o o p s e n t e r e d M osul a f t e r
T u rk e y h a d s u r r e n d e r e d . H ow ever, t h e r e a l m o tiv e b e h in d
t h e T u r k i s h c la im ( a s w e l l a s t h a t o f t h e B r i t i s h i n
t h e i r d e f e n s e o f I r a q ' s r i g h t s ) was t h e p o s s i b i l i t y o f
r i c h o i l r e s e r v e s I n t h i s a r e a .
T u r k i s h P e tr o le u m Company
W h ile a l l t h i s was g o in g o n , t h e I r a q i Kingdom
s ig n e d a n a g re e m e n t w i t h t h e T u r k is h P e tr o le u m Company on
15
TABLE 3
THE CHANGES OF SHARES OF THE
TURKISH PETROLEUM COMPANY
AFTER WORLD WAR I
Group Percentages
Anglo-Persian Oil Company
^ 7 .5
Anglo-Saxon Oil Company
2 2 .5
Compagnie Francaise des Petrols 2 5 .0
Gulbenkian 5 .0
T o t a l 1 0 0 .0
16
M arch 2 4 , 1925# g r a n t i n g t h e l a t t e r a c o n c e s s i o n f o r
s e v e n t y - f i v e y e a r s . The m a jo r p r o v i s i o n s o f t h e a g r e e
m en t w ere:
1 . E x c l u s i v e o i l r i g h t s t o t h e T u r k is h P e tr o le u m
Company i n a l l o f I r a q e x c e p t th e V i l a y a t o f
B a s ra h an d t h e " t r a n s f e r r e d t e r r i t o r i e s " f o r
a p e r i o d o f s e v e n t y - f i v e y e a r s , a t t h e end o f
w h ich tim e a l l t h e com pany*s p r o p e r t y was to
r e v e r t to t h e G overnm ent o f I r a q , f r e e o f
c h a r g e . ( A r t i c l e s 1 , 2 , and 3)
2 . The company was to p r e p a r e a g e o l o g i c a l s u r
v e y w i t h i n e i g h t m o n th s; w i t h i n t h i r t y - t w o
m o n th s , i t was to s e l e c t t w e n t y - f o u r r e c
t a n g u l a r p l o t s , e a c h o f a n a r e a o f e i g h t
s q u a r e m i l e s ; i t was t o commence d r i l l i n g
w i t h i n t h r e e y e a r s . ( A r t i c l e s 4 and 5)
3 . The g o v e rn m e n t s h a l l , n o t l a t e r t h a n f o u r
y e a r s a f t e r t h e d a t e o f t h i s c o n v e n tio n ,
an d a n n u a l l y t h e r e a f t e r , s e l e c t n o t l e s s
t h a n t w e n t y - f o u r r e c t a n g u l a r p l o t s , e a c h o f
a n a r e a o f e i g h t s q u a r e m i l e s , and th e
g o v e rn m e n t s h a l l o f f e r t h e same f o r c o m p e ti
t i o n b y s e a l e d t e n d e r b e tw e e n a l l r e s p o n s i b l e
c o m p a n ie s, f i r m s and I n d i v i d u a l s w i t h o u t
d i s t i n c t i o n o f n a t i o n a l i t y , who d e s i r e l e a s e s .
( A r t i c l e 6 )3
4 . The company i s t o p a y t h e g o v e rn m e n t o f I r a q
r o y a l t i e s o f f o u r s h i l l i n g s ( g o ld ) p e r m e t r i c
t o n o n n e t o i l p r o d u c t i o n f o r tw e n ty y e a r s
a f t e r t h e c o m p le tio n o f i t s p i p e l i n e ; t h e r e
a f t e r , t h e tim e p ay m en ts a r e t o be b a s e d on
t h e m a rk e t v a l u e o f o i l a v e r a g e d o v e r a t e n -
y e a r p e r i o d . ( A r t i c l e s 1 0 , 1* and 12)
5 . The company m u st r e m a in a B r i t i s h company
r e g i s t e r e d i n G r e a t B r i t a i n and i t s c h a irm a n
i s to b e , a t a l l t i m e s , a B r i t i s h s u b j e c t .
( A r t i c l e 32)
Red L in e A g reem en t
A m e ric a n b u s i n e s s was c r i t i c a l o f n o t h a v in g a
s h a r e I n I r a q i o i l t o g e t h e r w ith t h e B r i t i s h an d F r e n c h
g ro u p s i n t h e T u r k is h P e tr o le u m Company. The A m e ric a n
c o m p an ies who w ere i n t e r e s t e d w ere; S t a n d a r d O i l o f New
J e r s e y , S t a n d a r d O i l o f New Y o rk , G u lf C o r p o r a t i o n ,
3
^ T h is p r o v i s i o n was I n c lu d e d on t h e com pany*s own
v o l i t i o n b e c a u s e o f t h e i n s i s t e n c e by t h e A m e ric a n s o n
t h e m a in te n a n c e o f a n " o p e n d o o r p o l i c y , "
18
A t l a n t i c R e f i n i n g Company, M ex ican P e tr o le u m Company,
an d S i n c l a i r C o n s o l i d a t e d O i l C o r p o r a t i o n . The A m e ric a n
g r o u p , b e in g s u p p o r te d by t h e S t a t e D e p a rtm e n t i n t h e i r
s t r u g g l e w ith t h e T u r k is h P e tr o le u m Company, was a b l e to
p a r t i c i p a t e w i t h th e f o rm e r an d w ere g i v e n 2 3 .7 5 p e r c e n t
A
o f t h e s h a r e s .
On J u l y 31» 1 9 2 8 , a l l t h e members o f t h e T u r k is h
P e tr o le u m Company s i g n e d t h e g ro u p s a g re e m e n t w h ich
l i m i t e d t h e a c t i v i t i e s o f e a c h p a r t i c i p a n t by t h e r e d
l i n e , a n d , h e n c e , becam e known a s t h e "Red L in e A g r e e
m e n t."
The d i s t r i b u t i o n o f t h e T u r k is h P e tr o le u m Company
a f t e r t h e A m e ric a n g ro u p e n t e r e d i s shown i n T a b le A.
The A m e ric a n g ro u p was o r g a n i z e d i n F e b r u a r y ,
1 9 2 8 , a s t h e N e ar E a s t D e v elo p m en t C o r p o r a t i o n . A few
y e a r s l a t e r , G u l f , A t l a n t i c , a n d M ex ican s o l d t h e i r i n
t e r e s t s t o S t a n d a r d O i l o f New J e r s e y a n d S ta n d a r d O i l
o f New I o r k , t h a t l a t e r becam e t h e Socony-V acuum O i l
Company i n 1 9 3 1 . A nd, i n 1929» t h e name o f t h e T u r k is h
P e tr o le u m Company was c h an g ed to t h e I r a q P e tr o le u m Com
p a n y .
^ F o r e ig n R e l a t i o n s . V o l. I I ( 1 9 2 6 ) , p . 36A.
19
TABLE if
THE DISTRIBUTION OF SHARES IN THE TURKISH PETROLEUM
COMPANY AFTER THE AMERICAN GROUP ENTERED IN 1928
Group Percentages
Anglo-Persian Oil Company*
2 3 .7 5
Royal-Dutch Shell Company
2 3 .7 5
Campagnie Francaise des Petrole
2 3 .7 5
American Group
2 3 .7 5
Gulbenkian 5 .0 0
Total 1 0 0 .0 0
*The A n g l o - P e r s i a n O i l Company g a v e 25 p e r c e n t
o f I t s h o l d i n g s to t h e A m e ric a n g ro u p i n e x ch a n g e f o r
t a k i n g 10 p e r c e n t o v e r r i d i n g r o y a l t i e s from o t h e r p a r t
n e r s i n t h e T u r k is h P e tr o le u m Company on a l l t h e o i l o b
t a i n e d from t h e t w e n t y - f o u r p l o t s r e s e r v e d f o r e x c l u s i v e
e x p l o i t a t i o n by t h e T u r k is h P e tr o le u m Company. I n 1931*
h o w e v e r, when t h e c o n c e s s i o n was r e v i s e d to c o v e r 3 2 ,0 0 0
s q u a r e m il e s t o t h e a r e a e a s t o f th e T i g r i s R i v e r , t h e
i s s u e o f t h e 10 p e r c e n t o v e r r i d i n g r o y a l t y was re o p e n e d ;
i n Novem ber 193^» a com prom ise was r e a c h e d , s u b s t i t u t i n g
a 7*5 p e r c e n t f o r t h e 10 p e r c e n t r o y a l t y a n d c o v e r in g
t h e a r e a o f t h e new c o n c e s s i o n . The r o y a l t y was to be
p a i d i n c ru d e o i l d e l i v e r e d to t h e A n g l o - P e r s i a n O i l
Company f r e e o f c o s t a t t h e f i e l d , w ith th e I r a q P e t r o -
- leum Company p a y in g th e r o y a l t y t o I r a q . B e n ja m in
S h w ad ra n , The M id d le E a s t O i l a n d t h e G r e a t P o w ers (New
Y ork: C o u n c il f o r M id d le E a s t e r n A f f a i r s P r e s s , 195^ ) ,
p. 21+6,
I r a q P e tr o le u m C o n c e s s io n
One o f t h e p r o v i s i o n s o f t h e 1925 a g re e m e n t was
t h a t t h e I r a q P e tr o le u m Company was t o c h o o se tw e n ty -
f o u r p l o t s , e a c h e i g h t s q u a r e m i l e s , a n d t h e G overnm ent
o f I r a q was to o f f e r t h e r e m a in in g t e r r i t o r y f o r c o m p e ti
t i v e b id d in g * The new c o n c e s s i o n g a v e t h e company t h e
r i g h t t o e x p l o i t a l l l a n d s s i t u a t e d t o t h e e a s t o f t h e
T i g r i s H i v e r , c o v e r i n g a n a r e a o f 3 2 ,0 0 0 s q u a r e m i l e s .
T he company was o b l i g e d t o b u i l d a p i p e l i n e t o th e
M e d i te r r a n e a n , w ith a c a p a c i t y o f n o t l e s s t h a n t h r e e
m i l l i o n t o n s a y e a r , a n d t o c o m p le te i t b e f o r e t h e end
o f 1935* a n d to p a y 4 0 0 ,0 0 0 po u n d s s t e r l i n g ( g o l d ) . D ead -
r e n t payments-* w ere t o b e g in a t 1 0 0 ,0 0 0 po u n d s s t e r l i n g
a y e a r an d r i s e t o 2 0 0 , 0 0 0 ; t h e g o v e rn m e n t was t o be en
t i t l e d t o 20 p e r c e n t o f a l l o i l p r o d u c e d . T he company
was exem pt fro m t a x e s I n c o n s i d e r a t i o n o f y e a r l y pay m en ts
to t h e g o v e rn m e n t o f 9*000 p o u n d s s t e r l i n g ( g o ld ) up to
t h e tim e o f c o m m e rc ia l e x p o r t s , a n d t h e r e a f t e r 6 0 ,0 0 0
p o u n d s s t e r l i n g ( g o ld ) on t h e f i r s t 4 ,0 0 0 ,0 0 0 to n s p r o
d u c e d a n d p ro r a t a , ' a n d 2 0 ,0 0 0 po u n d s s t e r l i n g ( g o ld ) on
e a c h a d d i t i o n a l m i l l i o n to n s p ro d u c e d a n d p ro r a t a .
- 'D e a d - r e n t, a f i x e d a n n u a l sum p a i d by t h e com
p a n i e s t o t h e G overnm ent o f I r a q fro m t h e d a t e t h e a g r e e
m ent was s ig n e d u n t i l t h e e x p o r t o f o i l by t h e c o m p a n ie s .
21
The s u p p ly o f r e f i n e d p r o d u c t s t o I r a q was to be
s e c u r e d by t h e com pany, a t a s k I n f a c t t r a n s f e r r e d — w ith
g o v e rn m e n t c o n s e n t — t o t h e K h a n a q in O i l Company, a n d l a t e r
t o t h e R a f i d a i n O i l C om pany.^
M osul P e tr o le u m C o n c e s s io n
The I r a q P e tr o le u m Company was n o t t h e l a s t com
p a n y t o g e t a c o n c e s s i o n from th e G overnm ent o f I r a q .
T he B r i t i s h O i l D e v elo p m en t Company, w h ich h a d b e e n form ed
by a s m a ll E n g l i s h g ro u p i n 1 9 2 4 , was s e e k i n g a c o n c e s s i o n
from t h e g o v e rn m e n t. I t e n t e r e d i n t o n e g o t i a t i o n s w ith
t h e g o v e rn m e n t a n d t h e I r a q P e tr o le u m Company i n 1 9 2 8 ,
a s k i n g f o r a c o n c e s s i o n f o r t h e a r e a w e s t o f t h e T i g r i s .
By t h i s t im e , t h e A m e ric a n G overnm ent was a s k i n g a n e q u a l
o p p o r t u n i t y f o r a l l t h e p a r t i e s in v o lv e d w i t h o u t d i s c r i m
i n a t i o n o n a n a t i o n a l b a s i s f o r a n y o f f e r . The A m e ric a n
G overnm ent w a n ted t h e I r a q i G overnm ent t o p u t up f o r p u b l i c
7
t e n d e r e v e r y c o n c e s s i o n b e f o r e g r a n t i n g i t . To m e e t t h e
A m e ric a n o b j e c t i o n s , t h e I r a q i G overnm ent a c c e p t e d t h e
o f f e r from t h e B r i t i s h O i l D e v e lo p m e n t by t h e end o f 1 9 3 1 ,
Q
b e c a u s e i t was t h e b e s t o n e , a n d r e j e c t e d t h e o t h e r s .
^G overnm ent o f I r a q , w o rk in g t e x t o f c o n v e n tio n
w i t h t h e G overnm ent o f I r a q , o n M arch 1 4 , 1925 (B aghdad:
G overnm ent P r e s s , 1 9 6 2 ) .
^F o r e i g n R e l a t i o n s . V o l. I I (1 9 3 1 ). P P . 6 0 7 -6 0 8 .
8I b i d . . p . 6 1 0 .
22
The B r i t i s h O i l D ev elo p m en t Company, i n t h e s p r i n g
o f 1 9 3 2 , o b t a i n e d a s e v e n t y - f i v e y e a r c o n c e s s io n c o v e r i n g
a l l t h e la n d i n t h e V i l a y a t s o f M osul and B aghdad w e s t o f
t h e T i g r i s R iv e r and n o r t h o f t h e 3 3 rd p a r a l l e l ( a b o u t
*4-6,000 s q u a r e m i l e s ) . The company was to p a y t h e G o v ern
m ent o f I r a q 1 0 0 ,0 0 0 pounds s t e r l i n g i n 1 9 3 3 . i n c r e a s i n g
t h i s by 25 ,0 0 0 p o u n d s s t e r l i n g ( g o ld ) a n n u a l l y up to
2 0 0 ,0 0 0 . T h is was a d e a d - r e n t p a y a b le to t h e g o v e rn m e n t
by t h e company a n n u a l l y u n t i l t h e d i s c o v e r y o f o i l on a
c o m m e rc ia l b a s i s . The g o v e rn m e n t was to t a k e up t o 20
p e r c e n t o f th e o i l f r e e o f c h a r g e f o r l o c a l c o n s u m p tio n .
R o y a l t i e s w ere to be f o u r s h i l l i n g s (g o ld ) on e a c h m e t r i c
t o n o f o i l . The com pany was exem pt from t a x e s i n c o n
s i d e r a t i o n o f y e a r l y p ay m en ts t o t h e g o v e rn m e n t o f 1 ,0 0 0
p o u n d s s t e r l i n g up t o t h e tim e o f c o m m e rc ia l e x p o r t . The
company was a l s o t o b u i l d a p i p e l i n e w ith a minimum c a p a c
i t y o f 1 , 00 0,00 0 to n s a n n u a l l y , o r t o t r a n s f e r t h a t am ount
f o r e x p o r t by some o t h e r m e a n s .^
I n 1 9 3 2 , t h e M osul O i l F i e l d s L t d . , w ith B r i t i s h ,
I t a l i a n , Germ an, D u tc h , F r e n c h - S w is s , and I r a q i h o l d i n g s
was o r g a n iz e d f o r t h e p u rp o s e o f a c q u i r i n g t h e c a p i t a l o f
B r i t i s h O i l D e v e lo p m e n t, w h ile l e a v i n g t h e l a t t e r to o p e r
a t e i n t h e f i e l d .
Q
7S h w ad ran , o g . c l t . . p . 2*4*9.
I n 1 9 3 5 . t h e I t a l i a n s becam e m a j o r i t y s h a r e
h o l d e r s w ith a 52 p e r c e n t h o l d i n g . T h is h a p p en ed b e
c a u s e i t was d i f f i c u l t to a t t r a c t f u r t h e r B r i t i s h c a p i t a l
on s u i t a b l e t e r m s .
I n 1 9 3 6 , th e I r a q i P e tr o le u m Company form ed th e
M osul H o ld in g s L t d . , f o r t h e p u rp o s e o f a c q u i r i n g t h e
s h a r e s o f M osul O i l F i e l d s , w hich th e y d i d I n 1 9 3 7 . and
t h e I r a q i P e tr o le u m Company c o n t r o l l e d t h e f o r m e r . T h is
c o n t r o l was n o t s u f f i c i e n t , b u t becam e th e ow ner o f a l l
t h e s h a r e s i n 1 9 ^ 1 , and t h e M osul H o ld in g s w ere renam ed
t h e M osul P e tr o le u m Com pany.^-0
The B a s r a h P e tr o le u m C o n c e s s io n
I t was somehow d i f f i c u l t f o r t h e G overnm ent o f
I r a q t o f i n d s u i t a b l e c o n c e s s i o n a i r e s o f o i l I n s o u t h e r n
p a r t s o f I r a q , n a m e ly , B a s r a h V i l a y a t . The m ain r e a s o n
f o r t h i s d i f f i c u l t y was t h a t no g ro u p was s u r e o f th e
p o s s i b i l i t i e s o f o i l on a c o m m e rc ia l b a s i s i n t h i s a r e a .
B u t t h e d i s c o v e r y o f some i m p o r t a n t o i l f i e l d s i n B a h r a in
and A l- H a s s a i n 1932 l e d th e I r a q P e tr o le u m Company i n
1937 t o s e e k a c o n c e s s i o n f o r t h i s a r e a t o o . An a g re e m e n t
was re a c h e d b e tw e e n th e I r a q P e tr o le u m Company an d th e
g o v e rn m e n t i n 1938 t o e x p l o i t o i l i n B a s r a h . The a g r e e
m ent was f o r s e v e n t y - f i v e y e a r s . O n .th e w h o le , I t was
10L o n g r ig g , ojd* c l t . . p p . 7 9 -8 0 .
24
s i m i l a r t o t h a t o f t h e M osul O i l Company. By fo rm in g
t h e B a s r a h P e tr o le u m Company, t h e w hole o f I r a q came
u n d e r t h e c o n t r o l o f t h e I r a q P e tr o le u m Company. The
B a s r a h P e tr o le u m Company b e g a n p r o d u c in g and e x p o r t i n g
o i l i n 1 9 5 1 . 11
The P e r i o d A f t e r W orld VJar I I
The o u t b r e a k o f W orld War I I had a d i r e c t e f f e c t
on t h e o i l i n d u s t r y i n I r a q . The p r o j e c t to d o u b le t h e
M e d i te r r a n e a n p i p e l i n e was p o s tp o n e d . E x p l o r a t i o n work
i n t h e B a s ra h a r e a had a lm o s t s t o p p e d . The i n t e r r u p t i o n
i n s u p p l i e s and c o m m u n ic a tio n s was a v e r y s e r i o u s h a n d i
c ap t o a l l o p e r a t i o n s . The a n t i - B r i t i s h f e e l i n g i n I r a q
a n d t h e dam age t o some o f th e c o m p a n y 's p r o p e r t i e s p la c e d
some d i f f i c u l t y on t h e i r o p e r a t i o n s .
A l l o f t h e s e f a c t o r s w ere r e s p o n s i b l e , t h e r e
f o r e , i n one way o r a n o t h e r f o r th e d i s t u r b a n c e i n t h e
o i l i n d u s t r y and t h e r e d u c t i o n i n o i l p r o d u c t i o n . F o r
t u n a t e l y , t h i s s i t u a t i o n l a s t e d f o r o n ly a s h o r t p e r i o d
o f t im e . By 1 9 4 2 , t h e I r a q P e tr o le u m Company was a b l e
to c a r r y o u t i t s o p e r a t i o n s a g a i n a s b e f o r e t h e w a r.
" ^ I r a q P e tr o le u m Company, I r a q O i l i n 1951
(L ondon: 1 9 5 2 ) , P* 2 1 .
End o f t h e Bed L in e A g reem en t
The Red L in e A g reem en t im p osed r e s t r i c t i o n s o n
t h e fre e d o m o f i t s s i g n a t o r i e s t o e n t e r w h a te v e r f i e l d o f
d e v e lo p m e n t o r t r a d e th e y w is h e d . The A m e ric an g ro u p s
d i s l i k e d t h e s e r e s t r i c t i o n s b e c a u s e th e y w ere n o t a b l e
to e n t e r i n t o t h e A r a b ia n o i l d e v e lo p m e n t. T h e r e f o r e ,
th e y in fo rm e d t h e I r a q P e tr o le u m Company t h a t t h e Red
L in e A g re em en t s h o u ld no l o n g e r be f o llo w e d , an d f u r t h e r
a n n o u n ce d t h e i r a g re e m e n t t o a c q u i r e c o n s i d e r a b l e s h a r e s
i n t h e A ra b la n -A m e ric a n Company (A ra m c o ).
A f t e r a lo n g c o n t r o v e r s y and n e g o t i a t i o n s , t h e
A m e ric a n s , t h e F r e n c h , t h e A n g l o - I t a l i a n , and S h e l l
r e a c h e d a n a g re e m e n t i n 1 9 ^ 8 . U n d er t h i s a g re e m e n t,
Socony-V acuum and New J e r s e y w ere f r e e t o e n t e r t h e
A r a b ia n -A m e ric a n Company. F u r th e r m o r e , a s p e c i f i c d e
v e lo p m e n t p ro g ram f o r I r a q was l a i d down an d a g e n e r a l
p r i c e fo r m u la a n d p r i c e f o r i n t e r g r o u p s a l e s w ere p r e s
c r i b e d . 12
The 19*52 A g re e m e n ts
I n 19*1-8 t h e I r a q i G overnm ent a s k e d th e I r a q
P e tr o le u m Company f o r a n i n c r e a s e i n r o y a l t i e s . An A g re e
m en t was r e a c h e d i n 1950 t o i n c r e a s e t h e r o y a l t i e s from
12L o n g r ig g , ojs. o l t . . p p . 17^ - 1 7 5 .
26
f o u r to s i x s h i l l i n g s (g o ld ) p e r m e t r i c t o n . A f t e r th e
B r i t i s h se c o n d d e v a l u a t i o n o f s t e r l i n g i n S e p te m b e r 19^9*
t h e g o ld p ro b le m becam e c o m p lic a te d b e tw e e n t h e I r a q
P e tr o le u m Company an d t h e g o v e rn m e n t. T hey to o k th e s u b
j e c t to a r b i t r a t i o n , b u t t h e g o v e rn m e n t was n o t s a t i s
f i e d w i t h th e r e c o u r s e o f t h e a r b i t r a t i o n p r o c e d u r e s .
T h e r e f o r e , i t d e c id e d to t a k e t h e d i s p u t e t o a n E n g l i s h
C o u r t . B u t, f i n a l l y , t h e two a g re e d to e n t e r n e g o t i a
t i o n s a n d s o l v e t h e d i s p u t e o u t s i d e o f c o u r t .
Two i m p o r t a n t f a c t o r s h e lp e d th e I r a q i G o v ern
m ent t o i n c r e a s e i t s r o y a l t i e s fro m o i l an d r e v i s e t h e
a g re e m e n t w ith t h e I r a q P e tr o le u m Company:
1 . The A ra b ia n -A m e ric a n Company a g re e m e n t w ith
S a u d i A r a b ia t o a f i f t y - f i f t y p r o f i t - s h a r i n g
a r r a n g e m e n t .
2 . The n a t i o n a l i z a t i o n by I r a n o f I t s o i l i n -
*
d u s t r y . H a v in g t h e s e f a c t o r s i n m ind, th e
I r a q i P r e m ie r (N u ri A l - S a i d ) t h r e a t e n e d t h e
o i l c o m p a n ie s t h a t i f th e y d i d n o t m ee t I r a q * s
demand f o r h i g h e r r o y a l t i e s , e q u a l t o t h o s e
p a id to S a u d i A r a b ia a n d I r a n , an d paym ent i n
v a l u e o f g o ld o n a f r e e m a r k e t b a s i s , th e y
m ig h t l o s e t h e i r c o n c e s s i o n s .
The t h r e a t a t t a i n e d i t s o b j e c t i v e an d a n a g r e e
m en t was s ig n e d o n F e b r u a r y 3» 1952 b e tw e e n t h e G overnm ent
27
o f I r a q a n d t h e I r a q O i l Company and i t s s u b s i d i a r i e s .
Among o t h e r p r o v i s i o n s , t h e f o l l o w i n g seem ed m o st
I m p o r ta n t:
1 . The g o v e rn m e n t was t o s h a r e o n a f i f t y - f i f t y
b a s i s i n t h e p r o f i t s r e s u l t i n g from t h e o p e r a
t i o n s o f t h e co m p an ies b e f o r e d e d u c t i o n o f
t a x e s . I n a d d i t i o n , e a c h o f t h e co m p a n ie s
was t o p a y a n n u a l l y 2 0 ,0 0 0 po unds s t e r l i n g
f o r t a x co m m u tatio n # ( A r t i c l e s 2 a n d 9)
2 . The o p t i o n o f th e g o v e rn m e n t i n t a k i n g o v e r
1 2 .5 p e r c e n t o f t h e n e t p r o d u c t i o n o f e a c h
company a s p a r t o f i t s s h a r e o f t h e p r o f i t s ,
and s e l l i t i n t h e o p e n m a r k e t, o r s e l l i t
b ack t o t h e co m p a n ie s a t c u r r e n t w o rld
p r i c e s . ( A r t i c l e 3)
3 . The c o m p an ies to g u a r a n t e e t h e g o v e r n m e n t s
s h a r e i n e a c h c a l e n d a r y e a r t o be n o t l e s s
t h a n 25 p e r c e n t o f t h e n e t p r o d u c t i o n v a l u e
a t p o s t e d p r i c e s o f t h e I r a q P e tr o le u m Company
a n d t h e M osul P e tr o le u m Company a n d 33 1 /3 p e r
c e n t o f t h e B a s r a h P e tr o le u m Company.
( A r t i c l e 4)
4 . The g u a r a n t e e o f t h e o i l co m p a n ie s t o p ro d u c e
t h e am ounts b e g in n in g a t s p e c i f i c d a t e s a s
f o l lo w s a n d f o r t h e l i f e o f t h e a g re e m e n t.
( A r t i c l e 5) I r a q P e tr o le u m Company— 2 0 .7 5
m i l l i o n t o n s , b e g in n in g J a n u a r y 195^* M osul
P e tr o le u m Company— 1 .2 5 m i l l i o n t o n s — b e g i n
n i n g J a n u a r y 195^* B a s ra h P e tr o le u m C om pany--
8 .0 0 m i l l i o n t o n s — b e g in n in g J a n u a r y 1 9 6 6 .
A l l t h e c o m p an ies h a v e to g u a r a n t e e t h a t t h e
s h a r e o f t h e g o v e rn m e n t s h a l l n o t be l e s s th a n
20 m i l l i o n pounds s t e r l i n g f o r 1955 and t h e r e
a f t e r . ( A r t i c l e 6 )
The co m p a n ie s t o s u p p ly t h e g o v e rn m e n t r e
f i n e r y w i t h a l l t h e c ru d e o i l n e c e s s a r y f o r
l o c a l c o n su m p tio n a t 5*5 s h i l l i n g s p e r t o n .
The a c c e p t a n c e o f th e co m p a n ie s t o c h a n g e t h e
a g re e m e n ts i n f a v o r o f th e g o v e rn m e n t, i f t h e
s h a r e o f n e a r - b y g o v e rn m e n ts from r o y a l t i e s
w ere t o i n c r e a s e .
The a c c e p t a n c e o f t h e co m p a n ie s to a p p o i n t
two I r a q i d i r e c t o r s i n e a c h com pany.
The c o m p a n ie s t o se n d a t t h e i r own e x p e n se
f i f t y I r a q i s t u d e n t s a n n u a l l y t o B r i t i s h
u n i v e r s i t i e s f o r s p e c i a l i z e d s t u d i e s i n o i l
i n d u s t r y , a n d t h e I r a q P e tr o le u m Company t o
e s t a b l i s h a s c h o o l i n K irk u k to t r a i n t h e
I r a q i w o r k e r s .
29
1 0 . I n c a s e o f p r o d u c t i o n b e in g h a l t e d f o r a n y
r e a s o n o u t s i d e t h e pow er o f t h e g o v e rn m e n t
o r "a n a c t o f G o d ," t h e co m p an ies s h o u ld p a y
t h e g o v e rn m e n t 5 m i l l i o n p o u n d s s t e r l i n g a
13
y e a r f o r two y e a r s . ^
Law No. 80 o f 1961
C o n d i ti o n s p r i o r t o th e Law . T a lk s had b e e n g o in g
on s i n c e J u l y 20, 1958 b e tw e e n t h e G overnm ent o f I r a q an d
t h e o i l c o m p a n ie s c o n c e r n in g t h e d e s i r e o f I r a q to work
o u t some c h a n g e s i n i t s o i l c o n c e s s i o n s to m eet th e
p r e s e n t s i t u a t i o n and t o s a t i s f y an d r e s t o r e t h e r i g h t s
o f I r a q i p e o p l e . T h e se t a l k s l a s t e d f o r a lm o s t t h r e e
y e a r s , when t h e y f i n a l l y w ere b ro k e n o f f on O c to b e r 1 1 ,
1 9 6 1 . T h e se t a l k s c o v e re d t h r e e m ain i s s u e s on w h ich t h e
g o v e rn m e n t w an ted some s o r t o f a g re e m e n t to be r e a c h e d .
T h e se I s s u e s w ere: (1 ) a r e a s u n d e r c o n c e s s i o n ; (2) i n
c r e a s e i n I r a q ' s s h a r e o f o i l p r o f i t s ; and ( 3 ) I r a q p a r
t i c i p a t i o n , s u c h a s , f a s t e r I r a q i z a t i o n , m anagem ent p a r
t i c i p a t i o n , s u p e r v i s i o n o f t h e c o m p a n ie s ' e x p e n d i t u r e s ,
p r e f e r r e d t r e a t m e n t f o r I r a q i- o w n e d t a n k e r s i n t r a n s
p o r t i n g o i l , an d tw e n ty p e r c e n t s h a r e i n t h e o i l compan
i e s ' s t o c k .
13
^Law N o. k o f 1952 R a t i f y i n g t h e A g re e m e n t, I r a q
O i l i n 1 9 5 1 . p p . 1 5 - 1 8 .
30
A re a s u n d e r c o n c e s s i o n * I n m o st c o u n t r i e s
a c c u sto m e d t o g r a n t i n g c o n c e s s i o n s f o r o i l e x p l o r a t i o n
an d e x p l o i t a t i o n , i n d e f i n e d a r e a s , t h e s e a r e a s u s u a l l y
w ere d i v i d e d i n t o s q u a r e o r r e c t a n g u l a r p l o t s , The c a s e
i n t h e I r a q i c o n c e s s i o n s was q u i t e d i f f e r e n t , and a t t h e
same tim e s t r a n g e . T h e se c o n c e s s i o n s made a lm o s t a l l o f
I r a q come u n d e r t h e c o n t r o l o f t h e o i l c o m p a n ie s . The
o i l c o m p a n ie s, a s a c o n s e q u e n c e had b e e n m o n o p o liz in g a l l
o f t h e I r a q i t e r r i t o r y s i n c e t h e g r a n t i n g o f th e c o n c e s
s i o n s to th em . T h e r e f o r e , t h e y had r e c e i v e d g r e a t b e n e
f i t s f o r t h e s m a ll num ber o f w e l ls d r i l l e d w hich sa v e d
them much c o s t s .
The co m p an ies c la im t h a t t h e r e i s no p r o v i s i o n I n
t h e i r a g re e m e n t t o t u r n b ack a n y l a n d p r i o r t o t h e end o f
t h e i r s e v e n t y - f i v e y e a r c o n c e s s i o n . H ow ever, t h e y show ed
t h e i r w i l l i n g n e s s t o s u r r e n d e r 9 0 ,0 0 0 s q u a r e m il e s o f
t h e i r o r i g i n a l c o n c e s s i o n a r e a , p r o v id e d t h e y c o u ld s e l e c t
lA
t h e a r e a s t o be r e l i n q u i s h e d .
I n c r e a s e i n I r a q * s s h a r e o f t h e o i l p r o f i t s . I n
o r d e r to g e t a good p i c t u r e o f t h e p r o f i t s c a l c u l a t i o n ,
on e m u st lo o k a t t h e f o l lo w in g : (1 ) t h e c a l c u l a t i o n o f
o i l p r o d u c t i o n c o s t s , a n d ( 2 ) t h e p r i c i n g s y s te m .
^ O i l and Gas J o u r n a l . A p r il 1 0 , 1961.
31
F i r s t , t h e I r a q i G o v ern m en t, p r i o r t o 1 9 5 2 ,
r e c e i v e d i t s r e c e i p t s from o i l co m p a n ie s a s a f i x e d
am ount o n e a c h t o n o f c ru d e o i l p r o d u c e d . T h is am ount
was f o u r s h i l l i n g s ( g o ld ) o n e a c h t o n , c h an g ed t o s i x
s h i l l i n g s ( g o ld ) l a t e r . The A g re em en t o f 1952 c h an g ed
t h i s p i c t u r e . The c o s t s w ere d e f i n e d i n s u c h a way a s to
p r o t e c t t h e i n t e r e s t s o f I r a q a n d a t t h e same tim e c a u s e
no harm to t h e c o m p a n ie s . H ow ever, t h e c o m p a n ie s n e v e r
f o llo w e d t h i s p r a c t i c e .
A r t i c l e (1) o f t h e 1 9 5 2 A g re em en t d e f i n e d t h e
a c t u a l c o s t s o f o i l p r o d u c t i o n fro m I r a q a s b e in g t h e
a g g r e g a t e c o s t s d e te r m in e d by so u n d a n d c o n s i s t e n t a c c o u n t
i n g m eth o d s f a i r l y a n d p r o p e r l y a t t r i b u t a b l e t o t h e o p e r a
t i o n s o f t h e c o m p a n ie s i n I r a q w i t h r e g a r d t o : (1 ) o p e r a
t i n g e x p e n s e s a n d o v e rh e a d ; ( 2 ) d e p r e c i a t i o n o f a l l p h y s
i c a l a s s e t s i n I r a q a t t h e r a t e o f 10 p e r c e n t p e r annum;
a n d (3 ) a m o r t i z a t i o n o f a l l o t h e r c a p i t a l e x p e n d i t u r e i n
I r a q a t t h e r a t e o f 5 p e r c e n t p e r annum .
I t was d e te r m in e d t h a t t h e c o s t s w e re t h i r t e e n
s h i l l i n g s p e r t o n a s o f 1953* B u t t h e o i l c o m p a n ie s w ere
r e c o v e r i n g , i n a d d i t i o n t o t h e s e c o s t s , t h e d e a d - r e n t w h ich
t h e y p a id t o t h e g o v e rn m e n t a t 5 p e r c e n t a n n u a l l y . The
sum p a id by t h e M osul p e tr o le u m Company was ^ ,^ 6 2 ,5 1 6
pou nds s t e r l i n g , a n d t h a t p a i d by t h e B a s r a h P e tr o le u m
Company was 5»5 1 5 /0 0 0 po u n d s s t e r l i n g , w h ile t h e I r a q
32
P e tr o le u m Company h a d a l r e a d y d e d u c te d m o st o f th e d e a d -
r e n t b e f o r e t h e e n fo rc e m e n t o f t h e 1952 A g re em en t b e g a n .
T h e re w ere no p r o v i s i o n s i n a n y o f t h e a g re e m e n ts
t o r e c o v e r t h e s e sums p a id by t h e o i l co m p an ies t o t h e
g o v e rn m e n t a s d e a d - r e n t . T h e r e f o r e , t h e c o m p a n ie s, by
r e c o v e r i n g t h e s e sum s, w ere i n e f f e c t a d d in g t o t h e c o s t
s i d e s o m e th in g w h ich th e y th e m s e lv e s — n o t t h e g o v e rn m e n t—
w ere t o b e a r .
F u r th e r m o r e , t h e co m p a n ie s a m o r t iz e d a l l t h e sums
w h ic h th e y s p e n t o n o i l e x p l o r a t i o n a n d o i l w e ll d r i l l i n g
o p e r a t i o n s a t o n c e i n t h e same y e a r i n w hich t h e y w ere
s p e n t . The g o v e rn m e n t i s o f t h e o p i n i o n t h a t t h e com
p a n ie s s h o u ld a m o r t iz e t h e s e e x p e n d i t u r e s o v e r a p e r i o d
o f tim e , s i n c e o i l w e l l s do n o t g i v e t h e i r y i e l d i n one
y e a r , b u t h a v e a tim e s p a n . I n d e e d , t h e 1 9 5 z A g reem en t
s t a t e s e x p l i c i t l y t h a t " a l l c a p i t a l e x p e n d i t u r e s i n I r a q
s h o u ld b e a m o r tiz e d a t t h e r a t e o f 5 p e r c e n t a n n u a l l y . ”
T h is I s t h e p r a c t i c e w h ich h a s b e e n f o llo w e d by o t h e r o i l
c o m p a n ie s . T h e se p r a c t i c e s by t h e o i l co m p a n ie s d i r e c t l y
a f f e c t t h e g o v e r n m e n t s s h a r e , a n d r e s u l t i n a r e d u c t i o n
o f i t s s h a r e .
S e c o n d ly , A r t i c l e (1 ) o f t h e 1952 A g reem en t d e
f i n e d t h e " p o s te d p r i c e s " o f I r a q i o i l a s b e in g :
33
. . . th e p r i c e s ( e x p r e s s e d i n s h i l l i n g s p e r to n )
f . o . b . , S e a b o rd t e r m i n a l f o r I r a q c ru d e o i l o f
t h e g r a v i t y and q u a l i t y c o n c e rn e d a r r i v e d a t by
r e f e r e n c e t o f r e e m a rk e t p r i c e s f o r i n d i v i d u a l
c o m m e rc ia l s a l e s o f f u l l c a r g o e s and i n a c c o r d
a n c e w ith t h e p r o c e d u r e to be a g r e e d upon b e
tw een t h e g o v e rn m e n t and th e c o m p a n ie s, o r i f
t h e r e i s no f r e e m a rk e t f o r c o m m e rc ia l s a l e s o f
f u l l c a r g o e s o f I r a q c r u d e o i l t h e n p o s te d
p r i c e s s h a l l mean f a i r p r i c e s f i x e d by a g r e e
m ent b e tw e e n t h e g o v e rn m e n t a n d t h e c o m p an ies
o r i n d e f a u l t o f a g re e m e n t by a r b i t r a t i o n . 15
As w i l l be s e e n l a t e r , t h e o i l co m p a n ie s o p e r a t i n g i n I r a q
do n o t h a v e a n y m a rk e t f a c i l i t i e s , t h e r e f o r e , th e y s e l l
a l l th e o i l p ro d u c e d t o t h e i r p a r e n t c o m p an ies a t c o s t
p l u s a f e e o f one s h i l l i n g p e r t o n .
The c o m p a n ie s, t o m ax im ize t h e i r p a r e n t c o m p a n ie s '
p r o f i t s — and t h e r e b y t h e i r own— s e l l I r a q o i l to th e
p a r e n t c o m p a n ie s a t p r i c e s b elo w t h e p o s te d p r i c e s o f
o t h e r o i l i n t h e a r e a , t a k i n g th e d i f f e r e n c e a s p u re
p r o f i t s .
The co m p a n ie s s t a r t e d t o m a n ip u la te t h e p r i c e s
o f I r a q i o i l from tim e to tim e i n a m an ner i n s u r
in g t h e i r i n t e r e s t and i n c r e a s i n g t h e i r e x o r b i t a n t
p r o f i t s a t t h e e x p e n s e o f th e I r a q i p e o p l e . I f
c ir c u m s ta n c e s c a l l e d f o r t h e i n c r e a s e I n t h e p o s te d
p r i c e s f o r o i l I n o i l m a r k e ts , t h e p o s te d i n c r e a s e
i n t h e p r i c e s o f I r a q i o i l w ould be l e s s t h a n t h e
p o s te d i n c r e a s e i n t h e p r i c e s o f th e o i l o f o t h e r
c o u n t r i e s . The o p p o s i t e i s t r u e i n th e o t h e r d i
r e c t i o n . ^
^ ^Law No. ^ o f 1 9 5 2 . r a t i f y i n g t h e A g re e m e n t,
I r a q O i l i n 1 9 5 1 .
^ T h e R e v o l u t i o n a r y G overnm ent an d O i l N e g o t ia
t i o n s . M i n i s t r y o f G u id a n c e , P o p u l a r C u l t u r e S e r i e s 2 7 ,
p . 1 2 .
3^
T h is i s a n o t h e r d e v i c e p r a c t i c e d by th e o i l co m p a n ie s i n
I r a q t o r e d u c e t h e g o v e rn m e n t's s h a r e o f t h e p r o f i t s .
The p o s i t i o n o f t h e o i l co m p a n ie s i n t h i s r e s p e c t
i s t h a t t h e y w i l l o n l y i n c r e a s e I r a q ' s s h a r e o f p e r b a r r e l
p r o f i t s i f o t h e r p r o d u c in g c o u n t r i e s r e c e i v e h i g h e r p e r
b a r r e l p r o f i t s o r i f I r a q c o u ld p ro v e t h a t some o t h e r
c o u n tr y o r c o u n t r i e s a r e r e c e i v i n g h i g h e r p e r b a r r e l
p r o f i t s
I r a q p a r t i c i p a t i o n . A f t e r t h e 1952 A g re e m e n t had
b e e n r e a c h e d b e tw e e n t h e I r a q G overnm ent an d t h e o i l com
p a n i e s , i t becam e o b v i o u s — a n d l o g i c a l , t o o — t h a t t h e
I r a q i G overnm ent s h o u ld s h a r e m anagem ent w ith t h e com
p a n i e s i n q u e s t i o n and h a v e a s a y i n t h e c o m p a n ie s ' p o l i
c i e s r e g a r d i n g s e l l i n g p r i c e s a n d p r o d u c t i o n e x p e n s e s , f o r
e x a m p le , s i n c e i t s h a r e s w ith th e co m p a n ie s h a l f o f th e
p r o f i t s .
The r i g h t o f t h e I r a q i G overnm ent t o a p p o i n t two
I r a q i d i r e c t o r s to t h e com pan ies* B o ard i n L ondon h ad b e e n
p a r t o f t h e 1952 A g re e m e n t. B u t t h i s r i g h t h a s n e v e r b e e n
p r o p e r l y p r a c t i c e d ; t h e c o m p an ies h a v e e i t h e r b lo c k e d o r
l i m i t e d t h e a c t i v i t i e s o f t h e s e d i r e c t o r s . T h e r e f o r e , t h e
c o m p a n ie s ' d e c i s i o n s w e re c a r r i e d o u t w i t h o u t r e f e r e n c e to
t h e g o v e rn m e n t.
17011 and Gas J o u r n a l (A p r il 1 0 , 1 9 6 1 ), p . 8 5 .
A s id e fro m t h i s , a n d w h at i s r e g a r d e d a s t h e c o re
o f t h e p ro b le m a t t h i s j u n c t u r e , i s I r a q ’ s i n s i s t e n c e on
b e in g g iv e n a 20 p e r c e n t s h a r e i n t h e e n t i r e IPC g ro u p
o p e r a t i o n s . T he g o v e rn m e n ts o f some n e i g h b o r i n g c o u n t r i e s
l i k e K u w a it, S a u d i A r a b ia a n d I r a n h a v e b e e n o f f e r e d a
s h a r e h o l d e r i n t e r e s t i n new c o n c e s s i o n s . M o re o v er, th e
1952 A g re e m e n t p r o v id e d t h a t I r a q h a s t h e r i g h t t o t a k e
up t o 20 p e r c e n t i n t e r e s t i n a n y new s t o c k s i s s u e d . P r o
p o s a l s h a d b e e n made t o t a k e t h e 2 3 .7 5 p e r c e n t F re n c h
s h a r e i n t h e g ro u p a n d t h e 5 p e r c e n t i n t e r e s t o f G u lb e n -
k l a n . The c o m p an ies r e f u s e d t h i s demand on t h e g ro u n d
t h a t t h e r e h a v e n e v e r b e en a n y new s t o c k s a v a i l a b l e , n o r
i s t h e r e l i k e l y to be u n d e r p r e s e n t c o n d i t i o n s . The com
p a n i e s show ed t h e i r w i l l i n g n e s s t o o f f e r I r a q a 20 p e r
c e n t i n t e r e s t i n c e r t a i n new v e n t u r e s c a r r i e d o u t by some
o f them i n t h e f u t u r e .^ ®
The co m p a n ie s r e g a r d t h e s e dem ands o n th e p a r t
o f I r a q a s to o m uch, a n d a s s o m e th in g n o t b a se d e i t h e r
u p o n good ju d g m en t o r good g o v e rn m e n ta l p r a c t i c e .
The g o v e rn m e n t o n i t s p a r t lo o k e d upon t h e s e
dem ands a s f a i r a n d i n t h e i n t e r e s t s o f t h e p e o p l e . When
th e p r o lo n g e d n e g o t i a t i o n s , w h ich l a s t e d o v e r a p e r i o d o f
a b o u t t h r e e y e a r s , f a i l e d t o p ro d u c e a n y r e a s o n a b l e s o l u
1 ft
O il an d Gas J o u r n a l (O c to b er 23. 1 9 6 1 ), p . 9 6 .
36
t i o n , t h e g o v e rn m e n t r e s o r t e d t o l e g i s l a t i o n . The f i n a l
w ords o f t h e P rim e M i n i s t e r t o t h e o i l c o m p an ies w ere:
T h e se a r e y o u r w e l l s , r e f e r r i n g t o t h e e x i s t
i n g f i e l d s , you may e x p l o i t them a s you w is h . I
am s o r r y t o t e l l you we s h a l l t a k e o v e r t h e r e s t
o f t h e l a n d a c c o r d i n g t o t h e l e g i s l a t i o n we h a v e
p r e p a r e d , so t h a t I t w i l l n o t be a s u r p r i s e to
y o u .19
Law Mo. 80 o f 1961 F i x i n g Con
c e s s i o n A re a s o f O i l C om panies
T h is la w was t h e p r o d u c t o f t h e f a i l u r e o f n e g o
t i a t i o n s b e tw e e n t h e G overnm ent o f I r a q a n d t h e o i l com
p a n i e s . The m a jo r a r t i c l e s o f t h e Law a r e :
1 . The c o n c e s s i o n a r e a i s r e d u c e d fro m a b o u t
1 7 0 ,0 0 0 s q u a r e m il e s t o l e s s th a n 800 s q u a r e
m i l e s , a s i n T a b le 5« ( A r t i c l e 2)
2 . The g o v e rn m e n t may g i v e back some a r e a s ,
i f i t so d e s i r e s , to t h e c o m p a n ie s . T h e se a r e a s
s h o u ld n o t e x c e e d t h e a r e a s l e f t t o th e o i l com
p a n i e s by t h i s la w . ( A r t i c l e 3)
3 . The c o m p an ies s h a l l n o t h a v e a n y r i g h t s
i n t h e a b o v e m e n tio n e d a r e a s e x c e p t f o r pum ping
a n d t r a n s p o r t i n g o i l , p r o v id e d t h a t t h i s w i l l
n o t j e o p a r d i z e t h e u s e o f t h e s e a r e a s l e g a l l y o r
l o g i c a l l y . ( A r t i c l e b)
The c o m p a n ie s m u st s u b m it t o t h e g o v e rn
m en t w i t h i n t h r e e m o nths fro m t h e e f f e c t i v e d a t e
o f t h i s la w a n d f r e e o f a n y c h a r g e s , a l l g e o
l o g i c a l , g e o p h y s i c a l a n d o i l e n g i n e e r i n g i n f o r
m a t i o n s . F a i l u r e to do so w i l l s u b j e c t t h e com
p a n i e s t o c o m p e n sa te t h e g o v e rn m e n t f o r a n y l o s s e s
c a u s e d by s u c h d e l a y . ( A r t i c l e 5* i a n d i i ) 20
~ ^ 0 i l an d Gas J o u r n a l (D ecem ber 1 8 , 1 9 6 1 ) , p . 58
2 0Law Mo. 80 o f 1 9 6 1 . M i n i s t r y o f O i l (B a g h d a d ).
37
TABLE 5
THE NEW OIL EXPLOITATION AHEAS*
( I n S q u a r e K i l o m e t e r s )
A re a I n S q . A re a I n S q .
com pany
K ilo m e te r s K ilo m e te r s
(now) ( b e f o r e )
I r a q P e tr o le u m Company, L t d .
1 . K irk u k A re a s 4?8
2 . B a i H a ss a n A re a 182
—
3 .
Jam b u r A re a 86 —
T o t a l 746 9 1 .0 0 0
M osul P e tr o le u m Company, L t d .
1 . A in Z a la A re a 45
— —
2 . Butm ah A re a 16
T o t a l 61 1 0 7 ,0 0 0
B a s ra h P e tr o le u m Company, L t d .
1 . R u n a il a h A re a 568
—
2 . Z u b a i r A re a
559
T o t a l
1 ,1 2 7
22 6 ,0 0 0
T o t a l o f t h e 3 c o m p a n ie s* *
1 ,9 3 3
4-24,000
S o u r c e s :
^ M i n i s t r y o f O i l , B ag h d ad , A p p e n d ix to Law No.
80 o f 1 9 6 1 .
**The a c t u a l a r e a i s 1 ,9 3 7 .7 5 0 s q u a r e k i l o m e t e r s
The d i f f e r e n c e a r i s e s fro m n e g l e c t i n g d e c i m a l s .
CHAPTER I I I
THE STRUCTURE OF THE OIL INDUSTRY IN IRAQ
The P r e s e n t O p e r a t i n g C om panies
The p e tr o le u m i n d u s t r y i s c h a r a c t e r i z e d m a in ly
by f o u r s t a g e s :
1 . The p r o d u c t i o n s t a g e - - b a s e d o n t h e e x t r a c t i o n
o f n o n - r e n e w a b le m i n e r a l s o f c ru d e o i l an d
n a t u r a l g a s .
2 . The t r a n s p o r t a t i o n s t a g e — i n v o l v e s t h e m oving
o f c r u d e o i l b y d i f f e r e n t m eans o f t r a n s p o r
t a t i o n : p i p e l i n e , r a i l r o a d , c a r an d t a n k e r ,
fro m o i l w e l ls t o r e f i n e r i e s , t h e n r e f i n e d
p r o d u c t s t o d i s t r i b u t i o n t e r m i n a l s a n d b u lk
p l a n t s , and f i n a l l y , to t h e c o n su m e r.
3 . The r e f i n i n g s t a g e — w h ere c ru d e o i l a n d
n a t u r a l g a s a r e tr a n s f o r m e d a n d c h a n g e d i n t o
end p r o d u c t s .
The m a r k e tin g s t a g e - - w h i c h c o v e r s t h e d i s t r i
b u t i o n , s t o r a g e a n d s a l e o f p e tr o le u m a n d i t s
p r o d u c t s .
38
39
A l l o f t h e s e a c t i v i t i e s , e x c e p t m a r k e tin g o i l
l o c a l l y , a r e done by t h r e e o p e r a t i n g o i l c o m p a n ie s,
n a m e ly , I r a q P e tr o le u m Company, M osul P e tr o le u m Company,
a n d B a s ra h P e tr o le u m Company, a n d t h e i r s h a r e h o l d e r s .
These shareholders are five of the seven or eight major
oil companies. Their shares are distributed as shown in
Table 6.
S i z e o f t h e C o m p a n ie s1
I n v e s tm e n t
Iraq Petroleum Company. The Turkish Petroleum
Company started with a capital of 50,00° pounds sterling.
This amount had been increased at different times and
whenever there was a need. It amounted to one million
pounds sterling in 1925, the year it got its concession.
The capital was raised again in 1927, when it amounted
to two million pounds sterling. It reached five million
pounds sterling in 1931, and by 1935, its capital had
reached eight million pounds sterling. The company's
capital continued to increase, especially during the
years after World War II, .when the company began to in
crease its production due to the increasing demand for
petroleum. This, and the construction of pipelines to
the Mediterranean necessitated the increase of capital.
Therefore, the capital increased to 83.5 million pounds
sterling in 1951 and reached 124-.5 million pounds sterling
k 0
TABLE 6
DISTRIBUTION OF SHARES AMONG COMPANIES
Name O w n ersh ip P e r c e n t a g e
B r i t i s h P e tr o le u m Company-
R o y a l D u tc h S h e l l
Com pagnie F r a n c a i s e
d e s P e t r o l
B r i t i s h
6 Q $ > D u tc h
k0% B r i t i s h
F re n c h
N e a r E a s t D e v elo p m en t
C o r p o r a tio n :
50 % S ta n d a r d O i l (New J e r s e y )
50$ Socony
A m e ric a n
23.75
23.75
23.75
23.75
G u lb e n k ia n 5.00
41
a f t e r c o m p le tio n o f th e 3 0 - i n c h p i p e l i n e t o t h e M edi
t e r r a n e a n , w h ich c o s t 41 m i l l i o n pounds s t e r l i n g . ^ -
I n I 9 6 0 , i t s in v e s tm e n t re a c h e d 1 5 4 ,4 m i l l i o n
pound s s t e r l i n g a n d re a m in e d s t a t i o n a r y a t t h a t l e v e l
th r o u g h 1 9 6 4 . T a b le 7 show s t h e in v e s tm e n t o f t h e I r a q
P e tr o le u m Company.
M osul P e tr o le u m Com pany. I n 1950 t h e c a p i t a l
o f t h e M osul P e tr o le u m Company r e a c h e d 1 2 .9 3 m i l l i o n
pounds s t e r l i n g . I n i 96 0 , i t s in v e s tm e n t was 8 7 ,0 0 0
po u n d s s t e r l i n g , b u t i n 1 9 6 3 , i t was o n ly 8 1 ,0 0 0 pounds
s t e r l i n g .
B a s r a h P e tr o le u m Com pany. The c a p i t a l o f t h e
B a s r a h P e tr o le u m Company now i s 1 2 .4 m i l l i o n pounds s t e r
l i n g . I t s I n v e s tm e n t i n i 960 had r e a c h e d 2 0 .2 m i l l i o n
poun ds s t e r l i n g a n d i t s c u m u la tiv e i n v e s tm e n t re a c h e d
5 9 .7 m i l l i o n p o u n d s s t e r l i n g I n 1 9 6 4 . The r e a s o n f o r
t h e s h a r p r i s e i n i n v e s tm e n t i n 1960-61 was t h e c o n s t r u e
t i o n o f t h e d e e p t e r m i n a l i n K hor E l-A m yat a t a c o s t o f
22 m i l l i o n po unds s t e r l i n g . The t e r m i n a l was c o m p le te d
on A p r i l 8 , 1 9 6 2 .
D i s t r i b u t i o n o f t h e in v e s tm e n t among b r a n c h e s
was a s f o l lo w s :
^M. J . O boo sy, P e tr o le u m i n A ra b C o u n t r ie s
( C a ir o : i n A r a b i c , 1955)* p . 1 6 8 .
TABLE 7
IP C 'S FIXED ASSETS,* 1 9 4 6 -1 9 6 3 * *
( i £ l , 0 0 0 )
Year
Survey and
Development
Oil
Fields
Pipeline
Property
Total
19 * 1-6 2 ,9 2 1 3 , 8* 1-0
1 7 .2 6 9
2 4 ,0 3 0
19*1-7 2 ,9 1 1 5 ,3 6 9 2 6 ,7 8 9 3 5 .0 6 9
19 * 1-8
2 ,9 0 5
8 , 1* 1-0
3 9 ,9 3 9
5 0 ,9 8 4
19*1-9
2 ,9 0 4
1 0 ,6 8 5 5 2 ,2 5 1
6 5 ,8 4 0
1950
2 ,8 9 5 1 2 ,6 8 5
6 4 ,6 1 2
7 9 ,7 3 9
1951 2 ,8 9 5 13.*1-09 8 5 ,7 0 1 1 0 2 ,0 0 5
1952 2 ,8 9 5
1 5 ,3 0 8
9 3 ,9 6 9
1 1 2 ,1 7 0
1953 2 ,8 9 5 1 6 ,3 3 3 9 7 .1 8 5 1 1 6 ,4 1 3
1954
2 ,8 9 5 1 6 ,8 0 9
1 0 0 ,1 2 0 1 1 9 ,8 2 4
1955 2 ,8 9 5
18.2*1-2 1 0 1 ,9 1 6
1 2 3 ,0 5 3
1956
2 ,8 9 5 1 9 ,7 1 5 106,*1-87 1 2 9 ,0 9 7
1957 2 ,8 9 5 20,8*1-7 1 1 1 ,0 9 7 1 3 4 ,8 3 9
1958
2 ,8 9 5 23,*H 9
1 1 8 ,6 0 1
1 4 4 ,9 1 5
1959 2 ,8 9 5 2 6 ,2 3 3
1 1 8 ,2 3 8 1 4 7 .3 6 6
i 960
2 ,8 9 5
2 9 ,0 9 8
1 2 5 ,5 1 9 1 5 7 .5 1 2
1961
2 ,8 9 5 3 0 ,2 1 3
1 2 1 ,6 0 0 1 5 4 ,7 0 8
1962
2 ,8 9 5 31,*i-57
12* 1 -, 0* 1-2 1 5 7 ,3 9 4
1963 2 ,8 9 5 3 1 ,4 2 9 1 2 1 ,7 3 7
1 5 6 ,0 6 1
■ “■Expenditures on fixed assets are recorded at
c o s t b e f o r e p r o v i d i n g f o r d e p r e c i a t i o n .
* * S o u r c e : Z . M ik d a s h i, A F i n a n c i a l A n a l y s i s o f
M id d le E a s t e r n O i l C o n c e s s io n s : 1 9 0 1 -1 9 6 T T (Mew Y ork:
P r a e g e r S p e c i a l S t u d i e s i n I n t e r n a t i o n a l E co n o m ic s a n d
D e v e lo p m e n t, 1 9 6 6 ) , p . 2 0 3 ,
43
11 per cent invested in the production stage;
33 per cent invested in the transportation stage,
especially pipelines;
40 p e r c e n t i n v e s t e d i n t h e r e f i n i n g s t a g e
( o u t s i d e o f I r a q ) ; a n d
16 p e r c e n t I n v e s t e d i n c o m p le m e n ta ry f a c i l i t i e s
s u c h a s h o u s e s , r o a d s , t e r m i n a l s , a i r p o r t s ,
e t c e t e r a . 2
Investment in complementary facilities constitutes
a very high percentage compared with other producing areas
in the world. The reason behind this is the underde
veloped economy of Iraq. The companies, therefore, were
obliged to spend great sums on what is termed "social
overhead" investments•
It Is interesting to note that the distribution
of capital in American oil companies in neighboring
Saudi Arabia and Kuwait differs from that of oil companies
3
In Iraq, which is dominated by British interests, and in
conformity with the worldwide distribution. Total oil
investment by all companies in the Middle East is shown
in Table 8.
Oboosy, op. clt., p. l68o
3
•'In fact, the agreement states plainly that the
managing director of the company should be a British sub
ject.
T he c a p i t a l o f t h e A m e ric a n c o m p a n ie s i n th e
M id d le E a s t I s d i s t r i b u t e d a s f o l l o w s :
55*6 p e r c e n t i n v e s t e d i n t h e p r o d u c t i o n s t a g e ;
1 1 .6 p e r c e n t i n v e s t e d i n m a r k e ti n g f a c i l i t i e s ;
1 3 .2 p e r c e n t i n v e s t e d i n t r a n s p o r t a t i o n ;
1 8 . ^ p e r c e n t i n v e s t e d i n r e f i n i n g s t a g e ; a n d
1 .2 p e r c e n t i n v e s t e d i n c o m p le m e n ta ry f a c i l
i t i e s .
I t i s t h e r e f o r e a p p r o p r i a t e t o a s k o u r s e l v e s
w h a t c a u s e s s u c h a d i v e r g e n c e i n t h e d i s t r i b u t i o n o f
k
t h e i r i n v e s t m e n t . T he f o l l o w i n g r e a s o n s may b e g iv e n :
1 . The A m e ric a n o i l c o m p a n ie s e x p a n d e d i n t h e
p r o d u c t i o n s t a g e — 55*6 p e r c e n t a g a i n s t 1 1 .6
p e r c e n t — m ore t h a n d i d t h e B r i t i s h c o m p a n ie s .
2 . The B r i t i s h c o m p a n ie s p l a c e d m ore im p o r ta n c e
o n p i p e l i n e t r a n s p o r t a t i o n . T h e r e f o r e , we
f i n d t h e I r a q P e t r o le u m com pany b u i l t m ore
p i p e l i n e s t o t h e M e d i t e r r a n e a n t h a n d i d t h e
A r a b ia n - A m e r ic a n O i l Com pany.
3 . The B r i t i s h c o m p a n ie s p l a c e d m ore e m p h a sis
o n t h e r e f i n i n g s t a g e t h a n d i d t h e A m e ric a n
c o m p a n ie s .
k
O b o o sy , o p . c i t . . p . 1 ? 2 .
^5
TABLE 8
BREAKDOWN OF TOTAL INVESTMENT BY BRANCHES
IN SELECTED MIDDLE EASTERN COUNTRIES.
1 9 4 8 -1 9 5 8 *
B ra n c h I r a q K u w a it Q a ta r
E x p l o r a t i o n
5 1 .9 8 . if 4 . 8
P r o d u c t i o n 1 3 4 .4 1 0 9 .2
4 9 .9
R e f i n i n g
—
2 8 .9
mm mm
T r a n s p o r t a t i o n 1 6 0 .0
6 2 .9
2 8 .4
0 t h e r s 3 0 .2
1 2 7 .5
1 7 .8
T o t a l
3 7 6 .5 3 3 6 .9 1 0 0 .9
* S o u rc e : C h a r l e s I s s a w i a n d Mohammed Y eg en eh ,
T he E co n o m ics o f M id d le E a s t e r n O i l (New Y ork: 1 9 6 2 ) ,
P . ^ 5 .
46
4 . The lo w p e r c e n t a g e o f com pl m e n ta ry i n v e s t
m ent by A m e ric a n co m p a n ie s i s d u e to t h e
c l o s e n e s s o f t h e f i e l d s ; w h i l e th e s t r e t c h
fro m n o r t h e r n I r a q t o t h e s o u t h i s a d i s t a n c e
o f a p p r o x i m a t e ly 600 m i l e s .
E x p l o r a t i o n and R e s e rv e s
P r i o r t o t h e s u s p e n s io n o f o i l e x p l o r a t i o n w ork,
t h e o i l c o m p an ies i n I r a q had I n t e n s i f i e d t h e i r s e a r c h
f o r o i l w h ile n e g o t i a t i o n s w e re d r a g g i n g on i n t h e h o p e
o f r e t a i n i n g t h e m o st p r o m is in g a r e a s . D r i l l i n g was
c a r r i e d o u t d u r i n g t h e p e r i o d from 1925-1957 a t a n a n n u a l
r a t e o f 5 6 ,2 6 8 f e e t . B u t s i n c e t h e r e v o l u t i o n o f J u l y 1 4 ,
1 9 5 8 , and t h e demand t h a t t h e c o m p a n ie s r e l i n q u i s h a l l
a r e a s o n w h ic h no w ork had b e e n d o n e , t h e c o m p an ies c a r
r i e d o u t t h e i r d r i l l i n g a t a r a t e o f 157*783 f e e t a n n u a l l y .
I n i 96 0 , d r i l l i n g r e a c h e d 2 4 8 ,5 5 0 f e e t . ^ T a b le 9 show s
t h e f o o t a g e d r i l l e d by t h e o i l c o m p a n ie s .
P ro v e d R e s e rv e s
P e tr o le u m r e s e r v e s a r e t h e known r e c o v e r a b l e
q u a n t i t i e s o f o i l a n d g a s r e m a in in g i n t h e s u b s o i l a f t e r
b e in g d i s c o v e r e d th r o u g h e x p l o r a t i o n and e x p l o i t a t i o n .
^ M i n is tr y o f O i l (B aghdad: 1 9 6 1 ) .
47
TABLE 9
FOOTAGE DRILLED BY OIL COMPANIES
IN IRAQ (1 9 5 1 -1 9 6 3 )*
Y ear I.P.C. M.P.C. B.P.C. K.O.C. T o t a l
1951 2 6 ,1 1 9 7 ,2 3 6
9 0 ,8 3 3
m mm
1 2 4 ,1 8 8
1952 1 6 ,6 7 6 1 8 ,0 0 0
1 0 9 ,2 0 3
2 ,0 2 1 1 4 5 .9 0 0
1953 1 4 ,9 5 1 2 1 ,5 2 5
1 2 7 ,1 4 2 7 ,2 5 0 1 7 0 ,8 6 8
1954
1 8 ,7 8 5 1 6 ,9 0 3 7 3 ,0 3 5
7 .7 2 1 1 0 8 ,7 2 4
1 4 0 ,1 1 4
1955 4 1 ,0 0 5
2 7 ,2 8 8 71 ,821
mm mm
1956 N .A .
1957
2 1 ,9 2 4 2 4 ,2 2 4 6 1 ,8 4 6
3 .5 9 1 1 1 1 ,5 8 5
1958 3 4 ,5 4 5
2 4 ,0 5 8 3 1 ,0 3 8 —
8 9 .6 3 1
1959
5 8 ,1 2 7 2 5 ,5 1 0
4 9 .3 3 3
—
1 3 2 ,9 7 0
I 960 7 8 ,8 8 4 26,293 1 4 3 ,4 5 2
—
2 4 8 ,6 2 9
1961 6 9 .9 9 8 2 7 ,8 0 3 9 3 ,2 6 4
— '
1 9 1 ,0 6 5
1962 1 1 ,8 6 2
9 .5 5 7
7 ,3 9 6
—
2 8 ,8 1 5
1963
* “
mm mm mm «
1 1 .3 4 9
^ S t a t i s t i c a l A b s t r a c t . 1 9 5 2 , 1 9 5 5 , 1 9 5 9 , 1 9 6 1 ,
a n d 1 9 6 3 .
* 1 - 8
Proved, r e s e r v e s , on t h e o t h e r h a n d , a r e t h a t
p a r t o f t h e t o t a l r e s e r v e s w h ich by known m eth o d s o f
r e c o v e r y c a n a c t u a l l y b e b r o u g h t t o t h e s u r f a c e a n d p r o
c e s s e d f o r c o n su m p tio n t o m ee t a n t i c i p a t e d dem ands o f
t h e f u t u r e . P ro v e d r e s o u r c e s a r e n o t c o n s i d e r e d maximum
l i m i t s , r a t h e r t h e y a r e a minimum g u a r a n t e e a t a n y s p e c i f
i c tim e u n d e r a g i v e n s e t o f c o n d i t i o n s .
The p r o d u c t i o n c a p a c i t y o f a n y o i l f i e l d m u st
u l t i m a t e l y d e p e n d o n t h e e x t e n t o f i t s p ro v e d r e s o u r c e s .
I t i s b e l i e v e d t h a t I r a q p o s s e s s e s g r e a t w e a lth o f u n
e x p l o i t e d o i l r e s e r v e s , e s p e c i a l l y i n t h e s o u t h e r n p a r t
o f t h e c o u n t r y . B u t b e c a u s e o f Law No. 8 0 , t h e co m p an ies
c e a s e d t h e i r e x p l o r a t i o n , a n d t h e r a t e o f n e w ly p ro v e d
r e s o u r c e s h a s f a l l e n s i n c e i 960 fro m 27 b i l l i o n b a r r e l s
t o 25 b i l l i o n b a r r e l s i n 1 9 6 5 . t h a t i s , b y 6 p e r c e n t . ^
R e s e rv e s p e rfo r m a f u n c t i o n a s u n d e rg ro u n d s t o c k
fro m w h ic h c r u d e o i l a n d g a s c a n b e w ith d ra w n i n c a s e s o f
e m e rg e n c y . W hat c o n s t i t u t e s a s a t i s f a c t o r y r e s e r v e i s
q u e s t i o n a b l e , b u t i n g e n e r a l , r e s e r v e s o f fro m 1 5 -2 0 tim e s
t h e a n n u a l r a t e o f p r o d u c t i o n i s c o n s i d e r e d s a t i s f a c t o r y . ^
^ O il an d Gas J o u r n a l (D ecem ber 2 6 , I9 6 0 ; Decem
b e r 1 9 6 5 ) .
7
'A n to n io J . B erm ud ez, The M ex ican N a t i o n a l P e t r o
leum I n d u s t r y : A C a se S tu d y i n N a t i o n a l i z a t i o n . I n s t i t u t e
o f H is p a n ic - A m e r ic a n a n d L u s o - B r a z i l i a n S t u d i e s , ( S t a n
f o r d : S t a n f o r d U n i v e r s i t y , 1 9 6 3 ) , p .
49
A c c o r d in g ly , t h e p r e s e n t r e s e r v e s o f I r a q a r e s t i l l r e
g a rd e d a s s a t i s f a c t o r y . T a b le 10 shows t h i s .
P r o d u c t i o n
A l l i n v e s tm e n t a n d p r o d u c t i o n p l a n s o f t h e I r a q i
o i l c o m p an ies a r e made f o r f i v e y e a r s i n a d v a n c e . T h is
k i n d o f p l a n n i n g m akes p r o d u c t i o n I n f l e x i b l e a n d a n y
c h an g e i n i t t o m a tc h f l u c t u a t i o n s i n demand a c c o r d i n g l y
becom es d i f f i c u l t .
The o i l co m p a n ie s r e a c h e d a n a g re e m e n t i n 1948
r e g a r d i n g t h e s h a r e e a c h p a r t n e r i s e n t i t l e d to f o r t h e
p e r i o d 1 9 5 2 -1 9 5 6 . C om pagnie P r a n c a i s e to o k m ore th a n i t s
a l l o c a t e d s h a r e an d p a i d f o r w h a t s h e to o k I n e x c e s s o f
h e r s h a r e a t a p r i c e h a lfw a y b e tw e e n c o s t a n d s e l l i n g
O
p r i c e . The company b o u g h t m o st o f t h e e x t r a fro m B r i t i s h
P e tr o le u m b e c a u s e t h e l a t t e r was n o t i n n e e d o f a l l o f i t s
s h a r e o f p r o d u c t i o n .
The n e x t p l a n was c o n c lu d e d i n 1 9 52 f o r t h e p e r i o d
1 9 5 7 -1 9 6 1 . T h is p l a n g i v e s t h e p a r t n e r s two c h o ic e s :
e i t h e r e a c h p a r t n e r t a k e s a 1 2 0 ,0 0 0 t o n i n c r e a s e f o r e a c h
o n e p e r c e n t o f o w n e r s h ip , o r a c c o r d i n g t o t h e " f i v e /
s e v e n t h r u l e , " w h ich was e v e n h i g h e r . L a t e r o n t h i s was
r e p l a c e d by t h e "125 p e r c e n t r u l e . " ^
3
E d i t h P e n r o s e , R eview o f A ra b P e tr o le u m and
E c o n o m ic s, (B ag h d ad : 1 965 ) .
9lbid.
TABLE 10
IRAQ PROVED RESERVES IN COMPARISON WITH SELECTED COUNTRIES*
( I n 1 ,0 0 0 B b l s .)
C o u n try I 960 1961 1962
1963
1964
I r a q 2 7 . 000,000 2 6 , 500,000 26 , 000,000 2 5 , 000,000 2 5 , 000,000
I r a n 3 5 , 000,000 3 5 . 000,000 3 7 , 000,000 3 7 , 000,000 3 8 , 000,000
K uw ait 6 2 , 000,000 6 2 , 000,000 6 3 , 000,000 6 3 , 500,000 6 3 , 000,000
N e u tr a l Zone 6 , 000,000 6 , 000,000 7 , 500,000 1 0 , 000,000 1 2 , 500,000
Q a ta r 2 , 500,000 2 , 750,000 3 , 000,000 2 , 950,000 3 , 500,000
S a u d i A r a b ia
T o t a l M id d le
5 0 , 000,000 5 2 , 000,000 5 2 , 000,000 6 0 , 000,000 6 0 , 500,000
E a s t 1 8 3 , 160,000 1 8 8 ,2 0 4 ,0 0 0 1 9 3 .9 7 5 .0 0 0 207 , 368,000 2 1 2 ,1 8 0 ,0 0 0
A l g e r i a 5 ,2 0 0 ,0 0 0 5 .5 0 0 ,0 0 0 , 6 ,5 0 0 ,0 0 0 7 ,0 0 0 ,0 0 0 7 ,5 0 0 ,0 0 0
L ib y a 2 ,0 0 0 ,0 0 0 3 .0 0 0 ,0 0 0 4 ,5 0 0 ,0 0 0 7 .0 0 0 ,0 0 0 9 .0 0 0 ,0 0 0
* S o u rc e: O il an d Gas J o u r n a l , o p . c l t . . i s s u e s l i s t e d below : i 960 f i g u r e s
(D ecem ber 2 6 , i 960) ; 1961 f i g u r e s (D ecem ber 2 5 , 1 9 6 1 ); 1962 f i g u r e s (Decem ber 3 1 , 1 9 6 2 );
1963 f i g u r e s (Decem ber 3 0 , 196 3 ); and 1964 f i g u r e s (Decem ber 28 , 1 9 6 4 ).
51
These agreements made it possible for the com
panies that wanted less oil to exercise restrictions on
other partners by setting their demands very low and thus
reducing the total increase and, consequently, the share
of the other partners.
As far as Iraq is concerned, these practices
have hurt it, too; its output is kept lower than it
should have been, had other alternative practices been
applied such as those prevailing in Kuwait, for example.
Moreover, the partners of British Petroleum were
forced by the action of that company to look for oil
elsewhere, which boosted oil production in other parts
at the expense of Iraq.
Geographical Distribution
of Production
Oil is produced at the present time in three
fields, namely, Kirkuk, Mosul and Basrah. The first two
fields are inland fields located in the north and north
east. The latter one is near the sea in the south.
Although the discovery of oil in Iraq occurred
back in 1927# production remained at a very low level
until the fifties. The accumulated production up until
1950 amounted to about 60 million metric tons or an
52
a v e r a g e o f 2 .5 m i l l i o n to n s a n n u a l l y t h r o u g h o u t t h e w hole
p e r i o d o f t w e n t y - f o u r y e a r s . 10
H ow ever, p r o d u c t i o n i n c r e a s e d n o t a b l y i n t h e f o l
lo w in g y e a r s ; and i n 1951 r e a c h e d 8 m i l l i o n m e t r i c t o n s .
By 1 9 5 2 , p r o d u c t i o n i n c r e a s e d t o 1 8 .8 m i l l i o n t o n s , o r
a n I n c r e a s e o f 125 p e r c e n t o v e r t h e p r e v i o u s y e a r . I n
1933» p r o d u c t i o n r e a c h e d 28 m i l l i o n t o n s . 11
P r o d u c t i o n s t a t i s t i c s r e v e a l t h a t t h e r e was a
s t e a d y s m a ll i n c r e a s e i n l a t e r y e a r s , w ith t h e e x c e p t i o n
o f 1956 and 1957 when p r o d u c t i o n f e l l t o 2 9 .9 m i l l i o n
m e t r i c to n s and 2 1 .7 m i l l i o n m e t r i c to n s r e s p e c t i v e l y .
I n 1 9 6 1 , p r o d u c t i o n s t a y e d a t t h e l e v e l o f t h e p r e v i o u s
y e a r b e c a u s e o f Law No. 8 0 , and t h e i n c r e a s e i n p o r t d u e s
i n B a s ra h o n o i l s h i p m e n t s . T a b le 11 shows t h i s o i l p r o
d u c t i o n i n I r a q .
A c o m p a ris o n o f t h e r a t e o f I n c r e a s e i n o i l p r o
d u c t i o n i n t h e n e i g h b o r i n g c o u n t r i e s su c h a s I r a n and
K u w a it, o r th e M id d le E a s t a s a w h o le , r e v e a l s t h a t I r a q
d i d n o t r e c e i v e I t s s h a r e o f t h e o v e r a l l p r o d u c t i o n g ro w th
10
P r o d u c t i o n was s u b j e c t to f l u c t u a t i o n a t d i f
f e r e n t tim e s f o r d i f f e r e n t r e a s o n s , a s u b j e c t w h ich w i l l
be d i s c u s s e d l a t e r .
11U n ite d N a t i o n s , "E conom ic D e v elo p m en t i n th e
M id d le E a s t , " W orld E conom ic R e p o r t (S u p p le m e n t), New
Y ork: 1 9 5 3 -5 ^ . P . 9 7 .
53
TABLE 11
CRUDE OIL PRODUCTION IN IRAQ
BY COMPANIES (1 9 5 2 -1 9 6 5 )*
( E n g li s h L ong T ons)
Y e a r
I r a q
P e tr o le u m
B a s r a h
P e tr o le u m
M osul
P e tr o le u m
T o t a l
1952
1 5 ,5 5 2 .7 1 5 2 ,2 3 8 .1 7 7 2 6 9 ,9 1 1 1 8 ,0 6 0 ,8 0 3
1953
2 2 ,8 6 5 ,5 3 8 3 ,0 7 7 ,5 2 2
1 ,2 7 7 .1 3 9 2 7 ,2 2 0 ,0 9 9
1954 2 3 ,7 3 1 ,1 0 8 4 ,6 0 1 ,0 1 8 1 ,2 8 3 ,4 4 3 2 9 .6 1 5 ,5 6 9
1955 2 4 ,2 0 2 ,2 7 1
7 ,2 3 1 ,5 2 8 1 ,2 8 2 ,4 2 8
3 2 ,7 1 6 ,2 2 7
1956 2 1 , 08 6 ,1 5 6
8 .4 3 8 ,9 6 7 1 ,0 8 1 ,1 5 9
3 0 , 606,282
1957 1 1 ,6 5 7 .4 9 7 9 ,1 4 0 ,1 0 5 5 6 4 ,3 7 7 2 1 ,3 6 1 ,9 7 9
1958 2 2 , 632,832
1 1 ,0 1 8 ,5 1 3
1 , 28 0,11 6 3 4 ,9 3 1 ,4 6 1
1959 2 7 ,3 3 0 ,1 0 9
1 2 , 297.162
1 ,2 7 0 ,4 0 5 4 0 ,8 9 7 .6 7 6
i 960 3 3 ,8 4 1 ,6 0 8
1 1 .3 9 6 ,3 9 9
1 ,2 9 6 ,4 1 1 4 6 ,5 3 4 ,3 9 8
1961
3 6 ,9 9 3 ,7 1 9 9 .7 8 1 .1 1 3 1 ,2 7 9 .9 3 2 4 8 ,0 5 4 ,7 6 4
1962
3 8 ,0 6 9 .4 9 9 8 ,8 4 1 ,8 8 5 1 .3 0 3 ,1 5 4 4 8 ,2 1 4 .5 3 8
1963 4 1 ,6 2 3 ,3 1 5
1 2 , 67 6 ,0 1 7
1 .2 7 6 ,3 3 7 5 5 ,5 7 5 .6 6 9
1964
4 1 ,7 1 0 ,3 1 9 1 7 ,3 4 6 ,7 3 3 1 ,2 9 1 ,5 2 3 6 0 ,3 4 8 ,5 7 5
1965 4 3 ,8 9 9 .5 2 5
1 7 ,9 7 4 ,6 4 8
1 .2 7 5 .3 0 9
6 3 ,1 4 9 .4 8 2
* S o u rc e : M i n i s t r y o f O i l (B a g h d a d ).
N o te : P r o d u c t i o n d e c l i n e d i n 1956 an d 1957 b e
c a u s e o f t h e S u e z c r i s i s . P r o d u c t i o n d e c l i n e d i n B a s ra h
i n I 9 6 0 , 1 9 6 1 , an d 1962 b e c a u s e o f Law No. 80 a n d t h e i n
c r e a s e o f B a s r a h p o r t d u e s .
a c c o r d i n g t o i t s p o t e n t i a l i t i e s . L o o k in g b ack o v e r t h e
p a s t s e v e r a l y e a r s o r s o , we s e e t h a t t h e a v e r a g e a n n u a l
r a t e o f i n c r e a s e i n c ru d e p r o d u c t i o n was lo w e r th a n c o r
r e s p o n d in g r a t e s i n m o st o f t h e c o u n t r i e s o f t h e M id d le
E a s t . I r a q * s p o s i t i o n h a s f u r t h e r d e t e r i o r i a t e d s i n c e
t h e e a r l y s i x t i e s . W h ile a v e r a g e a n n u a l i n c r e a s e i n th e
a r e a r a n g e d b e tw e e n 8 a n d 13 p e r c e n t , t h e a v e r a g e r a t e
i n I r a q was 6 . 9 p e r c e n t . T a b le 12 shows t h i s c o m p a ris o n .
The d e c l i n e I n t h e r a t e o f p r o d u c t i o n i n I r a q ,
com pared to t h e o v e r a l l g ro w th r a t e i n t h e a r e a , i s a t
t r i b u t e d to d i f f e r e n t f a c t o r s ; p o l i t i c a l f a c t o r s b e in g
t h e m o st o b v io u s o n e s .
Causes of Production Decline
P r o d u c t i o n d e c l i n e a t v a r i o u s tim e s may be a t
t r i b u t e d t o t h e f o l l o w i n g c a u s e s :
The location of the Iraqi oil fields and oil con
cessions . Prior to 19 5 1 t o i l companies operating in Iraq
faced a serious problem in transportation. Since the
northern Iraqi oil fields are located at a great distance
from sea terminals, the only economical way is to trans
port the oil by pipeline.
Moreover, the terms and conditions of Basrah and
Mosul concessions were somewhat favorable to Iraq, com
pared to the previous concession of the Iraq Petroleum
TABLE 12
MIDDLE EAST DAILY AVERAGE OIL PRODUCTION
1959-1964*
( I n 1 ,0 0 0 b /d )
C o u n try
1959
i 960
6 0 /5 9
%
1961
61/60
%
1962
62/61
%
1963
63/62
%
1964 64/63?
I r a n 928 1,0 6 0 1 4 .2 2
1 ,1 9 5 1 2 .7 3 1 ,3 3 0 1 1 .2 9 1 .4 9 0 1 2 .0 3 1 .7 0 5 1 4 .4 3
I r a q
853 955
1 1 .9 6
995 4 .1 9 1,002
6 .7 1 .1 5 4 1 5 .2 5 1 .2 5 0 7 .6
K uw ait 1,44-1 1,692 1 7 .4 1 1.728
2 .1 3 1 .9 5 2 1 2 .9 9 2 ,0 8 9
6.5 0 2,306 1 0 .8 3
Q a ta r 170 170 - -
178 4 .7 0
183 2 .8 1
193
5 .4 6 189 - 2 .0 7
S a u d i
A ra b ia
1 .1 5 3 1 .3 1 5 1 4 .0 5 1 ,4 7 8
1 2 .3 9
1 ,6 4 2 1 1 .1 0
1 .7 8 5
8 .7 0
1 .8 9 7 6 .2 7
T o ta l
4 ,5 4 5
5 .1 9 2 1 4 .2 4 5 .5 7 4 7 .3 6
6 ,1 0 9 9 .6 0
6 ,7 1 1 9 .8 5 7 .3 4 7
9 .4 8
♦ S o u rc e : P l a t t ^ s d i g r a m . S p e c i a l R e p o rt (A ugust 26, 1965 )* p . 7: n e u t r a l zone
I n c lu d e d i n K u w ait and S a u d i A r a b ia ,
\J\
V j \
56
Com pany. S i n c e t h e com pam les h o l d i n g t h e t h r e e c o n c e s s
i o n s i n I r a q a r e u n d e r t h e same m anagem ent, f o r a l l p r a c
t i c a l r e a s o n s t h e y a r e t h e same com pany. T h e r e f o r e , t h e y
d i d n o t d e v e lo p t h e M osul an d B a s ra h o i l f i e l d s u n t i l a l l
c o n c e s s i o n s w ere r e v i s e d i n 1 9 5 2 .
S c a r c i t y o f e q u ip m e n t a n d m a c h in e ry i n t h e -post
W orld War I I p l a c e d a n o t h e r l i m i t on t h e e x p a n s i o n . T h e r e
f o r e , t h e r a t e o f o u t p u t was d e te r m in e d by t h e a v a i l a b i l
i t y o f t h e s e e q u ip m e n t a n d m a c h in e r y .
The c o n c e s s i o n a i r e o f I r a q I s n o t a s i n g l e com
p a n y . b u t a g ro u p o f c o m p a n ie s . T h e r e f o r e , t h e i r i n
t e r e s t s and r e q u i r e m e n ts d i f f e r . Some o f them h a v e l a r g e
r e s e r v e s e ls e w h e r e s u f f i c i e n t f o r t h e i r n e e d s a n d , a s a
r e s u l t , w ant t o l i m i t t h e i r o f f t a k e , l i k e t h e B r i t i s h
P e tr o le u m Company, f o r e x a m p le . O th e r s h a v e l i t t l e r e
s e r v e s , o r a r e c r u d e h u n g r y . C o n s e q u e n tly , t h e y w ant to
t a k e m o re, l i k e t h e C om pagnie F r a n c a i s e d e s P e t r o l s .
The i n f l e x i b i l i t y o f t h e g r o u p s 1 p l a n n i n g , a s we
h a v e a l r e a d y s a i d , w h ich i s s e t f o r f i v e y e a r s i n a d v a n c e ,
c a n n o t r e s p o n d q u i c k l y t o m a rk e t c h a n g e s .
The a t t i t u d e t a k e n by o i l co m p a n ie s by r e a s o n o f
t h e d i f f e r e n c e s a r i s i n g b e tw e e n them an d I r a q a s a r e
s u l t o f Law N o. 8 0 , f o r e x a m p le . T hey c o m p e n sa te d f o r
t h e i r f r o z e n p r o d u c t i o n i n I r a q by i n c r e a s i n g p r o d u c t i o n
57
i n o t h e r M id d le E a s t e r n c o u n t r i e s . T h is i s t h e same
p r a c t i c e t h e y f o llo w e d i n I r a n when t h a t c o u n tr y n a t i o n
a l i z e d i t s o i l . T hey made up t h e d i f f e r e n c e by i n c r e a s
i n g p r o d u c t i o n i n S a u d i A r a b ia a n d K u w a it.
The commencement o f r e g u l a r e x p o r t s from t h e new
c o n c e s s i o n a r e a s i n th e N e u t r a l Zone a n d I r a n .
U n s e t t l e d c o n d i t i o n s . T h e re w ere o c c a s i o n s when
p r o d u c t i o n d ro p p e d t h a t w ere o u t s i d e th e c o n t r o l o f th e
c o m p a n ie s , a s i n t h e tim e o f t h e P a l e s t i n e War i n 1 9 ^ 8 ,
an d a g a i n i n 1958 b e c a u s e o f t h e S u e z c r i s i s .
P r o d u c t i v i t y
One o f t h e c h a r a c t e r i s t i c s o f I r a q i o i l f i e l d s
i s h i g h p r o d u c t i o n p e r w e l l and n o t v e r y d e e p d r i l l i n g .
The g r e a t g a s p r e s s u r e i s a n o t h e r i m p o r t a n t f e a t u r e o f
I r a q i o i l w e l l s t i t i s i n e x c e s s o f t h e w e l l s and b u rn e d
o f f and w a s te d i n s t e a d o f b e in g u t i l i z e d f o r some o t h e r
p u r p o s e s . The h ig h p r o d u c t i o n p e r w e l l i s o b v io u s , when
we c o n s i d e r t h a t t h e a v e r a g e d a i l y p r o d u c t i o n i n K irk u k
12
f i e l d s i s a p p r o x i m a t e ly 1 ^ ,6 1 5 b a r r e l s p e r d a y . The
g r e a t b u lk o f t h i s p r o d u c t i o n comes from w e l ls l e s s t h a n
5*000 f e e t d e e p , a s show n i n T a b le 1 3 .
12
T h is f i g u r e i s d e r i v e d by d i v i d i n g t h e d a i l y
a v e r a g e o f T a b le 12 by t h e num ber o f w e l l s i n t h e f i e l d
i n q u e s t i o n .
TABLE 13
DATA ON IRAQI OIL FIELDS, i 960*
Name o f
F i e l d
D is c o v e ry
D a te
D e p th i n
F e e t
Number
o f N e l l s
P r o d u c t io n - B a r r e l s
D a ily A verag e C u m u la tiv e
A in z a la h 1939
5 ,8 0 0 4 1 8 ,4 2 5 55,245
B a ih a s a n
1953
4 ,8 0 0
5 3 3 ,3 8 7
1 .4 9 8
Butmah** 1952
5 .1 0 0 2 8,516 1 2 ,8 9 1
J a n b u r
195^
5 .7 0 0 2
11 ,0 3 3 5 .1 1 5
K irk u k
1927
2 ,8 0 0 44 6 4 3 ,0 8 7 1 ,9 1 7 .8 3 0
N a f t Khanah 1923
3 ,0 0 0 2 3 ,3 0 0 60,116
R um alla
1953
1 0 ,0 0 0 11 1 7 2 ,6 4 8
225 ,3 7 7
Z u b a ir 1 1 ,0 0 0
25
7 2 ,9 3 6 2 4 8 ,8 1 4
T o t a l
95
936,332 2 , 526,886
♦ S o u rce: O i l and Gas J o u r n a l , o d. c i t . , (December 26, i 960 ) .
♦♦Butmah w e lls a r e no lo n g e r f lo w in g .
00
59
C o s ts o f P r o d u c t i o n
The o i l i n d u s t r y i n I r a q i s c h a r a c t e r i z e d by
t h r e e econom ic f e a t u r e s : eco n o m ie s o f s c a l e , co m p a ra
t i v e l y l a r g e i n i t i a l in v e s tm e n t c o s t s , and low p r o p o r t i o n
o f f i x e d c o s t s t o t o t a l c o s t s .
One c a n s e e th e e co n o m ies o f s c a l e by r e f e r r i n g
to t h e p e r i o d b e tw e e n 19 ^9 and 1 9 5 5 . when c o s t s f e l l from
^5 c e n t s t o 20 c e n t s a s o u t p u t i n c r e a s e d from f o u r m i l -
13
l i o n m e t r i c to n s t o 32 m i l l i o n m e t r i c t o n s . J
A c c o rd in g t o th e 1 9 5 2 a g re e m e n t b e tw e e n I r a q and
t h e I r a q P e tr o le u m Company, c o s t p e r t o n was p u t a t 2 3 s ,
1 7 s .6 d , and 13s f o r 1951* 1 9 5 2 , and th e s u b s e q u e n t y e a r s
I r
r e s p e c t i v e l y .
I n i t i a l in v e s tm e n t c o s t s i n I r a q w ere c o m p a r a tiv e
l y l a r g e b e c a u s e f i r s t , m o st o f t h e e q u ip m e n t, m a c h in e s ,
a n d t e c h n i c i a n s w ere im p o rte d from m ore d e v e lo p e d c o u n
t r i e s . S e c o n d , th e a b s e n c e o f f a c i l i t i e s i n I r a q — common
to a l l d e v e l o p in g c o u n t r i e s — su c h a s d i f f e r e n t k i n d s o f
t r a n s p o r t a t i o n , h o s p i t a l s , h o u s in g , e t c e t e r a . T h ir d ,
t h e l a c k o f s e c u r i t y i n some a r e a s a t t h e tim e o p e r a t i o n s
w ere h i g h i n I r a q . As we saw e a r l i e r , $ 6 2 m i l l i o n was i n
v e s t e d b e f o r e e x p o r t s o f o i l b e g an i n 1 9 3 ^ .
13
- 'I s s a w i and Y ag en eh , o p . c i t . . p . 8 7 .
I k
The 1952 A g re em en t b e tw e e n t h e G overnm ent o f
I r a q and t h e I r a q P e tr o le u m Company and s u b s i d i a r i e s
( A r t i c l e 9 ) .
Low Costs of Production
As we h a v e a l r e a d y s e e n from t h e 1952 A g re e m e n t,
c o s t s o f p r o d u c t i o n w ere p u t a t 23 s , 1 7 s .6 d , and 13s f o r
1 9 5 1 . 1 9 5 2 , and c o n s e q u e n t y e a r s , o r kZ c e n t s , 33 c e n t s ,
and Zk c e n t s a b a r r e l , r e s p e c t i v e l y . E v en t h e s e f i g u r e s
seem h ig h when com pared t o ^ c e n t s a b a r r e l g i v e n r e
c e n t l y . 1 ^
C om paring t h e s e c o s t s to th e c o s t s o f p r o d u c t i o n
i n V e n e z u e la and t h e U n ite d S t a t e s , w here a b a r r e l c o s t s
62 c e n t s and $ 1 .5 1 r e s p e c t i v e l y , we r e a l i z e how low t h e
p r o d u c t i o n c o s t s i n I r a q a r e . T h is i s shown i n T a b le 1 ^ .
This low production cost for Iraqi oil can be
attributed to the following factors; aside from the econ
omies of scale, the geological structure of the oil wells,
the nature of the concessions, and finally, the cheap
labor.
The G e o l o g i c a l S t r u c t u r e
The Iraqi oil fields are characterized by large
oil reserves, great gas pressure, high production per
well, and finally, not very deep drilling.1^ The total
1*5
-'M. A. A delm an, " O i l P r o d u c t i o n C o s ts i n F o u r
A r e a s ," P e tr o le u m P r e s s S e r v i c e (May, 1 9 6 6 ) , p . 1 ? 8 .
1 ^I r a q O i l i n 1 9 5 8 . I r a q O i l Company.
6 l
TABLE 14-
COMPARISON BETWEEN COST OF CRUDE OIL PRODUCTION
IN THE UNITED STATES, VENEZUELA AND IRAQ*
(C e n ts p e r B a r r e l )
A re a and
Y e ars
O p e r a t i n g
C o s ts (C e n ts
p e r B a r r e l )
D ev elo p m en t
C o s ts (C e n ts
p e r B a r r e l )
T o t a l C o s ts
(C e n ts p e r
B a r r e l )
U n ite d S t a t e s
1 9 6 1 -1 9 6 2
T exas 18 138 156
L o u i s i a n a 10 108 118
V e n e z u e la
1962-1964-
6 .5 55 6 1 .5
I r a q 1 .2
3**
4 - .2
* S o u rc e : A delm an, 0£ . o l t . , p . 1 7 8 .
**No p i p e l i n e a llo w a n c e s i n c e K irk u k f i e l d h a s n e t
t r a n s p o r t a d v a n ta g e s i n p i p e l i n e o u t l e t t o t h e E a s t e r n
M e d i te r r a n e a n , and c o s t c o m p a ris o n i s o n P e r s i a n G u lf
b a s i s .
r e s e r v e s am ounted t o 24 b i l l i o n b a r r e l s i n I 9 6 0 , c o n
t a i n e d i n e i g h t f i e l d s . The g r e a t g a s p r e s s u r e i s one
o f th e m o st i m p o r t a n t f e a t u r e s o f I r a q i o i l w e l l s . As we
m e n tio n e d b e f o r e , t h i s i s b u rn e d o f f i n s t e a d o f b e in g
u t i l i z e d f o r some c o n s t r u c t i v e p u r p o s e . We h a v e n o te d
t h e h ig h p r o d u c t i o n p e r w e l l , t h a t i s , 1 4 ,6 1 5 b a r r e l s
f o r t h e a v e r a g e d a l l y p r o d u c t i o n i n K irk u k f i e l d s , and
th e b u lk o f t h e p r o d u c t i o n comes from w e l l s n o t e x c e e d in g
5 ,0 0 0 f e e t i n d e p t h .
The M a tu re o f th e C o n c e s s io n s
As we n o te d e a r l i e r , t h e e n t i r e a r e a o f I r a q was
c o v e re d by t h e I r a q P e tr o le u m Company and i t s s u b s i d i -
a r i e s - - t h e M osul P e tr o le u m Company and th e B a s ra h P e t r o
leum Com pany. T h is f a c t was o f g r e a t im p o r ta n c e t o t h e
co m p a n ie s i n I r a q s i n c e i t s a v e d them much e x p e n s e , b e
c a u s e th e !_ .num ber o f w e l l s d r i l l e d was v e r y s m a l l . F u r
th e r m o r e , th e c o m p an ies w ere f r e e to r e g u l a t e t h e r a t e o f
p r o d u c t i o n , s i n c e t h e r e was no p r e s s u r e from t h e G o v ern
m ent t o m axim ize o u t p u t , b e c a u s e o f t h r e a t o f l o s i n g o i l
to n e i g h b o r s , a s i s t h e c a s e i n t h e U n ite d S t a t e s . T h e r e
f o r e , a l l t h e w e l l s o p e r a t e d b y t h e co m p a n ie s w ere " f r e e
f l o w ." T h is g a v e t h e c o m p a n ie s i n I r a q a n a b s o l u t e a d v a n
t a g e o v e r t h e c o m p a n ie s u s i n g pum ping m eth o d s i n o t h e r
p a r t s o f t h e w o r l d . I n f a c t , n a t u r a l g a s was i n e x c e s s
o f t h e n e c e s s i t i e s o f p r o d u c t i o n a n d had b e e n , and
s t i l l i s , f l a r e d .
Cheap Labor
By i t s n a t u r e th e o i l i n d u s t r y em ploys a l a r g e
num ber o f w o r k e r s . The t o t a l num ber i n 1952 was 1 1 ,1 5 7 •
I n f a c t , i t em ploys t h e l a r g e s t num ber o f w o rk e rs o f a n y
i n d u s t r y i n I r a q .
W orkers i n t h e o i l i n d u s t r y c a n be r o u g h ly c l a s s i
f i e d i n t o two c a t e g o r i e s o r c l a s s e s : s k i l l e d w o r k e r s ,
t h e m a j o r i t y o f whom a r e f o r e i g n e r s ; and u n s k i l l e d w o rk e rs
t h e m a j o r i t y o f whom a r e I r a q i s . T h is I s p a r t l y d u e t o
t h e s c a r c i t y o f s k i l l e d l a b o r I n I r a q and p a r t l y t o th e
d e s i r e o f t h e o i l c o m p a n ie s t o k e e p t o p m anagem ent i n
t h e h a n d s o f f o r e i g n e r s . T h is s i t u a t i o n h a s ch an g e d
r a d i c a l l y s i n c e i 9 6 0 . The p e r c e n t a g e o f to p l e v e l f o r e i g n
s t a f f d e c l i n e d from 90 p e r c e n t i n t h e e a r l y 1 9 5 0 ’ s t o
51 p e r c e n t i n t h e 1 9 6 0 's . 1 '7
I n a d d i t i o n t o t h e l a r g e num ber o f w o rk e rs em
p lo y e d i n t h e o i l i n d u s t r y , t h e c o m p a n ie s p r o v i d e t r a i n
i n g f o r them* I n 1951# t h e I r a q P e tr o le u m Company e s t a b
l i s h e d a t K irk u k a t r a i n i n g c e n t e r w i t h a f i v e - y e a r c o u r s e
f o r c l e r i c a l a n d t e c h n i c a l p e r s o n n e l t o m ee t t h e c o m p a n y 's
•^ Iraq O il in 1962. Iraq O il Company.
64-
n e e d s . The t r a i n i n g i s c l o s e l y i n t e g r a t e d w ith p r a c t i c a l
work i n th e c o m p a n y 's p l a n t s . D u rin g t h e c o u r s e th e
a p p r e n t i c e s a r e p a id a m o n th ly wage w h ic h I n c r e a s e s p r o
g r e s s i v e l y from I . D . 10 o n e n t r y t o I . D . 21 d u r i n g th e
1 Q
l a s t y e a r . I n t h e same y e a r , t h e com pany u n d e rto o k to
se n d f i f t y I r a q i s t u d e n t s t o E n g la n d to s p e c i a l i z e i n
t h e o i l i n d u s t r y .
The I r a q P e tr o le u m Company p r o v i d e s i t s em ploy
e e s w i t h m e d ic a l c a r e s e r v i c e s and s o c i a l a m e n i t i e s . I n
1 9 5 2 , t h e com pany had t h r e e m odern h o s p i t a l s , e le v e n
c l i n i c s and t w e n t y - t h r e e d i s p e n s a r i e s I n t h e B a s r a h
a r e a . ^
W ages i n t h e o i l i n d u s t r y i n I r a q a r e v e r y low
com pared t o t h e p r e v a i l i n g wage i n i n d u s t r y i n t h e U n ite d
S t a t e s . T h e se low w ages c a u s e d t h e c o m p a n ie s to u s e
m ore l a b o r p e r u n i t o f c a p i t a l th a n i n a n y o t h e r o i l p r o
d u c in g c o u n t r i e s , e x c e p t t h o s e o f t h e M id d le E a s t . The
minimum d a i l y wage was e q u i v a l e n t t o 90 c e n t s , $ 1 .1 0 ,
$ 1 . 6 0 , a n d $ 1 .8 0 i n 1 9 ^ 8 , 1 9 5 0 , 1 9 5 5 . and 1959 r e s p e c
t i v e l y . 20
1 R
B e n ja m in S h w ad ran , The M id d le E a s t . O i l and t h e
G r e a t P o w ers (New Y ork: C o u n c il f o r M id d le E a s t e r n
A f f a i r s P r e s s , 195'+), p . 2 7 9 .
^ I r a q O i l i n 1 9 5 2 . I r a q O i l Company, p p . 1 8 , 24-.
20
I s s a w i , o £ . c l t . . p . 4-7.
Conservation Policy
To begin with, there is no conservation policy
as such in Iraq. All in all, it is left to the companies
and their judgment to follow what they think is useful.
Since petroleum is a non-renewable resource, a conserva
tion policy should be followed to provide an optimum
economic utilization of petroleum reserves in accordance
with the best current technical methods of production and
development, to serve the best interests not only of the
present generation but the future generations as well.
A guideline which a sound petroleum industry puts forth
is maximum total recovery of oil and natural gas with
minimum waste.
Most natural accumulations of crude oil and nat
ural gas contain or are associated with their own ex-
pellent energies. These energies come mostly from the
hydrostatic pressure of underlying waters which displace
the oil as it flows or is pumped from wells, and from
gas in solution or associated with the oil which carries
it to the well. Without these natural expellent energies,
oil would be difficult and expensive to produce. There
fore, it is just as important to conserve these energies
as it is to practice the principles of conservation in
general.
66
The p e tr o le u m i n d u s t r y i n I r a q s i n c e i t s e a r l y
d a y s and to some e x t e n t u n t i l now w as, i n i t s e x t r a c t i v e
p h a s e , c h a r a c t e r i z e d by t h e w a s t e f u l m anner i n w h ich th e
s u b s o i l r e s o u r c e s w ere e x p l o i t e d . T h is i r r a t i o n a l c o n
d u c t was d u e i n p a r t , e s p e c i a l l y i n t h e e a r l y d a y s , to
t h e l i m i t e d p r o g r e s s made i n p e tr o le u m e n g i n e e r i n g
t h r o u g h o u t t h e w o rld a t t h a t tim e , b u t m o s tly i t was d u e
t o t h e d e s i r e f o r q u ic k p r o f i t s . T h is a t t i t u d e on t h e
p a r t o f i n v e s t o r s was c a u s e d by t h e i r f e a r o f l o s i n g
t h e i r I n v e s tm e n t a n d , a l s o , o f t h e s o c i a l u n r e s t and
p o l i t i c a l i n s t a b i l i t y t h a t c h a r a c t e r i z e a d e v e lo p in g
c o u n t r y . And I r a q i s o n e o f t h e s e . T h e r e f o r e , t h e p r i
m ary o b j e c t i v e o f t h e i n v e s t o r s was to g e t a l l t h e y c o u ld
o u t o f t h e g ro u n d i n t h e s h o r t e s t p o s s i b l e tim e , an d r e
c o v e r a s much o f t h e i r in v e s tm e n t a s t h e y c o u l d .
I f t h e o i l co m p a n ie s a r e g o in g to p r e s e r v e th e
i n t e r e s t o f I r a q i n one o f t h e m o st I m p o r ta n t n a t u r a l r e
s o u r c e s , a s w e l l a s t h e i r own i n t e r e s t , th e y s h o u ld t a k e
t h e f o l l o w i n g c o n s e r v a t i o n m e a s u re s :
1 . S c i e n t i f i c a l l y d e v e lo p a p a t t e r n o f w e l l -
s p a c i n g , a c c o r d i n g t o t h e p o t e n t i a l i t i e s o f
I r a q . T h is w r i t e r b e l i e v e s t h a t t h e num ber
o f w e l l s i n a n y g i v e n f i e l d i n I r a q i s n o t
s u f f i c i e n t ; i t f o l lo w s t h a t many a r e a s r e
m ain w i t h o u t a d e q u a te e x p l o i t a t i o n . T h is
situation may be attributed, at least partly,
to the attitude of the British petroleum
companies, as contrasted to American oil
companies. It has been the general policy
of the former to develop only a few wells in
each field.
Consideration should be given to the gas-oll
ratio, that is, only the required quantities
of gas should be produced with each barrel
of oil.
Maximum efficient rate of exploitation should
be determined periodically for each deposit
and each well according to all factors that
affect the flow of oil toward the producing
well.
CHAPTER IV
TRANSPORTATION AND MARKETING
Transportation
Pipelines
The primary object in the design and construc
tion of facilities for any business enterprise is to de
sign and construct so that the desired service may be
performed in the most efficient and economical manner.
In considering the installation of a new pipeline, the
first step is to make an engineering study of the proj
ect to determine whether or not the investment will be
Justified.
A new pipeline system, or a major change in an
existing one can be justified only after extensive study
of the economies involved. Such a study of a crude oil
line should be based upon the best possible information
obtainable as to geology and potential of the producing
area and other information concerning the pattern of de
mand, et cetera.^
Leslie Cookenboo, Jr., Crude Oil Pipelines and
Competition in the Oil Industry (Cambridge: Harvard
University Press, 1955)* P» 65*
68
69
The flo w o f o i l th r o u g h a p i p e l i n e I s d e te r m in e d
p
by: (1 ) l e n g t h o f t h e p i p e l i n e ; (2 ) g r a v i t y o f t h e o i l ;
(3) v i s c o s i t y o f t h e o i l ; (*0 p r e s s u r e and s t a t i c h ead
c o n d i t i o n s ; and (5 ) s i z e o f t h e p i p e l i n e .
C a p i t a l C o s ts o f P i p e l i n e s
An 8 - i n c h p i p e l i n e , 1 ,0 0 0 m il e s i n l e n g t h w ith
a c a p a c i t y o f a b o u t 3 0 ,0 0 0 b / d , w ould h a v e c o s t $20
m i l l i o n i n 19*4-8; a 3 0 - i n c h p i p e l i n e , w ith a c a p a c i t y o f
3 5 0 ,0 0 0 b / d , w ould h a v e c o s t a b o u t $58 m illio n .- ^
I n t h e f i e l d o f o i l t r a n s p o r t a t i o n , l a b o r i s o f
m in o r s i g n i f i c a n c e , b u t f i x e d i n v e s tm e n t i s o f g r e a t
i m p o r t a n c e . A b o u t 70 p e r c e n t o f th e o r i g i n a l i n v e s t
m en t o f a p i p e l i n e i s i n th e p i p e and i t s i n s t a l l a t i o n .
The o t h e r 30 p e r c e n t a r e v a r i a b l e c o s t s , m a in ly t h e
k
l a b o r pow er u se d i n m oving t h e o i l .
As we m e n tio n e d e a r l i e r , t h e m o st i m p o r t a n t f a c
t o r t o be t a k e n i n t o c o n s i d e r a t i o n when c o n s t r u c t i n g a
p i p e l i n e i s t h e p o t e n t i a l o f t h e o i l f i e l d , t o w h ich we
s h a l l t u r n now.
2
L . E . D a v is a n d C y ru s C la r k ( E d s . ) , O i l P i p e l i n e
T r a n s p o r t a t i o n P r a c t i c e s ( A u s ti n , T e x a s: 194*0» p . 3 3 0 .
^ J o h n G. McLean and B o b e r t W. H a ig h , The G row th o f
I n t e g r a t e d O i l C om panies (N orw ood, M a s s ., 195*0» P» 1 8 6 .
if-
Hugh M. E m erso n , " S a l i e n t C h a r a c t e r i s t i c s o f
P e tr o le u m P i p e l i n e T r a n s p o r t a t i o n , " Land E c o n o m ic s. 2 6 :3 1
( F e b r u a r y , 1 9 5 0 )•
70
P o t e n t i a l O i l F i e l d and
A s s u re d T h ro u g h p u t
I t i s v e r y i m p o r t a n t f o r a n o i l company to
o p e r a t e i t s p i p e l i n e s t o t h e i r f u l l c a p a c i t y , o r a s
n e a r l y a s p o s s i b l e t o f u l l c a p a c i t y . T h is im p o r ta n c e
a r i s e s fro m t h e f a c t t h a t i f t h e p i p e l i n e i s o p e r a t e d
e i t h e r b elo w o r a b o v e i t s d e s i g n e d c a p a c i t y t h i s w i l l
g iv e r i s e t o a s h a r p i n c r e a s e i n u n i t t r a n s p o r t a t i o n
c o s t s . A c r u d e o i l p i p e l i n e 100 m il e s lo n g w ith tw e lv e
pum ping s t a t i o n s a t a c a p a c i t y o f 5 0 ,0 0 0 b / d , c o s t s 29
c e n t s p e r th o u s a n d b a r r e l m i l e s . I f t h r o u g h p u t I n c r e a s e d
to 3 3 ,0 0 0 b / d , t h e c o s t r i s e s t o 3 6 . ^ c e n t s p e r th o u s a n d
b a r r e l m i l e s , and i f t h e t h r o u g h p u t d ro p p e d b elo w 3 3 ,0 0 0
b / d , c o s t s w ould d e c r e a s e f i r s t , t h e n t h e c o s t w ould r i s e
to a b o u t *f0.9 c e n t s p e r th o u s a n d b a r r e l m i l e s . ^
The p i p e l i n e i s a v e r y s p e c i a l i z e d m eans o f
t r a n s p o r t a t i o n b e c a u s e o f t h e f o l lo w in g :
1 . I t i s f i x e d w ith i t s g e o g r a p h i c a l l o c a t i o n
an d c a n n o t e a s i l y be moved from on e a r e a to
ano t h e r .
2 . I t i s d e p e n d e n t e n t i r e l y o n c ru d e o i l o r
p r o d u c t s a n d c a n n o t b e u s e d — a t l e a s t n o t
e a s i l y — f o r d i f f e r e n t p u r p o s e s , a s c a n a
r a i l w a y , f o r e x a m p le .
^McLean and H aig h , ojd. c i t . B p. 188.
71
3 . The num ber o f c u s to m e rs fro m -which a p i p e
l i n e m u st d raw i t s m ain volum e o f b u s i n e s s
i s v e r y s m a l l . I n f a c t , i n I r a q t h e r e I s
b u t o n e c u s to m e r — t h e I r a q P e tr o le u m Company
and i t s a s s o c i a t e s .
A d v a n ta g e s o f P i p e l i n e s
The im p o r ta n c e and d o m in an ce o f p i p e l i n e s i n t h e
f i e l d o f t r a n s p o r t a t i o n i s g ro w in g a l l o v e r t h e w o r ld .
H. M. C r o c k e t t , o f S ta n d a r d O i l o f New J e r s e y , i n a p a n e l
d i s c u s s i o n o f t h e "S econd H undred Y e a rs o f . P i p e l i n i n g , "
l i s t e d t h e f o l l o w i n g r e a s o n s f o r t h e g ro w th o f p i p e l i n e s
i n W e ste rn E u ro p e :
1 . A n n u al i n c r e a s e i n e n e rg y c o n s u m p tio n i n
W e s te rn E u ro p e i s 7 p e r c e n t com pared t o 3
p e r c e n t f o r t h e U n ite d S t a t e s .
2 . I n d u s t r i a l a c t i v i t y i s c o n c e n t r a t e d i n s m a ll
a r e a s .
3 . Demand w i l l become m ore b alan ced , w ith a
d e c l i n i n g e m p h a sis o n h e a v y f u e l o i l a n d a n
I n c r e a s e d e m p h a sis on v i r g i n n a p th a s and
g a s o l i n e .
k . E conom ics o f p i p e l i n e s g i v e s them a n a d v a n
t a g e o v e r o t h e r fo rm s o f t r a n s p o r t a t i o n .
M oving c ru d e o i l by p i p e l i n e s i n I r a q r e d u c e s
c o s t s o f t r a n s p o r t a t i o n b e c a u s e :
1 . C o n tin u o u s m ovem ent o f o i l i n th e p i p e l i n e
and t h e p e r u n i t c o s t o f m oving o i l f a l l s
s i g n i f i c a n t l y a s th e p i p e l i n e i s o p e r a t e d
c l o s e t o i t s d e s ig n e d c a p a c i t y .
2 . P i p e l i n e s i n I r a q s a v e d t h e c o m p an ies th e
c o s t o f t r a n s i t t o l l s th r o u g h t h e S u e z C a n a l,
w h ich am ount t o 18 c e n t s p e r b a r r e l . T ru e ,
t h e r e a r e t r a n s i t t o l l s o n p i p e l i n e s I n b o th
S y r i a and L e b a n o n , w h ich t o g e t h e r come t o
15 c e n t s p e r b a r r e l . S t i l l , th e y a r e l e s s
t h a n t h o s e o f t h e S u e z C a n a l .
3 . P i p e l i n e s c a u s e d to some e x t e n t , a l t h o u g h
I n d i r e c t l y , t h e i d l i n g o f many t a n k e r s .
T h is c r e a t e d a s u r p l u s i n t h e t a n k e r f l e e t
w h ic h , i n t u r n , c a u s e d a r e d u c t i o n i n f r e i g h t
r a t e s .
I r a q i c ru d e i s n o t a waxy c r u d e . Wax c a u s e s d i f
f i c u l t i e s i n m ovem ent o f o i l th r o u g h p i p e l i n e s . T h e re
a r e many ways t o g e t a ro u n d t h i s , among w h ic h a r e t h e
f o l lo w in g : (1 ) m ix in g t h e c ru d e w ith w a t e r ; (2 ) s u b
j e c t i n g t h e c ru d e i n i t i a l l y to a s p e c i a l h e a t i n g / c o o l i n g
t r e a t m e n t c y c l e ; (3) i n j e c t i n g w a te r t o fo rm a l a y e r
6I b i d . , p. 88.
73
b e tw e e n t h e p i p e w a l l and t h e c r u d e ; and (4-) p r e h e a t i n g
t h e c ru d e an d pum ping t h e h o t c r u d e t h r o u g h a b u r i e d
p i p e l i n e , a s t h e c a s e i n L ib y a , f o r e x a m p le . A l l o f
t h e s e a r e q u i t e p o s s i b l e , b u t t h e y w ould r e p r e s e n t a d
d i t i o n a l c o s t s t o t h e o i l c o m p a n ie s .
Pipelines in Iraq
K e e p in g i n m ind a l l o f t h e a b o v e a d v a n ta g e s o f
t h e p i p e l i n e s , t h e f a c t t h a t m o st o f t h e I r a q i o i l f i e l d s
( w ith t h e e x c e p t i o n o f B a s r a h ) a r e i n l a n d f i e l d s , th e
o i l co m p a n ie s h a v e c o n s t r u c t e d p i p e l i n e s to t r a n s p o r t
c ru d e o i l t o t h e M e d i t e r r a n e a n . S i n c e c ru d e o i l i s
l i q u i d , i t i s , t h e r e f o r e , s u b j e c t to flo w w h e th e r o f a
g r a v i t y o r a p r e s s u r e t y p e . F o r t h i s r e a s o n , p i p e l i n e s
a n sw e r t h e n e e d f o r o v e r l a n d t r a n s p o r t a t i o n . The d e - .
c i s i o n was made to c o n s t r u c t a p i p e l i n e to c a r r y t h e o i l
t o t h e M e d i te r r a n e a n p o r t s . T h is d e c i s i o n t u r n e d o u t to
be o f g r e a t a d v a n ta g e t o t h e o i l c o m p a n ie s i n I r a q .
T a b le 15 g i v e s a n e s t i m a t e o f t h e c o s t and incom e o f
I r a q P e tr o le u m Company p i p e l i n e s .
The f i r s t 1 2 - i n c h l i n e was c o m p le te d i n 1 9 3 ^ .
w i t h a n a v e r a g e c a p a c i t y o f 4 m i l l i o n t o n s , f o r a d i s
t a n c e o f 380 m i l e s . T h is was f o llo w e d by c o m p le tio n o f
a n o t h e r 1 6 - i n c h l i n e i n 1 9 ^ 9 , t e r m i n a t i n g a t T r i p o l i , to
t a k e c a r e o f t h e i n c r e a s e d p r o d u c t i o n o f t h e s e f i e l d s .
TABLE 15
ESTIMATED COST AND INCOME OF IRAQ PETROLEUM COMPANY PIPELINES
1952-1960
Year
Throughput
of Crude
Oil (1000
Barrels)
(1 )
Crude Oil
Price Dif
ferential
Between Med.
and Iraqi
Border
(Cents)
(2 )
Gross In
come of
Pipelines
(Millions)
(3)
Estimated
Total Cost
of Crude
Oil Trans
ported by
Pipelines
(Millions)
(1 *)
Net Income of
Pipelines
(Millions)
(5)
1952
1 2 9 ,0 7 2 0.68 87 .8 25.8 62 .0
1953 201,11*9
0.68 1 36 .8 1 *0.2 96.6
195^ 220,1*91
0.68 1 50.0 1 *1 *. 0
1 0 6 .9
1955 239,633 0 .3 9 93 ^ 7 .9 ^ 5 .5
1956 220,71*7
0 .3 9
8 6 .0 1 *1*.1
1*1.9
1957 1 5 0 .5 2 1 0 . 1*0 60.2 3 0 .1 3 0 .1
1958 251,288 0.38
9 5 .5
50.2
^5*3
19 59
290,288 0.38
1 1 0 .3 5 8 .0 52.0
I 960
3 3 7 .7 0 5
0.28 81*.6
6 7 .5 1 7 .1
^Source: Ministry of Oil, Baghdad.
N ote: (Column 3 i s Column 1 m u l t i p l i e d by Column 2 . Column 1 * i s c a l c u
l a t e d on th e b a s i s o f Column 1 . S in c e no d a t a a r e a v a i l a b l e , a n a v e ra g e o f 20 c e n ts
?
er barrel Is assumed to be the cost of transporting the oil, as in Tapline.
olumn 5 is the difference between Column 3 and 1*.
75
./ T h is l a t e r l i n e , s h o r t l y a f t e r w a r d , t u r n e d o u t
to be i n a d e q u a t e , to o ; t h e n a t i o n a l i z a t i o n o f o i l i n
I r a n p la y e d a m a jo r r o l e i n t h i s d e c i s i o n . I n o r d e r f o r
t h e co m p an ies t o be a b l e t o c o m p e n sa te f o r some l o s s e s
o f I r a n i a n o i l , th e c o m p an ies d e c id e d to b u i l d a 3 0 - l n c h
t r u n k l i n e , 555 m ile s l o n g , w ith a c a p a c i t y o f 12 m i l
l i o n to n s a y e a r , a t a c o s t o f 4-1 m i l l i o n pounds s t e r -
7
l i n g . By th e c o n s t r u c t i o n o f t h i s t r u n k p i p e l i n e , a
95 p e r c e n t i n c r e a s e i n t h e o i l p r o d u c t i o n from t h e
K irk u k o i l f i e l d s a s com pared t o t h e p r e v i o u s y e a r was
p o s s i b l e , t h a t i s , th e p r o d u c t i o n i n c r e a s e d from 8 m i l
l i o n to n s i n 1951 t o 15 m i l l i o n to n s i n 1952.® I n 1 9 6 1 ,
a n o t h e r 3 0 - i n c h p i p e l i n e to T r i p o l i was c o m p le te d w ith
a t o t a l l e n g t h o f 532 m i l e s . T a b le 16 shows t h e p r i n c i
p a l c ru d e o i l p i p e l i n e s .
Ex-porting and Marketing
I r a q i p e tr o le u m co m p an ies a r e p r o d u c in g e n t e r
p r i s e s w ith no m a rk e t f a c i l i t i e s w h a ts o e v e r o f t h e i r own
o u t s i d e t h e c o u n t r y . T h e r e f o r e , t h e s e co m p a n ie s d e l i v e r
t h e i r o i l e x p o r t s t o t h e i r p a r e n t co m p a n ie s a t c o s t p l u s
a f e e o f o n e s h i l l i n g p e r to n ; t h e l a t t e r h a v e w o rld w id e
"^Benjamin Shwadran, The Middle East. Oil and the
Great Powers (New York: Frederick A. Praeger, 1 9 5 5 )t
P. 2 5 3 .
O
Ministry o f Oil, Baghdad, Iraq.
76
TABLE 16
PRINCIPAL CRUDE OIL PIPELINES OF
IRAQ PETROLEUM COMPANY*
Company R o u te
D ia m e te r
( I n c h e s )
L e n g th
(M ile s )
Y e ar
Com
p l e t e d
I . P . C . K i r k u k - T r i p o l i 12 532 193^
I . P . C . K i r k u k - T r i p o l i 3 0 -3 2 532 1961
I . P . C . T . ^ - T r i p o l i 16 111
19^9
I . P . C . K ir k u k - B a n ia s 3 0 -3 2
555 1952
I . P . C . J ambur-K i rk u k 6-8 36
1955
I . P . C . B a i- H a s s a n -
K irk u k 16 20 1961
M .P .C . A in Z a la h -K -2 12 13^ 1952
B .P .C . Z u b a ir - F a o zh
65 195^
B .P ,C . Z u b a ir - F a o 30-32 65 1961
B .P .C . F ao -K h o r al-A m aya
( la n d s u b m a rin e
l i n e s ) 32 28 1961
B .P .C . F a o -K h o r al-A m aya
( la n d s u b m a rin e
l i n e s ) 32 28 1961
B .P .C . R u m a ila - Z u b a ir 12 18
195^
B .P .C . R u m a ila - Z u b a ir 16 18 1 9 5 7 -6 1
B .P .C . R u m a ila - Z u b a ir 16 18 1 9 5 7 -6 1
B .P .C . R u m a ila - Z u b a ir 16 18 1 9 5 7 -6 1
B .P .C . R u m a ila - Z u b a ir 16 18 1 9 5 7 -6 1
* S o u rc e : M i n i s t r y o f O i l , B ag hdad , I r a q .
77
g
t r a n s p o r t , r e f i n i n g , and m a r k e tin g f a c i l i t i e s .
The volum e o f I r a q i e x p o r t s o f c ru d e o i l h a s
i n c r e a s e d s i g n i f i c a n t l y s i n c e t h e 1 9 5 0 's , T h is h a s b e e n
du e to t h e t r a n s p o r t a t i o n f a c i l i t i e s r e n d e r e d by t h e new
3 2 - i n c h p i p e l i n e and a l s o t o t h e r a p i d e x p a n s io n i n t h e
eco n o m ies o f w e s te r n E u ro p e an d J a p a n , As a r e s u l t ,
e n e rg y c o n s u m p tio n i n W e s te rn E u ro p e i n c r e a s e d by 77 p e r
c e n t b e tw e e n 19^9 and I 9 6 0 , w h ic h l e d t o a n i n c r e a s e i n
o i l c o n s u m p tio n by t h e s e c o u n t r i e s o f 39^ p e r c e n t d u r
in g t h e p e r i o d 1 9 ^ 8 -1 9 6 0 , and t h a t o f J a p a n by 1 ,5 5 0 p e r
c e n t i n t h e p e r i o d 1 9 ^ 9 -1 9 6 0 , an d h a s c o n tin u e d t o i n
c r e a s e
Added to t h i s , t h e d o l l a r s h o r t a g e t h a t p r e v a i l e d
t h r o u g h o u t m o st o f t h i s p e r i o d h e lp e d to d i r e c t E u ro p e a n
demand to w a rd t h e I r a q i a n d o t h e r M id d le E a s t e r n o i l *
1 1
s i n c e t h e paym ent f o r t h i s o i l was i n s t e r l i n g .
The p r i c e d i f f e r e n c e s a n d t h e b r e a k i n g o f t h e
t i e b e tw e e n U n ite d S t a t e s G u lf p r i c e s and t h e M id d le
E a s t p r i c e s made I r a q i o i l m ore c o m p e t i t i v e to t h a t o f
t h e U n ite d S t a t e s an d V e n e z u e la .
o
'I s s a w i * o p . c l t . . p . 7 0 .
10I b i d . , p . 7 9 .
■ ^ H o rst M e n d e rs h a u s e n , D o l l a r S h o r t a g e a n d O i l
S u r p l u s i n 1 9 ^ 9 -1 9 5 0 . E s s a y s i n I n t e r n a t i o n a l F i n a n c e ,
N o . 11 ( P r i n c e t o n , New J e r s e y : P r i n c e t o n U n i v e r s i t y ,
D e p a rtm e n t o f E conom ics an d S o c i a l I n s t i t u t i o n s , 1 9 5 0 ) .
78
T he r e f i n i n g fre e d o m o f t h e I r a q P e tr o le u m
Company made i t e a s i e r f o r th e company to a d j u s t p r o
d u c t i o n t o dem and. O n ly 5 p e r c e n t o f I r a q i c ru d e o i l
was r e f i n e d l o c a l l y , w h ile t h e r e s t was s e n t t o E u ro p e
12
an d N o r th A m e ric a .
T a b le 17 shows I r a q i c ru d e o i l e x p o r t s . T h ese
e x p o r t s a r e s t e a d i l y i n c r e a s i n g y e a r a f t e r y e a r . W h ile
t h e s e e x p o r t s am o u n ted t o o n l y a b o u t 8 m i l l i o n lo n g to n s
i n 1 9 5 1 t t h e y r e a c h e d 3 1 .6 m i l l i o n lo n g to n s i n 1 9 5 5 *
T hey d ro p p e d to 2 8 .^ m i l l i o n l o n g to n s t h e f o l l o w i n g
y e a r and re a c h e d a low o f 20 m i l l i o n lo n g to n s i n 1 9 5 6 .
T h is d r o p was c a u s e d by t h e i n t e r r u p t i o n o f n a v i g a t i o n
th r o u g h t h e S u e z C a n a l d u r i n g t h e S u e z C r i s i s . H ow ever,
e x p o r t s a g a i n resu m ed a n upw ard t r e n d i n t h e s u b s e q u e n t
y e a r s and r e a c h e d 3 8 .9 m i l l i o n lo n g to n s i n 1 9 5 9 t o n ly
t o p lu n g e a g a i n t o ^ . 7 , ^-5*8 i n i 960 an d 19 6 1 , r e s p e c
t i v e l y , T h is tim e t h e d r o p i n e x p o r t s was d u e t o Law
No. 8 0 , o f 1 9 6 1 , a n d t h e i n c r e a s e o f p o r t d u t i e s a t
B a s r a h .
O i l e x p o r t s i n c r e a s e d i n 1963 by 1 5 .8 p e r c e n t
com pared t o t h o s e o f 1 9 6 2 . M ost o f t h e i n c r e a s e came
fro m B a s r a h P e tr o le u m Com pany. I t s e x p o r t s i n c r e a s e d
12
Iraq's concentration on exporting crude oil
was due mainly to the restrictions in the "Red Line
Agreement" of 1 9 2 8 .
TABLE 17
OIL EXPORTS BY IRAQ OIL COMPANIES-1 9 5 1 /1 9 6 4 *
(In Long Tons)
Iraq Mosul Basrah
:
Year Petroleum Petroleum Petroleum Total
Company Company Company
1951 7 ,9 1 3 ,7 8 1 3 7 ,8 1 3
7 ,9 5 1 .5 9 4
1952 1 5 ,3 3 8 ,6 6 4
2 5 7 .3 4 5
2 ,1 0 3 ,3 8 6
1 7 ,6 9 9 .3 9 5
1953 2 2 ,7 1 5 ,1 1 6 1 ,2 6 7 ,2 8 9 3 ,0 2 3 ,0 0 8
2 7 ,6 9 9 ,3 9 5
195^
2 3 ,5 2 0 ,5 4 4 1 ,2 7 3 ,8 9 8 4 ,4 7 8 ,1 8 7 2 9 ,2 7 2 ,6 2 9
19 55
2 3 ,4 1 4 ,4 6 5 1 ,2 8 1 ,1 0 0 6 ,9 4 8 ,0 9 6 3 1 ,6 4 3 ,6 6 1
1956 1 9 ,2 2 1 ,8 1 8
1 .0 7 2 ,2 1 9
8 ,1 6 8 ,1 6 8 2 8 ,4 6 2 ,2 0 5
195?
1 0 ,4 3 9 ,0 2 1 560 ,8 9 2
8 ,9 3 6 ,4 0 9
1 9 ,9 3 6 ,3 2 2
1958 2 1 ,0 8 8 ,4 5 4 1 ,2 7 6 ,2 8 2 1 0 ,9 8 2 ,9 4 6 3 3 .2 5 7 ,6 8 2
1959
2 5 ,6 4 0 ,0 6 7
1 ,2 6 4 ,8 6 9 1 2 ,0 0 0 ,8 3 3 3 8 ,9 0 5 ,7 6 9
I 960 3 2 ,3 8 6 ,5 0 6 1 ,2 8 5 ,6 2 4
1 1 .1 0 8 ,7 5 1
4 4 ,7 8 0 ,8 8 1
1961 3 5 , 006,366 1 ,2 6 8 ,8 2 1
9 ,5 7 5 .9 4 7
4 5 .8 5 1 ,1 3 4
1962 3 6 ,0 6 6 ,1 7 2 1 ,2 9 2 ,5 2 2 8 ,5 7 9 ,3 9 0 4 5 .9 3 8 ,0 8 4
1963 3 9 ,5 4 1 ,0 4 7 .7 1 ,2 4 9 ,9 5 6 .1 1 2 ,4 2 1 ,1 1 4 .5
5 3 ,2 3 7 ,1 1 8 .3
1964 3 9 ,7 5 7 ,1 3 2 .8
1 ,2 8 8 ,0 5 5 .5
1 7 ,2 0 2 ,6 4 6
5 8 ,2 4 7 ,8 3 4 .3
*Source: Ministry of Oil, Baghdad, Iraq,
80
fro m 8 .5 m i l l i o n lo n g to n s i n 1962 t o 1 2 . A m i l l i o n lo n g
to n s i n 1963» o r k k .6 p e r c e n t . As we n o te d e a r l i e r ,
t h i s i n c r e a s e was d u e t o r e l a x a t i o n o f r e l a t i o n s b e tw e e n
t h e G overnm ent o f I r a q an d t h e o i l c o m p a n ie s, f r e e z i n g
a l l th e d i f f e r e n c e s w h ich w ere o u t s t a n d i n g b e f o r e a n d
a f t e r e n a c tm e n t o f Law N o. 80 o f 1 9 6 1 . F u r th e r m o r e ,
p o r t d u e s w ere r e d u c e d on t a n k e r s l o a d i n g fro m B a s r a h .
I t i s s i g n i f i c a n t t h a t I r a q i e x p o r t s o f c ru d e
o i l f l u c t u a t e s e a s o n a l l y , from one q u a r t e r to a n o t h e r ,
a s shown i n T a b le 1 8 . I t i s r e c o g n i z e d from t h i s t a b l e
t h a t e x p o r t s re m a in a t t h e same l e v e l i n t h e f i r s t
q u a r t e r , d e c r e a s e i n t h e se c o n d a n d t h i r d q u a r t e r s , a n d
i n c r e a s e i n t h e f o u r t h q u a r t e r . The r e a s o n f o r t h e s e
f l u c t u a t i o n s may be a t t r i b u t e d t o m a r k e tin g f a c t o r s . The
demand f o r o i l i n c r e a s e s I n c o ld s e a s o n s a n d d e c r e a s e s
i n warm and h o t s e a s o n s . M o re o v e r, t h e s e f l u c t u a t i o n s
may a l s o be a t t r i b u t e d to v a r i o u s t e c h n i c a l f a c t o r s b e
yond t h e c o n t r o l o f t h e c o m p a n ie s , an d f i n a l l y , t o th e
a t t e m p t o f t h e c o m p a n ie s to r e a c h th e f i g u r e t h e y d e
c id e d t o p ro d u c e an d e x p o r t from t h e b e g in n in g o f t h e
y e a r a n d w h ic h t h e y had s u b m itte d to t h e g o v e rn m e n t.
M ost o f t h e I r a q i c ru d e o i l e x p o r t f i n d s i t s
way to t h e c o u n t r i e s o f W e s te rn E u ro p e . U n t i l t h e f i f
t i e s , t h e m o st i m p o r t a n t s i n g l e m a rk e t f o r I r a q i c ru d e
was t h e U n ite d Kingdom ; t h i s p i c t u r e c h an g ed i n t h e
TABLE 18
CRUDE OIL PRODUCTION DURING QUARTERS OF 1962/1963*
( I n M i l l i o n Tons)
Company
1 s t
Q u a r te r s
2nd 3rd 4 t h
T o ta l
1962 1 s t
Q u a r te r s
2nd 3 rd 4 th
T o ta l
1963
P e r
C ent
Change
I . P . C . 9 .0 9 .0
8 .7 9 .5
3 6 .2 1 1 .0 9 .0
9 .1 1 0 .6
3 9 .7
+ 9*6
B .P .C . 2 .2 2 .0
1 .9 2 .5
8 .6 2 .2 2 .8
3 .3
4 .1 1 2 .4 + 4 4 .6
M .P.C .
0.3 0 .3
0 .4
0 .3 1 .3 1 .3 0 .3 0.3 0 .3
1 .2 - 1 .4
T o ta l
1 1 .5 1 1 .3
1 1 .0
1 2 .3
4 6 .1
1 3 .5
1 2 .1
1 2 .7 1 5 .0
5 3 .3
+1 5 .8
* S o u rc e: C e n tr a l Bank o f I r a q , A nnual R e p o r t. 1964 (Baghdad: E l- J a m h o ria
P r e s s , 1965 ) .
Note: The data for exports were not available. Therefore, production
data are used as close approximations. Since the figures will differ slightly, only
a small percentage of crude oil is used locally.
0 0
H
82
following years. Prance became the largest Importer of
Iraqi crude. She Imported 3 .6 million tons in 1951*
1 0 .3 million in 1955* and 9 .6 million in 1 9 6 3 . In re
cent years Italy has taken second place among the im
porters of Iraq crude, with the United Kingdom third.
(See Table 19)
Taking the countries of the Common Market, we
see that Iraqi exports to these countries have increased.
The percentage of exports to these countries Increased
from 55»55 per cent of total exports in 1959 to 6 0 .4 8
per cent in 1962, while exports to the sterling area
remained almost stationary, or declined. They were
2 1 ,0 5 per cent in 1959* dropping to 2 0 .7 7 in 1 9 6 2 . Ex
ports to the United States and Canada dropped from 3 .7 5
per cent in 1959 to 0.33 per cent in 1962.^
Balance of Payments and
Foreign Exchange
The oil industry exerts an important and favor
able influence on Iraq's balance of payments. In every
year, except when exports were high while imports were
reduced by rigid controls, there was a large import sur
plus was covered only by such items as expenditures made
13
^Central Bank of Iraq, Quarterly Bulletin (July-
September, 1 9 6 4 ) , No. 51* p.2 3 6 .
Y ear
1951
1952
1953
195*+
1955
1956
1957
1958
1959
i 960
1961
1962
1963
TABLE 19
CRUDE OIL EXPORTS TO MAIN EUROPEAN COUNTRIES 1951-1953*
( I n Long Tons)
U n ite d
F ra n c e Kingdom I t a l y
3 .6 4 4 ,3 3 2 6 1 7 ,8 8 7 982 ,772
6,23*+,315
4 ,3 8 2 ,4 1 ? 2 ,4 9 2 ,0 7 4
9 ,2 1 6 ,1 8 2
6 ,1 7 9 ,5 5 9 5 .4 6 9 ,8 2 3
1 0 ,2 4 3 .9 6 8 4 ,9 9 8 ,2 7 6 6 .3 0 4 ,7 7 8
1 0 ,3 2 5 ,1 6 3 3 ,6 6 2 ,6 7 7
7 .3 9 4 ,4 3 0
8 ,4 0 4 , 626 3 ,1 2 1 ,5 4 2
4 .2 7 5 .1 3 1
8 ,9 6 3 ,2 6 5 6 ,8 4 2 ,3 3 0 5 .4 5 4 ,4 1 7
7 ,^ 7 2 ,7 2 2 7 ,8 4 1 ,4 0 4 8 ,0 1 9 ,1 1 6
6 ,8 8 9 ,5 6 7
6 .5 6 0 .5 3 6
9 ,1 2 2 ,7 3 1
7 ,2 8 2 ,6 3 8
7 ,4 0 9 ,1 6 5
7 ,9 5 9 ,0 9 0
9 ,6 1 1 ,8 1 7 8 ,3 0 0 ,4 7 9
8 ,9 9 8 ,2 6 8
* S o u rc e: S t a t i s t i c a l A b s t r a c t (Baghdad:
1961, and 196 3 .
Germany H o lla n d T o ta l
1 ,2 0 8 ,6 4 4 205,105
6 ,5 6 8 ,7 4 0
1 ,0 6 2 ,0 7 9
4 8 2 ,9 1 0
1 4 .6 5 3 .7 9 5
1 ,4 6 7 ,4 1 0 9 4 0 ,9 0 0 2 3 ,2 7 3 ,8 7 4
1 ,5 8 1 .5 5 1 1 ,2 .0 0 ,6 3 9
2 4 ,3 2 9 ,4 1 2
2 ,0 5 6 ,4 3 0 4 3 7 ,5 3 8 23 , 876,568
3 ,0 5 0 ,8 3 8 1 ,5 1 3 .8 3 8 2 0 ,3 6 5 ,9 7 0
3 ,8 4 2 ,0 8 2
1 .9 0 7 ,7 7 5 2 7 , 009,867
4 ,6 4 5 ,2 3 6 3 ,0 9 1 .4 0 1
3 1 ,0 6 9 ,8 7 9
4 ,3 0 2 ,1 1 1 3 ,9 8 8 ,9 2 8
3 0 ,8 6 3 ,8 7 3
5 ,2 1 5 ,3 5 5
4 ,4 1 2 ,4 2 1
3 2 ,2 7 8 ,6 6 9
5 ,5 5 2 ,8 4 5 4 ,8 9 6 ,0 8 6
37,359,*+95
G overnm ent o f I r a q , 1952, 1955, 1959*
0 0
VjJ
84
by pilgrims and tourists in Iraq and receipts from transit
trade and expenditures of foreign vessels In the port of
Basrah. The main capital transfer items in the non-oil
sectors were drawings on the Iraqi State Railway loan,
the loan from the International Bank of Reconstruction
and Development, and repayment of loans. Part of the
debit items shown under "Errors and Omissions" probably
represent flight of capital.
During the years 1 9 4 7 -1 9 4 9 . the surplus in the
oil sector failed to cover the deficit in other sectors,
and Iraq sterling balances fell from 57 *2 million pounds
sterling at the end of 1 9 4 7 , to 43 million pounds ster
ling at the end of 19*1-9.
B e g in n in g w ith 1 9 5 0 . h o w e v e r, th e p i c t u r e ch an g ed
b e c a u s e o f t h e o i l i n d u s t r y and t h e v a r i o u s a c t i v i t i e s i n
w h ich i t e n g a g e d . ( B r i e f l y , a l a r g e i n c r e a s e i n g o v e rn
m ent r o y a l t i e s , in v e s tm e n t i n t h e o i l i n d u s t r y i t s e l f ,
a n d f i n a l l y , v a r i o u s e x p e n d i t u r e s made by t h i s i n d u s t r y
l o c a l l y . )
On the other hand, Iraqi exports have declined
since 1951* As a consequence, foreign exchange earn
ings declined. Therefore, the oil industry was a great
14
Economic Development of the Middle East.
1953-1951*. p . 1 0 2 .
85
s u p p o r t t o t h e b a la n c e o f p a y m e n ts , w h ic h i n d i c a t e s th e
d e g r e e o f d e p e n d e n c e o f I r a q ' s economy upon t h i s c r u c i a l
i n d u s t r y .
The d e c l i n e i n I r a q ' s e x p o r t s was a c c o m p a n ie d
by a n i n c r e a s e i n I m p o r ts . T h is was d u e to t h e f r e e
t r a d e p o l i c y w h ich t h e g o v e rn m e n t f o llo w e d a s a t o o l
a g a i n s t a n y f u t u r e i n f l a t i o n . T ru e , some c a p i t a l e x p e n
d i t u r e s w ere made i n o r d e r to im p o rt m a c h in e ry an d e q u ip
m ent a n d , t h u s , h e lp i n c r e a s e f u t u r e p r o d u c t i o n an d p r o
d u c t i v i t y . B u t u n f o r t u n a t e l y , m o st o f t h e e x p e n d i t u r e s
w ere made o n c o n s u m p tio n g o o d s , w hich made no c o n t r i
b u t i o n to p r o d u c t i o n o r p r o d u c t i v i t y .
M o re o v e r, o i l i n v e s tm e n t m akes a v a i l a b l e " f r e e "
f o r e i g n e x c h a n g e a s i s shown i n T a b le 2 0 , w hich may be
d i s s i p a t e d i n c o n s u m e r s ' g o o d s i m p o r t s . H ow ever, i t i s
t h e o r e t i c a l l y p o s s i b l e , th o u g h p e rh a p s n o t l i k e l y , t h a t
c a p i t a l g o o d s Im p o r ts f i n a n c e d th r o u g h f o r e i g n I n v e s t
m ent may s im p ly s u b s t i t u t e f o r c a p i t a l im p o r ts t h a t
o t h e r w i s e w ould h a v e t a k e n p l a c e , and may n o t a p p r e c i a b l y
a d d t o t h e s t o c k o f a v a i l a b l e c a p i t a l . I t i s a l s o p o s
s i b l e , a n d , p e r h a p s m ore l i k e l y , t h a t o i l in v e s tm e n t
w h ich m akes " f r e e " e x c h a n g e a v a i l a b l e f o r c o n s u m e rs '
g o o d s i m p o r t s , may h a v e a m a jo r and m u l t i p l e e f f e c t on
i n t e r n a t i o n a l c a p i t a l f o r m a t i o n . I n many c a s e s , f o r
86
TABLE 20
FOREIGN EXCHANGE EARNED BY IRAQ FROM THE OIL
INDUSTRY AND ITS RELATIONS TO THAT
EARNED BY OTHER GOODS AND SERVICES
19 4 7 -1 9 5 9 *
Y e ar O i l S e c t o r
O th e r Goods
and S e r v i c e s
N e t R e c e i p t s
1 p l u s 2
1947 7 .6 9 - 1 7 .5 6 - 9 .5 7
1948 1 1 .1 0
- 2 4 .7 1
- 1 3 .6 1
1949
7 .6 4
- 1 3 .2 3 - 5 .5 9
1950 7 .4 2
1 .3 9
8 .8 1
1951
1 9 .3 2 - 1 0 .3 1
9 .0 1
1952 4 8 .4 4 - 2 6 .8 9 2 1 .5 5
1953 5 5 .4 3 - 3 2 .7 3
2 2 .7 0
1954
7 3 .3 9 - 4 7 .6 5 3 1 .7 4
1955 9 3 .7 2 - 7 1 .0 5 2 2 .6 7
1956
7 9 .9 1 - 9 0 .1 3
- 1 0 .2 2
1957
6 2 .2 1 - 1 0 1 .0 7 - 3 8 .8 7
1958
9 6 .7 5
- 8 1 .3 2
1 5 .4 3
1959 1 0 2 .3 5 - 8 6 .7 5
1 5 .6 0
^ S o u rc e : "M id d le E a s t E conom ic D e v e lo p m e n t,"
S u p p le m e n t to W orld E conom ic R e p o r t 1 9 6 3 -1 9 6 4 ; U n ite d
N a t io n s , I n t e r n a t i o n a l M o n e ta ry F und, B a la n c e o f P aym ent
Y e a rb o o k , V o l. 6 (D ecem ber, 1955)» and V o l. 12 (May,
1961).
87
example, Idle resources exist in underdeveloped areas,
but their mobilization is prevented by the anticipated
balance of payments repercussion that would ensue from
using them. In such cases, the availability of marginal
"free" exchange, as a result of foreign investment in
local materials or labor, can permit an expansion in in
ternal capital formation beyond the amount of the orig
inal investment.
National Policy
In order for Iraq to take as much benefit as
possible from the "free" foreign exchange which the oil
industry provides, it should restrict the import of
luxury or semi-luxury type of goods. This policy would
be justified on the grounds that the country's foreign
earnings should not be wasted on goods of this kind, but
rather should be used for the purchase of machines and
equipment. But unless these restrictions are accompanied
by corresponding restrictions, duties, licenses, or pro
hibitions on the domestic production of these goods,
there will be nothing to prevent domestic resources from
being diverted to luxury consumption which may be in con
flict with national policy.
Looking at Iraq's commercial policy since the
fifties, and, to some extent, even now, there has not
b e e n a n y d e s i r e t o f u l f i l l t h e s e o b j e c t i v e s . On t h e
c o n t r a r y , u n d e r t h e i n f l u e n c e o f a m ild i n f l a t i o n i n .
t h e m id d le o f t h e f i f t i e s , and t h e l u x u r y im p o r t r e
s t r i c t i o n s , in v e s tm e n t h a s te n d e d i n t h i s p e r i o d t o c o n
c e n t r a t e on r e s i d e n t i a l c o n s t r u c t i o n , l a r g e l y f o r th e
u p p e r incom e g r o u p s , and on l u x u r y i n d u s t r i e s , w h ile
e s s e n t i a l p u b l i c i n s t a l l a t i o n s , su c h a s r a i l w a y s , h a v e
b e e n n e g l e c t e d . I t c a n n o t be d e n ie d t h a t econom ic d e
v e lo p m e n t i s g o in g o n , b u t i t i s t a k i n g a v e r y slo w
fo rm .
CH APTER V
OLIGOPOLY IN THE OIL INDUSTRY
The oil Industry of the world is operated by an
International cartel. This cartel is formed by the seven
international petroleum companies^* which control the oil
industry by different formal and informal agreements, as
follows: joint control over Middle Eastern oil, as well
as the world, through common ownership; joint marketing
control; and administered prices.
Joint Control Over Middle Eastern Oil
Through Common Ownership
We have discussed earlier the Iraq Petroleum
Company's struggle to secure its concessions from Iraq
and the Red Line Agreement. However, the activities of
the Iraq Petroleum Company did not end inside Iraq. The
IPC group holds other concessions outside Iraq through
2
the following holding companies:
Anglo-Iranian Oil Company, Ltd., Gulf Oil,
Royal Dutch Shell, Standard Oil (New Jersey), Standard
Oil (California), Socony-Vacuum, and The Texas Company.
2
I n t e r n a t i o n a l P e tr o le u m C a r t e l , p p . 8 5 - 8 8 .
89
1 . P e tr o le u m C o n c e s s io n . L t d . T h is company
o p e r a t e s th r o u g h a n e x p l o r a t i o n p e r m i t i n
H ad h ram au t an d t h e A den P r o t e c t o r a t e . I t
was u n s u c c e s s f u l i n i t s o p e r a t i o n and fo u n d
no o i l .
2 . P e tr o le u m D e v e lo p m e n t. ( Q a t a r ) . T h is com
p an y i s a s u b s i d i a r y o f P e tr o le u m C o n c e s s io n s
L t d . , and h o l d s a 7 5 - y e a r c o n c e s s i o n o v e r a l l
o f Q a t a r , a s o f May 1 7 . 1935* D r i l l i n g b e
gan i n 1 9 3 8 , and o i l was fo u n d i n 1 9 ^ 0 .
O p e r a t i o n s s to p p e d b e c a u s e o f W orld War I I ,
b u t resum ed a f t e r t h e w ar e n d e d .
3 . P e tr o le u m D e v e lo p m e n t. L t d . . (V Jestern A r a b ia )
T h is company i s a l s o a s u b s i d i a r y o f P e t r o
leum C o n c e s s io n s , L t d . I t was form ed i n 1936
to o p e r a t e i n t h e w e s t e r n c o a s t a l a r e a o f
S a u d i A r a b ia and Yemen, b u t fo u n d no o i l and
s u r r e n d e r e d i t s c o n c e s s i o n ,
4 . P e tr o le u m D e v e lo p m e n t. L t d . . ( T r u c l a l C o a s t ) .
T h is i s a n o t h e r s u b s i d i a r y o f P e tr o le u m Con
c e s s i o n s , L t d . , form ed i n 1936 t o o p e r a t e i n
th e Sheikdom s o f t h e T r u c i a l C o a s t .
T h e re w ere o t h e r c o n c e s s i o n s h e ld by t h e I r a q
P e tr o le u m Company i n Oman and D h o f a r , S y r i a , T r a n s -
J o r d a n , L eb a n o n , a n d C y p ru s , b u t t h e s e w ere n o t p r o d u c -
91
t i v e . The o n l y re w a rd in g c o n c e s s i o n s w ere th o s e i n
I r a q and Q a t a r .
A s id e from IPC o w n e rs h ip o f o i l c o n c e s s i o n s ,
th e i n t e r e s t s o f t h e s e v e n i n t e r n a t i o n a l p e tr o le u m com
p a n ie s h a v e b e e n woven t o g e t h e r by j o i n t o w n e rs h ip s o f
s u b s i d i a r y c o m p a n ie s , e a c h h o l d in g i n t e r e s t s i n one o r
m ore o f t h e s e j o i n t e n t e r p r i s e s . (S ee T a b le 21)
I n a d d i t i o n to th e IPC c o n c e s s i o n s , t h e r e w ere
t h r e e m ain c o n c e s s i o n s : K u w ait O i l Company, L t d . ,
B e h r e in P e tr o le u m Company, and A ra b ia n -A m e ric a n O i l
Company. E x c lu d in g t h e B e h r e in P e tr o le u m Company, th e
p r o d u c t i o n o f th e o t h e r t h r e e co m p a n ie s i n t h e M id d le
E a s t s to o d a t a b o u t 9 0 0 ,0 0 0 b a r r e l s , r e p r e s e n t i n g m ore
th a n h a l f o f t h e M id d le E a s t p r o d u c t i o n , an d a b o u t 8 .6
3
p e r c e n t o f w o rld p r o d u c t i o n .
The K u w a it O i l Company i s a s u b s i d i a r y o f th e
A n g l o - I r a n i a n O i l Company and G u lf O i l Company, e q u a l l y
owned by b o t h . T h e i r a g re e m e n t o f D ecem ber 1^4-, 1933.
c o n ta in e d p r o v i s i o n s t h a t n e i t h e r w ould u s e o i l from
K u w ait t o d i s t u r b o r u p s e t t h e m a r k e tin g p o s i t i o n o f
t h e o t h e r , d i r e c t l y o r i n d i r e c t l y , o r a t a n y tim e o r
p l a c e . F u r th e r m o r e , e a c h p a r t y a g r e e d t o c o n f e r w ith
3
^W orld P e t r o le u m , J a n u a r y , 1 9 5 1 . P . ^ 1 .
92
TABLE 21
MAJOR OIL CONCESSIONS IN THE MIDDLE EAST*
Company and L e n g th P e r c e n t
t h e a r e a i n o f c o n - a g e o f
w h ich i t P a r t i c i p a n t s c e s s i o n Ow ner
o p e r a t e s ( y e a r s ) s h i p
A n g l o - I r a n i a n O il B r i t i s h G o v t. 60 $6%
Company, I r a n Burmah O i l C o .,
(B r. R o y a l D u tc h 22
S h e l l A f f i l i a t e )
I n d i v i d u a l s
23
K u w ait O i l Company A n g l o - I r a n i a n O i l
75
50
L t d . , K u w ait Company, L t d . ,
( B r i t i s h )
G u lf E x p l o r a t i o n 50
Company (A m erican)
B e h r e i n P e t r o S ta n d a r d O i l o f
55 50
leum Company C a l i f o r n i a
The T ex a s Company 50
A ra b la n - A m e r ic a n S ta n d a r d O i l o f 66 30
O i l Company C a l i f o r n i a
The T ex as Company 30
S ta n d a r d O i l o f 30
New J e r s e y
Socony-V acuum O i l 10
Company
* S o u rc e : I n t e r n a t i o n a l P e tr o le u m C a r t e l , p . iJ-6.
93
t h e o t h e r fro m tim e t o tim e , and when t h e n e ed a r o s e to
s o l v e a n y p ro b le m r e s u l t i n g from m a r k e tin g K u w ait c ru d e
k
o r r e f i n e d p r o d u c t s .
R e g a rd in g c ru d e o i l p r o d u c t i o n , t h e j o i n t o w n e r
s h i p a g re e m e n t s t a t e d i n p a r a g r a p h (6 ) i s a s f o l l o w s : ^
1 . E i t h e r p a r t y w ould h a v e t h e r i g h t to
r e q u i r e th e K u w ait O i l Company, L t d . ,
to p ro d u c e s u c h q u a n t i t y o f c ru d e o i l
a s may be d e c id e d by t h e p a r t y m aking
th e r e q u e s t .
2 . T h a t a l l p r o d u c t i o n from K u w ait p r o
d u c ed a t t h e r e q u e s t o f b o th p a r t i e s
w ould be a l l o c a t e d 5 0 -5 0 to G u lf and
A n g l o - P e r s i a n a t c o s t . °
3 . T h a t a n y a d d i t i o n a l o i l p ro d u c e d a t
t h e r e q u e s t o f e i t h e r G u lf o r A n g lo -
P e r s i a n w ould be a l l o c a t e d i n f u l l to
t h e p a r t y m aking th e r e q u e s t a t c o s t
f o r a l l su c h o i l .
The a g re e m e n t s t a t e d f u r t h e r t h a t i n c a s e G u lf
n e e d e d m ore c ru d e o i l , t h e A n g l o - I r a n i a n c o u ld s u p p ly
p a r t o r a l l o f t h e r e q u i r e d q u a n t i t i e s from P e r s i a n a n d /
o r I r a q o i l i n l i e u o f r e q u i r i n g t h e company t o p ro d u c e
a d d i t i o n a l o i l i n K u w a it, and a t a c o s t o f no m ore t h a n
i f t h e o i l w ere a c t u a l l y p ro d u c e d i n K u w a it.
L l
I n t e r n a t i o n a l P e tr o le u m C a r t e l , o p . c i t . . p . 1 3 1 .
5I b i d . , p . 1 3 1 .
^ " C o s t" was d e f i n e d a s t h e a c t u a l o u t - o f - p o c k e t
e x p e n s e s i n c u r r e d by t h e com pany, i n c l u d i n g e x p l o i t a t i o n ,
d r i l l i n g , r o y a l t i e s , d u t i e s , t a x e s , an d a l l o t h e r e x
p e n s e s w h a ts o e v e r a p p l i c a b l e t o su c h o i l , d e p r e c i a t i o n ,
a m o r t i z a t i o n and i n t e r e s t o n c a p i t a l a t r e a s o n a b l e r a t e s
a g r e e d u p o n . I b i d .
B e h r e in O i l Company i s e q u a l l y owned by S ta n d a r d
O i l Company o f C a l i f o r n i a and t h e T ex a s Company. The
d i s c o v e r y o f o i l i n B e h r e in a r o u s e d f e a r s o f t h e m a jo r
o i l co m p an ies t h a t t h i s e v e n t m ig h t d i s t u r b t h e o i l r e
l a t i o n s h i p i n t h e M id d le E a s t , s i n c e S t a n d a r d O i l o f
C a l i f o r n i a was a new com er to t h e a r e a a n d w i t h o u t e s -
7
t a b l i s h e d m a r k e t s . ' O r, a s t h e P e tr o le u m T im es p u t i t ,
"W hat e a c h l a r g e g ro u p f e a r s m ore t h a n a n y th i n g e l s e i s
t h e e n t r y o f a p o w e r fu l new com er i n t h e e s t a b l i s h e d o r d e r
O
o f w o rld o i l m a r k e ts ."
The S ta n d a r d O i l Company o f C a l i f o r n i a th o u g h t
t h e way o u t o f t h i s p ro b le m was to m erge w ith t h e T ex as
Company, an d t h i s to o k p l a c e i n 1936 when b o th s ig n e d a n
a g re e m e n t g i v i n g t h e fo rm e r a o n e - h a l f s h a r e i n t h e
m a r k e tin g o f t h e T ex as O i l Company, e a s t o f S u e z , an d
T ex a s O i l Company o n e - h a l f o f t h e B e h r e in c o n c e s s i o n and
f a c i l i t i e s . T h is a g re e m e n t:
. . . a s s u r e s t h a t B e h r e in p r o d u c t i o n a s
w e l l a s a n y o u t p u t t h a t may e v e n t u a l l y come
fro m c o u n t r i e s now b e in g d e v e lo p e d by S ta n d a r d
O i l Company o f C a l i f o r n i a w i l l h a v e a s s u r e d a n d
r e g u l a t e d o u t l e t s a n d w i l l so l e s s e n a n y p o s
s i b l e d a n g e r o f u p s e t t i n g t h e e q u i l i b r i u m o f
i n t e r n a t i o n a l t r a d e . 9
7I b i d . . p . ? 2 .
O
P e tr o le u m Tim es (London: May 2 , 1 9 3 6 , p . 5 6 3 ) .
g
I n t e r n a t i o n a l Petroleum C a r t e l , o p . c i t ., p . 135.
95
I n S a u d i A r a b ia , t h e S ta n d a r d O i l Company o f
C a l i f o r n i a and T exas O i l Company o b t a i n e d a n e x c l u s i v e
c o n c e s s i o n i n 1933 g o v e r n in g a n a r e a o f a b o u t 360
th o u s a n d s q u a r e m i l e s . The company i s c a l l e d A r a b ia n -
A m e ric a n O i l Company (AHAMCO). I t d i s c o v e r e d o i l I n
c o m m e rc ia l q u a n t i t i e s i n 1938 i n t h e Dammam f i e l d .
B u t, a c t u a l l y , i t s o i l p o t e n t i a l i t i e s h a v e b e e n f u l l y
d e v e lo p e d o n ly a f t e r W orld War I I , and t h e company th e n
was a b l e t o s u p p ly o i l i n q u a n t i t i e s f a r beyond i t s p r e
w ar p r o d u c t i o n . The q u e s t i o n w as: How was t h e company
g o in g to m a r k e t i t s p r o d u c t i o n ? T h is was n o t t h e c o n
c e r n o f t h e company a l o n e , b u t o f o t h e r i n t e r n a t i o n a l
o i l co m p an ies a s w e l l .
H av in g s o lv e d t h e m a r k e tin g p ro b le m o f B e h r e in
o i l , t h e A ra b la n -A m e ric a n O i l Company tu r n e d to t h e p r o b
lem o f S a u d i A r a b ia n o i l . To overcom e t h e d i f f i c u l t y ,
i t a llo w e d S ta n d a r d O i l Company (New J e r s e y ) and S o co n y -
Vacuum to a c q u i r e , i n 19^7* a 30 p e r c e n t and 10 p e r
c e n t i n t e r e s t , r e s p e c t i v e l y , i n i t and i t s p i p e l i n e to
th e M e d i te r r a n e a n , w h ich i s c a l l e d t h e T r a n s - A r a b ia n
p i p e l i n e com pany. ^
1QI b l d . . p p . 1 1 5 -1 1 6 .
i:LI b i d , , p . 1 2 0 .
96
A d d i t i o n a l m a r k e ts t o t h e A ra b la n -A m e ric a n O i l
Company w ere made p o s s i b l e by t h e f o l lo w in g :
1 . The T ex a s Company s o l d i t s E u ro p e a n m a r k e t
in g f a c i l i t i e s t o CALTEX12 m aking i t s m ar
k e t i n g w e s t o f Suez a v a i l a b l e to t h e A r a b ia n -
A m e ric an Company.
2 . B o th S ta n d a r d O i l o f New J e r s e y and S o c o n y -
Vacuum p a r t i c i p a t e d i n t h e A ra b ia n -A m e ric a n
O i l Company.
3 . New J e r s e y and Socony c o n c lu d e d a n a g re e m e n t
w ith th e A r a b ia n O i l Company t o buy o i l
from i t , a s u b j e c t w h ich w i l l be d i s c u s s e d
13
i n t h e f o l lo w in g s e c t i o n . J
J o i n t M a rk e tin g C o n t r o l
I n a d d i t i o n to j o i n t o w n e r s h ip , th e c ru d e o i l
s u p p ly h a s p r o v id e d a n o t h e r b a s i s f o r j o i n t c o n t r o l o v e r
o i l p r o d u c t i o n and m a r k e ti n g . M a rk e t s h a r i n g and j o i n t
c o n t r o l a r e r o o t e d a s f a r back a s 1925* When t h e p r i c e
w ar b ro k e o u t b e tw e e n S h e l l and S ta n d a r d O i l Company o f
New York i n I n d i a , i t s p r e a d t o A m e ric a n and E u ro p e a n
12
T h is i s a m a r k e tin g company j o i n t l y owned by
S ta n d a r d o f C a l i f o r n i a and t h e T ex as Company.
13
^P etroleum C a r te l, o p . c i t .. p. 120.
markets. As a result the oil companies felt the need
IA l
for finding a means to avoid such price competition.
The answer came in the Pool Association Agreement of
September 17» 1928, sometimes called the Achnacarry
Agreement, or still better known as the "as is agree
ment of 1928."15
The Red Line Agreement of July 21, 1928, was
designed to control reserves of crude oil in newly dis
covered fields. This, by itself, was not an effective
weapon to prevent the price war. Thus, the Achnacarry
Agreement came to supplant this agreement. It contains,
in part:^ (1) a preliminary statement; (2) a set of
principles; and (3) a combined declaration of price
policy and an outline of procedures to be followed by
the signatories.
It should be noted that the second part is the
most important one in this respect. It includes the
17
following seven principles: '
1. Each member of the oil industry accepts
their present share of the industry and
their proportion of any future increase in
consumption.
2. As the existing facilities are sufficient
to meet the present consumption, they should
be available to competitors on a favorable
basis but not less than actual costs to the
owner of the facilities.
- ^Ibld., pp. 197-199. l6Ibld., p. 199.
^ I b i d . , p . 199. 1^World P etroleum . May 1963
98
3 . The f a c i l i t i e s t o be a d d ed s h o u ld be o n ly
t h e n e c e s s a r y o n e s t o s u p p ly t h e i n c r e a s e d
r e q u i r e m e n ts o f c o n s u m e r s .
4 . E ach p r o d u c in g a r e a s h a l l r e t a i n t h e f i n a n
c i a l a d v a n ta g e s o f i t s g e o g r a p h i c a l l o c a
t i o n .
5 . S u p p l i e s a r e to be d raw n from t h e n e a r e s t
p r o d u c in g a r e a t o i n s u r e maximum e f f i c i e n c y
a n d economy i n t r a n s p o r t a t i o n . T h is n e c e s
s i t a t e d t h e u s e o f t a n k e r s i n s h o r t - h a u l s
i n o r d e r to be a b l e t o move t h e c ru d e o i l
and p r o d u c t s e f f e c t i v e l y a n d f o r a s s h o r t
d i s t a n c e s a s p o s s i b l e . 1 ®
6 . P r e v e n t i o n o f s u r p l u s p r o d u c t i o n i n a g i v e n
a r e a e i t h e r t o s h u t - i n su c h s u r p l u s o r o f f e r
i t a t a c o m p e t i t i v e p r i c e i n a n y o t h e r a r e a .
7 . P r o t e c t i o n o f t h e p u b l i c I n t e r e s t by e l i m
i n a t i n g w a s te an d d u p l i c a t i o n .
The p u r c h a s e and s a l e o f o i l b e tw e e n co m p a n ie s
o f t e n la c k e d t h e arm* s l e n g t h f e a t u r e s . Among t h e s e c o n
t r a c t s t h e f o l l o w i n g a r e w e l l known: G u l f - S h e l l A g re e
m e n t, 19 4 7 ; A n g l o - I r a n i a n A g re e m e n ts w ith S ta n d a r d o f
Mew J e r s e y an d Socony-V acuum ; and t h e A n g l o - I r a n i a n
A g re em en ts w i t h Socony-V acuum .
The G u l f - S h e l l A g re em en t o f 1 9 4 7 . U nder t h i s
a g re e m e n t. G u lf a g r e e d t o s e l l to S h e l l , -o v er a n o p e n -
end c o n t r a c t p e r i o d o f a t l e a s t 22 y e a r s , o v e r 1 .2 5
m i l l i o n b a r r e l s o f K u w a it o i l . No p r i c e was s t a t e d , b u t
t h e two p a r t i e s a g r e e d t o s h a r e t h e p r o f i t s r e s u l t i n g
fro m t h e p r o d u c t i o n , t r a n s p o r t a t i o n , r e f i n i n g , an d
1 R
J . W, F r e y and H. C h a n d le r I d e , ( E d s . ) , A
H i s t o r y o f t h e P e tr o le u m A d m i n i s t r a t i o n f o r W ar. 1 9 4 1 -4 5
(W a s h in g to n : U n ite d S t a t e s G overnm ent P r i n t i n g O f f i c e ,
1 9 4 6 ), p p . 2 5 ^ -2 5 5 .
99
marketing of this crude for a period of not less than
22 years
Anglo-Iranian Agreement with Standard of New
Jersey and Socony-Vacuum. Under this agreement, Jersey
agreed to purchase 800 million barrels of crude oil over
a 20-year period from the Anglo-Iranian of Kuwait and
Iranian crude. Socony agreed to buy 200 million barrels
over the same period. The price was fixed at actual
20
costs of production plus a fixed sum of money per ton.
Anglo-Iranian Agreement with Socony-Vacuum.
Socony-Vacuum agreed to purchase from Anglo-Iranian1s
Kuwait fields, 300 million barrels of crude oil over a
20-year period. The price was fixed at actual cost of
production plus one-third of gross profits per ton
21
realized on the crude oil.
Therefore, for all practical purposes, almost
all of the seven major companies are linked together in
an integrated oil enterprise. Five are shareholders in
Iraq, four in Saudi Arabia, two in Kuwait, plus three
others having interests in Kuwait oil through special
contracts. The consortium controls most of Iranian oil
■^Frey, o£. clt.. pp. 137-144.
20Ibid., pp. 145-151.
21Ibid., pp. 152-155.
100
a l s o . J o i n t c o n t r o l p l u s t h e c o n t r o l o f m a rk e ts com
p l e t e s t h e l i n k a g e , w h e th e r fo r m a l o r i n f o r m a l .
S h e l l an d B r i t i s h P e tr o le u m i n t h e U n ite d K ingdom ,;
t h e N ear E a s t , many A f r i c a n t e r r i t o r i e s , a n d C e y lo n , work ■
i n j o i n t m a r k e tin g o p e r a t i o n s , and so m etim es i n j o i n t
r e f i n i n g . S h e ll-M e x and B r i t i s h P e tr o le u m , S ta n d a r d
( C a l i f o r n i a ) and T ex as do so i n m o st c o u n t r i e s o f t h e
E a s t e r n H e m isp h ere a s CALTEX. U n t i l th e end o f i 960 ,
J e r s e y an d M o bil w orked t o g e t h e r i n A f r i c a and i n m ost
22 '
c o u n t r i e s e a s t o f S u e z . A lth o u g h t h i s k in d o f j o i n t
o p e r a t i o n i s d e c r e a s i n g and l a r g e l y d i s s o l v e d , t h e l i n k
i s t a k i n g s h a p e i n c o n t r a c t s . As h a s b e e n m e n tio n e d
e a r l i e r , S h e l l buys much o f i t s M id d le E a s t c ru d e s u p
p l i e s fro m G u lf i n K u w a it, and s h a r e s t h e p r o f i t s o f
m a r k e tin g t h i s c ru d e w h e re v e r and u n d e r w h a te v e r b ra n d
t h e o i l i s f i n a l l y s o l d . J e r s e y an d M o b il s i m i l a r l y
' h a v e l o n g - t e r m c o n t r a c t s w ith B r i t i s h P e tr o le u m i n
K u w a it. G u l f , B r i t i s h P e tr o le u m , an d some o t h e r s h a v e
l o n g - t e r m c o n t r a c t s w i t h a num ber o f in d e p e n d e n t r e f i n
e r i e s i n I t a l y a n d o t h e r p a r t s o f E u ro p e t o r e f i n e c ru d e
o i l f o r th em . M o re o v e r, o u t s i d e t h e U n ite d S t a t e s a s
22
J . E . H a r ts h o r n , O i l and G o v ern m en ts: An
A c c o u n t o f The I n t e r n a t i o n a l O i l I n d u s t r y i n i t s P o l i t
i c a l E n v iro n m e n t (London: F a b e r and F a b e r , L t d . , 1 9 6 2 ),
P. 157.
101
w e ll a s i n s i d e t h e c o u n t r y , a s u b s t a n t i a l e x c h a n g e o f
c ru d e an d p r o d u c t s t a k e s p l a c e b e tw e e n t h e m a jo r com-
| p a n ie s a s a m a t t e r o f b u s i n e s s c o n v e n ie n c e .
P r i c e D e t e r m i n a t i o n i n th e
O i l I n d u s t r y
A s id e fro m j o i n t c o n t r o l and p u r c h a s e a g r e e
m e n ts , t h e o i l c o m p an ies h a v e f o llo w e d a p r i c i n g sy s te m
w h ich h a s e l i m i n a t e d p r i c e d i f f e r e n c e s among th e m s e lv e s .
The s y s te m th e y u s e d i s c a l l e d t h e " b a s i n g p o i n t s y s
te m ," The U n ite d S t a t e s ' G u lf was t h e b a s e . L a t e r ,
some m o d i f i c a t i o n was m ade, b u t th e e s s e n t i a l p r i n c i p l e
re m a in e d t h e sam e. The " b a s e p r i c e s " a r e d e r i v e d from
P l a t t ' s Q ilg ra m P r i c e S e r v i c e , p u b l i s h e d i n C l e v e la n d ,
O h io . The p r a c t i c e f o llo w e d by T l a t t ' s i s :
C ru d e o i l p r i c e s c o m p ile d by P l a t t ' s from
p r i c e s p o s t e d a t t h e w e l l by l e a d i n g p u r c h a s i n g
c o m p an ies i n e a c h f i e l d a p p e a r i n P l a t t ' s p u b
l i c a t i o n s m o n th ly o r w h en ev er p r i c e c h a n g e s
o c c u r . R e f in e d p r o d u c t p r i c e s , h o w e v er, f l u c
t u a t e much m ore f r e q u e n t l y th a n do c ru d e o i l
p r i c e s . R e f in e d p r o d u c t p r i c e s a r e g a th e r e d
by P l a t t ' s m a r k e t r e p o r t i n g o r g a n i z a t i o n a t k e y
s e a b o a r d , r e f i n e r y , t a n k e r an d p i p e l i n e t e r
m in a l p o i n t s , and a t m a jo r c o n su m p tio n c e n t e r s
o f t h e U n ite d S t a t e s and a r e p u b l is h e d d a l l y
i n P l a t t 1s Q ilg ra m P r i c e S e r v i c e a n d w e e k ly i n
t h e N a t i o n a l P e tr o le u m N ews. D a i l y r e f i n e d
p r o d u c t p r i c e s c a r r y i n t h e p a r l a n c e o f t h e
i n d u s t r y " h i g h , " " lo w ," "m ea n ," o r " a v e ra g e " o f
P l a t t ' s q u o t a t i o n s t o c o v e r t h e r a n g e o f d i f
f e r e n t p r i c e s q u o te d by s e l l e r s a t a n y one tim e
i n a g i v e n m a rk e t f o r e a c h r e f i n e d p r o d u c t . 23
23
I n t e r n a t i o n a l P e tr o le u m C a r t e l , o g . c i t .. pp.
102
B ut most o f i n t e r n a t i o n a l t r a d e i n p e tro le u m
p r o d u c t s , i n c l u d i n g U n ited S t a t e s e x p o r t s , i s governed
by lo n g - te rm c o n t r a c t s betw een e i t h e r th e m ajo rs and
t h e i r s u b s i d i a r i e s o r betw een th e m ajo rs th e m s e lv e s .
T h is k in d o f t r a n s a c t i o n i s n o t re c o rd e d by P l a t t ' s ,
M oreover, P l a t t ' s does n o t c o v e r lo n g - te r m c o n t r a c t s in
th e U n ite d S t a t e s m a rk e ts o r d i s c o u n t o r premium p r i c e s ,
o r lo n g - te r m t r a n s a c t i o n s and exchanges betw een m ajo r
r e f i n e r s o r betw een s u b s i d i a r i e s . What i s l e f t th e n i s
o n ly a s m a ll segm ent o f th e i n d u s t r y r e p r e s e n t i n g th e
t r a n s a c t i o n s betw een m a jo rs and in d e p e n d e n ts . F u r t h e r
more, when a s h o r t a g e o f ’ o i l ta k e s p l a c e , th e q u o t a t i o n s
become even l e s s r e p r e s e n t a t i v e by r e c o r d i n g o n ly what
some s e l l e r s c h a rg e i f t r a d e c o n d it i o n s were d i f f e r e n t .
P o s te d p r i c e s , t h e r e f o r e , a r e a d m in is te r e d p r i c e s
s e t by c o r p o r a t e d e c i s i o n s i n c irc u m s ta n c e s o f o l i g o p o l i s
t i c c o m p e titio n , r a t h e r th a n p r i c e s em erging from m arket
b a r g a i n i n g . P o s te d p r i c e s a r e n o t th e p r i c e s t h a t m igh t
have emerged from c o m p e titio n betw een many l e s s p o w e rfu l
p ro d u c e rs and p u r c h a s e r s .
Anyway, t h e s e q u o t a t i o n s a r e used to e s t a b l i s h
th e b a s in g p o i n t sy ste m .
103
The Basing; P o i n t System
I n t h e e a r l y 1 9 2 0 's , when th e U n ite d S t a t e s and
i
! Mexico w ere t h e two l e a d i n g e x p o r t e r s o f p e tr o le u m , i t
was n a t u r a l t h a t o i l p r i c e s i n t h e G u lf o f Mexico sh o u ld
i n f l u e n c e th e p r i c e s o f m inor e x p o r t e r s i n th e w o rld
m a r k e t. T h is gave r i s e to th e e s t a b l i s h m e n t o f a
" b a s i n g p o i n t " sy ste m f o r th e w orld o i l I n d u s t r y . The
fo rm u la f o r t h i s sy ste m was "U n ite d S t a t e s G u lf p l u s . "
T h is m eant t h a t a b u y e r an y p l a c e i n t h e w orld had to
pay th e U n ite d S t a t e s G u lf p r i c e s p lu s t h e f r e i g h t from
t h e G u lf, even th e o i l a c t u a l l y d e l i v e r e d to him from a
24
n e a r e r f i e l d . T h is b a s i n g - p o i n t p r i c e w orked, a s th e
D i r e c t o r G e n e ra l o f t h e B r i t i s h M i n i s t r y o f War T r a n s
p o r t p u t i t , a s f o llo w s :
B e fo re th e w ar, th e p r i c e s a t w hich o i l bunk
e r s w ere s o ld a t p o r t s o v e r s e a s were i n f lu e n c e d
by (I do n o t s a y t h a t th e y were a b s o l u t e l y based
on, b u t i n o r d i n a r y com m ercial p r a c t i c e t h e y w ere
i n f l u e n c e d by) t h e p u b lis h e d f . o . b . , p r i c e s
q u o te d a t p r o d u c t i o n c e n t e r s i n t h e G u lf o f
M exico, to w hich, o f c o u r s e , t h e r e would be added
f r e i g h t and i n s u r a n c e from th e G u lf p o r t to th e
a c t u a l b u n k e rin g p o r t , i n o r d e r to g iv e a c . i . f . ,
p r i c e . T h is s e l l i n g p r i c e was a p p l i e d to a l l th e
o i l s o ld a t a g iv e n p o r t , r e g a r d l e s s o f i t s a c t u a l
s o u r c e o f o r i g i n . So t h e r e s u l t was t h a t th e e f
f e c t i v e f . o . b . , p r i c e s o f o i l d e r i v e d from some
p o r t o t h e r th a n th e G u lf o f Mexico by an amount
d e p e n d in g on th e g e o g r a p h i c a l p o s i t i o n o f th e
s o u r c e o f o r i g i n i n r e l a t i o n to th e p o r t a t which
t h e o i l was s o l d .
24
Leeman, op. c i t . . p . 89
10^
. . . i f o i l w ere s u p p l i e d i n Bombay from
Abadan i n t h e P e r s i a n G u lf , i t would n o rm a lly
show a h i g h e r f . o . b . , r e t u r n th a n th e G u lf
p r i c e b e c a u s e o f t h e low c o s t o f f r e i g h t from
Abadan to Bombay on a v e r y s h o r t h a u l , t h a t
f r e i g h t o b v i o u s l y b e in g much l e s s th a n a f r e i g h t
from t h e G u lf o f Mexico t o Bombay.
On th e o t h e r h and, i f Abadan o i l were s o ld a t
some p o i n t f a r t h e r away from Abadan th a n th e
G u lf o f M exico, t h e n i t would n a t u r a l l y p ro d u ce
a lo w e r r e t u r n t h a n th e G u lf p r i c e , and i t i s
t h i s d i f f e r e n c e i n f . o . b . , v a lu e s which was
known i n th e j a r g o n o f t h e t r a d e a s th e o r i g i n
o f d i f f e r e n c e s ,25
As to th e V e n e z u e la n f . o . b . , c ru d e o i l p r i c e s
a t V e n e z u e la n p o r t s to a l l w o rld d e s t i n a t i o n s , t h e y were
th e U n ite d S t a t e s G u lf p r i c e f o r s i m i l a r c ru d e , l e s s
U n ite d S t a t e s im p o rt d u t y o f 1 0 .5 c e n t s p e r b a r r e l . "
T h e r e f o r e , t h i s a rra n g e m e n t s t i l l l e f t w orld c ru d e o i l
p r i c e s l i n k e d to U n ite d S t a t e s G u lf p r i c e s . The p r i c e s
o f r e f i n e d p r o d u c t s w ere d e te rm in e d i n t h e same way.
The q u e s t i o n to be a sk e d now i s why o t h e r b a s in g
p o i n t s d i d n o t d e v e lo p i n th e M iddle E a s t and V e n ezu ela?
I n 1938, th e M idd le E a s t was p r o d u c in g a b o u t 120 m i l l i o n
b a r r e l s o f o i l a y e a r compared to th e w o rld p r o d u c t i o n o f
1 ,9 8 8 m i l l i o n s , o r a b o u t 6 p e r c e n t o f t h e t o t a l p ro d u c
t i o n . I n th e same y e a r , V e n e z u e la pro d u ced 1 .8 8 m i l l i o n
27
b a r r e l s . 1
2^The P e tr o le u m Times (London: D ec. 9» 1 9 ^ ) .
p . 8 3 8 .
o £
I n t e r n a t i o n a l P etro leu m C a r t e l , o p . c l t . . p . 355*
27World O il (August 15. 1958), pp. 129-130.
105
Two re a s o n s may be g iv e n a s to why d i f f e r e n t
p r i c e s d i d n o t o c c u r p r i o r to 1939: (1) th e U n ite d
i
S t a t e s com panies have been i n t e r e s t e d i n p r o t e c t i n g t h e i r i
in v e s tm e n t i n U n ite d S t a t e s p r o d u c t i o n , and (2) a l l th e j
m a jo r com panies may have been a c t i n g a s t r u e o l i g o p o l i s t s . !
T h is p a t t e r n o f w orld o i l p r i c i n g p r e v a i l e d u n
t i l 1939* T h e r e f o r e , and a s a r e s u l t o f th e p r a c t i c e s
o f t h e o i l com pan ies, th e im p a c t o f M iddle E a s t p ro d u c
t i o n on t h e p r e v a i l i n g U n ite d S t a t e s G u lf p r i c e s t r u c
t u r e was d e la y e d f o r y e a r s th r o u g h l i m i t a t i o n o f th e p r o - ■
d u c t i o n r a t e o f M iddle E a s t e r n o i l by t h e i n t e r n a t i o n a l
o i l c o m p a n ie s. H ere we s e e t h e i r d i f f e r e n t a g re e m e n ts
f o r l i m i t i n g p r o d u c t i o n and m a rk e t s h a r i n g come i n t o f u l l
p l a y . B ut w hat would have happened i f th e o i l i n d u s t r y
i n t h e M iddle E a s t had n o t b e en i n t h e hands o f i n t e r
n a t i o n a l o i l com panies? p . H. F r a n k l 's a n sw er i s a s
f o llo w s :
I t i s d i f f i c u l t t o s a y w hat would have h a p
pened i f t h e p r o d u c t i o n i n t h e M iddle E a s t had
n o t b e en i n th e han ds o f com panies w hich had
s t r o n g i n t e r e s t s i n t h e W este rn H em isphere, com
p a n ie s l i k e J e r s e y S ta n d a r d , Socony-Vacuum, and
S h e l l , and l a t e r on, C a l i f o r n i a S ta n d a r d and th e
T exas Company, o r who, l i k e A n g l o - I r a n i a n , knew
b e t t e r t h a n to go a l l o u t i n t h e i r own.
20
P . H. Frankl, "American Oil in a Changing
World," Oil Forum (November, 1950) • P- ^6.
The P e r s i a n G u lf B a sin g P o i n t
The U n ite d S t a t e s G u lf b a s i n g p o i n t was b ro k e n
f o r th e f i r s t tim e d u r i n g W orld War I I , when th e P e r s i a n
G u lf b a s in g p o i n t was e s t a b l i s h e d i n 19^5* a s a r e s u l t
o f th e i n c r e a s e o f o i l p r o d u c t i o n from t h e M iddle E a s t ,
and b e c a u se t h e i n t e r e s t s o f b o th B r i t a i n and th e U n ite d
9Q
S t a t e s r e q u i r e d i t . ' “^ I n t h e f i r s t p l a c e , th e P e r s i a n
G u lf b a s in g p o i n t c o v e re d b u n k er o i l o n l y . The B r i t i s h
go vernm ent was c o n c e rn e d w ith th e p ro blem o f phantom
30
f r e i g h t - ' and q u e s t io n e d t h e p r o p r i e t y o f th e a p p l i c a t i o n
o f th e U n ite d S t a t e s G u lf p r i c e s to M iddle E a s t e r n o i l .
As a r e s u l t t h e B r i t i s h su c c e e d e d i n e s t a b l i s h i n g th e
P e r s i a n G u lf b a s in g p o i n t f o r b u n k e r. T h is new b a se
e l i m i n a t e d th e phantom f r e i g h t b u t d i d n o t e l i m i n a t e th e
o r i g i n d i f f e r e n t i a l , b e c a u se th e o il" com panies I n s i s t e d
t h a t i t i s d i f f i c u l t to c a l c u l a t e th e a c t u a l c o s t s a t th e
31
Abadan r e f i n e r y . T h e r e f o r e , p r i c e s rem ain ed a s U n ite d
S t a t e s G u lf b e c a u se :
29
Leeman, 0£ . c i t . , p . 91.
30
The phantom f r e i g h t i s th e d i f f e r e n c e betw een
t h e s e l l e r s * a c t u a l f r e i g h t c h a r g e s to t h e b u y e r and th e
f r e i g h t c h a r g e s from th e b a s in g p o i n t t o t h e b u y e r.
T h e r e f o r e , when t h e B r i t i s h w ere b u y in g th e M iddle E a s t e r n
bu n k er i n I n d i a , t h e y were a b s o r b i n g t h e f r e i g h t , f o r th e
s e l l e r s who a r e l o c a t e d n e a r e r to t h e b u y e r t h a n t h e b a s
in g p o i n t r e a p t h e a d v a n ta g e o f phantom f r e i g h t . I n t e r
n a t i o n a l P e tro le u m C a r t e l , o p . c i t . , p . 3 ^ 9 .
^^P etro leu m T im es, (London, May 13, 1 9 ^ ) * p . 298.
107
I n v iew o f t h e d i f f i c u l t y i n a r r i v i n g a t
p r o d u c t i o n c o s t s and th e know ledge t h a t f . o . b , ,
p r i c e s i n t h e G u lf o f Mexico were c o n t r o l l e d by
th e U n ite d S t a t e s Governm ent a t l e v e l s g i v i n g a
f a i r r e t u r n , th e co m m ittee a c c e p t e d f . o . b . , p r i c e s
f o r P e r s i a n G u lf p r o d u c t i o n c e n t e r s a p p ro x im a tin g
t h e f . o . b . , p r i c e s i n t h e G u lf o f M e x i c o . 32
L a t e r , t h e P e r s i a n G u lf b a s i n g p r i c e was a p p l i e d
to o t h e r p e tro le u m p r o d u c t s and c ru d e o i l . The U n ite d
S t a t e s Navy b ro u g h t up t h e q u e s t i o n o f M iddle E a s t c ru d e
p r i c e s when i t w anted to p u r c h a s e c ru d e from A r a b ia n
A m erican O i l Company and d e l i v e r i t to t h e F re n c h G overn
ment u n d e r t h e Lend L e a se A c t . A f t e r lo n g n e g o t i a t i o n s
betw een t h e U n ite d S t a t e s Navy and th e A r a b ia n A m erican
O i l Company, th e y a g re e d t h a t th e company would s u p p ly
th e Navy w ith c ru d e o i l f o r $ 1 .0 5 p e r b a r r e l f . a . s . ,
P e r s i a n G u lf , o r th e same a s th e U n ite d S t a t e s G u lf p r i c e
f o r W est T exas c r u d e , a f t e r a ll o w i n g f o r d i f f e r e n c e s i n
q u a l i t y and c o s t o f moving t h e o i l from t h e w e llh e a d to
t h e l o a d i n g p o r t . - ^ The Navy w anted to pay 86 c e n t s p e r
b a r r e l , f o r t h e f o l l o w i n g reasons: ( 1 ) t h e c o s t o f
S a u d i A ra b ia n o i l was e s t i m a t e d t o be ^-0 c e n t s p e r b a r r e l
32I b l d . . p . 298.
I n t e r n a t i o n a l P e tr o le u m C a r t e l , o p . c i t . , p .
357.
3^ I b i d . , pp. 357-358.
108
I n c l u d i n g a r o y a l t y o f 21 c e n t s to t h e Governm ent; and
(2) t h e A r a b ia n A m erican O i l Company had a c o n t r a c t w ith
a J a p a n e s e f i r m to s e l l a l a r g e volume o f c ru d e a t 86
c e n t s p e r b a r r e l . B u t, th e Company i n s i s t e d on a p r i c e
o f $ 1 .0 5 p e r b a r r e l on th e ground t h a t i t had i n c r e a s e d
i t s r o y a l t y to th e S a u d i A r a b ia n Government by 21 c e n t s
t o * 4 -2 c e n t s , The Navy a c c e p t e d t h i s r e a s o n i n g p l u s t h e
f a c t t h a t two o f th e Navy n e g o t i a t o r s w ere p r e v io u s em
p lo y e e s o f b o th Socony and S h e l l . 33 T h e r e f o r e , had
M iddle E a s t e r n o i l p r i c e s b een d e te r m in e d by c o m p e ti t iv e
f o r c e s i n t h e m a r k e t, i t would be a p p a r e n t t h a t t h e s e
p r i c e s would have been lo w e r th a n th e U n ite d S t a t e s G u lf
p r i c e s due to t h e low c o s t o f p r o d u c t i o n i n th e M iddle
E a s t .
U nder th e d u a l b a s i n g p o i n t sy ste m , t h e p o i n t o f
e q u a l i z a t i o n was th e m id - M e d ite r r a n e a n . T h is d u a l b a s i n g
p o i n t e l i m i n a t e d phantom f r e i g h t b u t o n ly to a p o i n t i n
t h e m id - M e d ite r ra n e a n , was s i t u a t e d i n S o u th e r n F r a n c e .
The p o i n t o f e q u a l i z a t i o n i n th e M e d ite r r a n e a n
was a b a r r i e r f o r i n c r e a s e d p r o d u c t i o n o f t h e M iddle
E a s t to move to W e ste rn E u ro p e . I n c a s e s when th e com
p a n ie s moved t h i s o i l to W e ste rn E urope th e y had to
35I b l d . . p . 35^
109
a b s o r b th e f r e i g h t r a t e . T h e r e f o r e , I t was n a t u r a l to
have t h i s system m o d ifie d to a ll o w f r e e r movement o f
M iddle E a s t o i l to W e ste rn E u ro p e .
The i n c r e a s e i n c ru d e o i l p r i c e s i n th e U n ited
S t a t e s was f o llo w e d by a n i n c r e a s e i n M iddle E a s t c ru d e
p r i c e s . The A r a b ia n A m erican O i l Company s t a r t e d th e
move and i n c r e a s e d i t s p r i c e s f o r th e c o n t r a c t p e r i o d o f
December 1946 to March 1947* from $ 1 .0 5 p e r b a r r e l to
$ 1 .1 7 - $ 1 .2 3 p e r b a r r e l d e p e n d in g upon g r a v i t y . T h is
move was fo llo w e d by E sso Export,'*''7 on December 6, 1947*
f i v e d ays a f t e r t h e 50 c e n t i n c r e a s e i n U n ite d S t a t e s
c ru d e o i l p r i c e s , when i t i n c r e a s e d i t s p r i c e s f o r
P e r s i a n G u lf c ru d e to a r e c o r d $ 2 .2 2 p e r b a r r e l to s h i p
m ents to I t a l y , a n i n c r e a s e o f 92 c e n ts above t h e p r e v i
ous h ig h o f $ 1 .2 9 p e r b a r r e l . 3® I n M arch, 1948, a l l th e
i n t e r n a t i o n a l m a jo rs had a u n i f i e d p r i c e o f $ 2 .2 2 p e r
36I b l d . . p . 3 6 1 .
37
>fE sso e x p o r t i s a s u b s i d i a r y o f J e r s e y . When
c ru d e o i l became a v a i l a b l e to J e r s e y i n th e P e r s i a n
G u lf f o r t h e f i r s t tim e , J e r s e y , th ro u g h E sso e x p o r t ,
became t h e p r i c e l e a d e r i n th e P e r s i a n G u lf .
O Q
The International Petroleum Cartel, op. cit.,
p . 361.
110
39
b a r r e l f . o . b . , Has T a n u r a , " y f o r M iddle E a s t e r n o i l .
However, i t s h o u ld be n o te d t h a t p r i c e s o f M iddle E a s t e r n
c ru d e d i d n o t r i s e by e x a c t l y th e same amount a s th e
U n ite d S t a t e s G u lf p r i c e s . T h e r e f o r e , w h ile U n ite d S t a t e s ;
G u lf p r i c e s i n c r e a s e d d u r i n g t h e p e r i o d o f J u l y 19^5-
March 1958* by $ 1 .^ 0 , M iddle E a s t c ru d e p r i c e s i n c r e a s e d
kn
by $ 1 .1 7 d u r i n g th e same p e r i o d . The e x p l a n a t i o n g i v e n i
f o r t h i s gap i s t h a t t h e c o n t r a c t s f o r t h e M iddle E a s t
c ru d e c a r r i e s an " e s c a l a t i o n 1 1 c l a u s e s t a t i n g t h a t th e
f . o . b . , p r i c e s a t Has T an u ra s h a l l be a d j u s t e d downward
o r upward by th e mean a v e r a g e p r i c e change o f E a s t T exas
c ru d e and W est T exas s o u r c ru d e a f t e r a ll o w in g f o r API
h.1
g r a v i t y d i f f e r e n t i a l s .
T h is new p r i c e o f $ 2 .2 2 p e r b a r r e l m eant a f u r
t h e r s h i f t o f a n e q u a l i z a t i o n p o i n t from t h e m id-M edi
t e r r a n e a n to th e U n ite d Kingdom. The fo rm u la f o r t h i s
new p o i n t was a s f o llo w s :
U n ite d S t a t e s c ru d e p r i c e + U n ite d S t a t e s
M a ritim e Com mission f r e i g h t r a t e from th e
U n ite d S t a t e s t o th e U n ite d Kingdom - U n ite d
S t a t e s M a ritim e f r e i g h t from Abandan to th e
U n ite d Kingdom.
T h is fo rm u la and t h e p r i c e i n c r e a s e a p p e a re d a t
f i r s t g la n c e t o h av e s e r v e d t h e c o u n t r i e s o f t h e M iddle
39
Has T an u ra i s a l o a d i n g t e r m i n a l i n S a u d i A ra b ia .
^ ° I b i d . , p . 362 .
4-1
I n t e r n a t i o n a l P etro leu m C a r t e l , o p . c i t . , p .
361.
E a s t . On th e c o n t r a r y , i t r e p r e s e n t e d a d e c r e a s e i n
I P e r s i a n G u lf f . o . b . , p r i c e s by: (1) t h e amount by w hich
| j
t h e e q u a l iz e d p r i c e was re d u c e d b e c a u se o f th e s h i f t o f I
th e e q u a l i z a t i o n p o i n t to t h e U n ite d Kingdom; and (2) t h e ;
amount o f i n c r e a s e i n f r e i g h t c o s t s b e c a u se M iddle E a s t
c ru d e would have to be t r a n s p o r t e d a l o n g e r d i s t a n c e .
L e t u s assum e: (1) U n ite d S t a t e s G ulf e x p o r t p r i c e
e q u a ls $ 2 .0 0 ; (2) f r e i g h t r a t e from U n ite d S t a t e s G u lf
to m id - M e d ite rr a n e a n e q u a ls 20 c e n t s ; ( 3 ) f r e i g h t r a t e
from U n ite d S t a t e s G u lf to t h e U n ite d Kingdom e q u a ls 15
c e n t s ; (4) f r e i g h t r a t e from th e P e r s i a n G ulf to th e m id - ;
M e d ite r r a n e a n e q u a ls 25 c e n t s ; and (5) f r e i g h t r a t e from ;
t h e P e r s i a n G u lf to th e U n ite d Kingdom e q u a ls 30 c e n t s . !
T hen, th e p r i c e a t m id -M e d ite r ra n e a n e q u a l i z i n g p o i n t i s
e q u a l t o $ 2 .0 0 + $ .2 0 o r , $ 2 .2 0 . P e r s i a n G u lf f . o . b . ,
p r i c e e q u a ls $ 2 .2 0 m inus $ .2 5 w hich e q u a ls $ 1 . 9 5 * and
th e p r i c e a t th e U n ite d Kingdom e q u a l i z i n g p o i n t i s
$ 2 .0 0 + $ .1 5 f o r a t o t a l o f $ 2 .1 5 . The P e r s i a n G ulf
p r i c e e q u a ls $ 2 .1 5 minus $ .3 0 f o r a t o t a l o f $ 1 . 8 5 .
T h e r e f o r e , i t i s a p p a r e n t t h a t M iddle E a s t c ru d e
p r i c e s w ere d e c r e a s e d , n o t I n c r e a s e d . M oreover, t h e u s e
o f U n ite d S t a t e s M a ritim e f r e i g h t r a t e s by th e i n t e r
n a t i o n a l o i l com panies was a r t i f i c i a l , s i n c e t h e a c t u a l
f r e i g h t r a t e s d i f f e r e d w id e ly from t h e U n ite d S t a t e s
M a ritim e r a t e s . When a c t u a l f r e i g h t r a t e s w ere lo w e r
112
th a n U n ite d S t a t e s M a ritim e r a t e s t h e o i l com panies u se d
th e lo w er r a t e ; when th e a c t u a l r a t e was h i g h e r th e y d i d
n o t u se th e fo rm u la a t a l l , l e a v i n g th e P e r s i a n G u lf b a se
p r i c e s u n ch an g ed .
The # 2 .2 2 p r i c e f . o . b . Ras T a n u ra was r e d u c e d to
$ 2 .0 3 i n May, 19^8, by C a l t e x , th e l a r g e s t s i n g l e m arke
t e r o f t h e M iddle E a s t c r u d e . A l l t h e o t h e r com panies
fo llo w e d t h e s t e p s o f C a lt e x and by November, 19^8, a l l
th e i n t e r n a t i o n a l o i l com panies had a u n i f i e d p r i c e of
L y 2
$ 2 .0 3 . T h is p r i c e change was t h e r e s u l t o f s u b s t i t u t
in g t h e s l i g h t l y lo w er C a rib b e a n t o th e U n ite d Kingdom
f r e i g h t r a t e s i n s t e a d o f th e U n ite d S t a t e s G u lf t o th e
U n ite d Kingdom f r e i g h t r a t e , p l u s t h e change i n l o a d i n g
p o r t from Abadan t o Ras T a n u ra .
I n A p r i l , 19^9» G u lf to o k th e l e a d , r e d u c i n g i t s
p r i c e f o r M iddle E a s t o i l o f J6° A PI, from $ 2 .0 3 p e r b a r -
r e l t o $ 1 088 p e r b a r r e l f . o . b . Ras T a n u ra . T h is move
was made to im prove t h e i n d u s t r y ' s p u b l i c r e l a t i o n s ,
e s p e c i a l l y w i t h W este rn E u ro p e .
B ecause o f l a r g e volume movement o f M iddle E a s t
o i l t o t h e U n ite d S t a t e s m a rk e t i n 1 9 ^ 8 -1 9 ^ 9 , G u lf a g a in
42I b l d o , p . 2 6 3 .
At
I b i d . . p . 363.
113
l e d t h e p r i c e change move i n J u l y , 1949, and re d u c e d i t s
p r i c e f o r M iddle E a s t o i l o f 36° API, from $ 1 .8 8 p e r b a r
r e l t o $ 1 .7 5 p e r b a r r e l , t h e r e b y e q u a l i z i n g M iddle E a s t
44
oil with Caribbean oil at New York.
As the result of the competition of the Trans-
A r a b ia n p i p e l i n e , t h e f i r s t t a n k e r o f C a lt e x l e f t S id o n
t e r m i n a l on December 2, 1950* The p i p e l i n e i s 1 ,0 0 0
m i l e s lo n g , w ith a c a p a c i t y o f 200,000 b a r r e l s d a i l y , i n
p l a c e o f th e 7 ,000 m ile ro u n d t r i p t a n k e r h a u l t o t h e
Suez C a n a l. The t a n k e r c o s t from th e P e r s i a n G u lf t o
t h e M e d i te r r a n e a n , i n c l u d i n g 18 c e n t s o f Suez d u e s , was
e s t i m a t e d betw een 4 5 -4 8 p e r b a r r e l , a g a i n s t p i p e l i n e
c o s t s o f a b o u t 18 c e n t s p e r b a r r e l , o r a n e t s a v in g f o r
A <
t h e com panies o f a b o u t 30 c e n t s p e r b a r r e l , ^
Secony, Caltex, and Esso posted their prices
starting from the $ 1 .7 5 Persian Gulf f.o.b. Ras Tanura
46
a t $ 2 .4 1 , $ 2 .4 5 , and $ 2 .5 5 f , o . b . S id o n r e s p e c t i v e l y .
The r e a s o n f o r t h i s p r i c e d i f f e r e n t i a l was b e c a u se each
company u s e d i t s own f r e i g h t r a t e s . Socony u se d a tw o-
y e a r tim e c h a r t e r r a t e , w hich gave a t a n k e r r a t e o f 66
c e n t s p e r b a r r e l ? J e r s e y u se d i t s own Panama T r a n s p o r t
^ I b l d . , p . 367.
^ I b l d . . p . 3 6 9 .
^6Ibid.
114
r a t e s , a c o m b in a tio n o f b o th tim e c h a r t e r and voyage
c h a r t e r , w hich gave a t a n k e r r a t e o f 80 c e n t s p e r b a r r e l .
Caltex used the United States Maritime rates, which gave
a t a n k e r r a t e o f ?0 c e n t s p e r b a r r e l . A ll r a t e s in c lu d e d
47
a Suez t o l l o f 18 c e n t s p e r b a r r e l . However, e a r l y i n
A p r i l , 1951. Socony i n c r e a s e d i t s p o s te d p r i c e f . o . b .
S id o n , from $ 2 .4 1 p e r b a r r e l , t o $ 2 ,5 7 5 p e r b a r r e l , on
t h e ground t h a t th e tw o -y e a r t a n k e r c h a r t e r award r a t e s
i n c r e a s e d and made t h i s i n c r e a s e r e t r o a c t i v e t o A p r i l 1,
1951* But no o t h e r company f o llo w e d S o co n y 1s move, and
i n t h e f a c e o f o p p o s i t i o n from W este rn E u ro p e, Socony went
back t o i t s p r e v io u s p r i c e o f $ 2 .4 1 p e r b a r r e l on A p r i l
16, 1 9 5 1 .^
The p o s te d p r i c e s f o r M iddle E a s t c r u d e , from 1949-
1959. w ere low er t h a n was n e c e s s a r y . (See T a b le 2 2 .)
W hile t h e s e p o s t i n g s f o r M iddle E a s t w ere b ro u g h t down i n
s t a g e s , by c o m p a riso n w ith t h e W estern H em isp here, p r o
d u c t p r i c e s i n W estern E u ro p ean and o t h e r m ajo r m a rk e ts
49
were n o t . ^ T h e r e f o r e , when c ru d e o i l p o s t i n g s were
b ro u g h t down i n t h e M iddle E a s t , i n 1958 and t h e r e a f t e r ,
t h e r e f i n e r y m a rg in s a v a i l a b l e t o t h e m a j o r ’ s E uropean
^ ? I b l d . , f o o t n o t e p . 3^9.
^ Q l b l d . . p . 370.
^ ^ H a r ts h o r n , 0£ . c i t . , p . 1 40.
TABLE 22
POSTED PRICE OF CRUDE OIL OF KIDDLE EAST AND VENEZUELA 195^-196^*
( i n d o l l a r s p e r b a r r e l )
195^ 1955
1956 1957 1958 1959
I 960 1961 1962
1963
196^
I r a n (3 ^ ° - 3 ^ .9 °
f . o . b . Abadan) 1 .8 6 1.86 1.86
1.99 1 .9 9
1 .8 1
1.73 1 .7 3 1 .7 3 1.73 1.73
I r a q ( 3 6 ° -3 9 .9 °
f . o . b . T r i p o l i ) 2 .3 9
2.39
2.^6
2.69
2 .^ 9 2.31 2.21 2 .2 1 2.21 2.21 2.21
Kuwait ( 3 1 ° -3 1 .9 ° f . o . b .
Al-Ahmadi) 1 .7 2 1 .7 2 1 .7 2 1 .8 5 1 .8 5
1.67 1 .5 9 1 .5 9 1 .5 9 1 .5 9 1.5 9
Q a tar (/j-0o- ^ 0 .9 ° f . o . b .
Un S aid ) 2 .08 2 .08 2 .08 2.21 2.21
2.03 1.93 1.93 1.93 1.93 1.93
Saudi A ra b ia (3 ^ ° -3 ^ .9 °
f . o . b . R a s T anura) 1 .9 7
1.97 1 .9 3
2.0 8 2.08
1.9 0 1.80 1 .8 0 1.80 1.80 1.80
I V en ezu ela (O feena
3 5 ° -3 5 .9 ° f . o . b .
P o r t La Croz) 2 .8 8 2,8 8 2.80
3 .0 5 3 .0 5
2.80 2.80 2.80 2.80 2.80 2.80
Source* M in i s t r y o f O i l , D epartm ent o f S t a t i s t i c s and R e se a rc h , Baghdad, I r a q . £
116
a f f i l i a t e s and o t h e r in d e p e n d e n t r e f i n e r s o p e r a t i n g t h e r e
w ent u p 0
When t h e Suez C anal was re o p e n e d i n 195?# th e Mid
d l e E a s t p o s t i n g s w ent up u n if o r m ly by 13 c e n t s p e r b a r
r e l , w h ile V e n e z u e la c ru d e p o s t i n g s i n c r e a s e d from $2.8.0
p e r b a r r e l t o $ 3 »0 5 » o r a lm o st d o u b le th e i n c r e a s e o f
M iddle E a s t c r u d e . The same was t r u e f o r U n ite d S t a t e s
p r o d u c e r s •
When t h e i n t e r n a t i o n a l o i l com panies re d u c e d Mid
d l e E a s t c ru d e p o s te d p r i c e s i n 1959# t h i s r e d u c t i o n was
by 18 c e n t s o r 5 c e n t s below t h e l e v e l m a in ta in e d b e f o r e
t h e Suez c r i s i s . On t h e o t h e r h a n d , V e n e z u e la c ru d e p o s t
in g s were b r o u g h t b a ck t o th e l e v e l p r e v a i l i n g , p r i o r to
th e Suez c r i s i s , o r b a ck t o $ 2 .8 0 p e r b a r r e l .
T h is p ro c e d u re i l l u s t r a t e d two im p o r ta n t f a c t s :
F i r s t , i t m arked t h e b r e a k i n g o f th e t i e b etw een M iddle
E a s t c ru d e and th e U n ite d S t a t e s G u l f . T h is m ig h t have
b e en e x p e c te d s i n c e t h e U n ite d S t a t e s s to p p e d s e l l i n g i t s
c ru d e o i l i n th e w o rld m a rk e t and became an i m p o r te r o f
M iddle E a s t o i l . M oreov er, W este rn E urope was p r e s s i n g
h a rd f o r a change i n t h e t r a d i t i o n a l p r i c e s t r u c t u r e ,
w hich was e s t a b l i s h e d on t h e b a s i s o f p r o d u c t i o n c o s t s o f
t h e l a r g e s t p r o d u c e r .
S econd, U n ite d S t a t e s o i l p ro d u c e r s r e a l i z e d l a r g e r
p r o f i t s th r o u g h E u ro p ean i n t e r e s t s i n t h e M iddle E a s t .
T h is was i l l u s t r a t e d b o th by a l a r g e r i n c r e a s e i n p o s te d
p r i c e s o f V e n e z u e la and t h e U n ite d S t a t e s , compared t o
M iddle E a s t p o s t i n g s , and a lo w er c u t a f t e r t h e E uropean
s u p p ly c r i s i s was o v e r .
S h e l l ’ s o p i n io n on o i l p r i c e s was p u b l is h e d i n
World P e t r o le u m , ^ u n d e r a h e a d in g " C u r r e n t I n t e r n a t i o n a l
O il P r i c i n g P ro b le m s ." I t may be sum m arized a s f o llo w s :
F i r s t , a r e d i f f e r e n c e s i n i n t e r e s t s . These d i f
f e r e n c e s stem from t h e f a c t t h a t t h e r e a r e d i f f e r e n t
p a r t i e s i n v o lv e d . T h e re a r e p ro d u c in g c o u n t r i e s , p u sh in g
f o r h i g h e r r o y a l t i e s ; t h e consum ing c o u n t r i e s , p u s h in g
f o r l o w - c o s t e n e rg y ; t h e co n su m ers, who w ant a s s u r e d
r e g u l a r s u p p l i e s a t low p r i c e s ; a n d , f i n a l l y , t h e com
p a n ie s who a r e I n t e r e s t e d i n th e r e t u r n on t h e i r i n v e s t
ment •
S econd, S h e l l a t t r i b u t e d t h e r e a s o n s b e h in d d i s
c o u n ts t o t h e f o l lo w in g f a c t o r s :
1 . Some in d e p e n d e n t U n ite d S t a t e s com panies have
b e en e x c e p t i o n a l l y s u c c e s s f u l i n f i n d i n g o i l .
T h is s i t u a t i o n c r e a t e d a d u a l m a rk e t s t r u c t u r e
f o r c ru d e o i l and t o a l e s s e r d e g re e f o r p r o
d u c t s .
^ W o rld P etro leu m (O c to b er, 19&3)» PP* 6 2 -6 ^.
118
I n t h e f i r s t m a r k e t, E u ro p e, th e c ru d e West
o f S u ez, ( A l g e r i a , L ib y a and V enezuela) has
a f r e i g h t a d v a n ta g e o v e r t h e M iddle E a s t .
M oreover, m ost o f t h i s c ru d e i s i n t h e hands
o f newcomers and a lm o s t a l l o f them a r e U n ite d
S t a t e s co m p a n ie s. These com panies do n o t have
i n t e g r a t e d o u t l e t s i n s i d e th e U n ite d S t a t e s ,
b e c a u se o f p r o r a t i o n i n g p r a c t i c e s and im p o rt
c o n t r o l s imposed v o l e n t a r i l y i n 1957 and by
m andate i n 1959* T h e r e f o r e , th e y compete w ith
th e M iddle E a s t . The c o m p e ti t io n i n t h e F a r
E a s t and J a p a n i s betw een com panies o p e r a t i n g
i n t h e M iddle E a s t , betw een n e ig h b o r s and one
f a m i ly .
2. The I n c r e a s e d r a t e o f S o v i e t o i l e x p o r t s s i n c e
1955» h a s a g g r a v a te d t h i s s i t u a t i o n .
3» Many newcomers w ere a t t r a c t e d t o t h e r e f i n i n g
and m a r k e tin g a s p e c t s o f t h e o i l i n d u s t r y , due
t o t h e low p r i c e s o f f e r e d by t h e in d e p e n d e n ts
and t h e low s i n g l e voyage r a t e s b e c a u se o f th e
t a n k e r s u r p l u s .
I t i s o b v io u s t h a t a l l S h e l l w anted t o say i s t h a t
t h e r e i s s e v e r e c o m p e ti t io n i n th e o i l i n d u s t r y , t h a t
p r i c e s a r e n o t a d m i n i s t e r e d , a n d , t h a t t h e i n t e r n a t i o n a l
119
o i l com panies r e a l i z e o n ly a s m a ll p r o f i t o f 10 p e r c e n t
on t h e i r o p e r a t i o n s i n th e E a s t e r n H em isp here.
The c la im o f S h e l l i s s u b j e c t t o q u e s t i o n . The
s m a ll q u a n t i t y o f S o v ie t and o t h e r s m a ll newcomers have
had no g r e a t e f f e c t on th e i n t e r n a t i o n a l m a r k e t. A f t e r
a l l , S h e l l a d m its t h a t th e i n t e g r a t e d o i l com panies con
t r o l "o n ly " 70 p e r c e n t o f t h e m a r k e t i n g . ^ 1
M oreo ver, a s t o th e consum ers and consum ing co un
t r i e s , i t i s w e l l known t h a t t h e b a r g a i n i n g power i n th e
o r d i n a r y se n se i s weak on th e c o n su m ers' s i d e .
The r e t u r n on i n v e s t e d c a p i t a l o f t h e o i l com panies
i n some M iddle E a s t c o u n t r i e s d u r i n g t h e p e r i o d 1956-60
52
amounted t o 66 p e r c e n t a n n u a l l y . F u r t h e r , S h e l l a d m its
t h a t th e r e t u r n s i n t h e p r o d u c t i o n s t a g e a r e h i g h e r th a n
i n dow nstream o p e r a t i o n . They a r e e x c e p t i o n a l l y h ig h i n
some c o u n t r i e s , b u t a r e o f f s e t i n o t h e r s where heavy i n
v e s tm e n t h a s b e en made w ith o u t f i n d i n g o i l . S h e l l w an ts
th o s e c o u n t r i e s h a v in g huge r e s e r v e s and low c o s t s o f
p r o d u c t i o n t o s h a r e t h e b u rd e n w i t h t h e I n t e r n a t i o n a l
m a jo rs and t h u s co m pensate f o r t h e i r l o s s e s i n p l a c e s
where th e y w ere u n s u c c e s s f u l i n f i n d i n g o i l .
51I b i d . , p . 64.
52I b i d .
120
; Posted. P r i c e s o f I r a q i Crude O il
P o s te d p r i c e s f o r I r a q i c ru d e a r e d e f i n e d In
: A r t i c l e (1) o f th e 1952 Agreem ent a s " t h e p r i c e s (e x
p r e s s e d i n s h i l l i n g s p e r to n ) f . o . b . s e a b o rd t e r m i n a l
f o r th e I r a q c ru d e o i l . " The f i r s t company t o p o s t a
p r i c e f o r I r a q i c ru d e was Scony. I t p o s te d a $ 2 .4 1 p e r
b a r r e l f . o . b , T r i p o l i f o r 3 6 °-3 6 * 9 ° c r u ^-e i n 1950•
T h is p o s t i n g was i d e n t i c a l w ith t h a t o f S au d i A r a b ia
c ru d e a t S id o n by t h e same company.
The o t h e r p o i n t w here i n t e r n a t i o n a l m a jo rs p o s t a
p r i c e f o r I r a q i c ru d e i s t h e P e r s i a n G u l f . T h is p o s t i n g ,
more o r l e s s , i s i n l i n e w ith t h e g e n e r a l p o s t i n g s i n th e
P e r s i a n G u lf .
However, s i n c e I r a q d o e s n o t have any b o r d e r on
t h e M e d i te r r a n e a n , t h e o i l com panies i n v e n te d t h e b o r d e r
p r i c e s w h ich , a c c o r d i n g t o them , a r e t h e d i f f e r e n c e b e
tw een p o s t e d p r i c e s a t t h e M e d ite r r a n e a n s e a b o a rd and th e
c o s t o f t r a n s p o r t i n g t h e c ru d e th r o u g h S y r i a and Lebanon
(s e e T a b le 2 3 ).
I t sh o u ld be ad d ed , how ever, t h a t t h e m a rk e t v a lu e
b e a r s no r e l a t i o n t o p o s te d p r i c e s . Nor do in te r-c o m p a n y
s a l e s b e a r any r e l a t i o n s t o p o s te d p r i c e s .
What c o n c e rn s u s a t t h i s j u n c t u r e i s t h e b o r d e r
v a lu e and t h e way i t i s d e c i d e d . I t I s th e a u th o r * s
121
TABLE 23
PRICES OF IRAQI CRUDE f . o . b . TRIPOLI-BANIAS AND
THE BORDER VALUE 1952-1964*
Year
P o s te d
P r i c e s
B o rd er
V alue
D i f f e r e n c e
1950 2 .4 1
__
^ 0
1952
2 .4 1
1 .7 3
0 .6 8
1953
2 .4 1
1 .7 3
0 .6 8
1954
2 .3 9 1 .7 1
0 .6 8
1955 2 .3 9
2.00
0 .3 9
1956 2 .4 6
2 .0 7 0 .3 9
1957
2 .4 6
2 .2 9 0 .4 0
1958 2 .6 9 2 .1 1 0 .3 8
1959
2 .4 9
1 .9 3
0 .3 8
i 960
2 .3 1 1 .9 3
0 .2 8
1961 2 .2 1 1 .8 4 0 .3 8
1962 2 .2 1 1 .8 4 0 .3 8
1963
2 .2 1 1 .8 4 0 .3 8
1964 2 .2 1 1 .8 4 0 .3 8
* S ource 1 P o s te d p r i c e s . P l a t t » s O il Gram; B o rd e r
v a lu e r M inistry- o f O i l , Baghdad •
b e l i e f t h a t i n o r d e r t o r e s t o r e I r a q ' s r i g h t f u l p o s i t i o n ,
one o f t h e f o l lo w in g p ro c e d u r e s s h o u ld be a tte m p te d * (1)
s i n c e I r a q g e t s h a l f o f t h e p r o f i t s from c ru d e o i l b a se d
on p o s te d p r i c e s , t h e com panies s h o u ld c a l c u l a t e t h e s e
p r o f i t s on th e b a s i s o f T r i p o l i - p o s t e d p r i c e s , l e s s
t r a n s p o r t a t i o n c o s t s o f t h e c ru d e by p i p e l i n e s to t h e
t e r m i n a l s . Or, (2) t h e com panies s h o u ld a c c e p t th e c o s t
o f t r a n s p o r t i n g c ru d e by p i p e l i n e t o be s i m i l a r t o t h a t
53
o f S au d i A r a b ia (w hich i s 20 c e n t s p e r b a r r e l ) . The
co m p an ies, t h e r e f o r e , s h o u ld r a i s e t h e b o r d e r v a lu e by
18 c e n t s t o $ 2 .0 2 p e r b a r r e l a s a r e s u l t o f 1 and o r 2.
I n a d d i t i o n , (3) t h e com panies s h o u ld r e im b u r s e I r a q f o r
a l l th e l o s s e s s i n c e 1952 u n t i l now.
P r i c e L e a d e r s h ip
P r i c e l e a d e r s h i p i s a common p r a c t i c e i n i n t e r n a
t i o n a l o i l p o s t i n g s a s w e l l a s I r a q . T here a r e t h r e e
5k
d i f f e r e n t t y p e s o f p r i c e l e a d e r s h ip * F i r s t , t h e r e i s
b a r o m e t r i c - f i r m l e a d e r s h i p , w here one o f th e com panies
w hich c o n t r o l a s u b s t a n t i a l s h a r e o f t h e m a rk e t makes th e
* 5 3
"^Although T r a n s - A r a b ia n p i p e l i n e i s 1 ,0 0 0 m i l e s
lo n g com pared to I r a q ' s p i p e l i n e s w hich a r e 532 and 555
m il e s t o T r i p o l i c and B a n ia s r e s p e c t i v e l y .
-^ R alp h C a s s id y , J r . , P r ic e - m a k in g and P r i c e Be
h a v i o r i n th e P e tro le u m I n d u s t r y (New Haven* Y ale U n i
v e r s i t y P r e s s , P e tro le u m Monograph S e r v i c e , V o l. 1
(195*0. PP. 86- 8 7 .
123
l e a d . I n m ost c a s e s , t h e l a r g e s t f i r m i n th e i n d u s t r y
becomes a l e a d e r w hich i s b e s t in fo rm e d a b o u t t h e i n d u s
t r y ' s su p p ly and demand c o n d i t i o n s and b e s t e q u ip p e d t o
d e te r m in e i n d u s t r y ' s p r i c e p o l i c y . Second i s d o m in a n t-
f i r m l e a d e r s h i p . T h ir d i s p r i c e l e a d e r s h i p t a k e n by
g ro u p a c t i o n , w here s u p p l i e r s o r s e l l e r s , n o t s a t i s f i e d
w ith t h e r e s u l t s o f a c o m p e ti t iv e l e a d e r s h i p schem e,
employ some ty p e o f c o l l u s i v e a rra n g e m e n t t o e n s u re
e f f e c t i v e n e s s .
The f i r s t ty p e o f p r i c e l e a d e r s h i p i s m ost com
mon i n t h e o i l i n d u s t r y . However, a c o m b in a tio n o f a l l
t h r e e can som etim es be fo u n d .
I t i s I n t e r e s t i n g t o know t h a t o n ly two com panies
w i t h i n t h e gro u p o f com panies o p e r a t i n g i n I r a q l e a d th e
p r i c e ch an g e s o f I r a q i c r u d e . B r i t i s h p e tro le u m i s t h e
p r i c e l e a d e r i n a downward d i r e c t i o n a s h ap pened a t a l l
tim e s when t h e r e was a d e c r e a s e i n p o s te d p r i c e s . On
O c to b e r 29, 195^» t h e B r i t i s h P e tro le u m re d u c e d I r a q i
c ru d e p o s t i n g s from $ 2 .^ 1 d o l l a r s p e r b a r r e l f . o . b .
T r i p o l i , t o $ 2 .3 9 p e r b a r r e l , A move fo llo w e d by a l l
o t h e r s I n t e r n a t i o n a l m a jo r s . A g ain , B r i t i s h P e tro le u m
to o k th e l e a d t o lo w e r I r a q i p o s t i n g from i t s h ig h o f
$ 2 .6 9 p e r b a r r e l f . o . b . T r i p o l i t o $ 2 .5 9 p e r b a r r e l on
S eptem ber 10, 1957* I t to o k t h e l e a d a g a i n t o lo w e r t h e
p o s t i n g to $ 2 .4 9 on J a n u a r y 31» 1958*
On t h e o t h e r h a n d , ESSO i s t h e p r i c e l e a d e r i n th e
upward d i r e c t i o n , a s shown on F e b r u a r y 2, 1956 when ESSO
; i n c r e a s e d I r a q i c ru d e p o s t i n g from $ 2 .3 9 p e r b a r r e l f . o . b .
; T r i p o l i t o $ 2 .^ 6 p e r b a r r e l . I t i n c r e a s e d t h e p o s t i n g
f u r t h e r t o $ 2 .6 9 p e r b a r r e l on December 1, 1956. A g a in ,
a l l t h e o t h e r s f o llo w e d .
The o n ly e x c e p ti o n t o t h i s p a t t e r n happened in-
1960. The news t h a t came from London p o in te d o u t t h a t
t h e o i l i n d u s t r y had lo n g b e en c o n s c io u s o f e v e r i n c r e a s
in g p r e s s u r e s aimed a t th e p o s s i b i l i t y t h a t "one o f t h e
l a r g e s t " t a k e s t h e i n i t i a t i v e o f " c u t t i n g " th e w o rld
m a rk e t p o s te d p r i c e s . T h a t i s t o s a y , w h ile no names
were m e n tio n e d , i t was f o r e s e e n t h a t on t h i s o c c a s io n
t h e f i r s t move m ig h t come from a U n ite d S t a t e s i n t e r n a
t i o n a l o p e r a t o r r a t h e r t h a n by a B r i t i s h company.
T h ere w ere em ph asis t h a t i n a l l p r o b a b i l i t y , i t would n o t
be e i t h e r B r i t i s h P e tro le u m o r t h e S h e l l g ro u p t h a t would
t a k e t h e f i r s t s t e p , f o r o b v io u s p o l i t i c a l r e a s o n s .
T h e r e f o r e , ESSO lo w e re d i t s p o s t i n g t o $ 2 .1 7 p e r b a r r e l
f . o . b . T r i p o l i on A ugust 9» I 9 6 0 , w h ile B r i t i s h P e tro le u m
and C .F .P . d i d n o t f o l lo w , s t a y i n g a t t h e p r e v i o u s p r i c e
o f $ 2 .3 1 p e r b a r r e l . ESSO was th e n f o r c e d t o go b a c k ,
- ^ P l a t t ’ s O llg ram , J u l y 29» i 9 6 0 .
125
n o t t o t h e p r e v i o u s p r i c e , b u t t o $ 2 .2 1 p e r b a r r e l , which
had b e en i n i t i a t e d by B r i t i s h P e tro le u m on A ugust 16,
I960.
G u lb e n k ia n i n t e r e s t s f o r exam ple, d id n o t ta k e th e
downward l e a d a t any t im e . The r e a s o n s f o r t h i s a r e ob
v io u s c I n th e f i r s t p l a c e , h i s i n t e r e s t r e p r e s e n t s a
v e ry s m a ll s h a r e i n t h e m a r k e t, and th u s o t h e r p a r t i c i
p a n ts i n t h e I r a q p e tro le u m company would e x p e r ie n c e l i t
t l e i f any l o s s i n b u s i n e s s a s a r e s u l t of th e p r i c e a d
v a n ta g e g a in e d by him . Second, even i f he d id c u t
p r i c e s , no one would buy from him , b e c a u se th e y would be
a f r a i d t h a t i n so d o in g t h e y would e n d a n g e r t h e i r sup
p l i e s i n tim e o f s h o r t a g e .
B r i t i s h P e tro le u m became a l e a d e r i n t h e downward
movement. A lth o u g h i t i s n o t t h e l a r g e s t , i t n e v e r t h e
l e s s c o n t r o l s a s u b s t a n t i a l s h a r e o f t h e m a rk e t. T h e r e
f o r e , i f o t h e r s do n o t f o l lo w , i t i s g o in g t o c a p t u r e
some o f t h e i r s h a r e o f th e m a rk e t.
On th e o t h e r h a n d , ESSO S ta n d a r d became a l e a d e r
i n an upward movement o f p o s t e d p r i c e s o f I r a q i c ru d e
b e c a u se i t i s th e l a r g e s t m a r k e te r i n t h e a r e a . I n
o r d e r t o make o t h e r s f o l lo w I t s move, ESSO m ust be s u re
t h a t i t i s j u s t i f i e d by m a rk e t c o n d i t i o n s , such a s i n
c r e a s e d c o s t s and enhanced b u y in g pow er, w hich w i l l b e ,
and a c t u a l l y a r e r e c o g n i z e d by o t h e r s e l l e r s a s v a l i d
r e a s o n s f o r i n c r e a s e d p r i c e s .
T h is s i t u a t i o n i s a k in t o t h e o l i g o p o l i s t i c c a se
o f t h e k in k ed demand c u rv e , w here p r i c e i s e s t a b l i s h e d
a t p o i n t P, i n th e f o l lo w in g d ia g ra m (s e e F ig u re 1 ) .
The q u a n t i t y p rod uced i n OQ. The P r ic e , i s r i g i d a t OP
b e c a u s e , i f one firm lo w e rs i t s p r i c e s o t h e r s w i l l f o l
low im m e d ia te ly , and a s a r e s u l t th e y w i l l engage i n a
p r i c e w ar.
The l o s s e s i n c u r r e d by I r a q a s a r e s u l t o f t h e s e
m a n i p u l a t io n s were g r e a t . W hile I t s e x p o r t s i n c r e a s e d
by 5^ p e r c e n t from 1959-196**-, i t s income i n c r e a s e d o n ly
a b o u t 30 p e r c e n t f o r t h e same p e r i o d .
As th e d i s c o u n t i n g in o i l p o s t i n g p r i c e s s p r e a d s ,
th e e x p o r t i n g com panies have o r g a n i z e d , fo rm in g th e
O r g a n i z a t i o n o f P e tro le u m E x p o r ti n g C o u n t r ie s (OPEC) in
an e f f o r t t o s t a b i l i z e th e p r i c e . T h is i s what I s c a l l e d
a commodity a g re em e n t i n i n t e r n a t i o n a l t r a d e . I t may
a l s o be lo o k e d upon a s a c o u n t e r v a i l i n g power i n th e f a c e
o f t h e o i l co m p a n ie s.
The Organization of Petroleum
Exporting Countries (OPEC)
I n l a t e 1959» o i l p r i c e s began t o go down and t h e r e
were f l u c t u a t i o n s i n i n t e r n a t i o n a l o i l p r i c e s . T h is
c a u se d th e r o y a l t i e s o f e x p o r t i n g com panies t o d ro p a l s o .
127
FIGURE 1
|
THE KINKED DEMAND CURVE
P
P
0
mr
S o u rc e : R ic h a rd H. L e f tw ic h , The P r i c e System
and R e so u rc e A l l o c a t i o n (R e v ised e d i t i o n , New York: 1 9 6 2 ),1
p . 2k9.
128
To p r o t e c t i t s e l f and o t h e r c o u n t r i e s f a c i n g t h e same
i s i t u a t i o n , t h e Government o f I r a q s e n t I n v i t a t i o n s t o c e r - <
i
; i
: t a i n p r o d u c in g c o u n t r i e s t o convene a t Baghdad and d e b a te j
| t h i s t o p i c . The i n v i t a t i o n was s e n t t o V e n e z u e la , I r a n ,
S au d i A r a b ia , K uw ait and Q a t a r , a s k in g them t o send
r e p r e s e n t a t i v e s . The f i r s t s e s s i o n was h e ld A ugust 10,
1 9 6 0 ," ^ The O r g a n i z a t i o n o f P e tro le u m E x p o r tin g Coun
t r i e s was o f f i c i a l l y form ed o f a l l p a r t i c i p a n t s , w ith
tin
t h e e x c e p ti o n o f Q a t a r , i n S ep tem b er, i 96 0 .
The b a s i c p o i n t s w hich were a g re e d upon were* (1)
j o i n t a c t i o n and c o o r d i n a t e d p o l i c y i n m a t t e r s o f m u tu a l
i n t e r e s t ; ( 2) a s tu d y o f ways t o m a i n t a i n p r i c e s t a b i l
i t y , i n c l u d i n g p r o r a t i o n p l a n s ; ( 3) e l i m i n a t i o n o f th e
r e c e n t p r i c e c u t th r o u g h j o i n t p r e s s u r e on co m panies;
an d , (4) i n s i s t e n c e on t h e r i g h t o f c o n s u l t a t i o n w ith
com panies b e f o r e f u t u r e p r i c e c h a n g e s .
However, i t seems from th e above t h a t t h e m ain
p u rp o se i s t o m a i n t a i n a f i x e d and s t a b l e p r i c e f o r c ru d e
o i l .
At t h e tim e o f t h e c r e a t i o n o f th e O r g a n iz a t i o n
^ M i n i s t r y o f O i l , B aghdad,
■ 5 ? Q a ta r was an o b s e r v e r i n t h e f i r s t m e e tin g and
a sk e d t o become a f u l l member i n t h e f o l lo w in g month and
h a d b e e n a c c e p t e d , I n d o n e s i a and L ib y a jo in e d th e Or
g a n i z a t i o n i n 1 9 6 2 .
129
o f P e tro le u m E x p o r ti n g C o u n t r i e s , and. a f t e r w a r d s , th e
o i l com panies th o u g h t t h a t t h e O r g a n iz a t i o n c o u ld n e v e r
h o ld t o g e t h e r , T h is view was form ed b e c a u se o f t h e n a
t i o n a l d i f f e r e n c e s e x i s t i n g among th e c o u n t r i e s c r e a t i n g
t h e O r g a n i z a t i o n . "Members o f t h e OPEC have lo n g d e s i r e d
a s o l i d f r o n t t o p r e s e n t t o t h e w o rld , b u t th e f r o n t h a s
alw ay s had c r a c k s . Now t h e c r a c k s seem t o be g e t t i n g
b i g g e r O r : "Too many d i f f e r e n c e s and a s p i r a t i o n s
i n t h e way."-^^ But t h e O r g a n i z a t i o n i s s t i l l h o l d in g
t o g e t h e r , and i t i s r e c o g n i z e d by t h e o i l com panies as
a r e a l b a r g a i n i n g power r e p r e s e n t i n g t h e o i l e x p o r t i n g
c o u n t r i e s .
As tim e p a s s e d , t h e o i l com panies r e a l i z e d t h a t
t h e O r g a n i z a t i o n i s a f a c t and th e y c a n n o t ig n o r e i t a s
a power r e p r e s e n t i n g t h e e x p o r t i n g co m p a n ie s. M oreover,
t h e h o s t i l e a t t i t u d e o f t h e p r e s s to w a rd th e o r g a n i z a t i o n
h a s u n d erg o n e a c h a n g e . T h is change c an be n o te d i n an
a r t i c l e e n t i t l e d "A greem ent i n S i g h t , " w hich a p p e a re d i n
t h e P e tro le u m P r e s s S e r v i c e o f S ep tem b er, 196^ . " I t i s
now a b u n d a n tly c l e a r t h a t OPEC i s a f o r c e t o be re c k o n e d
w i t h by t h e o i l com panies i n a l l t h e i r n e g o t i a t i o n s w ith
p ro d u c in g c o u n t r i e s .
5% h e O i l and Gas J o u r n a l . M arch, 1962,
59I b l d . f
D ecem ber, 1962.
^ P e t r o l e u m P r e s s S e r v i c e . S e p tem b er, 196^ .
Some o f t h e i s s u e s t h a t c o n c e rn t h e O r g a n iz a t i o n
a re s ( 1 ) th e m a rk e tin g e x p e n se ; ( 2 ) t h e expense o f
r o y a l t i e s ! ( 3 ) th e p o s te d p r i c e s o f c ru d e ; (4) i n t e g r a
t i o n o f t h e n a t i o n a l s o f t h e e x p o r t i n g com panies i n d i f
f e r e n t p r o c e s s e s o f t h e o i l i n d u s t r y a t an a c c e l e r a t e d
p a ce ; ( 5) t h e f l i g h t o f t h e r e f i n e r i e s from t h e p ro d u c in g
t o t h e consum ing c o u n t r i e s ; and ( 6 ) t h e i n f l e x i b i l i t y
and e x t r a o r d i n a r i l y lo n g d u r a t i o n o f t h e a g re e m e n ts u n d e r
w hich o i l i s p ro d u c e d . However, t h e f i r s t t h r e e r e c e i v e d
p r i o r i t y on t h e O r g a n i z a t i o n 's l i s t due t o t h e i r im por
t a n c e t o t h e o i l p ro d u c in g c o u n t r i e s .
As t o th e f i r s t demand, th e com panies have a g re e d
t o th e p r i n c i p l e and e l i m i n a t e d a l l b u t a h a l f c e n t a
b a r r e l from t h e c o s t o f c r u d e .
As t o t h e second demand, we f i n d t h a t a l l o i l
a g re e m e n ts i n f o r c e i n t h e OPEC member c o u n t r i e s c o n t a i n
r o y a l t y and income t a x p r o v i s i o n s . The r o y a l t i e s a r e
p r o p e r l y m a t h e m a ti c a l ly com puted, b u t s t o p t h e r e — and
f a i l t o m a t e r i a l i z e b e c a u se th e y a r e c r e d i t e d a g a i n s t t h e
61
o b l i g a t i o n a r i s i n g u n d e r t h e income t a x . The e f f e c t i v e
^ 1The e x c e p ti o n t o t h i s r u l e i s V e n e z u e la , where i t
r e c e i v e s r o y a l t y ( o r e x p l o i t a t i o n ta x ) from t h e c o n c e s -
s i o n n a i r e com panies a t t h e r a t e o f 16 2 /3 p e r c e n t o f
p e tr o le u m p ro d u ced e i t h e r i n k in d o r i n c a s h . I n a d d i t i o n
t o r o y a l t i e s , income t a x i s a l s o p a id a t t h e s t a t u t o r y
r a t e o f ^7% p e r c e n t o f n e t income r e a l i z e d . The t o t a l
o f b o th t h e n i s 6^ and 1 /6 p e r c e n t , compared t o 50 p e r
c e n t i n o t h e r member c o u n t r i e s .
131
income t a x i n OPEC's member c o u n t r i e s i s 50 p e r c e n t .
T h is i s how th e 50-50 p r o f i t s h a r i n g ag re em e n ts came to
be known. T h is p ro c e d u re in e s s e n c e means: (1) e i t h e r
t h e o i l com panies a r e p a y in g income t a x a t th e f u l l r a t e
b u t no r o y a l t y a t a l l , or ( 2) th e y a re e f f e c t i v e l y pay
in g a r o y a l t y o f 1 2 .5 p e r c e n t , b u t t h e i r income t a x pay
m ents amount t o 37*5 p e r c e n t .
Comparing th e s i t u a t i o n i n OPEC's member c o u n t r i e s
t o t h a t o f V e n e z u e la , t h e U n ite d S t a t e s , and Canada, th e
d i s c r i m i n a t i o n and i n j u s t i c e become a p p a r e n t . T h is was
th e b a s i s o f OPEC's demand t o expense r o y a l t i e s .
The s u b j e c t o f r o y a l t y e x p e n sin g to o k up much
tim e and le n g th y n e g o t i a t i o n s b e f o r e coming t o a tem p or
a ry a g re e m e n t. The o f f e r made by th e o i l com panies does
n o t m eet OPEC's J u l y 1966 demand t h a t th e norm al 1 2 .5
p e r c e n t r o y a l t y be expensed r a t h e r th a n c r e d i t e d a g a i n s t
income t a x . The o f f e r was a c c e p te d by a l l th e o t h e r mem-
62
b e r s c o n c e rn e d , b u t r e j e c t e d by I r a q . The r e a s o n s t h a t
I r a q r e j e c t e d t h e o f f e r were two: F i r s t , th e o f f e r d id
n o t m eet th e minimum r e q u ir e m e n ts as s e t by th e O rg a n i-
^Actually, th e Government o f Kuwait a c c e p te d th e
o f f e r s u b j e c t t o t h e a p p ro v a l o f i t s N a t io n a l A ssem bly,
w hich r e f u s e d t o r e c t i f y i t . The o t h e r two c o u n t r i e s ,
I n d o n e s i a and V e n e z u e la , a r e n o t a f f e c t e d .
132
z a t l o n . Second, t h e p r o t e c t i o n p r o v i s i o n i n t h e compan
i e s 1 o f f e r , w hich i s a n o n f i n a n c i a l p r o v i s i o n , c o n s t i t u t e s
an in f r in g e m e n t on i t s s o v e r e i g n t y and freedom o f a c t i o n .
The IPC grou p i n s i s t e d t h a t t h e d i s p u t e w ith I r a q ov er
Law No. 80 m ust be s e t t l e d b e f o r e i t would a g re e t o pay
t h e a d d i t i o n a l income t o I r a q . T h is I r a q r e f u s e d t o
a c c e p t •
A c c o rd in g t o th e new o f f e r o f th e co m p a n ie s, th e y
w i l l be a llo w e d an 8§ p e r c e n t d i s c o u n t o f f p o s te d p r i c e s
i n f i g u r i n g 1964 t a x e s . T h is a llo w e d d i s c o u n t w i l l be
r e d u c e d by one p e r c e n t i n eac h s u c c e e d in g y e a r . I t w i l l
be i n 1965 and 6§ i n 1 9 6 6 , ^
The e f f e c t o f t h i s o f f e r w i l l be t o I n c r e a s e t h e
income o f th e c o u n t r i e s c o n c e rn e d by 5 p e r c e n t p e r b a r -
64
r e l I n 1 9 6 6 .
The o f f e r d i d n o t end t h e d i s p u t e , a t l e a s t c o n
c e r n i n g th e p e r i o d a f t e r 1 9 6 6 , e x c e p t by s t a t i n g t h a t th e
a g re e m e n ts were t o be r e v i s e d i n two y e a r s i n t h e l i g h t
o f d e v e lo p m e n ts i n t h e I n d u s t r y . T h e r e f o r e , th e O rg a n i
z a t i o n o f P e tro le u m E x p o r ti n g C o u n t r ie s a t I t s 1 1 th Con
f e r e n c e i n V ie n n a , a d o p te d r e s o l u t i o n X I .? 1 , w hich
^ 0 1 1 and Gas Journal (September 12, 1966) , p. 8 9 .
^ 0 1 1 and Gas Journal (September 12, 1966) , p. 8 9 .
133
recommended t h a t eac h member c o u n tr y c o n c e rn e d sh o u ld
i work to w a rd " c o m p le te e l i m i n a t i o n " o f t h e d i s c o u n t a ll o w -
I a n c e s . I f t h e y su c c e e d , i t w i l l mean a n o th e r i n c r e a s e
o f 6 c e n t s p e r b a r r e l i n t h e i r inco m es.
As t o t h e t h i r d i s s u e , t h e p o s te d p r i c e s , i t h as
n o t b een s e r i o u s l y t a c k l e d . A l l t h a t can be s a i d a t
t h i s p o i n t w ith any c o n fid e n c e i s t h a t o i l p r i c e s d id
n o t go down s i n c e th e c r e a t i o n o f OPEC, The f i r s t r e s o
l u t i o n p a s s e d by t h e O r g a n i z a t i o n a t i t s f o u n d in g Bagh
dad m e e tin g , i n S e p tem b er, 19&0, co m p lain ed b i t t e r l y
a b o u t c ru d e p r i c e c u t s , and s ta te d *
Members s h a l l s tu d y and f o r m u la te a s y s
tem t o i n s u r e t h e s t a b i l i z a t i o n o f p r i c e s ,
among oth er- m eans, by r e g u l a t i o n o f p ro d u c
t i o n , w ith r e g a r d t o t h e i n t e r e s t s o f th e
p ro d u c in g and t h e consum ing n a t i o n s , and t o
t h e n e c e s s i t y o f s e c u r i n g s t e a d y income t o
t h e p r o d u c in g c o u n t r i e s , an e f f i c i e n t , econom
i c , and r e g u l a r s u p p ly o f t h i s s o r t o f e n erg y
t o consum ing n a t i o n s and a f a i r r e t u r n on
t h e i r c a p i t a l to th o s e i n v e s t i n g i n th e
p e tro le u m i n d u s t r y .
Members w i l l r e q u i r e th e o i l com panies
t o m a i n t a i n t h e i r p r i c e s , s t a b l e and f r e e of
any u n n e c e s s a r y f l u c t u a t i o n s ; t h a t t h e y ( th e
o i l com panies) w i l l t r y by a l l means a t t h e i r
d i s p o s a l t o r e e s t a b l i s h c u r r e n t p r i c e s a t th e
l e v e l s p r e v a l e n t b e f o r e t h e r e d u c t i o n s ; t h a t
t h e y w i l l a s s u r e t h a t i n c a s e some new c i r
c u m sta n ce s a r i s e w hich, a c c o r d i n g t o o i l com
p a n i e s , r e q u i r e p r i c e c h a n g e s , t h e com panies
s h o u ld e n t e r i n t o c o n s u l t a t i o n w ith t h e mem
b e r o r members a f f e c t e d i n o r d e r t o f u l l y
e x p l a i n t h e c i r c u m s t a n c e s ,
^ T h i s q u o ta tio n a p p e a re d in th e O il and Gas
J o u r n a l (O cto b er 3 % i 960) , p . 71.
134
To reinforce crude oil prices, the Organization
| tried production prorationing or quotas among members,
, w hereby e a c h member c o u n tr y i s g iv e n a q u o ta f o r i t s
f u t u r e c ru d e o i l p r o d u c t i o n i n c r e a s e s . The a tte m p t seems
t o be i n e f f e c t i v e b e c a u se d i f f e r e n t member c o u n t r i e s were
d i s s a t i s f i e d w ith t h e i r q u o ta s p l u s t h e f a c t t h a t t h e
o i l com panies d i d n o t l i k e t h e i d e a on t h e ground t h a t
i t i s i n t e r f e r e n c e w ith t h e i r p o l i c i e s .
As tim e g oes on, th e O r g a n iz a t i o n d e m o n s tr a te s
t h a t i t i s d e v o te d t o t h e w e l f a r e o f t h e o i l i n d u s t r y
i n t h e member c o u n t r i e s and t h a t i t s e e k s a l l a v a i l a b l e
a v en u e s o f a c t i o n t o f i g h t f o r t h e r i g h t s o f t h e member
c o u n t r i e s . The o i l com panies have r e a l i z e d t h i s .
The e s t a b l i s h m e n t o f th e O r g a n i z a t i o n o f P e t r o
leum E x p o r tin g C o u n t r ie s i s r e s p o n s i b l e f o r th e f o l lo w in g
c h an g e s i n t h e o i l i n d u s t r y : (1) The i n t e r n a t i o n a l
m a jo r s a r e no lo n g e r c o n s i d e r e d t h e m ost p o w e rfu l s i d e
o f t h e p ro d u c in g c o u n t r i e s - o i l co m p a n ie s-c o n su m ers t r i
a n g l e . (2) The m a jo rs a r e i n no p o s i t i o n now t o impose
t h e i r w i l l on t h e o t h e r o i l co m p a n ie s, a t l e a s t n o t a s
t h e y d i d b e f o r e . (3) A lth o u g h m a jo rs a r e i n no p o s i t i o n
t o impose t h e i r w i l l d i r e c t l y , t h e r e i s s t i l l some i n d i
r e c t i n f l u e n c e on t h e go vern m ents o f t h e p ro d u c in g
c o u n t r i e s .
C H APTER VI
THE IRAQ NATIONAL OIL COMPANY
I n t r o d u c t i o n
D u rin g th e l a s t tw e n ty y e a r s t h r e e im p o r ta n t
d e v e lo p m e n ts to o k p l a c e w hich had t h e i r r e p e r c u s s i o n s on
t h e o i l i n d u s t r y . The f i r s t o f t h e s e e v e n t s to o k p la c e
i n t h e e a r l y f i f t i e s , when I r a n n a t i o n a l i z e d h e r o i l .
The im m ediate r e s u l t o f t h i s move was an i n c r e a s e i n p r o
d u c t i o n from o t h e r a r e a s t o make up f o r th e l o s s o f th e
I r a n i a n o i l . I r a q was one o f t h e c o u n t r i e s t h a t e x p e
r i e n c e d an i n c r e a s e i n o i l p r o d u c t i o n a m o unting t o 170
p e r c e n t .
The seco nd m ajo r e v e n t was th e Suez War o f 1956.
As a c o n seq u e n ce o f th e w ar, c a n a l t r a f f i c was s to p p e d j
o i l p i p e l i n e s blow n u p , and th e o i l s h ip m e n ts t o W estern
E urope h e ld up f o r some t im e . T h is was an a la rm t o
W este rn E urope and o t h e r o i l consum ing c o u n t r i e s , w arn
in g o f t h e d a n g e r o f d e p e n d in g e n t i r e l y f o r t h e i r su p p ly
on one s o u r c e , t h a t I s t h e M iddle E a s t i n t h i s c a s e .
135
1 3 6
T h e r e f o r e , o i l co m p a n ie s, a s w e l l a s consum ing c o u n t r i e s
a l i k e f e l t th e u r g e n t n e e d t o d e v e lo p N o rth A f r i c a n o i l .
Thus w i t h i n a v e r y s h o r t p e r i o d o f tim e , N o rth A f r i c a
became th e t h i r d e x p o r t i n g a r e a i n t h e w o rld , a f t e r
V e n e z u e la and t h e M iddle E a s t . The m ain e x p o r t e r s i n
N o rth A f r i c a sire A l g e r i a and L ib y a . A l g e r i a 1s p r o d u c t i o n
i n c r e a s e d from 1 7 4 ,0 0 0 b b l / d a y t o 5 52,400 b b l / d a y i n 1964,
o r 223 p e r c e n t . I n L ib y a p r o d u c t i o n i n c r e a s e d from
1 9 ,0 0 0 b b l / d a y i n 1961 t o 1 , 23 9,100 b b l / d a y i n 1 9 6 5 , o r
6 ,4 0 0 p e r c e n t . (See T a b le 24)
The t h i r d m a jo r e v e n t was t h e f o r m a tio n o f th e
O r g a n i z a t i o n o f P e tro le u m E x p o r tin g C o u n t r ie s (OPEC) i n
i 9 6 0 . U n t i l r e c e n t l y , t h e g o v ern m en ts of o i l p ro d u c in g
c o u n t r i e s p la y e d no a c t i v e r o l l i n r e g a r d t o t h i s v i t a l
n a t u r a l w e a l t h . T h is was due t o t h e p o v e r ty i n t h e s e
c o u n t r i e s , and l a c k o f c a p i t a l and t o some d e g r e e , l a c k
o f e x p e r i e n c e , know-how and know ledge of t h e o i l i n d u s
t r y , and f i n a l l y , t o th e u n w i l l i n g n e s s o f th e o i l com
p a n i e s th e m s e lv e s . T h is c h a i n was b ro k e n i n 1957, when
t h e I r a n i a n P e tro le u m Law r e q u i r e d a l l newcomers f o r co n
c e s s i o n s t o t a k e t h e N a t i o n a l I r a n i a n O i l Company a s a
p a r t n e r . T h is new p r o v i s i o n was t h e r e s u l t o f t h e aw are
n e s s o f t h e c o u n t r i e s o f t h e im p o rta n c e o f t h e i r p a r t i c
i p a t i o n i n t h e o i l i n d u s t r y . C hanging c ir c u m s ta n c e s ,
TABLE 24
OIL PRODUCTION IN SELECTED COUNTRIES, i 960 - I 965
(D a ily i n 1,000 b b l; P e rc e n ta g e Change from P re v io u s Year)
Country
i 960 1961 1962
P ro d u c tio n
%
P ro d u c tio n
%
P ro d u c tio n
%
I r a n 1 ,0 5 0 .0 1 1 .2 1 , 190.0
22.7
1 , 300.0 1 1 .6
Iraq. 975.0 1 4 .5 1 ,0 0 0 .0
1 3 .5
1 , 005.0
0 .7
Kuwait 1 ,6 2 5 .0 17 .4 1 ,6 5 0 ,0 1 .6 1 , 860.0
13.1
N e u tr a l Zone 132.0
13 .5
178.0
30 .9
238.0 34 .8
Q a tar 172.7 2 .6 176.0
1 .7
188.0 5 .8
Saudi A ra b ia 1 ,2 4 0 .0 14.1
1 .3 7 7 .0
10. 4 1 ,5 2 3 .0 9 .4
T o ta l Middle E a s t 5 ,2 4 9 .9
——
5 , 626.5 8 .8 6 ,2 0 1 .5
9 .9
A l g e r i a 174.0 522.0 323.0 7 8 P4 430.0 29.0
L ib y a —
--------
19.0
-------- 184.0 911.0
U n ited S t a t e s 7 , 019.0
- 0 . 5
7 ,1 8 1 .0 2.1
7 ,3 3 6 .5 1.0 7
V enezuela 2 , 835.0
2 .3
2 , 906.0 2.1 3 , 200.0 9.6
T o ta l F re e World
1 7 , 628.67
--------
1 8 , 676.0 6 .4 20 , 158.4 7 .8
U.SoS.R. and O ther
S o c i a l i s t Coun
t r i e s 3 , 230.0 1 0 .0 3 ,6 5 0 .0 1 0 .8 3 , 992.0 9.4
S ource: O il and Gas J o u r n a l , L a s t Week o f December, o f each y e ar i n d i c a t e d j
f o r 1965 i O il and Gas I n t e r n a t i o n a l . F e b ru a ry , 1966, pp. 4 2 -4 3 . "s3
TABLE 24
(C ontinued)
OIL PRODUCTION IN SELECTED COUNTRIES, i 960 - 1965
(D a ily i n 1,000 b b l; P e rc e n ta g e Change from P re v io u s Year)
Country
1963
1964
1965
P r o d u c tio n % P ro d u c tio n
%
P ro d u c tio n
%
I r a n 1 ,4 7 0 .0 11 .4 1 , 815.0 2 3 .4
1 ,8 5 8 .9
11.7
I r a q 1 , 120.0 1 1 .4
1 ,2 2 6 .7 9 .5 1 ,2 7 7 .9 4 .7
Kuwait 1 ,9 3 0 .0 5 .2 2 , 120.0 9 .8 2 ,1 6 9 .9 1 .7
N e u tr a l Zone 306.0 2 5 .4 374.0 22.2
350.7
- 1 .1
Q a tar 193.0 11 .6 220.8 1 4 .4
215.7 - 2 .3
Saudi A ra b ia 1 , 618.0
5.5 1 ,6 9 5 .9
4 .8 1 ,9 9 6 .2 I 8.3
T o ta l M iddle E a s t 6 ,7 4 7 .8
9 .1 7 ,7 0 6 .7
1 4 .2
8 ,2 4 0 .7 6 .9
A l g e r i a 502.0 23.0 552.4
1 0 .5 546.7
- 1 .0
L ib y a 470.0 155.0 858.6
82.7 1 ,2 3 9 .1 4 4 .3
U n ited S t a t e s 7 ,5 3 7 .0
2.7
7 ,6 4 0 .0
1 .3
7 ,7 5 3 .4
1 .5
V enezuela 3 ,2 4 6 .0 1 .4
3 ,3 8 2 .5
4 .2
3 ,4 5 8 .9 2 .3
T o ta l F re e World 2 1 ,4 6 5 .4 6 .5 2 3 ,3 3 3 .0 8.7
2 4 ,7 0 9 .8
5.9
U .S .S .R . and O ther
S o c i a l i s t Coun
t r i e s 4 ,5 0 0 .0
10 .9
4 ,6 6 0 .0
3 .5
5 , 280.1
13.3
Source 1 O il and Gas J o u r n a l , L a s t Week o f December, o f each y e a r i n d i c a t e d ; ^
f o r 1965* O il and Gas I n t e r n a t i o n a l . F e b ru a ry , 1966, pp. 4 2 -4 3 . 00
139
im provem ent i n th e s t a n d a r d o f l i v i n g i n t h e s e c o u n t r i e s ,
s p r e a d of e d u c a t i o n , and f i n a l l y t h e r o l e p la y e d by th e
in d e p e n d e n t o i l com panies i n L ib y a and e ls e w h e re and
governm ent-ow ned o i l c o m p an ies, such a s ENI o f I t a l y ,
was o f g r e a t I m p o rta n c e .
Due t o t h e s e c h a n g e s, a lm o s t a l l p ro d u c in g
c o u n t r i e s r e q u i r e f o r e i g n o i l com panies t o t a k e t h e i r
n a t i o n a l o i l com panies a s p a r t n e r s . I r a q i s no e x c e p t i o n .
I r a q ' s P o s i t i o n Among O th e r M iddle E a s t e r n
P r o d u c in g C o u n t r ie s
M iddle E a s t e r n p r o d u c t i o n o f o i l h a s b e e n i n
c r e a s i n g s t e a d i l y s in c e th e f i f t i e s . T o t a l o i l pro d u ced
i n t h e M iddle E a s t was 1 8 3 ,1 6 0 m i l l i o n b b l / d a y i n i 9 6 0 ,
i n c r e a s i n g t o 21 5,360 m i l l i o n b b l / d a y i n 1 9 6 5 *
O i l p r o d u c t i o n i n I r a q was i n c r e a s i n g , t o o , b u t
n o t a t a r a t e c o r r e s p o n d in g t o t h e o v e r a l l r a t e o f grow th
i n th e a r e a , n o r was i t a c c o r d in g t o I r a q ' s o i l p o te n
t i a l i t i e s . M o reov er, a f t e r i 9 6 0 , I r a q ' s p o s i t i o n f u r t h e r
d e t e r l o r i a t e d , a s h as b e en p o i n t e d o u t e a r l i e r . T h e re
f o r e , w h ile t h e a n n u a l i n c r e a s e i n t h e M iddle E a s t a v e r
aged betw een 8 and 13 p e r c e n t , t h e a v e ra g e f o r I r a q was
o n ly 6 .9 p e r c e n t .
Two f a c t o r s w ere r e s p o n s i b l e f o r t h e d e c l i n e i n
th e r a t e o f p r o d u c t i o n i n I r a q .
1^0
First was the attitude of the oil companies
toward the government, because of differences arising
between the two. The companies compensated for their
frozen production in Iraq by increasing it in other coun
tries in the area.
Second, regular exports began from the new con
cessions in Iran and the Neutral Zone.
Aside from the decline in the rate of production
in Iraq compared to other countries of the Middle East,
its proved reserves declined by 6 per cent. (See Table
25)
As a result, Iraq's position in the area was de
teriorating. Lower growth in rate of oil production
accompanied by depletion of its proved reserves made
Iraq's position compare unfavorably with other countries
in the Middle East whose rate of production was increas
ing and whose proved reserves were also increasing.
The Iraq National Oil Company
The foreign oil companies operating in Iraq had
failed to become a part of the Iraqi economy during their
long period of operation there. The contrast was— and
still remains clear between the underdeveloped nature of
the economy and the technically advanced and complex oil
TABLE 25
PROVED RESERVES IN SELECTED COUNTRIES, i 960 - 1964
(1,000 b b l)
C ountry i 960 1961 1962 1963 1964 1965
35*000,000
27 *000,000
6 2 , 000,000
6 , 000,000
2 , 500,000
I r a n
I r a q
Kuwait
N e u tr a l Zone
Q a tar
Saudi A ra b ia 50,000,000
T o ta l Mid
d le E a s t 183,160,000
A l g e r i a 5*200,000
L ib y a 2 ,000 ,000
U n ited S ta te s 3 3 * 535* 000
V enezuela 18,500 ,000
T o ta l F ree
World 267,484,800
U.S.SoR. and
O ther S o c i a l i s t
C o u n trie s 33*502,000
35,
00 0 ,,000
37,
000 ,000
37*
00 0 , 000 38, 000 ,000 40, 00 0, 000
2 6 , 50 0,,000 2 6 , 000 ,000
2 5 ,
000, 000
25,
000 ,000
35,
000, 000*
6 2 , 00 0 ,,000
6 3 ,
000 ,000
6 3 ,
500, 000
6 3 ,
000 ,000 6 2 , 500, 000
6,
000,,000
7,
500 ,000 10, 000, 000 1 2 , 500 ,000 12, 400, 000
2, 750,
,000
3,
000 ,000
2 , 950,
000
3,
500 ,000
3,
000, 000
52, 000,,000 52 , 000 ,000 6 0 , 000, 000 6 0 , 500 ,000 6 0 , 000, 000
188, 204,,000
19 3 , 975
,000
207,
368, 000 212, 180 ,000
21 5,
360, 000
5*
500,,000 6, 500 ,000
7,
000, 000
7,
500 ,000
7,
400, 000
3,
000,,000 500 ,000
7,
000, 000
9,
000 ,000 10, 000, 000
35,
500,,000
35,
300 ,000 3 4 *272, 000 3 4 *492 ,000
35,
400, 000
17, 550,,000
1 7 ,
000 ,000
1 7 ,
000, 000
1 7 ,
000 ,000
1 7 , 25 0,
000
275, 723,
,100 283, 568 ,100 3 0 1 , 542, 300 310, 522 ,900
31 9, 573,
250
3**.
25 2,,000
2 9 *
976 ,000
2 9 ,
500, 000 3 0 , 750
,000
33, 485, 000
S o u rc e j O il and Gas J o u r n a l , l a s t week o f December, o f each y e a r i n d i c a t e d .
1965» O il and Gas I n t e r n a t i o n a l , F e b r u a r y , 1966, pp. 4 2 -4 3 .
* P lu s (10) b i l l i o n b a r r e l s o f N o rth R um aila.
H1
H
142
i n d u s t r y . I n s t e a d o f th e gap becoming n a rro w e r o v e r th e
y e a r s , i t became l a r g e r and l a r g e r .
As a r e s u l t o f th e p r a c t i c e fo llo w e d by t h e s e o i l
com panies, th e s t a t e o f th e o i l i n d u s t r y i n I r a q i s
c h a r a c t e r i z e d by th e fo llo w in g *
1 . I n c o n s i s t e n c y betw een proved r e s e r v e s and
p r o d u c t i o n . T h is means t h a t th e o i l com
p a n ie s d id n o t d e v e lo p I r a q ' s o i l w e a lth t o
i t s r e q u i r e d c a p a c ity * (a) i n com p arison to
i t s r e s e r v e s ; (b) i n com parison w ith th e
r a t e o f i n c r e a s e i n th e n e ig h b o r in g coun
t r i e s — w h ile c ru d e p r o d u c tio n i n th e s e
c o u n t r i e s was betw een 8-13 p e r c e n t d u r in g
th e p e r i o d 1960-1965* I r a q ' s p r o d u c tio n i n
c r e a s e d o n ly by 6 p e r c e n t d u r i n g th e same
p e r i o d ; (c) t h i s p o l i c y l e d t o th e l o s s o f
some m a rk e ts t o o t h e r c o u n t r i e s w hich would
have b e en f o r I r a q i c ru d e ; and (d) f i n a l l y ,
th e v a lu e o f one b a r r e l o f o i l s o ld to d a y i s
g r e a t e r t h a n th e v a lu e o f th e same b a r r e l
s o ld n e x t y e a r , a c c o rd in g t o th e c a sh flow
t h e o r y . M oreover, t h i s v a lu e w i l l d e c l i n e
f u r t h e r b e c a u se o f t h e c o n ti n u i n g d e c l i n e in
c ru d e o i l p r i c e s , w h e th er due t o e x c e s s
capacity or the development of other sources
of competing energy in the future, such as
atomic energy.
Inconsistency between crude oil exports and
cost of production. As we have mentioned
earlier, Iraqi crude is known to have the
lowest costs of production in the world.
Although the economic rational requires pro
duction be stepped up in Iraq, this did not
happen because the political interests out
weigh the economic rationale.
It has also been mentioned that the foreign
oil companies did not build refineries in
Iraq to correspond with its production. Re
fining capacity remained at a minimum and
barely meets the local demand.
Low level of domestic consumption of petro
leum products. This illustrates the fact
that the oil industry failed to help the
development of Iraq. Or, to put it in other
words, the petroleum industry did not become
an integral part of Iraq's economy, and,
accordingly, it created very small, If any,
external economies. The petroleum industry
1^4
rem a in e d " t h e e n t e r p r i s e i n I r a q , " o r what ’
i s c a l l e d an " e n c l a v e - I n d u s t r y " i n I r a q ' s
economy.
5. No I r a q i c a p i t a l p a r t i c i p a t e d i n th e o i l i n
d u s t r y a lo n g w ith f o r e i g n c a p i t a l . A lth o u g h
t h e r e was a c l a u s e i n t h e a g re e m e n ts w i t h th e
o i l com panies r e q u i r i n g them to a llo w 20 p e r
c e n t o f I r a q i c a p i t a l t o p a r t i c i p a t e when
t h e com panies i s s u e d new s h a r e s . But t h i s
h a s n o t b e en d o n e , sim p ly b e c a u se no new
s h a r e s have been i s s u e d . The o n ly I r a q i
c a p i t a l i n v e s t e d i n th e o i l i n d u s t r y i s i n
t h e r e f i n e r i e s , w hich c o n t r i b u t e a v e r y
s m a ll p e r c e n ta g e o f t o t a l c a p i t a l i n v e s t e d
i n t h e o i l i n d u s t r y .
I r a q , on i t s p a r t , t r i e d t o have some o f t h e s e
i n j u s t i c e s r e c t i f i e d by n e g o t i a t i o n w ith t h e o i l com
p a n i e s , b u t a l l o f i t s a tt e m p t s f a i l e d . The o n ly r e
c o u rs e l e f t t o I r a q was l e g i s l a t i o n .
The m ost im p o r ta n t o b j e c t i v e o f t h e o i l p o l i c y
o f t h e Government o f I r a q a s f o r m u la te d i n th e G overn
m e n t 's announcem ent on December 2^, 1963» was t h e e s t a b
l is h m e n t o f a n a t i o n a l o i l i n d u s t r y t h a t would s e r v e as
t h e b a s i s f o r f u t u r e o i l e x p l o r a t i o n i n th e a r e a o f w hich
1^5
t h e r i g h t o f e x p l o r a t i o n had "been r e s t o r e d t o th e S t a t e
by Law No. 80 o f 19&1. T h is l a i d t h e ground work n e c e s
s a r y f o r th e grow th and d ev elopm en t o f th e i n d u s t r y so
a s t o c r e a t e an advanced o i l economy, an i n d u s t r y n o t
l i m i t e d i n scope t o e x p o r t a t i o n o f c ru d e o i l b u t e x te n d
in g t o e f f e c t i v e engagem ent i n th e v a r i o u s p h a se s o f th e
o i l i n d u s t r y . The o b j e c t i v e was t h a t o f b r i n g i n g a b o u t
i n t e r a c t i o n on a l a r g e r s c a l e b etw een th e o i l economy
and th e n a t i o n a l economy.
The I r a q N a t i o n a l O il Company was form ed i n Feb
r u a r y 8, 1 96^, by Law No. 11 o f 196^ . The law d e f i n e s
th e o b j e c t i v e s , f i n a n c e , and management o f t h e company
c l e a r l y . They a r e s t a t e d b r i e f l y a s f o llo w s
1 . The com p an y's o b j e c t i v e s s h a l l be t o engage
b o th i n s i d e and o u t s i d e I r a q i n th e o i l i n
d u s t r y i n any or a l l i t s p h a s e s , i n c l u d i n g
e x p l o r a t i o n and p r o s p e c t i n g f o r o i l and
n a t u r a l h y d ro c a r b o n s ; p r o d u c t i o n , t r a n s p o r
t a t i o n , r e f i n i n g , s t o r a g e and d i s t r i b u t i o n
o f s a i d s u b s ta n c e s o r o f t h e i r p r o d u c ts o r
d e r i v a t i v e s ( p e t r o c h e m ic a ls ) and t h e manu-
- * ~Weekly G a z e tte o f th e R e p u b lic o f I r a q . No. 10
(March 4 , 19& 0 •
1^6
f a c t u r e o f r e l e v a n t e q u ip m e n t. The company
s h a l l have th e r i g h t t o t r a d e i n a l l t h e s e
s u b s t a n c e s . ( A r t i c l e 2-1)
2. The com pany’ s c a p i t a l s h a l l be t w e n t y - f i v e
m i l l i o n D i n a r s , p a y a b le by th e Government
upon r e q u e s t from t h e com pany 's B oard o f
D i r e c t o r s and w i t h th e a p p r o v a l o f th e
C o u n c il o f M i n i s t e r s , w hich c a p i t a l may be
I n c r e a s e d a s r e q u i r e d up t o su c h l i m i t a s
may be d e c id e d by t h e C o u n c il o f M i n i s t e r s
upon t h e p r o p o s a l o f th e B oard o f D i r e c t o r s ,
( A r t i c l e * J —1)
3 . The company s h a l l be a d m i n i s t e r e d by a Board
o f D i r e c t o r s w hich s h a l l be f i n a n c i a l l y and
a d m i n i s t r a t i v e l y in d e p e n d e n t and composed o f
n in e m embers, i n c l u d i n g t h e C hairm an and
D eputy C hairm an. ( A r t i c l e 9-1)
The IPC re s p o n d e d t o t h e Law i n a s t a te m e n t r e l e a s e d by
2
i t s spokesm an. I t r e a d s a s f o llo w s :
No o f f i c i a l t e x t o f t h e Law announced on
t h e Baghdad r a d i o t h i s w eek-end i s y e t a v a i l
a b l e . B ut r e p o r t s o f i t s p r o m u lg a tio n , and
t h e form i t i s a l l e g e d t o t a k e , have come a s
^ P l a t t ' s d i g r a m (F e b ru a ry 11, 196*0.
147
a d is a p p o in tm e n t t o t h e c o m p a n ie s, i n view
o f r e c e n t p u b l i c i n d i c a t i o n s t h a t d i s c u s s i o n s
w ere t o t a k e p la c e s h o r t l y on many o u t s t a n d
in g p ro b le m s, i n c l u d i n g t h o s e c r e a t e d by th e
p r o m u lg a tio n by t h e K assim re g im e o f Law 80,
i n December 1961, and f o r w hich th e com panies
have r e p e a t e d l y a sk e d f o r a r b i t r a t i o n .
I f t h e new Law d o e s i n f a c t t a k e t h e form
r e p o r t e d i n t h e Baghdad p r e s s , t h e n i t would
i n e v i t a b l y c o n s t i t u t e f u r t h e r v i o l a t i o n of
t h e t h r e e c o m p a n ie s ’ a g re e m e n ts w i t h th e
I r a q Government and th e com panies a r e t h e r e
f o r e g i v i n g c a r e f u l c o n s i d e r a t i o n a s t o
w hat f u r t h e r a c t i o n t o t a k e t o p r o t e c t
t h e i r I n t e r e s t s .
I n t e g r a t i o n i n t h e I r a q
N a t i o n a l O il Company
A r t i c l e 2-1 o f Law No. 11 o f 1964, s t a t e d c l e a r l y
t h a t " t h e company s h a l l engage i n t h e o i l i n d u s t r y i n
any o r a l l i t s p h a s e s ." I n o t h e r w o rd s, th e l e g i s l a t o r s
l e f t th e d o o r open f o r t h e company t o be a f u l l y i n t e
g r a t e d o ne. I n t e g r a t i o n means t h e p r o c e s s o f e x te n d in g
t h e scope o f th e a c t i v i t i e s , w hich a r e u n d e r t h e owner
s h i p , management or c o n t r o l o f a s i n g l e company.
T h ere a r e t h r e e k in d s o f i n t e g r a t i o n s (1) h o r -
i z o n t a l ; ( 2 ) v e r t i c a l ; and ( 3 ) p r o d u c t i n t e g r a t i o n .
H o r i z o n t a l i n t e g r a t i o n i s t h e p r o c e s s by w hich
t h e company e x te n d s i t s e x i s t i n g a c t i v i t i e s e i t h e r by
^John G. McLean and H o b e rt W. H a ig h , The Growth
o f I n t e g r a t e d O i l Companies (Norwood, M a ss .: P lim p to n
P r e s s , 195*0 t P* 7«
1^8
expanding them or entering into some new ones. An ex
ample of this type of integration would be if the Trans-
Arabian Pipeline Company built another line to the
Arabian Gulf.
Vertical integration, on the other hand, is a
process by which the company increases the number of
processing steps which are under its ownership and man
agement. An example of this would be the IPC group of
companies as a producing group of crude oil when acquir
ing a refinery or marketing company.
Finally, product integration means the process
by which the company Increases the range of its products
by manufacturing or distributing some other products. A
gas station, aside from selling gasoline engages in the
sale of tires and batteries, for example.
It Is often difficult to draw a line between
these three types. What interests us here is the verti
cal integration, which is most obvious in the oil busi
ness .
Vertical Integration
Again, there are three types of vertical inte-
gratiom primary integration, secondary Integration,
^ I b i d .
and tertiary integration.
Primary Integration means that the company is
engaged in another step directly related to the process
ing and distribution of crude oil or its products or
both. In other words, the company engages in the oil
business from well-head to the consumer. Accordingly,
the IPC group of companies is a primary integrated group.
This is so because each of the companies in practice
engages in crude oil production transportation, refining,
and finally, marketing.
Secondary integration is a situation where an
oil producing company engages in activities like geolog
ical and geophysical work, land surveying, well tool man
ufacturing, well drilling, etc. There are many companies
specializing in one or more of these activities, but if
an oil company wanted to do this by itself, it is then
said to be engaged in secondary integration.
Tertiary integration is a process in which an
oil company is engaged in some remote activities of the
oil business such as road building and can and drum man
ufacturing.
Finally, an oil company may integrate itself
backward toward its raw materials, or forward toward a
marketing or a consuming end.
^ I b l d . , p . 9 .
Econom ies o f V e r t i c a l I n t e g r a t i o n
Vertical Integration may give rise to economies
in production. This is "because an integrated firm can
do a series of successive production functions more effec
tively than many individual firms where each one does
but one process or function. Economies of vertical inte
gration are noticeable in cases where technologically
complementary production processes can be put together
in one single plant. Other economies are attributed to
a better coordination of the rates of output at succes
sive stages. Moreover, the firm may realize some mone
tary benefits by integrating forward or backward and
thereby eliminating payments to suppliers as profit in
excess of an interest rate on the added investment re
quired to integrate,^
Vertical integration protects the firm against
any losses caused by fluctuating demand for different
products, such as crude oil, gasoline, kerosene, et cet-
7
e r a . 1
We t u r n now t o t h e I r a q N a t i o n a l O i l Com pany's
o b j e c t i v e s a s s t a t e d i n A r t i c l e 2-1 of th e Law t h a t
^ Jo e S. B a in , I n d u s t r i a l O r g a n i z a t i o n (New York:
Jo h n W iley and S ons, I n c . , 1959)» P» 156.
7I b i d . . p . 157.
151
created the company, and see to what extent it would be
able to fulfill its objectives in being a fully inte-
O
grated oil company. In order for the Iraq National Oil
Company to be able to do this it has to start from the
exploration phase and go on to the final refined products,
their marketing and consumption by consumers.
Exploration Operations
Exploration methods can be classified as followst
(1) direct indications; (2) geological methods; and
(3) geophysical methods.
Direct Indications
In a country not previously prospected, and
where the geological horizons are not well known, seep
ages are of great value in determining possible oil and
gas bearing rocks. Seepages may be either at the out
crop of the strata, or may be at a fault, and thus in
each case the condition under which a seepage is found
should be determined. However, this does not mean that
oil exists in commercial quantities. In Iraq, oil seep-
g
"Full integrated oil company" means the process
in which the company engages in all petroleum activities
from well-head to the consumer, that is, it is a primary
vertical type.
152
9
a g e s had b e e n known f o r h u n d re d s o f y e a r s i n K irk u k .
G e o lo g ic a l and G e o p h y s ic a l
E x p l o r a t i o n M ethods
D a ta f o r s u b s u r f a c e maps a r e o b ta in e d from* (1)
w e l l l o g s ; (2) c o re d r i l l i n g ; and (3) s t r a t a t e s t s .
G e o p h y s ic a l e x p l o r a t i o n i s o f t h r e e m ajo r types*
(1) g r a v i t y ; (2) m a g n e tic ; and (3) s e i s m i c .
The d i f f e r e n t p h a s e s o f p e tr o le u m e x p l o r a t i o n
i n v o lv e d i f f e r e n t t e c h n i q u e s , a c c o r d i n g l y , p e r u n i t c o s t
v a r i e s g r e a t l y . T o t a l c o s t v a r i e s a s w e l l and d ep en d s
on g e o g r a p h ic , econom ic, and o t h e r f a c t o r s .
P r e l i m i n a r y R e c o n n a is a n c e
The f i r s t s t e p i n an e x p l o r a t i o n phase o f th e
o i l I n d u s t r y i s a c r i t i c a l one and i n v o l v e s d e t a i l e d
a p p r a i s a l o f a l l th e i n f o r m a t i o n r e g a r d i n g a p a r t i c u l a r
a r e a su c h a s th e r e c o r d s o f t h e d r i l l i n g f o r w a te r w e l l s ,
s u r f a c e and s u b s u r f a c e g e o l o g i c a l s t r u c t u r e , e t c e t e r a .
M o reo ver, t h i s a p p r a i s a l s h o u ld be e x te n d e d t o i n c l u d e
a g e n e r a l s u rv e y o f t h e a r e a , i t s t r a n s p o r t a t i o n f a c i l
i t i e s and i t s f u t u r e i n d u s t r i a l d e v e lo p m e n t. A l l t h e s e
a r e b u t a p r e l i m i n a r y s u r v e y . I f t h i s s u rv e y i s e n c o u r-
9
^ C arl G a t l i n , P e tr o le u m E n g in e e r in g : D r i l l i n g
and W ell C o m p le tio n s (Englewood C l i f f s , N .J .* P r i n t i c e -
H a l l , I n c . , 1 9 ^ 0 ), p . 3^•
153
a g in g and p ro m is in g o t h e r m ethods w i l l be u s e d t o w iden
th e i n f o r m a t i o n . T hese m ethods w i l l i n c l u d e a e r i a l pho
t o g r a p h y , s u r f a c e g e o l o g i c a l s u rv e y s and g e o p h y s ic a l
m ethods l i k e g r a v im e tr y and m ag n e to m e try .
Many c o u n t r i e s a l r e a d y have a co m p lete p h o to
g r a p h ic c o v e ra g e o f i t s a r e a . T h is p h o to g r a p h ic c o v e r
age w i l l h e lp t h e o i l company q u i t e a l o t . Money and
tim e can be sa v e d ; how ever, th e s c a l e a d o p te d f o r th e
p h o to g r a p h ic c o v e ra g e may n o t be s u i t a b l e o f an o i l
com pany's u s e . I n t h i s c a s e a new s u rv e y s h o u ld be made
on t h e d e s i r e d s c a l e u t i l i z i n g th e e x i s t i n g su rv e y f o r
th e g e n e r a l p ro g ra m s.
The p h o to g ra p h s m ust o v e r l a p by 60 p e r c e n t a lo n g
t h e l i n e o f th e f l i g h t and by 30 c e n t betw een a d j a
c e n t s t r i p s . '* '0 A t o p o l o g i c a l map o f t h e a r e a can be
draw n from th e p h o to g r a p h s . More th a n t h i s , p h o to g ra p h s
can a l s o be u s e d d i r e c t l y t o make maps o f g e o l o g i c a l f e a
t u r e s o f i n t e r e s t l i k e o u t c r o p p in g b e d s and f a u l t i n g .
The m ain g e o l o g i c a l f e a t u r e s o f t h e a r e a may be i d e n t i
f i e d t h r o u g h s t e r e o s c o p i c e x a m in a tio n o f v e r t i c a l p h o to
g ra p h s .
■ ^U nited N a tio n s* P e tro le u m E x p l o r a t i o n . C a p i t a l
R e q u ire m e n ts and M ethods o f F in a n c in g (New Y ork. 1 9 6 2 ).
p . 5.
154
The c o s t o f p h o to g ra p h y d epend s on th e a v a i l a b i l
i t y o f th e a i r f i e l d s and n a v i g a t i o n a l c o n t r o l (m ost coun
t r i e s a l r e a d y have t h e s e f a c i l i t i e s ) and w e a th e r c o n d i
t i o n s .
Assum ing a l l c o n d i t i o n s a r e f a v o r a b l e , th e c o s t
o f a e r i a l p h o to g ra p h s on a s c a l e o f 1 «50.000 i s a b o u t
$ 1 .2 0 p e r s q u a re k i l o m e t e r o f c o v e r a g e . The to p o g ra p h
i c a l map and th e g e o l o g i c a l e x a m in a tio n b o th c o s t a p p ro x -
11
im a te ly $4 p e r s q u a re k i l o m e t e r . Some p u t th e c o s t a t
a b o u t $ 2 .5 0 p e r s q u a re k i l o m e t e r ; s t i l l o t h e r s a t betw een
12
$ 3 *25- 6 .5 0 p e r sq u a re k i l o m e t e r .
As we p o i n t e d o u t, p h o to g ra p h y s a v e s t h e company
b o th tim e and money. T h is method e n a b le d a company o p e r
a t i n g i n t h e S a h a ra t o co m p lete i t s r e c o n n a is a n c e map o f
i t s e x p l o r a t i o n a t a q u a r t e r o f t h e c o s t and i n o n e - t h i r d
o f th e tim e t h a t w ould have b e en r e q u i r e d u s i n g c o n v en -
13
t i o n a l s u rv e y method a l o n e .
S u r f a c e g e o l o g i c a l s u rv e y s s u p p ly th e o i l com
pany w i t h i n f o r m a t i o n on w h e th e r t h e r e a r e r o c k s i n d i c a
t i v e o f th e o c c u r r e n c e o f p e tr o le u m , and w h e th er c o n d l-
i:LI b i d . p . 6.
12I b l d .
13I b l d .
155
t i o n s a r e f a v o r a b l e f o r f o r m a tio n and p r e s e r v a t i o n o f any
o i l and g as a c c u m u la tio n . The a r e a c o v e re d by a g e o lo g
i c a l team i n any p e r i o d o f tim e d i f f e r s from one t e r r a i n
t o a n o t h e r . I n I9 6 0 , f o r exam ple, sev en p a r t i e s c o v e re d
37*000 sq u a re k i l o m e t e r s o r 5*000 s q u a re k i l o m e t e r s p e r
team a n n u a l l y . I t I s g e n e r a l l y a c c e p te d t h a t t h e c o s t
o f a l i g h t g e o l o g i c a l s u rv e y team I s a b o u t $35*000 a n -
„ i/i
n u a l l y , o r a b o u t $ 3 ,0 0 0 p e r m onth. B ecause o f d i f f e r
e n t t e r r a i n s , i t i s d i f f i c u l t t o s e t an a v e ra g e u n i t
c o s t f o r a g e o l o g i c a l s u rv e y team .
A n o th e r m ethod u s e d i n e x p l o r a t i o n i s th e g eo
p h y s i c a l m ethod w hich i s u se d t o e x p lo r e t o g r e a t d e p th s
f o r th e i d e n t i f i c a t i o n o f s t r u c t u r e w hich may c o n t a i n
p e tr o le u m . Two d i f f e r e n t ty p e s o f g e o p h y s ic a l m ethods
15
can be d i s t i n g u i s h e d . F i r s t , g r a v i t y s u r v e y s w hich
d e te r m in e v a r i a t i o n s i n t h e d e n s i t y o f u n d e rg ro u n d s t r a t a
by m e a s u rin g s m a ll ch an g e s i n mass a t d i f f e r e n t p l a c e s on
t h e e a r t h ' s s u r f a c e . Rocks d i f f e r i n d e n s i t y and a v e r y
l a r g e a c c u m u la tio n o f h ig h d e n s i t y r o c k s w i l l r e s u l t i n
a l o c a l I n c r e a s e i n g r a v i t y ; w h ile a t h i c k l a y e r o f s a n d -
l l i
I b i d .
^-’ L .L . N e t t l e t o n , G e o p h y sic a l P r o s p e c t i n g f o r O il
(New Yorki M cGraw-Hill Book C o ., I n c . , 1 9 ^ 0 ), p p .4 - 5 .
s to n e o r s a l t r e s u l t s I n lo w er l o c a l g r a v i t y . A map o f
s u b s u r f a c e a n o m a lie s can be p r e p a r e d on th e b a s i s o f
i n t e r p r e t a t i o n o f a g r a v i t y s u r v e y , a f t e r making th e
n e c e s s a r y c o r r e c t i o n s f o r l a t i t u d e and to p o g ra p h y . C. T.
J o n e s , ^ c o n s u l t a n t g e o l o g i s t a t T u l s a , e s t i m a t e s t h a t
t h e g r a v im e tr y o p e r a t i o n s r e q u i r e d t o s u rv e y th e t y p i c a l
b a s i n u n d e r c o n s i d e r a t i o n would ta k e a su rv e y p a r t y 150
d a y s and c o s t a t o t a l o f $ 4 8 ,0 0 0 , o r a p p ro x im a te ly
$9»000 p e r p a r t y p e r m onth. T a b le 26 shows a g r a v im e tr y
c o s t i n t h e f r a n c z o n e . S econd, m agnometry s u rv e y s w hich
i n v e s t i g a t e t h e s u b - s u r f a c e f o r m a t io n by s tu d y in g th e
a n o m a lie s i n th e m e g n e tic f i e l d due t o d i f f e r e n c e s i n
t h e m a g n e tic s u s c e p t i b i l i t y o f r o c k s . M agnetic s u r v e y s
a r e u s e f u l i n p r o v i d in g i n f o r m a ti o n a b o u t t h e i n t e r f a c e
betw een t h e s e d im e n ta r y f o r m a t io n s o f a b a s i n and t h e i r
c r y s t a l l i n e s u b s tr a t u m . The r e s u l t s o f a m ag n e tic s u r
vey a r e h e l p f u l i n i n t e r p r e t i n g th o s e o f g r a v i t y s u rv e y s
and v i c e v e r s a . T h e r e f o r e , th e two m ethods go hand i n
h a n d , and a r e c a r r i e d o u t a t t h e same tim e i n m ost i n
s t a n c e s .
R e c e n t l y , m a g n e tic s u r v e y s from t h e a i r have
b e e n d e v e lo p e d . T hese m ethods a r e c o n s i d e r e d b e t t e r th a n
^ 0 1 1 and Gas Journal (January 1 3 t 195®)°
TABLE 26
GBAVIMETRY COSTS IN THE FRANC ZONE In 1959*
(U .S . D o l l a r s )
A re a D o l l a r s
C o n t i n e n t a l E urope $ 10 ,8 0 0
S a h a ra (la n d )
37,300
S a h a r a ( u s i n g h e l i c o p t e r ) 60 ,800
E q u a t o r i a l A f r i c a ( l a n d su rv e y ) 27 ,800
* S o u rc e i U n ite d N a tio n s P e tro le u m E x p l o r a t i o n ,
op c l t . , p . 7.
Note* C o s ts r e p r e s e n t t h e c o s t o f one g r a v i t y
s u rv e y p a r t y f o r one m onth.
ground m ag netom eter s u rv e y s s i n c e t h e y a r e f a s t e r and
n o t s u b j e c t t o to p o g r a p h ic d i f f i c u l t i e s , w a t e r , f o r e s t s ,
and swamps*
The t o t a l c o s t o f grou nd m ag netom eter s u rv e y i n
a ^ ,650 s q u a re k i l o m e t e r a r e a t a k i n g a s u rv e y p a r t y 150
da y s i s $ 12 ,3 0 0 o r $ 2,5 0 0 p e r m onth, w h e rea s th e a i r
s u rv e y would r e q u i r e 60 d a y s and c o s t $ 1 3 ,5 0 0 o r $ 6,75 0
17
p e r m onth.
Prospecting
Once i t h a s b een d e c id e d t o go ahead and make a
d e t a i l e d s tu d y f o r e x p l o r a t i o n s i n a p a r t i c u l a r a r e a ,
s e is m ic work and e x p l o r a t o r y d r i l l i n g w i l l b e g i n .
S e ism ic work u s u a l l y i n v o lv e s t h e e x p lo s io n o f
a d y n a m ite c h a rg e i n a s m a ll d ia m e te r h o le d r i l l e d to
a d e p th o f a few m e t e r s . The e x p lo s io n g e n e r a t e s a
p u ls e i n th e g ro u n d , r e c e i v e d a t t h e s u r f a c e by g e o
p h o n e s, a f t e r r e f l e c t i o n from th e i n t e r f a c e b e tw ee n th e
two r o c k l a y e r s o r a f t e r r e f r a c t i o n a lo n g such an i n t e r
f a c e . I t i s o u t s i d e th e scope o f t h i s s tu d y t o go i n t o
d e t a i l i n t h e t e c h n i c a l i t i e s o f d i f f e r e n t e x p l o r a t i o n
and p r o s p e c t i n g m eth o d s. However, on th e b a s i s o f th e
r e s u l t s o b t a i n e d a map can be p r e p a r e d o f th e u n d e r -
1?I b i d .
159
groun d l a y e r s . ^
S e ism ic work i s c o s t l y and r e q u i r e s h i g h l y
t r a i n e d p e r s o n n e l and e q u ip m e n t. The c o s t o f s e is m ic
su rv e y i n L ib y a b e tw ee n 1955 and i 960 was a b o u t $ 8 0 1 ,0 0 0 ,
i n t h e S a h a ra i n 1959 i t was $ 1 1 0 ,0 0 0 , i n S o u th A m erica,
19
th e c o s t was a s h ig h a s $ 1 5 0 ,0 0 0 .
E x p lo r a to r y d r i l l i n g i s a n e c e s s i t y t o o b t a i n
d i r e c t i n f o r m a ti o n c o n c e rn in g th e s u b s u r f a c e f o r m a t io n s .
W ith out g o in g i n t o d e t a i l s , t h e r e a r e f o u r ty p e s of t e s t
w e l l s : c o re d r i l l s t o c l a r i f y and c o n firm t h e f r e q u e n t
l y u n c e r t a i n i n d i c a t i o n s p ro v id e d by s u r f a c e m ethods o r
g e o p h y s ic a l e v id e n c e ; s t r a t i g r a p h l c d r i l l i n g t o check
th e o c c u r r e n c e o f s o u rc e and r e s e r v o i r r o c k s ; w i l d c a t s
t o s tu d y t h e f o r m a tio n p e n e t r a t e d , t h e p r e s s u r e o f
f l u i d s i n th o s e f o r m a t i o n s , and f i n a l l y , o f f i n d i n g o i l ;
o u t s t e p w e l l s t o d e te r m in e th e amount and e x t e n t o f th e
accumul a t i o n .
B ecause d r i l l i n g program s v a r y from one a r e a to
a n o t h e r , i t i s d i f f i c u l t t o g iv e an e x a c t f i g u r e f o r th e
c o s t o f d r i l l i n g o p e r a t i o n s . However, some exam ples o f
u n i t c o s t o f d r i l l i n g may s e r v e some p u rp o s e .
^■ ^N ettleton, og. c i t . . p p . 231-3 ^ •
19
U.N. £2• ° l t . , p . 7.
160
A w e ll 3*000 m e te r s In d e p th c o s t s c o n s i d e r a b l y
more th a n tw ic e a s much a s a w e l l d r i l l e d t o a d e p th o f
1 ,5 0 0 m e te r s i n th e same a r e a and u n d e r th e same c o n d i
t i o n s . ^ I n th e U n ite d S t a t e s i n 1959 d ry h o le c o s t s
r a n g e d betw een $ 1 6 .0 8 p e r m e te r f o r an a v e ra g e d e p th o f
64-9 m e te r s i n I l l i n o i s t o $ 6 2 0 .?6 p e r m e te r f o r an a v e r
age d e p th o f 3*200 m e t e r s : i n A la s k a . T h is d i f f e r e n c e
was due n o t o n ly t o d e p th b u t a l s o t o th e g e o l o g i c a l
21
and o t h e r c o n d i t i o n s .
I n V e n e z u e la d r i l l i n g c o s t on la n d i n 195^
am ounted t o $28 p e r m e te r f o r a w e l l 1 ,9 5 0 m e te r s d eep
i n Lake M aracaib as $80 p e r m e te r f o r w e l l s 2 ,5 0 0 m e te rs
op
d e e p .
I n th e S o v i e t U nion th e c o s t s p e r m e te r d r i l l e d
f o r w e l l s a p p ro x im a te ly 1 ,7 0 0 m e te r s d e ep d e c l i n e d from
$ 6 9 .2 p e r m e te r i n 1950 t o $37*3 P er m e te r i n 1 9 6 3 .^ ^
D u r a ti o n o f E x p l o r a t i o n
O p e r a tio n s and C o sts
P e tro le u m e x p l o r a t i o n t a k e s many y e a r s and a
s i z a b l e sum o f money b e f o r e any o i l c an be fo u n d .
20U.N. I b i d .
21I b i d .
22I b i d .
23I b l d .
161
I t to o k 28 y e a r s and 133 d r i l l i n g s t o f i n d th e
Leduc f i e l d i n C anada, i n 19^7; i n A u s t r a l i a , e x p l o r a t i o n
h a s b e e n g o in g on s i n c e th e b e g in n i n g o f th e c e n t u r y .
They have s p e n t $90 m i l l i o n i n th e l a s t t e n y e a r s w i t h
o u t any e n c o u ra g in g r e s u l t s u n t i l r e c e n t l y . I n N i g e r i a ,
$168 m i l l i o n h a s been s p e n t s i n c e e x p l o r a t i o n was begun
t h e r e j u s t b e f o r e t h e b e g in n i n g o f W orld War I I , w h ile
p r o d u c t i o n o n ly s t a r t e d i n 1958 , I n t h e M iddle E a s t ,
p e tr o le u m was f i r s t fou nd i n M a jid - I - S u la im a n i n I r a n .
E x p l o r a t i o n was sto p p e d by World War I and c o n tin u e d in
1920 l e a d i n g t o d i s c o v e r i e s b e tw ee n 1933-1939 o f l a r g e
f i e l d s i n I r a n and n o r t h e r n I r a q , From 19^5 onw ard, o i l
f i e l d s o f B a h r a in , S a u d i A r a b ia , Q a t a r , Q uw ait, S o u th e r n
oh
I r a q and th e N e u t r a l Zone had b e en d i s c o v e r e d . I n
I r a q , t o t a l e x p e n d i t u r e s had r e a c h e d a b o u t $62 m i l l i o n
when th e I r a q P e tro le u m Company b e g an t o e x p o r t o i l to
2 6
t h e w o rld m a rk e ts i n 193^•
A f t e r t h e o i l h a s b e e n found, s e v e r a l y e a r s a r e
r e q u i r e d i n w hich t o b r i n g t h e f i e l d t o p r o d u c t i o n ,
s t o r a g e , b u i l d i n g and t r a n s p o r t a t i o n f a c i l i t i e s .
2i b l d .
2i n t e r n a t i o n a l Bank o f R e c o n s t r u c t i o n and
Development^ Economic D evelopm ent o f I r a q (B a ltim o re 1
Jo h n s H op kin s P r e s s , 1951) P« 3^*
162
TABLE 27
ESTIMATED PETROLEUM EXPLORATION AND
PRODUCTION COSTS IN CANADA, 1947-1958*
( I n m i l l i o n s o f d o l l a r s )
Year E x p l o r a t i o n
c o s t s
D evelopm ent
c o s t s ( a )
P r o d u c t io n
c o s t s ( b )
T o t a l
1947
1 6 .4
5 .9 3 .1
2 5 .4
1948
4 9 .5
1 2 .0
4 . 9
6 6 .4
1949
1 0 6 .5 3 2 .4 1 2 .1 1 5 1 .0
1950 1 0 3 .9 5 7 .5
1 6 .4 1 7 7 .8
1951
1 6 4 .1 7 7 .4 2 0 .1 243 .6
1952 1 8 7 .0 1 1 4 .2 2 5 .8 327 .0
1953 1 8 8 .9 1 0 0 .5 3 1 .7
32 1.1
1954 2 4 8 .4
8 7 .3
3 7 .0
37 2 .7
1955 2 5 5 .1
1 6 8 .1 5 2 .0 4 7 5 .2
1956 2 9 7 .6 1 6 2 .4 9 0 .2 55 0.2
1957
3 1 4 .1
1 6 9 .5
1 1 2 .4 59 6.0
T o t a l 2 ,2 1 6 .2
1 ,1 4 7 .3
5 1 0 .1 3 ,8 7 6 .6
*Source» U n ite d N a tio n s P e tro le u m E x p l o r a t i o n .
o p , c i t .
(a )N o t i n c l u d i n g c o s t o f p i p e l i n e s e x te n d in g be
yond t h e c o l l e c t i n g sy ste m .
( b ) I n c l u d i n g e x p e n d i tu r e i n c o n n e c ti o n w i t h th e
u t i l i z a t i o n o f n a t u r a l g a s .
163
The amount o f c a p i t a l r e q u i r e d f o r e x p l o r a t i o n
grows r a p i d l y a s th e o p e r a t i o n p ro c e e d s from t h e p r e l i m
i n a r y r e c o n n a i s a n c e t o t h e p r o d u c t i o n s t a g e . T a b le 27
shows e x p l o r a t i o n and p r o d u c t i o n c o s t s i n C anada.
As se e n from t h e T a b le , e x p l o r a t i o n c o s t s
t o t a l e d $ 2 ,2 1 6 m i l l i o n , dev elo p m en t c o s t s $ 1 ,1 ^ 7 * 3 m i l
l i o n , and p r o d u c t i o n c o s t s $ 51 0 .0 m i l l i o n d u r i n g 19^ 7-
1957.
I n th e U n ite d S t a t e s , d ev elo p m en t c o s t s r e p r e
s e n t s 52-58 p e r c e n t o f t o t a l e x p e n d i t u r e s a s shown i n
T a b le 28.
The p e tro le u m i n d u s t r y i s c a p i t a l i n t e n s i v e to
t h e e x tre m e . E very f u n c t i o n w i t h i n eac h o f i t s segm ents
r e q u i r e s l a r g e e x p e n d i t u r e s i n r e l a t i o n s h i p t o e v e ry
man em ployed. The c h a in o f c a p i t a l e x p e n d i t u r e s s t a r t s
w i t h t h e c o s t s o f m odern s c i e n t i f i c e x p l o r a t i o n and ends
w i t h t h e In v e s tm e n t i n f i l l i n g s t a t i o n s , o r i n th e t r u c k
f o r d e l i v e r y o f home f u e l o i l .
The in v e s tm e n t r e q u i r e d t o d e v e lo p one b a r r e l p e r
day o f c a p a c i t y r a n g e s b etw een $3»250 d o l l a r s i n T exas
26
t o a b o u t $860 i n V e n e z u e la and $69 i n I r a q . The
26M. A. Adelman, " O il P r o d u c t i o n C o s ts i n Four
A r e a s ," P e tro le u m P r e s s S e r v i c e , May, 1966, P# 178.
164
TABLE 28
EXPLORATION AND DEVELOPMENT COSTS
IN THE UNITED STATES, 1948-1956
( i n m i l l i o n s o f d o l l a r s )
1948
1953 1955 1956
Exploration costs 1 ,1 1 1 1,9 5 6 2,18 3 2,3 2 5
Dry holes 462
797 77 4 909
Other costs3- 64 9
1 ,1 5 9
1 ,4 0 9 l , 4 l 6
V
Development costs 1 ,5 1 8 2,4 1 9
2,4 4 9 2,64 8
Producer wells 1 ,0 5 8 1 ,7 6 2 1,8 2 6
1,9 5 9
Equipment 362 483 426
477
Total 2 ,6 2 9
4 ,3 7 5
4 ,6 3 2
4 ,9 7 3
^Source* U. No P e tro le u m E x p l o r a t i o n , o p . c l t .
i n c l u d i n g a c q u i s i t i o n o f l a n d , g e o l o g i c a l , geo
p h y s i c a l , o r o t h e r o p e r a t i o n s .
i n c l u d i n g ite m s ( b u i l d i n g s , a d m i n i s t r a t i o n ,
m a in te n a n c e , e t c e t e r a , n o t shown s e p a r a t e l y .
165
f i g u r e f o r I r a q I s e q u i v a l e n t t o 138 c e n t s p e r b a r r e l o f
o i l produced#
The I r a q N a t i o n a l O i l Company e s t i m a t e d t h e c a p
i t a l r e q u i r e m e n ts t o p ro d u ce 12 m i l l i o n t o n s o f o i l a
y e a r a t $650 m i l l i o n o v e r a p e r i o d o f t e n y e a r s o r $65
27
m i l l i o n p e r y e a r .
Method o f F i n a n c i n g t h e P e tro le u m I n d u s t r y
The above f i g u r e s show t h e m agnitud e o f c a p i t a l
r e q u i r e d t o u n d e r ta k e n o t t h e whole i n t e g r a t e d o i l o p e r
a t i o n s b u t o n ly t h e e x p l o r a t i o n and p r o d u c t i o n p h a s e s o f
th e b u s i n e s s . I f we add t o t h i s th e r i s k in v o lv e d i n
o i l e x p l o r a t i o n , t h e problem becomes ev en g r e a t e r . On
t h e o t h e r h an d, w h ile t h e r e i s no g u a r a n t e e t h a t fu n d s
w i l l n o t be l o s t , t h e r e i s o b v io u s ly t h e hope t h a t th e
u l t i m a t e r e t u r n w i l l be much h i g h e r t h a n t h a t a t t a i n a b l e
from o t h e r av en u e s o f i n v e s tm e n t .
S in c e t h i s i s th e c a s e , t h e q u e s t i o n w i l l be
a sk e d : How can th e I r a q N a t i o n a l O i l Company s e c u r e t h e
c a p i t a l r e q u i r e d f o r I t s o p e r a t i o n s ?
A wide v a r i e t y o f m ethods a r e a v a i l a b l e f o r th e
27
fThe r o l e o f t h e I r a q N a t i o n a l O il Company i n
d e v e lo p in g I r a q i o i l and i t s e f f e c t on n a t i o n a l economy:
(Baghdad: A1 Nijoom P r e s s , November 1965) , p . 9*
166
company t o f i n a n c e p e tro le u m e x p l o r a t i o n . The g o v e rn
ment may i n t e r v e n e d i r e c t l y on a more o r l e s s m o n o p o lis
t i c b a s i s i n t h e i n d u s t r y i t s e l f o r may sim p ly s ta n d a s
a p u r e l y r e g u l a t o r y a u t h o r i t y , a lt h o u g h e v en i n t h e l a t
t e r c a s e , t h e s t a t e p l a y s an im p o r ta n t p a r t s in c e i t s
s u p e r v i s i o n and en co u rag em en t may have c o n s i d e r a b l e i n
f l u e n c e on t h e i n t e n s i t y o f e x p l o r a t i o n p ro g ra m s. T h ere
i s a l s o a p o s s i b i l i t y t h a t d o m e s tic p r i v a t e c a p i t a l w i l l
p a r t i c i p a t e . S t i l l a n o th e r p o s s i b i l i t y i s t h a t o f co
o p e r a t i o n b e tw een th e s t a t e d o m e s tic p r i v a t e c a p i t a l and
f o r e i g n c a p i t a l , w h e th e r governm ent o r p r i v a t e .
The o i l i n d u s t r y i n b o th t h e S o v i e t U nion and
Hum ania, f o r exam ple, i s u n d e r a c e n t r a l l y p la n n e d e co n
omy. I n M exico, th e s t a t e h a s an e x c l u s i v e monopoly
o v e r t h e o i l i n d u s t r y s i n c e i t s n a t i o n a l i z a t i o n i n 1 9 3 8 .
The same i s t r u e i n th e c a s e o f B r a z i l .
I n I r a n , t h e N a t i o n a l I r a n i a n O il Company was
s e t up i n 1954 t o u n d e r ta k e o p e r a t i o n s i n t h e p e tro le u m
i n d u s t r y on b e h a l f o f t h e governm ent and can o p e r a t e
pQ
d i r e c t l y o r th r o u g h c o n t r a c t s w i t h f o r e i g n o r g a n i z a t i o n s .
I n K u w ait, a N a t i o n a l o i l company was s e t up a t
t h e end o f i 9 6 0 . The G o v e r n m e n ts p a r t i c i p a t i o n i s 60
28
I r a n i a n O i l O p e r a tin g C om panies, A nnual R e v ie w ,
1964 T e h ra n , J a n u a r y 19&5* P» 4 3 .
167
p e r c e n t and t h e r e m a i n i n g 40 p e r c e n t i s h e l d by p r i
v a t e l o c a l c a p i t a l .
S a u d i A r a b i a and V e n e z u e la have s i m i l a r o i l
c o m p a n ie s .
As h a s b e e n m e n tio n e d a b o v e , i t i s p o s s i b l e f o r
t h e I r a q N a t i o n a l O i l Company t o u n d e r t a k e o i l o p e r a
t i o n s a l o n e . I n t h i s c a s e , d u e t o i t s l i m i t e d f u n d s , i t
h a s t o c o n f i n e i t s o p e r a t i o n s t o a v e r y l i m i t e d a r e a i n
t h e b e g i n n i n g . S e c o n d ly , i t m u st s t a r t i t s o p e r a t i o n s
i n a r e a s w here t h e r e i s a g r e a t p o s s i b i l i t y t h a t o i l
w i l l be f o u n d . O th e rw is e t h e u n d e r t a k i n g i n v o l v e s g r e a t
r i s k i n unknown a r e a s and r e q u i r e s a lo n g p e r i o d o f tim e
i f o i l i s e v e r t o be fo u n d .
The o t h e r c o u r s e o f a c t i o n o p en t o t h e company
i s a s s o c i a t i o n w i t h f o r e i g n c a p i t a l , b o t h g o v e rn m e n t and
p r i v a t e . I t seem s t h a t t h i s t r e n d i s t a k i n g p l a c e i n
r e c e n t y e a r s . E x am p les c a n be fo u n d i n I r a n , S a u d i
A r a b i a , K u w a it, an d o t h e r c o u n t r i e s .
The G e n e r a l P e t r o le u m and M i n e r a l O r g a n i z a t i o n
o f S a u d i A r a b i a ( P e tro m in ) s i g n e d a n a g re e m e n t w i t h
■ R e g ie Autonome d e s p e t r o l e s (RAP) w h ic h i s owned by t h e
F r e n c h G o v e rn m e n t. A c c o r d in g t o t h i s a g re e m e n t, t h e
S a u d i s i d e g e t s ^0 p e r c e n t incom e t a x , a r o y a l t y o f up
t o 20 p e r c e n t f u l l y e x p e n s e d and p e r c e n t e q u i t y
168
p a r t i c i p a t i o n . I n o t h e r words th e S au di s h a re o f t o t a l
n e t p r o f i t s w i l l amount t o a p p r o x im a te ly 70 p e r c e n t .
T h is j o i n t v e n t u r e w i l l m a rk e t by i t s e l f 50 p e r c e n t o f
i t s e x t r a p r o d u c t i o n w i t h i n t e n y e a r s and b u i l d a r e f i n
e r y t o p r o c e s s 50 p e r c e n t o f p r o d u c t i o n w i t h i n f i f t e e n
y e a r s .
The a g re em e n t b e tw ee n t h e N a t i o n a l I r a n i a n O il
Company (NIOC) and t h e E n t e r p r i s e de E e c h e re h e s e t
d ‘A c t i v i t i e s P e t r o l i e r s (ERAP), a g a i n a F re n ch -G o v ern m en t-
owned company, g i v e s t h e I r a n i a n s i d e a b o u t 91*5 p e r c e n t
o f p r o f i t s from co m m ercial d i s c o v e r y .
E x p l o r a t i o n w i l l be f in a n c e d by th e F re n c h com
pany w hich w i l l i n v e s t betw een $ 3 5 -^ 5 m i l l i o n d u r i n g th e
f i r s t s i x y e a r s o f t h e c o n c e s s i o n . I f o i l i s found i n
co m m ercial q u a n t i t i e s , N a t i o n a l I r a n i a n O il Company w i l l
r e p a y t h e F re n c h Company o v e r a 1 5 - y e a r p e r i o d . I n th e
e v e n t t h e e x p l o r a t i o n i s a f a i l u r e , n o t h i n g w i l l be p a id
t o t h e F re n c h com pany.^
The F r e n c h Company i s com m itted t o m ark e t
6 0 ,0 0 0 b / d f o r th e I r a n i a n Company i n t h e f i r s t f i v e
y e a r s o f p r o d u c t i o n . I f t h e I r a n i a n Company vents, t h e
F re n c h Company w i l l m a rk e t f o r i t 8 0 ,0 0 0 b /d a f t e r th e
2^011 and Gas J o u r n a l . A p r i l 19, 1965i P P .8* 4 —8 5 .
3° I b l d .
169
31
f i r s t f i v e y e a r s f o r a 2 p e r c e n t co m m issio n. The
c o n t r a c t i s term ed " r e v o l u t i o n a r y ” and a ’’m il e s t o n e i n
32
o i l agreem ents'.',-'
The r e c e n t c o n t r a c t betw een th e same F re n c h com
pany (ERAP) and t h e I r a q N a t i o n a l O i l Company (INOC)
fo llo w e d t h e same g e n e r a l p r i n c i p l e s a s th o s e o f I r a n .
The m ain p r o v i s i o n s o f t h e a g reem en t are*
1 . E x p l o r a t i o n p e r i o d i s s i x y e a r s and th e l i f e
o f t h e c o n t r a c t i s tw e n ty y e a r s .
2. A l l t h e a r e a , e x c e p t t h a t w hich i s p ro d u c in g
o i l w i l l be r e l i n q u i s h e d a f t e r s i x y e a r s .
3. The o i l a t a l l s t a g e s t o g e t h e r w ith f i e l d
equ ip m en t and i n s t a l l a t i o n s i s t o be owned
by INOC.
The I r a q N a t i o n a l O il Company w i l l t a k e
o v e r t h e management a f t e r f i v e y e a r s and
c a r r y o u t a l l o p e r a t i o n s i n c o o p e r a t i o n w ith
t h e F re n c h Company.
5. When f i n d i n g o i l , t h e f i e l d w i l l be d i v id e d
i n t o two e q u a l p a r t s , one h a l f t o be g iv e n
t o t h e F re n c h Company t o d e v e lo p on b e h a l f
31I b ld .
32I b ld .
170
o f t h e I r a q N a t i o n a l O il Company, t h e o t h e r
h a l f I s t o be k e p t by INOC a s a " n a t i o n a l
r e s o u r c e " t o d i s p o s e o f th e way i t s e e s f i t .
6 . The F re n c h Company may buy from INOC 30 p e r
c e n t o f a l l p r o d u c t i o n (15 p e r c e n t o f d i s
c o v e re d o i l , s i n c e o n ly 50 p e r c e n t w i l l be
g iv e n t o t h e F re n c h Company.
7. The F r e n c h company i s t o m a rk e t 70 p e r c e n t
o f INOC's p r o d u c t i o n , i f t h e l a t t e r r e q u e s t s .
The F re n c h company w i l l r e c e i v e a com m ission
o f 0 .5 c e n t s / b b l f o r t h e f i r s t 10 0,000 b / d
and 1 . 5 c e n t s / b b l f o r an added 100,000 b / d .
8. P r i c e s a r e t o be c a l c u l a t e d on t h e b a s i s o f
p o s te d p r i c e s and t o be a g re e d upon by b o th
p a r t i e s •
9o The F re n c h company i s t o pay a r o y a l t y of
13*5 p e r c e n t f u l l y e x p en se d and b a s e d on
p o s te d p r i c e s .
10. The F r e n c h company i s t o pay t h e I r a q N a t i o n a l
O il Company a sum o f 15 m i l l i o n d o l l a r s w hich
i s n o n - r e c o v e r a b l e .33
11 . ERAP w i l l buy 18 p e r c e n t o f th e 30 p e r c e n t
33 q h and Gas Journal (December 4 , 1 9 6 7 ) »
pp. 5 7 -6 8 .
a t a p r i c e e q u a l t o t h e c o s t o f p r o d u c t i o n
p l u s r o y a l t y p lu s 50 p e r c e n t o f th e p o s te d
p r i c e . The p r i c e o f t h e r e m a in in g 12 p e r
c e n t w i l l be e q u a l t o th e c o s t o f p r o d u c t i o n
3/4 ,
p l u s r o y a l t y , ^
The d i f f e r e n c e betw een t h e I r a q N a t i o n a l O i l
Com pany's ag re em e n t w i t h ERAP and th e I r a n i a n O il A gree
ment w i t h t h e same company are*
1 . ERAP i s t o pay INOC $15 m i l l i o n n o n - r e c o v e r -
a b l e w h ile t h e r e a r e no su c h paym ents i n
t h e I r a n i a n a g re e m e n t,
2 . T ax es and r o y a l t i e s a r e t o be b a se d on
p o s te d p r i c e s i n t h e a g reem en t w ith I r a q
r a t h e r th a n r e a l i z e d p r i c e s a s I s th e c a s e
w i t h I r a n .
The o t h e r d e a l o f INOC was c o n c lu d e d w ith t h e
R u s s ia n s s h o r t l y a f t e r t h e a g re e m e n t w ith ERAP; t h e
m ain f e a t u r e s o f t h e R u s s ia n a g reem en t d i s c l o s e d a re s
1 . O i l e x p l o r a t i o n i s t o be c a r r i e d on by
R u s s ia n s i n N o r th e r n I r a q , w h ile a c t u a l
p r o d u c t i o n and d e l i v e r y w i l l t a k e p la c e
3 M iddle E a s t Economic S u r v e y , v o l . X I, No. 5
(Dec. 1 . , 6 7 ) , p . 9» (M iddle E a s t R e s e a r c h and P u b l i s h
in g C e n t e r , B e i r u t , L ebanon, p a r t 7 ) .
172
I n t h e S o u th .
2. The R u s s ia n s w i l l e x te n d t e c h n i c a l a s s i s
ta n c e and su p p ly equipm ent t o t h e I r a q
N a t i o n a l O i l Company.
3 . INOC w i l l pay t h e R u s s ia n s i n c ru d e a t a
35
p r i c e t o be a g re e d upon l a t e r .
A lth o u g h th e d e t a i l e d a g re em e n t w ith t h e R us
s i a n s i s n o t made p u b l i c y e t , t h e r e a r e no r e a s o n s t o
b e l i e v e t h a t i t w i l l d e v i a t e from t h e one w ith ERAP.
T h e r e f o r e , f o r a l l p r a c t i c a l r e a s o n s a n y th in g t o be s a i d
a b o u t ERAP's a g re e m e n t w i l l a p p ly e q u a l l y t o t h e S o v i e t
d e a l .
The q u e s t i o n t h a t a r i s e s now i s i Are t h e r e any
f i n a n c i a l b e n e f i t s t o I r a q i n t h i s new ag re em e n t w hich
e x c e e d s t h e b e n e f i t from t h e IPC g ro u p s?
I t i s a l s o n o t g e n e r a l l y u n d e r s to o d
t h a t u n d e r t h e s o - c a l l e d 7 5 /2 5 sy ste m , where
th e p ro d u c in g c o u n tr y i s o b l i g e d t o c o n t r i
b u te h a l f t h e c o s t o f d e v e lo p m e n t, t h e n e t
r e v e n u e p e r t o n h a s n o t i n any s i n g l e i n
s t a n c e , a s f a r a s we a r e a w a re , b e e n h i g h e r
t h a n t h a t o b t a i n a b l e u n d e r th e more norm al
ty p e o f 50 /50 a rra n g e m e n t, and i n c a s e s
w here t h e q u a l i t y o f t h e o i l i s below a v e r
a g e , o r t h e c o s t o f p r o d u c t i o n h i g h e r t h a n
35 rh e Los A n g e les T im e s . December 27, 1967*
p a r t 7 .
173
a v e ra g e i t i s a lm o s t c e r t a i n t o be s i g n i f i
c a n t l e s s . 3°
I n o r d e r t o make a c o m p a riso n betw een t h e f i n a n
c i a l b e n e f i t a c c u r i n g t o I r a q from IPC gro up and ERAP,
one s h o u ld t a k e t h e B a s r a h Petromeum Com pany's c ru d e
and th e p e r b a r r e l p r o f i t s t h a t I r a q g e t s from I t , s in c e
i t i s assum ed t h a t ERAP's c ru d e w i l l be s i m i l a r . i n q u a l
i t y t o t h a t o f B a s ra h P e tro le u m Company. The co m p ariso n
i s t o be made i n t h e f i r s t p l a c e on t h e b a s i s o f p r e s e n t
income s h a r i n g a rra n g e m e n t b e tw een I r a q and B a sra h
P e tro le u m Company, t h a t i s , on th e b a s i s t h a t r o y a l t i e s
a r e c r e d i t e d a g a i n s t income t a x . S e c o n d ly , on th e assump
t i o n t h a t r o y a l t i e s a r e f u l l y e x p e n se d . T h e r e f o r e , th e
f o l lo w in g a s s u m p tio n s a r e made.
1 . R o y a lty i s c r e d i t e d a g a i n s t income t a x .
a . P o s te d p r i c e e q u a l s $ 1 .7 2 p e r b a r r e l .
b . C o st o f p r o d u c t i o n e q u a ls $ 0 .2 0 p e r
b a r r e l .
c . R o y a lty e q u a ls $ 0 ,2 1 5 ( 1 2 .5 p e r c e n t o f
p o s te d p r i c e ) .
d . R o y a lty e q u a l s $ 0 .2 3 (13*5 p e r c e n t o f
p o s te d p r i c e ) .
■^The B r i t i s h P e tro le u m Company, L t d . , A nnual
R e p o r t and A cco u n ts f o r t h e Y ear e n d in g 3 1 s t D ecem ber.
1 9 6 1 . (London: K e l i h e r , Hudson and K e a r s , L t d . , 1 9 6 2 ),
p . 20.
Then t h e p e r b a r r e l I r a q ’ s s h a re i s :
$172 - 0 .2 0 = $ 1 .5 2 4 2 = $ 0 .7 6 + $ 0 .2 0 =
$ 0 . 9 6 ; $ 1 .7 2 - $ 0 .9 6 = $ 0 .7 6 p e r b a r r e l
a c c o r d i n g t o t h e p r e s e n t a rra n g e m e n t betw een
I r a q and B a s r a h p e tr o le u m company, t h a t i s ,
r o y a l t y i s c r e d i t e d a g a i n s t Income t a x .
2 . R o y a lty i s f u l l y ex p en sed :
$ 0 .2 0 + $ 0 ,2 1 5 = $ 0 ,4 1 5 c o s t o f p r o d u c t i o n
p l u s r o y a l t y .
$ 1 .7 2 - $ 0 ,4 1 5 = $ 1 ,3 1 5 n e t p r o f i t s
$ 0 ,6 5 5 + $ 0 ,2 1 5 = $ 0 .8 7 p e r b a r r e l I r a q i ’ s
s h a r e ,
3 . F i n a n c i a l b e n e f i t s from ERAP d e a l :
$ 0 .2 0 + $ 0 ,2 3 = $ 0 .4 3 c o s t o f p r o d u c t i o n
and r o y a l t y .
$ 1 .7 2 - $ 0 .4 3 = $ 1 .2 9 n e t p r o f i t s
^ “ $0*64 income t a x
The p r i c e t h e ERAP pays I r a q I s o f two t y p e s :
1 . 18 p e r c e n t o f t h e 3 0 p e r c e n t o f p r o d u c t i o n
i s p r i c e d :
$ 0 .2 0 + $ 0 .2 3 + $ 0 .6 4 = $ 1 .0 7 p e r b a r r e l .
2. 12 p e r c e n t o f t h e 3° p e r c e n t o f p r o d u c t i o n
i s p r i c e d :
$ 0 .2 0 + $ 0 .2 3 = $ 0 .4 3 p e r b a r r e l
175
3 . The w e ig h te d a v e r a g e p r i c e t h a t ERAP i s pay
in g t o I r a q t h e n e q u a ls $ 0 .8 1 p e r b a r r e l .
From th e above s im p le c a l c u l a t i o n i t i s o b v io u s
t h e n t h a t th e p e r b a r r e l income t o I r a q i s g r e a t e r in
t h e ERAP d e a l by c o m p a riso n w i t h i t s p r e s e n t a rra n g e m e n t
w ith th e B a s ra h P e tr o le u m Company. However, i f t h e
B a s ra h P e tr o le u m Company i s g o in g t o f u l l y exp en se
r o y a l t i e s , th e n I r a q ' s s h a r e p e r b a r r e l would be g r e a t e r
from i t t h a n from t h e ERAP d e a l .
B u t, even on t h e a s s u m p tio n t h a t I r a q ' s p e r b a r
r e l o b t a i n a b l e from ERAP's d e a l i s t o some d e g re e below
t h a t o f t h e B a s ra h P e tr o le u m Company, th e new d e a l s w i l l
g iv e th e governm ent a s t r o n g b a r g a i n i n g p o s i t i o n w ith
th e IPC g ro u p . The governm ent e v e n t u a l l y w i l l be i n a
p o s i t i o n t o g e t t h e l i o n ' s s h a r e o f t h e c o m p a n ie s' p r o
f i t s . 37
M o reo ver, t h e new a g re e m e n ts g iv e t h e I r a q
N a t i o n a l O i l Company th e o p p o r t u n i t y t o e n t e r t h e o i l
b u s i n e s s and a c q u i r e n e e d e d e x p e r ie n c e f o r f u t u r e o p e r
a t i o n s . I n s h o r t , i t I s t h e f i r s t s t e p to w a rd d i r e c t
o i l e x p l o i t a t i o n by I r a q . F u r th e r m o r e , t h e l i f e o f th e
37E d i t h T . P e n r o s e , " P r o f i t s h a r i n g b e tw e e n P r o
d u c in g C o u n t r i e s and O il C o u n t r i e s i n The M iddle E a s t , "
The Economic J o u r n a l , v o l . LXIX, No. 2?k (J u n e , 1959)•
pp . 2 4 5 -^ 7 • ( P u b l i s h e d by t h e R oyal Economic A s s o c ia tio n ) .
176
a g re e m e n t i s s h o r t — tw e n ty y e a r s , a f t e r w hich a l l f i e l d s
and i n s t a l l a t i o n s become th e p r o p e r t y o f t h e I r a q N a t i o n a l
O i l Company.
F i n a l l y , th e new governm ent w i l l c o n t r i b u t e t o
i n c r e a s e d p r o d u c t i o n and c o n s e q u e n tly new re v e n u e f o r
I r a q .
The ERAP ag re em e n t r e p r e s e n t s an e n c o u ra g in g
change i n t h e p a t t e r n o f p r e v i o u s o i l a g re e m e n ts , t h a t
i s , a change from c o n c e s s io n ty p e t o c o n t r a c t s . However,
i t i s s t i l l much b e t t e r f o r t h e I r a q N a t i o n a l O il Com
pany t o do i t s o i l o p e r a t i o n a lo n e e s p e c i a l l y i n pro v ed
a r e a s , e s p e c i a l l y n o r t h R u m alia f i e l d . The e x i s t e n c e o f
o i l i n t h i s f i e l d i s a l r e a d y p ro v ed and t h e r e i s no r i s k
in v o lv e d t o t h e company w h a ts o e v e r . F o r d i s p o s i n g o f i t s
c r u d e , i t can c o n c lu d e o f f - t a k e a g re e m e n ts w i t h o t h e r s .
CH APTER VII
REFINERIES AND REFINING INDUSTRY IN IRAQ
The developm ent o f r e f i n e r y p r o c e s s e s h as been
h i g h ly dynam ic, and th e s t a t e o f th e r e f i n i n g a r t h as
b een u n d e rg o in g changes a t an e v e r i n c r e a s i n g p a c e .
" I t was a w id e ly h e ld v iew among r e f i n e r s i n 1952 t h a t
i t was im p o s s ib le t o b u i l d a c o m p le te ly modern r e f i n e r y .
A lth o u g h a l l th e l a t e s t d e v elo p m en ts m ig ht be embodied
i n th e d e s ig n o f a new p l a n t . The r e f i n e r y would i n e v i
t a b l y be o b s o l e te i n some r e s p e c t s b e f o r e i t was e r e c t e d
and on s t r e a m . 1 1 " * ■
As each o f th e new and im proved p r o c e s s e s b e
came c o m m erc ially f e a s i b l e , v e ry s t r o n g c o m p e titiv e
p r e s s u r e was e x e r t e d f o r i t s a c c e p ta n c e and i n s t a l l a t i o n
by th e i n d u s t r y . The g a in s o f f e r e d by th e new d e v e lo p
m ents were such t h a t i t was incum bent upon r e f i n e r s
e i t h e r t o p ro v id e th e fu n d s f o r p r o c e s s Im provem ents or
t o s u f f e r l o s s e s i n c o m p e titiv e p o s i t i o n . The new
equipm ent u s u a l l y i n f l u e n c e s p l a n t e f f i c i e n c y i n one or
a n o th e r o f th e f o llo w in g ways* (1) y i e l d i n g a mix o f
■^John G. McLean and R o b e rt W. H aigh, The Growth
o f I n t e g r a t e d O il Companies (Norwood. M ass.: P lim p to n
P r e s s , I S W T P. W . --------- 177
178
p r o d u c t w i t h a h i g h e r s a l e s r e a l i z a t i o n ; (2) im p ro v in g
t h e q u a l i t y o f p r o d u c t s ; and (3) r e d u c i n g th e u n i t p r o
c e s s i n g c o s t s i n c u r r e d t o o b t a i n a p a r t i c u l a r y e i l d o f
p r o d u c t s o f s t i p u l a t e d q u a l i t y s p e c i f i c a t i o n s .
I t i s a p p r o p r i a t e t o make c l e a r a t t h i s p o i n t
t h a t e v e r y r e f i n e r y d o e s n o t n e c e s s a r i l y r e g a r d th e
p r o d u c t i o n o f m otor s p i r i t a s p r i o r i t y number o n e. I t
i s more n e a r l y a c c u r a t e t h a t a b o u t ^J-0 p e r c e n t of t h e
w o r l d 's o i l p r o d u c t i o n i s consumed i n th e form o f g a s o -
2
l i n e , b u t to d a y t h e r e i s a s t e a d i l y g row ing demand f o r
o i l d e r i v a t i v e s o f a l l k i n d s , and m ost modern r e f i n e r i e s
e x t r a c t a wide r a n g e o f p r o d u c t s .
As th e r e l a t i v e demand f o r d i f f e r e n t r e f i n e d
p r o d u c t s ch an g ed , i t was n e c e s s a r y f o r r e f i n e r s t o i n
s t a l l new p r o c e s s i n g equipm ent c a p a b le o f e x t r a c t i n g
p r o d u c ts from th e v a r i o u s c ru d e o i l , a c c o r d in g t o m ark e t
r e q u i r e m e n t s ,
The m a rk e t grow th f o r a u to m o tiv e g a s o l i n e , b e
g in n in g a b o u t th e tim e o f World War I , and th e s h a r p d e
c l i n e i n demand f o r k e ro s e n e w hich to o k p la c e w ith e l e c
t r i f i c a t i o n o f homes and i n d u s t r i a l p l a n t s , c r e a t e d
ch an g e s i n demands m o reo v e r, t h e r e was an I n c r e a s e i n
2
I r a q P e t r o le u m . V o l. 8, No. 10 (J a n u a r y - F e b r u a r y ,
I 9 6 0 ) , p . 3.
179
t h e d i s t i l l a t e demand f o r home h e a t i n g , w ith an accom
p a n y in g r e d u c t i o n i n demand f o r r e s i d u a l o i l f u e l s w hich
m arked t h e I n c r e a s e i n t h e u se o f n a t u r a l g a s f o r h e a t i n g
p u r p o s e s , and th e d e v elo p m e n t o f d i e s e l equ ipm ent f o r
r a i l r o a d s .
R e f i n e r s were m o tiv a te d t o t a k e a d v a n ta g e s of
t h e im proved p r o d u c t y i e l d s o f f e r e d by t h e s u c c e s s i v e l y
more advanced r e f i n e r i e s b e c a u se th e y c o u ld now d e r i v e
a h i g h e r re v e n u e from t h e s a l e o f p r o d u c ts made from each
b a r r e l o f c ru d e o i l p ro d u c e d .
The e f f o r t t o o b t a i n h i g h e r q u a l i t y p r o d u c ts
h a s b e en a n o th e r v e ry s i g n i f i c a n t f a c t o r i n m o t i v a t i n g
in v e s tm e n t f o r new and im proved p i e c e s o f r e f i n e r y e q u ip
m en t. A lth o u g h d e c id e d q u a l i t y im provem ents have b e en
made i n a l l prim e p e tro le u m f u e l s , th e a ch iev e m e n t i n
g a s o l i n e , m a in ly h ig h o c ta n e , h a s u n d o u b te d ly b een o f
g r e a t im p o rta n c e to t h e c o m p e ti t iv e p o s i t i o n o f r e f i n e r s .
The s m a l l e r r e f i n e r i e s c a n n o t u s e c a t a l y t i c
c r a c k i n g b e c a u s e o f t e c h n i c a l and econom ic d i f f i c u l t i e s .
I n s t e a d , th e y u se c a t a l y t i c r e f i n i n g p r o c e s s , such a s
p l a t f o r m i n g , t o u p g rad e lo w -o c ta n e g a s o l i n e f r a c t i o n
w hich o f f e r s a new means by w hich th e s m a ll com panies
can m eet t h e o c ta n e c h a l l e n g e w i t h o u t e x tre m e ly l a r g e
I n v e s tm e n ts r e q u i r e d f o r c a t a l y t i c c r a c k i n g u n i t s . Even
180
w ith th e v a r i o u s c a t a l y t i c r e f o r m in g p r o c e s s e s , how ever,
much o f t h e p r o d u c t y i e l d f l e x i b i l i t y o f c a t a l y t i c c r a c k
in g was l o s t ; t h e c o s t o f e q u ip p in g a r e f i n e r y t o m eet
t h e r e q u i r e m e n t s o f t h e m a rk e t was s t i l l v e r y high.-^
We can d i v i d e th e r e f i n e r y p r o c e s s i n t o t h e f o l
low ings
1 , S e p a r a t i o n p r o c e s s . T h is i s th e p r o c e s s by
w hich t h e c o n s t i t u e n t s o f c ru d e o i l a s i t
o c c u r s i n n a t u r e a r e p h y s i c a l l y s e p a r a t e d .
2. C o n v e rs io n p r o c e s s . T h is i s t h e p r o c e s s by
w hich th e c h e m ic a l c h a r a c t e r o f t h e h y d ro
c a rb o n s i n c ru d e o i l i s c h an g ed .
3« T re a tm e n t p r o c e s s . T h is i s th e p r o c e s s by
w hich th e p r o d u c t i s made more a c c e p t a b l e to
t h e c u sto m e r by im p ro v in g i t s c o l o r , odor
and s t a b i l i t y .
W ith o u t g o in g i n t o t e c h n i c a l d e t a i l s , th e s e p a r
a t i o n p r o c e s s i s t h e f i r s t s t e p i n o i l r e f i n i n g . The
p r o c e s s i n v o l v e s d e s t i n a t i o n o r f r a c t l o n l n g o f c r u d e .
T h is i n e f f e c t s e p a r a t e s o u t th e m o le c u le s o f t h e incom
in g c ru d e by s i z e and w e i g h t. The outcome o f t h e d i s
t i l l a t i o n p r o c e s s from th e t o p o f t h e d i s t i l l a t i o n to w er
^McLean and H aigh, og. c l t . . p . 550
181
downward would be ro u g h ly * g a s o l i n e , p ro p a n e , b u ta n e ,
b e n z i n e , n a p th a , k e r o s e n e , a l i g h t g a s o i l , heavy g as
o i l , and r e s i d u a l f u e l o i l .
The c o n v e r s io n p r o c e s s i s d e s ig n e d t o g e t more
p r o d u c t s from th e c ru d e o i l th a n n a t u r e p u t i n t o i t .
The s o l u t i o n f o r t h i s was fo u n d i n t h e p r o c e s s known as
c r a c k i n g . C ra c k in g u s e d t o be c a r r i e d o u t by th e r m a l
c r a c k i n g , i n w hich t h e f e e d s t o c k o i l was s u b j e c t e d t o
i n t e n s e h e a t and p r e s s u r e . I n modern r e f i n e r i e s , t h e r
mal c r a c k i n g h a s become o b s o l e t e and r e p l a c e d by c a t a
l y t i c c r a c k i n g i n w hich a c h e m ic a l s u b s ta n c e h e lp s chem
i c a l change i n o t h e r s u b s ta n c e s w ith o u t u n d e rg o in g a
c h e m ic a l change i t s e l f .
C a t a l y t i c c r a c k i n g i s t h e m ost im p o r ta n t e le m e n t
o f t h e c o n v e r s i o n p r o c e s s . B ut i n a d d i t i o n t h e r e a re
o t h e r s such a s r e f o r m i n g , p o l y m e r i z a t i o n , a l k y l a t i o n and
i s o m e r i z a t i o n .
The t r e a t m e n t p r o c e s s , a s h a s b e e n m e n tio n e d
e a r l i e r , i s t o make t h e p r o d u c t s more a c c e p t a b l e t o th e
co n su m er. I t I s a p r o c e s s by w hich I s rem oved w h a te v e r
s u lp h u r compounds r e m a in . F u r th e r m o r e , c o l o r and odor
Z l
a r e Im proved.
ix .
I r a q P e t r o le u m , o p . c i t . , p p . 4 - 8 ,
182
World. R e f i n i n g C a p a c ity
As a r u l e , t h e o i l com panies p r i o r t o World War
I u se d t o b u i l d r e f i n e r i e s i n t h e o i l p ro d u c in g c o u n t r i e s
and e x p o r t t h e r e f i n e d p r o d u c t s t o t h e consum ing coun
t r i e s . The Abadan r e f i n e r y i s an exam ple o f t h i s t r e n d .
U n t i l r e c e n t l y , t h e Abadan r e f i n e r y was th e l a r g e s t i n
t h e w o r ld . I t s r e f i n i n g c a p a c i t y r e a c h e d ^30*000 b a r r e l s
a day on a c a l e n d a r day b a s i s . - ’
As a r e s u l t o f t h e i n c r e a s e i n demand f o r p e t r o
leum p r o d u c t s and t h e i r co n su m p tio n i n t h e i n d u s t r i a l
c o u n t r i e s , t h e y s t a r t e d t o c o n s t r u c t r e f i n e r i e s them
s e l v e s , I m p o r tin g th e c ru d e o i l from p ro d u c in g c o u n t r i e s .
The n e t r e s u l t o f t h i s p o l i c y was a trem endo us g row th o f
r e f i n e r y c a p a c i t y i n t h e i n d u s t r i a l c o u n t r i e s a t th e
e x p en se o f o i l p ro d u c in g c o u n t r i e s . The t r e n d d i d n o t
s t o p a t t h e p o i n t o f i n d u s t r i a l s e l f - s u f f i c i e n c y f o r th e
r e f i n e d p r o d u c t s b u t ex ce ed e d t h i s u n t i l th e y became n e t
e x p o r t e r s o f su c h p r o d u c t s . T a b le 29 shows t h e r e f i n i n g
c a p a c i t y I n I r a q , Arab c o u n t r i e s and t h e w o r ld .
As a r e s u l t o f t h e s e d e v e lo p m e n ts and t h e e v e r
i n c r e a s i n g r e f i n i n g c a p a c i t y i n t h e i n d u s t r i a l c o u n t r i e s
^011 and Gas I n t e r n a t i o n a l (F e b ru a ry , 1966), p . 65.
183
TABLE 29
REFINING CAPACITY IN IRAQ AND THE WORLD*
(1 ,0 0 0 b /d )
C o u n try
R e f in i n g
C a p a c ity
1940
R e f in in g
C a p a c ity
1963
P la n n e d
I n c r e a s e
I r a q
O th e r A rab C o u n tr ie s
4 .0
4 9 .5
7 6 .4
1 ,3 9 6 .5
20.3
1 0 .2
TOTAL
5 3 .5 1 ,4 7 2 .9 3 0 .5
P e r c e n t a g e o f W orld
0 .7
4 .2 3 .0
Canada
U n ite d S t a t e s
Mexico
2 2 1 .9
4 ,4 6 1 .1
9 9 .8
1 , 1 5 0 .0
1 0 ,8 0 0 .0
4 2 1 .0
6 3 .5
2 1 4 .4
85-3
TOTAL 4 ,7 8 2 .8 1 2 ,3 7 1 .0 3 6 3 .2
P e r c e n t a g e o f W orld 6 4 .6 3 5 .2
4 5 .5
S o u t h e a s t A s ia and
P a c i f i c 26 9 .6 3 ,0 1 2 .4
a M
P e r c e n t a g e o f W orld 3 .6 8 .6 ---
I r a n , T u rk ey , and
E gyp t 3 3 0 .0 6 4 2 .4
9 .1
P e r c e n t a g e o f World
4 .5
1 .8 1 .1
A f r i c a
6 .3
3 0 4 .4
• a a*
P e r c e n t a g e o f W orld 0 .1
0 .9 —
C e n t r a l and S o u th
A m erica 8 1 0 .6
3 ,7 5 5 .5 21.3
P e r c e n t a g e o f W orld 1 1 .0 1 0 .8
2 .7
E urope and USSR 1 ,1 3 5 .6 1 2 ,9 9 1 .6
3 7 3 .5
P e r c e n t a g e o f W orld
1 5 .3
3 7 .2 4 6 .8
A u s t r a l i a 4 .1
45 0 .3
—
P e r c e n t a g e o f W orld 1 .0
1 .3 —
*S o urce: The A rab O i l and Gas J o u r n a l . No. 7
(M arch, 1 9 6 6 ), B e i r u t , p p . 4 7 -4 9 .
t o su c h e x t e n t t h a t I t e x ce ed e d t h e i r d o m e s tic consump
t i o n and th e y e x p o r te d th e s u r p l u s o f t h o s e r e f i n e d p r o
d u c t s b a ck t o t h e p r o d u c in g c o u n t r i e s . A good exam ple
o f t h i s i s I t a l y . I t s r e f i n i n g c a p a c i t y i s 2 ,0 6 0 ,0 0 0
b a r r e l s a d a y , w hich i s e q u i v a l e n t t o 1 0 0 .9 m i l l i o n t o n s
a y e a r . On t h e o t h e r han d , i t s d o m e s tic co n su m p tio n
am ounts t o 1 , 22 0,000 b a r r e l s a day o r w hat i s e q u i v a l e n t
t o ^ 9 .8 m i l l i o n t o n s a y e a r . ^ I t a l y ' s e x p o r t s o f p e t r o
leum p r o d u c t s i s 375»000 b a r r e l s a day o r 1 8 .5 m i l l i o n
t o n s a y e a r . 7
I t becomes a p p a r e n t t h e n t h a t t h e A rab c o u n t r i e s
i n g e n e r a l and I r a q i n p a r t i c u l a r , d i d n o t r e c e i v e t h e i r
s h a r e o f r e f i n e r i e s and r e f i n i n g c a p a c i t y . A l l t h e Arab
c o u n t r i e s t o g e t h e r p ro d u ce a b o u t 8 .3 m i l l i o n b a r r e l s a
day o f c ru d e o i l and e x p o r t t h e m ajo r p a r t o f i t a s
c r u d e . The a r e a ' s r e f i n i n g c a p a c i t y i s 1 .5 m i l l i o n b a r
r e l s a day o r 4 . 2 p e r c e n t o f t h e t o t a l r e f i n i n g c a p a
c i t y o f t h e w o rld .
L o c a l Demand on P e tro le u m P r o d u c ts
L o c a l co n su m p tio n o f p e tro le u m p r o d u c t s i n c r e a s e d
i n r e c e n t y e a r s a s a r e s u l t o ft ( 1 ) p e tr o le u m makes up
^Arab O il and Gas J o u r n a l, o p . c i t ., p. 47.
7I b i d .
185
more t h a n 90 p e r c e n t o f l o c a l e n e rg y r e q u i r e m e n ts ! (2)
econom ic g ro w th i n I r a q ' s economy t h a t to o k p l a c e and
t h e i n c r e a s e i n n a t i o n a l Income and th e im provem ent i n
co n su m p tio n l e v e l s and (3) i n c r e a s e i n p o p u l a t i o n . T a b le
30 shows t h e c o n su m p tio n o f o i l p r o d u c t s . A v i a t i o n o i l
i s u s e d m o s tly f o r m i l i t a r y p l a n e s ; t h e r e f o r e i t s con
su m p tio n d e p en d s on t h e d e c i s i o n s made on th e p a r t o f
m i l i t a r y a u t h o r i t i e s .
As t o g a s o l i n e , t h e demand i n c r e a s e d s i n c e 1951
a t an i n c r e a s i n g r a t e ; i t s t a r t e d t o slow down and th e n
i n c r e a s e d a t a d e c r e a s i n g r a t e s i n c e 1961, and d ro p p ed
t o a b o u t 83 m i l l i o n i m p e r i a l g a l l o n s i n 1963* com pared
t o 84 m i l l i o n i n 1962. The m ain r e a s o n f o r t h e d e c r e a s e
was b e c a u s e th e governm ent i n c r e a s e d th e p r i c e o f g a s o
l i n e t o 120 f i l s p e r i m p e r i a l g a l l o n s a s com pared t o 100
f i l s p e r i m p e r i a l g a l l o n p r i o r t o 1961. T h is p r i c e seems
h ig h com pared t o t h e p r i c e o f g a s o l i n e i n o t h e r o i l p r o
d u c in g c o u n t r i e s . I n th e U n ite d S t a t e s , f o r exam p le,
a f t e r a llo w a n c e b e in g made f o r m easurement* and o c ta n e
num ber, we f i n d t h a t t h e p r i c e o f g a s o l i n e i s 90 f i l s
p e r g a l l o n . * * The p r i c e w i l l be s t i l l h i g h e r i f we ta k e
*The U. S . G a llo n i s 4 / 5 o f a n i m p e r i a l g a l l o n .
* * I t i s assum ed t h a t t h e a v e ra g e i s 30 c e n t s p e r
g a l l o n o f r e g u l a r 90 o c ta n e number i n U. S . , com pared t o
88 o c ta n e number i n I r a q .
186
TABLE 30
CONSUMPTION OF OIL PRODUCTS IN IRAQ 1951-1963*
( i n Thousand I m p e r i a l G a llo n s )
Year A v i a t i o n
O il
Gaso
l i n e
K ero
sene
Gas
O il
F u e l
O il
1951
3 .2 1 4
26 .613 3 1 .6 5 9
9.1 3 4 8 9 .557
1952 4 .6 7 7 29.613 3 5.1 37 1 2 .9 9 5
IO3 . 36I
1953
5.06 0 33 .627 4 1 .7 1 1 1 6.92 3 11 2.229
1954 O.969 3 8.913 47 .7 9 1
21 .216
1 1 9 .9 9 9
1955
1956
1957
------
4 5 .2 8 1 53.896 29 .408
14 7.067
------
5 7 .983
6 6 .140 4 1 .5 5 8
1 3 5.06 7
1958
------
6 3.50 0 7 3 .4 1 4
4 5 .1 7 7 1 3 9.56 1
1959
2.6 0 8 6 5 .9 8 8
75 .403
4 2 .8 4 6 13 5 .7 1 6
I960 4 .6 4 6
7 6 .5 5 9 86 .907
5 2 .388
15 7 .2 2 5
1961 6 .1 5 8
8 0.93 7
1 0 0.471 55 .341
17 4 .4 9 5
1962 7 .5 9 4 8 4.21 9 1 03.2 97
58.498 1 8 1.65 8
1963
8 ,2 0 1 8I .592 11 0.009 6 2.23 0 175.376
* S o u rc e : S t a t i s t i c a l A b s t r a c t . Baghdad, 1952,
' 5 5 , *5 7 , *6 1 , and >6 3 .
18?
i n t o c o n s i d e r a t i o n t h e d i f f e r e n c e i n t h e s t a n d a r d o f
l i v i n g , i n d i v i d u a l incom es and p r i c e l e v e l i n b o th th e
U .S . and I r a q .
The p r i c e o f g a s o l i n e i n I r a q i s s t i l l h ig h i f
com pared w i t h t h e p r i c e o f o t h e r f u e l s . The consum er
can g e t g as o i l f o r exam ple, w i t h o n ly 33 f i l s p e r im p e r
i a l g a l l o n .
G a s o lin e p r i c e s a r e h ig h b e c a u se o f t h e t a x e s
im posed on i t . T ax es co m p rise 6 2 .5 p e r c e n t o f th e
s e l l i n g p r i c e o f g a s o l i n e to t h e consum er, w h ile t a x e s
a r e v e ry n o m in a l o r do n o t e x i s t on o t h e r k in d s o f f u e l .
T a b le 31 shows p r i c e s o f g a s o l i n e compared w ith o t h e r
f u e l s .
Im p o sin g th o s e h ig h t a x e s on g a s o l i n e d i d n o t
b r i n g a b o u t th e r e s u l t s t h e governm ent w an ted , t h a t i s ,
i n c r e a s e i n r e v e n u e . The t a x e s had a n e g a t i v e e f f e c t
on th e q u a n t i t y o f g a s o l i n e p u rc h a s e d and c o n su m p tio n
d ro p p ed a s we see from 8* 1 - m i l l i o n i m p e r i a l g a l l o n s i n
1962 t o 82 m i l l i o n i m p e r i a l g a l l o n s i n 1 9 6 3 .
The demand f o r k e ro s e n e i n c r e a s e d n o t i c a b l y
s i n c e i 960 when i t I n c r e a s e d from 86 m i l l i o n i m p e r i a l
g a l l o n s i n t h a t y e a r t o 100 m i l l i o n i m p e r i a l g a l l o n s i n
th e f o l lo w in g y e a r , o r 16 p e r c e n t , and r e a c h e d 110 m i l
l i o n i m p e r i a l g a l l o n s i n 1963* o r an i n c r e a s e o f 28 p e r
c e n t o v e r i 9 6 0 .
188
TABLE 31
PRICES OF GASOLINE IN COMPARISON TO OTHER FUELS
( P r i c e s f i l s p e r i m p e r i a l g a ll o n )
P ro d u c t N et
P r i c e
Tax S e l l i n g
P r i c e
P e r c e n ta g e o f
T axes o f th e
F i n a l P r i c e
G a s o lin e
A5
75
120
6 2 .5
K erosen e
25 3
28
1 0 .7
Gas o i l 30
3 33
9 .0
D i e s e l o i l 11
---------
11
---------
F u e l o i l
8 .2 5
---------
8 .2 5
---------
B unker "C" 6
— -
6 ---------
♦ S o u rce 1 M i n i s t r y o f O i l , B aghdad, 1965*
The r e a s o n s f o r t h e I n c r e a s e o f k e ro s e n e consump
t i o n a r e i
1 . K ero se n e p r i c e s a r e low a s compared t o o t h e r
f u e l s . I t i s o n ly 28 f i l s p e r i m p e r i a l g a l
l o n .
2 . K e ro sen e i s u s e d f o r a v a r i e t y o f p u rp o s e s ;
i t i s u s e d e x c l u s i v e l y i n homes f o r coo k in g
and h e a t i n g , a lth o u g h g a s i s now b e in g u se d
f o r t h e s e p u rp o s e s a s w e l l . S t i l l k e ro s e n e
i s t h e more p o p u la r f u e l i n t h e c o u n tr y and
farm a r e a s . I t i s u se d i n i n d u s t r i a l p l a n t s
f o r h e a t i n g , a s w e ll a s I n a g r i c u l t u r e a s a
f u e l .
Gas o i l c o n su m p tio n i n c r e a s e d i n th e l a s t t e n
y e a r s v e r y n o t a b l y . T h is i n c r e a s e i n i t s c o n su m p tio n i s
due t o :
1 . Gas o i l p r i c e s a r e low b e c a u se t a x e s a r e low;
t h e f i n a l p r i c e t o th e c u sto m e r i s 33 f i l s
p e r i m p e r i a l g a l l o n .
2 . The s h i f t t o g a s - o i l co n su m p tio n from o t h e r
f u e l s . T h is s h i f t to o k p l a c e i n t r a i n s ;
modern t r a i n s u s e gas o i l I n s t e a d o f ste am .
The number o f c a r s t h a t u s e g a s o i l I s i n
c r e a s i n g a s w e l l . M oreov er, i n a g r i c u l t u r e
th e te n d e n c y now i s t o u s e g a s o i l f o r t r a c
t o r s and o t h e r a g r i c u l t u r a l m a c h in e ry .
D i s t r i b u t i o n o f P e tr o le u m P r o d u c ts i n I r a q
T r a n s p o r t a t i o n o f p e tr o le u m p r o d u c ts from r e f i n
e r i e s t o t h e m ajo r d e p o ts and t a n k s , and f i n a l l y t o th e
m ark e t and consum ers h as b e e n — and s t i l l i s a v e ry d i f
f i c u l t t a s k . The d i f f i c u l t y a r i s e s b e c a u s e o f th e s e a
s o n a l f l u c t u a t i o n i n c o n su m p tio n , t h e lo n g d i s t a n c e s
w hich t h e p r o d u c t s m ust be t r a n s p o r t e d , t h e c o n tin u o u s
chang es i n th e m a rk e t o f t h e s e p r o d u c ts and f i n a l l y , th e
s h o r t a g e o f a d e q u a te r o a d s w hich h i n d e r s t r a n s p o r t a t i o n
t o many p a r t s o f t h e c o u n t r y .
S t a t i s t i c s show t h a t 98 p e r c e n t o f t h e l o c a l
co n su m p tio n o f p e tro le u m p r o d u c t s i n I r a q a r e s o l d from
th e pumps i n g a s s t a t i o n s . The r e m a in in g 2 p e r c e n t i s
m a rk e te d I n t i n c o n t a i n e r s h o ld in g f o u r i m p e r i a l g a l l o n s
e a c h .
The means by w hich p e tro le u m p r o d u c ts a r e t r a n s
p o r t e d i n I r a q i n c l u d e j *(4 p e r c e n t by s h o r t d i s t a n c e
p i p e l i n e s } 2? p e r c e n t by r a i l ; 22 p e r c e n t by t a n k c a r s
6 p e r c e n t by w aterw ays} and 1 p e r c e n t by o t h e r m eans.
The A d m i n i s t r a t i o n o f D i s t r i b u t i o n o f P e tro le u m
P r o d u c ts i s s tu d y i n g t h e p o s s i b i l i t y o f t r a n s p o r t i n g
191
m ost o f t h e p e tro le u m by lo n g d i s t a n c e p i p e l i n e s i n s t e a d
o f t r u c k and r a i l w a y .
S to r a g e F a c i l i t i e s
Due t o t h e lo n g d i s t a n c e s betw een r e f i n e r i e s
and m a r k e ts , and th e in a d e q u a c y o f r o a d s , a s w e ll a s
f l u c t u a t i o n i n t h e demand f o r p e tro le u m p r o d u c t s , many
s t o r a g e f a c i l i t i e s have b e en c o n s t r u c t e d i n d i f f e r e n t
l o c a l i t i e s o f thei c o u n t r y . The i n c r e a s e i n demand i n
t h e f u t u r e f o r p e tr o le u m p r o d u c ts c r e a t e s a f u r t h e r need
f o r a d d i t i o n a l s t o r a g e f a c i l i t i e s . T a b le 32 shows t h a t
n e e d .
B e f i n e r l e s
B ackground and O b s ta c l e s
0
P r i o r t o D ecem ber, 1951» th e p r o d u c t i o n and d i s
t r i b u t i o n o f r e f i n e d p r o d u c t s i n I r a q was c a r r i e d o u t by
t h e K h an ag ln O i l Company, a s u b s i d i a r y o f t h e A nglo-
I r a n i a n O i l Company (B P ). T h is company d i d n o t b u i l d
®Law No. 9 o f 1951» was e n a c te d c r e a t i n g a se m i-
autonom ous agen cy c a l l e d t h e Government O il R e f i n e r i e s
A d m i n i s t r a t i o n , a t t a c h e d t o t h e M i n i s t r y o f O i l f o r th e
p u rp o s e o f b u i l d i n g and o p e r a t i n g t h e n e c e s s a r y r e f i n e r
i e s t o m eet l o c a l demand f o r o i l p r o d u c t s .
192
TABLE 32
AVERAGE MONTHLY CONSUMPTION OF PETROLEUM
PRODUCTS AND STORAGE CAPACITY
{ M illio n s of g a l l o n s )
P r o d u c t A verage
M onthly
S a le
S to r a g e
C a p a c ity
D i s t .D e p o t s
R e f i n e r i e s T o t a l
G a s o lin e 6 .4 6 .0 1 0 .0 1 6 .0
K ero sen e
1 0 .3
1 1 .4
2 5 .7 3 7 .1
Gas o i l
5 .3 3 .5 6 .3
9 .8
D i e s e l o i l 4 .2 3 .2 4 .0 7 .2
F u e l O il
1 4 .9
1 1 .0
1 9 .5 3 0 .5
B unker "C”
3 .7
0 .8 5 .0 5 .8
T o t a l 4 4 .8
3 5 .9 7 0 .5
1 0 6 .4
S o u rc e : M i n i s t r y o f O i l , A d m i n i s t r a t i o n of
D i s t r i b u t i o n o f P e tro le u m P r o d u c t s , B aghdad, 1985.
193
enough r e f i n e r i e s o r i n c r e a s e t h e c a p a c i t y o f t h e e x i s t
in g ones t o m eet t h e g row ing demand f o r p e tro le u m p r o
d u c t s i n I r a q and f o r e x p o r t . F a c t o r s h i n d e r i n g th e
grow th o f r e f i n e r i e s i n I r a q may be c a l s s i f i e d a s p o l i t
i c a l f a c t o r s and econom ic f a c t o r s .
P o l i t i c a l f a c t o r s may be summed up i n t h e d e s i r e
o f t h e p e tr o le u m consum ing c o u n t r i e s t o c o n t r o l p e t r o
leum r e f i n i n g and r e f i n e r i e s i n o r d e r t o be f r e e from
o u t s i d e s o u r c e s a s t h e s o l e s u p p l i e r s o f t h e i r r e f i n e d
p r o d u c t s . M oreover, th e consum ing c o u n t r i e s w anted t o
have enough f l e x i b i l i t y t o change t h e i r s u p p ly s o u r c e s
i f th e n e ed a r o s e .
Economic f a c t o r s may be c l a s s i f i e d a s f o llo w s i
1 . D e s i r e o f th e p e tro le u m consum ing c o u n t r i e s
t o re d u c e t h e amount o f t h e i r f o r e i g n ex
change s p e n t on im p o r tin g r e f i n e d p e tro le u m
p r o d u c t s . T h is i s b e c a u se t h e p r i c e o f a
t o n o f c ru d e o i l I s l e s s t h a n t h e p r i c e o f
th e p r o d u c t s d e r i v e d from t h a t t o n .
2 . Some p e tr o c h e m i c a l i n d u s t r i e s u s e p e tro le u m
p r o d u c t s a s t h e i r raw m a t e r i a l s .
3 . The r e f i n i n g i n d u s t r y i n c r e a s e s t h e demand
f o r l a b o r . T h e r e f o r e , employment i n c r e a s e s .
19*+
To m eet t h e u r g e n t demand o f t h e I r a q i G overn
m ent, th e I r a q P e tro le u m Company e r e c t e d Alwand r e f i n e r y
a t K hanagin i n 1 9 2 ?. I t p ro d u ce d a b o u t ?0 p e r c e n t o f
t h e p e tr o le u m p r o d u c t s consumed i n I r a q . The re m a in d e r
9
was s u p p l i e d by t h e Abadan r e f i n e r y i n I r a q .
U n t i l 1 9 5 1 i Alwand r e f i n e r y re m a in e d th e s o l e
one ( b e s i d e s two v e r y s m a ll r e f i n e r i e s a t K irk u k and
H a d lth a , and a p r o c e s s i n g p l a n t a t K i r k u k ) . The g r e a t
r e f i n e r i e s were a t H a if a and i n E u ro p e.
I n 1951» an a g reem en t was s ig n e d betw een th e
Government o f I r a q , th e K h an ag in O il Company, and th e
R a f i d a i n Company10 p r o v i d in g f o r th e p u rc h a s e o f th e
Alwand r e f i n e r y and th e R a f i d a i n f a c i l i t i e s by th e Gov
ernm ent o f I r a q . The R a f i d a i n company, a c t i n g on b e h a l f
o f th e Government was t o o p e r a t e t h e r e f i n e r y and work
as a d i s t r i b u t i n g a g e n t u n t i l 1 9 6 1 .11
A t t r a c t i o n s o f a N a t i o n a l
R e f i n i n g I n d u s t r y
Some o f t h e r e a s o n s m aking a n a t i o n a l r e f i n i n g
i n d u s t r y an a t t r a c t i v e p r o p o s i t i o n i n I r a q a r e i (1) th e
^ I n t e r n a t i o n a l Bank o f R e c o n s t r u c t i o n and D ev el
opm ent, o£. c l t . . pp , 150- 5 1 ,
10A m a rk e tin g company e s t a b l i s h e d i n 1932 t o sup
p ly I r a q ' s p e tro le u m r e q u i r e m e n t s .
11Shw adran, ojo. c l t . , p . 25^ .
195
s t r a t e g i c o r s e c u r i t y c o n s i d e r a t i o n s 5 (2) em ploying a
g r e a t e r number o f w o rk e rs; (3) e n a b l in g I r a q i p e o p le to
l e a r n th e e s s e n t i a l t e c h n iq u e s i n t h e advanced s t a g e s o f
t h e o i l i n d u s t r y ; and (^) c o n t r i b u t i n g t o th e g ro w th o f
n a t i o n a l incom e.
I n a d d i t i o n , t h e o i l com panies were com m itted to
s u p p ly c ru d e f o r l o c a l n e e d s a t a s p e c i a l p r i c e . Thus
C la u s e 5 o f th e F i r s t S c h e d u le a t t a c h e d t o th e 1952
A greem ent p r o v i d e s t h a t i n c a s e t h e Government c o n s t r u c t s
a r e f i n e r y and a p i p e l i n e t o j o i n i t t o t h e K2 pumping
s t a t i o n , " t h e Government s h a l l have t h e r i g h t t o buy
from t h e Company a t t h e p r i c e below m en tio n ed t h e quan
t i t y o f c ru d e o i l n e c e s s a r y f o r t h e s u p p ly o f I r a q ’ s r e
q u i r e m e n t s ." The p r i c e m en tio n ed was 5s 6d, or 275 f i l s
p e r t o n , p lu s a f i x e d pumping c h a rg e o f 6 3,0 00 pound
s t e r l i n g a n n u a l l y .
I n 1953, th e Government O i l R e f i n e r i e s A d m inis
t r a t i o n b u i l t a ^ ,2 5 0 b a r r e l s / d a y M u ftie h r e f i n e r y a t
B a s r a h . T h is r e f i n e r y was d e s ig n e d t o s u p p ly th e p r o
d u c t s r e q u i r e m e n ts o f t h e S o u th e rn p r o v in c e o f I r a q p r e
v i o u s l y met by Abadan. The r e f i n e r y was r u n by th e
K h anagin O il Company on b e h a l f o f t h e Government O il
R e f i n e r i e s A d m i n i s t r a t i o n u n t i l J u l y , 1959, when i t was
t u r n e d o v e r t o I r a q . S in c e t h a t d a t e the. p l a n t h as b e en
o p e r a t e d d i r e c t l y by I r a q i t e c h n i c i a n s a t t a c h e d t o t h e
Government O il R e f i n e r i e s A d m i n i s t r a t i o n .
I n 1955, a 2 ,0 5 0 b a r r e l s / d a y a t R a y arah was con
s t r u c t e d t o p ro duce a s p h a l t from heavy Mosul p e tro le u m
com pany's c r u d e . T h is r e f i n e r y was s h u t down a f t e r th e
J u l y 1*J- R e v o l u t i o n , b u t resum ed o p e r a t i o n i n November
1 9 6 3 * a f t e r a f i v e y e a r p e r i o d o f i d l e n e s s . T h is p l a n t
was uneconom ic s i n c e I t s b e g in n in g , i n s p i t e o f t h e
s p e c i a l p r i c e c h a rg e d f o r raw m a t e r i a l s .
The D ura R e f in e r y
The Government O i l R e f i n e r i e s A d m i n i s t r a t i o n
b u i l t a l a r g e f a c t o r y a t D u ra, n e a r Baghdad, Work
s t a r t e d i n 1951» by W. W. K e llo g o f New Y ork, was f i n i s h
ed i n 1955* T h is r e f i n e r y ' s a n n u a l c a p a c i t y i s 2 ^,000
* 1 p
b a r r e l s / d a y and c o s t I . D . 10 m i l l i o n .
t
The D ura r e f i n e r y was expanded t o m eet th e e v e r
i n c r e a s i n g demand f o r p e tr o le u m p r o d u c t s i n I r a q — b o th
p r e s e n t and f u t u r e . The c o n s t r u c t i o n was begun i n 1957
and f i n i s h e d i n 1959* New c a p a c i t y i s 5 5.000 b a r r e l s /
d a y .
Crude o i l I s s u p p l i e d t o t h e r e f i n e r y from K i r
kuk o i l f i e l d s th r o u g h a 1 2 - i n c h , 210 k i l o m e t e r p ip e to
t h e m ain pumping s t a t i o n a t B a i j i , and t h e n t o D u ra .
The m ain c a p a c i t y o f t h i s l i n e i s ^ 5 ,0 0 0 b a r r e l s / d a y
12I r a q O il i n 1955. p p . 1 6 -1 ? .
197
w hich I s below t h e p r e s e n t th r o u g h o u t c a p a c i t y o f th e
r e f i n e r y . A new 1 2 - i n c h p i p e l i n e was c o n s t r u c t e d r e c e n t
l y t o l i n k t h e N a f t K hana f i e l d a t K hanagin w ith D ura,
i n o r d e r to have a c c e s s t o a d d i t i o n a l q u a n t i t i e s o f
" c o s t 1 1 c r u d e . T h is new p i p e l i n e h a s b e en i n o p e r a t i o n
s i n c e A u g u st, 1 9 6 3 .
Main u n i t s o f t h e D ura r e f i n e r y a r e : (1) th e
l i g h t o i l d i v i s i o n s (2) p o w e rfo rm e r; (3) s u l p h e r i c a c i d
p l a n t s (4) c h e m ic a l t r e a t i n g u n i t ; (5) l u b r i c a t i n g o i l
p l a n t ; and (6) a s p h a l t u n i t .
The L ig h t O il D i v i s i o n . T h is d i v i s i o n i n c l u d e s
th e c o m b in a tio n o f new c ru d e u n i t s . As we m en tio n ed i n
th e b e g in n in g , th e d e s i g n c a p a c i t y o f th e c o m b in a tio n
u n i t was 2 4 ,0 0 0 b a r r e l s / d a y . I n 1958, a new c ru d e u n i t
was c o m p le te d w i t h d e s i g n c a p a c i t y a s b e f o r e . T h is
b r i n g s t o t a l p r o d u c t i o n up t o 55*000 b a r r e l s / d a y .
A l l f r a c t i o n a l d i s t i l l a t i o n p r o c e s s e s a r e done
by t h e s e u n i t s , p ro d u c in g g a s , m otor s p i r i t s , n a p th a ,
a v i a t i o n s p i r i t s , k e ro s e n e , g a s o i l and d i e s e l o i l . The
r e d u c e d c ru d e i s e i t h e r p r o c e s s e d f o r l u b r i c a t i n g o i l
p r o d u c t i o n p r o d u c in g d i e s e l o i l and Bunker "C" , o r u s e d
a s f u e l o i l . N a p th a i s re fo rm e d t o m otor s p i r i t s and a
s m a ll p e r c e n ta g e o f g a s o i l .
The f o l lo w in g two u n i t s a r e a t t a c h e d t o th e com-
198
b i n a t i o n u n i t s i (1) p ro p an e p r e p a r a t i o n u n i t , and (2)
s o l v e n t u n i t .
The c h i e f p ro d u c t o f t h e f i r s t u n i t i s p ro p a n e ,
w hich i s u s e d i n th e l u b r i c a t i n g o i l i n d u s t r y . L iq u e
f i e d p e tro le u m g as i s a l s o pro d u ced a t t h i s u n i t f o r
d o m e s tic p u r p o s e s . I n 1964, t h e p ro p an e u n i t was e x
panded t o t a k e c a r e o f t h e i n c r e a s e d demand f o r l i q u e
f i e d p e tro le u m g a s .
Two k in d s o f s o l v e n t s a r e p ro d u ce d a t th e s e
cond u n i t , n am ely , a s p e c i a l s p i r i t w hich i s u se d f o r
c l e a n i n g and a s p e c i a l s o l v e n t c a l l e d " w h ite s p i r i t "
u se d i n d y e s and p a i n t s .
P o w e rfo rm e r. P r i o r t o 1955» "the g a s o l i n e s o ld
i n I r a q had a 72 o c ta n e r a t i n g . When th e D ura p l a n t
w ent on steam i n 1 9 5 5* th e o c ta n e number was r a i s e d to
80. W ith th e g r a d u a l t e c h n o l o g i c a l advance i n e n g in e
d e s i g n and e f f i c i e n c y , i t became n e c e s s a r y t o r e c o n s i d e r
t h e g a s o l i n e s p e c i f i c a t i o n t o m eet t h e r e q u i r e m e n ts o f
w hich w i t h h ig h c o m p re ssio n r a t i o e n g i n e s . To t h i s end,
a pow erform er u n i t was c o n s t r u c t e d a t D u ra a s a com ple
m e n ta ry r e f i n e r y s t a g e and t o r a i s e t h e o c ta n e number o f
th e g a s o l i n e .
The pow erform er u n i t was d e s ig n e d t o f r a c t i o n a t e
heavy n a p th a and p ro d u ce 5»000 b a r r e l s / d a y o f 95-100
199
o c ta n e number (R e se a rc h M) g a s o l i n e . The p ow erform ing
p r o c e s s i s p e rfo rm ed by c h e m ic a l r e a c t i o n s d e s ig n e d t o
t r a n s f o r m t h e low o c ta n e s a t u r a t e d hydro c a rb o n s i n t o
h ig h o c ta n e a r o m a t i c s . The d e c i s i v e f a c t o r i n such a
c h e m ic a l p r o c e s s i s t h e aluminum o x id e s a t u r a t e d w ith
c h l o r o p h l a t e n i c a c i d ex p o sed t o h ig h t e m p e r a t u r e .
At p r e s e n t , th e p o w erfo rm ate i s b e in g mixed
w i t h g a s o l i n e from t h e c o m b in a tio n u n i t s and TEL i s
added t o p ro d u ce 88 o c ta n e g a s o l i n e .
S u l p h u r ic A cid P l a n t . T h is p l a n t p ro d u ce s
a b o u t 22 t o n s p e r day o f 96 p e r c e n t c o n c e n t r a t e d s u l
p h u r i c a c i d . I t i s u se d i n t r e a t i n g k e r o s e n e . S u r p lu s
p r o d u c t i o n i s s o ld i n t h e l o c a l m a rk e t.
C hem ical T r e a t i n g U n i t . C o n s i s t s o f t h r e e
s e c t i o n a l u n i t s : two f o r k e ro s e n e t r e a t i n g and one f o r
g a s o l i n e t r e a t i n g .
L u b r i c a t i n g O i l P l a n t . T h is p l a n t was con
s t r u c t e d i n 1957* I t was d e s ig n e d t o p ro d u ce 25,000
t o n s o f l u b r i c a t i n g o i l s a n n u a l l y . To m eet f u t u r e d e
mand, how ever, th e Government O i l R e f i n e r i e s Adm ini
s t r a t i o n i s p la n n in g t o b u i l d a n o th e r p l a n t a t D ura,
w hich w i l l be a lm o st i d e n t i c a l w ith th e p r e s e n t one,
w hich w i l l have a c a p a c i t y o f 3 6 ,000 t o n s a n n u a l l y .
A s p h a lt U n i t . C a p ab le o f p ro d u c in g o v e r ^4-0,000
200
t o n s a n n u a l ly o f v a r i o u s g r a d e s o f a s p h a l t p ro d u ce d
from D u r a 's lu b e p l a n t s i n c e i t s t a r t e d o p e r a t i o n i n
1957.
T a b le 33 shows o i l r e f i n i n g i n I r a q .
P r i o r t o W orld War I I , o i l com panies b u i l t t h e i r
r e f i n e r i e s i n t h e o i l p r o d u c in g c o u n t r i e s and e x p o rte d
V
r e f i n e d p e tro le u m p r o d u c t s t o t h e consum ing c o u n t r i e s .
The Abadan r e f i n e r y was a good exam ple o f t h i s . The r e
f i n e r y ' s c a p a c i t y i s ^ 30 ,0 0 0 b a r r e l s / d a y , w hich makes
i t by any s t a n d a r d a l a r g e r e f i n e r y . ^
When t h e c o n su m p tio n o f p e tro le u m p r o d u c t s i n
c r e a s e d i n t h e o i l consum ing c o u n t r i e s a f t e r t h e w ar,
t h e s e c o u n t r i e s s t a r t e d b u i l d i n g l a r g e r e f i n e r i e s .
They im p o rte d c ru d e o i l and p r o c e s s e d i t a t home and
e x p o r te d w h a te v e r was i n e x c e s s o f t h e i r n e ed a s r e f i n e d
p r o d u c t s to t h e o u t s i d e .
As a r e s u l t , t h e r e f i n i n g c a p a c i t y o f t h e s e
c o u n t r i e s i n c r e a s e d more t h a n t h e i r l o c a l n e e d s and con
s u m p tio n . T h i s s i t u a t i o n c o u ld e a s i l y be s e e n i n t h e
c a s e o f I t a l y , w here t h e r e f i n i n g c a p a c i t y i s 2 .0 6
. . .u n d e r t h e s u p e r v i s i o n and f o r t h e a c c o u n t
o f t h e Government O i l R e f i n e r i e s A d m i n i s t r a t i o n f o r th e
p r o d u c t i o n o f g a s o i l i n p a r t i c u l a r .
13
O il and Gas J o u r n a l (F e b ru a ry , 1966) , p p . 5 5 -5 6 .
201
TABLE 33
OIL REFINING IN IRAQ - 1965*
( B a r r e l s p e r stre am day)
R e f in e r y
L o c a tio n
Crude C rack
in g
Reform
in g
O ther
P r o c e s s in g
D aura *1-8,000 4 , 000T 5»000Pwr 12,000V, 5,000Un
4 , 000L, 1 , 000A
Alwand 12,500
------ ------
3.000CH
M u ftie h 4,28 0
------ ------ ------
Q a iy a ra h 2,280
----- — - -----
H a d lth a 6,450
----- -----
------
T o ta l 73,510 4 , 000T 5.000CR
*S o urcet O il and Gas I n t e r n a t i o n a l (Feb
r u a r y , 1966) , pp. 55-5'6. Ai a s p h a lt? CHj c a t a l y t i c
h y d r o d e s u l - f u r i z a t i o n ? CRj c a t r e f o r m in g ; PW R« ESSO
P o w erfo rm in g ? Ti T herm al c ra c k in g ? un* uop u n l f i n i s h -
in g ; V? vacuum d i s t i l l a t i o n . H a d lth a r e f i n e r y was
ta k e n o v e r by th e G overnm ent, May, 1965* I t i s b e in g
o p e ra te d by I r a q P e tro le u m Company.
202
th o u s a n d b a r r e l s / d a y , w h ile i t s co n su m p tio n i s 1 .2 2
b a r r e l s / d a y . 1^
The r e s u l t was t h a t Iraq, d i d n o t g e t i t s sh a re
o f t h e r e f i n i n g i n d u s t r y , p r i o r t o W orld War I I , on th e
g ro u n d s t h a t I r a q h a s no w a te r o u t l e t t o f a c i l i t a t e
t r a n s p o r t a t i o n . T h e r e f o r e , th e I r a q P e tro le u m Company
b u i l t th e r e f i n e r y a t H a ifa , w hich h a s a c a p a c i t y o f
9 0 .0 0 0 b a r r e l s / d a y - - m o r e t h a n a l l t h e o t h e r r e f i n e r s I n
I r a q p u t t o g e t h e r . A f t e r th e w ar, t h e o i l com panies d i d
n o t i n c r e a s e t h e r e f i n e r y c a p a c i t y i n I r a q , b e c a u se
t h e r e was a s h i f t o f l o c a t i o n from p r o d u c in g t o consum
in g c e n t e r s . The r e f i n e r y c a p a c i t y o f I r a q was th e n
4 .0 0 0 b a r r e l s / d a y (1940) and r e a c h e d 7 6 .4 th o u s a n d b a r
r e l s / d a y i n 1 9 6 5 . ^ I t was d e c id e d t o i n c r e a s e t h e r e -
16
f i n i n g c a p a c i t y by 2 0 .3 b a r r e l s / d a y i n t h e f u t u r e .
A l l o f t h i s i n c r e a s e has been done by t h e Government o f
I r a q .
I n o r d e r f o r t h e I r a q N a t i o n a l O i l Company t o be
a b le t o f u l f i l l i t s g o a l a s an i n t e g r a t e d o i l company,
t h e Governm ent O il R e f i n e r i e s A d m i n i s t r a t i o n s h o u ld be
a t t a c h e d t o t h e Company I n o r d e r t o c a r r y t h e r e f i n i n g
A rab Gas and O i l J o u r n a l . No. 7 (M arch, 196 6) ,
p . 4 7 . ( B e i r u t ) .
15I b l d . . p . 4 7 .
l 6I b l d . . p . 4 7 .
203
b u s i n e s s i n s i d e I r a q a s a f i r s t s t e p , t h e n g o in g o u t s i d e
l a t e r on .
The N a t i o n a l I r a n i a n O i l Company f o r exam ple,
s t a r t e d I n r e c e n t y e a r s t o e x te n d i t s a c t i v i t i e s and
scope o f o p e r a t i o n s t o th e r e f i n i n g i n d u s t r y o u t s i d e
I r a n . The b u i l d i n g o f M adras r e f i n e r y i n I n d i a , w ith
th e P an-A m erican o i l company i s a good example o f such
a c t i v i t i e s •
The N a t i o n a l I r a n i a n O i l Company s e c u re d f o r
i t s e l f t o s u p p ly t h e 50»000 b / d Madras r e f i n e r y w ith
4-0,000 b /d o f D a r iu s c ru d e a s a f e e d s t o c k o ver a p e r io d
o f tw e n ty y e a r s .
CHAPTER V III
NATURAL GAS AND PETROCHEMICALS
N a t u r a l Gas
Im p o rta n c e o f N a t u r a l Gas
Gas i s now e n jo y in g an i n c r e a s i n g s h a r e o f th e
m a rk e t a s a f u e l i n p l a c e o f d i s t i l l a t e and f u e l o i l s .
I n many p l a c e s n a t u r a l g a s has d o m in a ted t h e r e s i d e n t i a l
h e a t i n g and c o o k in g a r e a a s w e l l a s a com m ercial m a rk e t
f o r more t h a n a d e c a d e .
Gas i s no l o n g e r c o n s id e r e d a b y - p r o d u c t o f o i l .
W orld p r o d u c t i o n and u s e o f n a t u r a l gas i s e v e r i n
c r e a s i n g , and t h e r e c e n t p r o v i s i o n o f S a h a ra g a s to
b o th G re a t B r i t a i n and F ra n c e i s a good exam ple.
The U n ite d S t a t e s was th e f i r s t c o u n tr y t o u s e
n a t u r a l g as i n l a r g e q u a n t i t i e s . The p o r t i o n o f t h i s
commodity i n th e U n ite d S t a t e s e n e rg y m a rk e t w ent up
from 14 p e r c e n t i n 194? t o 28 p e r c e n t i n I9 6 0 , and t o
30 p e r c e n t i n 1964,
1
P l a t t s O ilg r a m , May 13t 1965» P.
204
205
E u rop ean c o u n t r i e s l i k e I t a l y , F ra n ce and H ol
l a n d , a r e m aking good u s e o f t h e i r d o m e s tic s u p p ly o f
n a t u r a l g a s . The M iddle E a s t — I r a q i n p a r t i c u l a r — i s
j u s t b e g in n in g t o f o llo w i n t h e f o o t s t e p s o f th e U n ite d
S t a t e s and t h e E urop ean c o u n t r i e s .
U ses o f N a t u r a l Gas
N a t u r a l g as can be u t i l i z e d e i t h e r i n t h e o i l
f i e l d s o r t r a n s p o r t e d t o co n su m p tio n c e n t e r s t o be u se d
by consum ers and i n d u s t r y . T h e r e f o r e , n a t u r a l g as may
be u t i l i z e d I n t h e f o l lo w in g wayss
1 . I n j e c t i o n i n t o o i l w e l l s . N a t u r a l g as can be
I n j e c t e d i n t o o i l w e l l s and r e s e r v o i r s , i f
th e g e o l o g i c a l f o r m a tio n p e r m i t s , a s one o f
th e means o f se c o n d a ry r e c o v e r y i n i n c r e a s i n g
th e p r o d u c t i o n . N a t u r a l g a s can s t i l l be i n
j e c t e d i n t o o i l w e l l s even i f t h e p r e s s u r e i n
t h e s e w e l l s i s s t i l l h ig h ; i n t h i s c a s e , we
can sa v e t h i s n a t u r a l w e a l t h f o r t h e f u t u r e
u s e when m a rk e t c o n d i t i o n s j u s t i f y i t s u s e
2
eco n o m ic a lly o One o f t h e c o u n t r i e s t o p i o
n e e r t h e u se o f g as i n j e c t i o n t o m a i n t a i n
^G. A l - U k a i l i , " N a tu r a l Gas I n t h e OPEC A re a ,"
a p a p e r p r e s e n t e d t o th e Symposium o f th e D evelopm ent o f
P e tro le u m R e s o u r c e s I n A s ia and th e F a r E a s t , T e h ra n ,
S e p te m b e r, 1962, p . 4 .
206
the pressure in oil wells is the United
States, and it was able to increase produc
tion from the depleted oil wells notably,,
2 . E nergy g e n e ra tio n ,. N a t u r a l g a s i s assum ing
an e v e r i n c r e a s i n g r o l e a s a f u e l i n homes
and f a c t o r i e s a s w e ll a s e n e rg y t o produce
e l e c t r i c i t y o Use o f g as f o r t h e s e p u rp o s e s
p r o v i d e s t h e consum er w i t h n o t o n ly a c l e a n e r ,
h i g h e r h e a t v a lu e compared t o o t h e r e n erg y
s o u r c e s , b u t a l s o w ith c h e a p e r energy#
B ecause o f t h e s e a d v a n ta g e s o f n a t u r a l g a s over
o t h e r s o u r c e s o f e n e rg y , i t i s p l a y i n g an im p o r ta n t r o l e
i n t h e e n e rg y m a rk e t i n t h e U n ite d S t a t e s . As s t a t e d
b e f o r e , i t s s h a r e i n t h e e n e rg y m a r k e t, more t h a n
d o u b le d i n t h e p e r i o d from 19^7 t o 1 9 6 ^ .^
3# As Haw M a t e r i a l f o r P e t r o c h e m i c a l s . A n o th e r
im p o r ta n t u sa g e o f n a t u r a l g a s i s i n t h e f i e l d
o f p e t r o c h e m i c a l s , w hich we w i l l d i s c u s s
l a t e r . At p r e s e n t , o n ly a v e ry s m a ll p o r t i o n
o f n a t u r a l g a s i s u se d i n p e t r o c h e m i c a l s .
Even i n t h e U n ite d S t a t e s , c h e m ic a l u t i l i z a
t i o n a c c o u n ts f o r o n ly 6 .1 p e r c e n t o f t o t a l
^ P l a t t s d i g r a m , o p . c i t .
20?
n a t u r a l g a s c o n su m p tio n , and t h e p r i c e o f
n a t u r a l g a s I s s e t by I t s v a lu e a s f u e l .
Transportation of Natural Gas
U n t i l r e c e n t l y , t h e r e was b u t one way t o move
n a t u r a l g a s , and t h a t was by p i p e l i n e . New d e v e lo p m e n ts ,
how ever, a r e t a k i n g p l a c e i n t h i s f i e l d , such a s r e f r i g
e r a t e d t a n k e r s and u n d e r s e a p i p e l i n e s . I n o r d e r to move
n a t u r a l g a s , i t m ust be k e p t i n l i q u i d s t a t e and u n d e r
low p r e s s u r e .
The f i r s t e x p e r i m e n t a l sh ip m en t o f l i q u e f i e d
n a t u r a l g as t o i n t e r n a t i o n a l m a rk e ts to o k p la c e in 1959,
when a t a n k e r , e s p e c i a l l y d e s ig n e d f o r t h e p u r p o s e , l e f t
V e n e z u e la f o r th e U n ite d Kingdom. T h is , i n f a c t , was
th e p r e lu d e t o a new e r a o f n a t u r a l g a s u s a g e . But
p i p e l i n e s s t i l l re m a in t h e m ajo r means o f t r a n s p o r t a t i o n
o f n a t u r a l g a s . T a b le 3^ shows t h e c hanges i n t r a n s p o r
t a t i o n o f n a t u r a l g a s .
Sources of Natural Gas in Iraq
N a t u r a l gas from o i l f i e l d s — a s u r e i n d i c a t i o n o f
t h e p re s e n c e o f a p ro d u c in g o i l f i e l d o r a r e f i n e r y - - i s
p r o v id e d by t h e b u r n in g f l a r e s w hich a r e alw ays t o be
/ l
W orld P e tro le u m (J a n u a ry , 1965) , p . 50o
208
TABLE 34
CHANGES IN METHODS OF TRANSPORTATION
OF LIQUEFIED NATURAL GAS
(1953-1962)
Method
1953
1962 P e r c e n ta g e
o f Change
R a i l 53-9
1 7 .0
- 3 6 .9
T ru ck 4 1 .5
4 3 .3
+ 1 .8
P i p e l i n e 3 .6 3 9 .0 + 3 5 .4
S o u rc e i The O il and Gas J o u r n a l (March 16.
196*0, P. 111.
209
se e n In t h e v i c i n i t y o f o i l f i e l d s and r e f i n e r i e s .
The a s s o c i a t e d g as t h a t comes t o t h e s u r f a c e
w ith t h e c ru d e o i l from t h e e x i s t i n g o i l f i e l d s o f
K irk u k , Jam bur, Bai H a ssan , A in Z a la h , Butmah, N a f t
Khana, Q a y ara , Z u b a i r , and R u m aila, c o n s t i t u t e a m ain
s o u rc e o f n a t u r a l g a s a t p r e s e n t .
M oreover, t h e r e a r e many d ry w e l l s w hich were
p ro d u c e r s b e f o r e w hich c o n t a i n l a r g e q u a n t i t i e s o f
n a tu r a l- - g a s . T hese am ounts c an be u s e d i n t h e f u t u r e
when n e ed a r i s e s . T a b le 35 shows n a t u r a l g as p ro d u ced
and u t i l i z e d In I r a q .
N a t u r a l Gas from Gas F i e l d s
The e x p l o r a t i o n a c t i v i t i e s t h a t have b e en co n
d u c te d by o i l com panies i n I r a q , r e v e a l t h a t t h e r e a r e
a t l e a s t s i x g a s f i e l d s w i t h g r e a t p o t e n t i a l i t i e s . The
m ost I m p o rta n t o f t h e s e a r e j Jam Jam al and K o ra M oore.
I t i s e s t i m a t e d t h a t t h e p r o d u c in g c a p a c i t y on one w e ll
i n e i t h e r o f t h e s e f i e l d s i s aro u n d 6 m i l l i o n c u b ic f e e t
d a i l y , w hich a l o n e , e x c e e d s t h e c u r r e n t p r o d u c t i o n from
o i l f i e l d s , w h ile i t r e a c h e s 27 m i l l i o n c u b ic f e e t
d a i l y i n o t h e r f i e l d s . ^
^M. Hamodat, from a p a p e r p r e s e n t e d t o t h e N in th
A rab E n g i n e e r s 1 C o n g re s s , B aghdad, December 1 3 -1 8 ,
1964, p . 9 .
210
TABLE 35
NATURAL GAS PRODUCED AND UTILIZED
IN IRAQ 1951 - I960*
( b i l l i o n c u b ic f e e t )
Year
Pro
duc
tion
Used
in
Field
Per cent
of
Utilization Wasted
Per cent of
Waste to
Utilization
1951
1 2 .8 2 .0 1 5 .6 1 0 .8 8 4 .4
1952 3 8 .9
8 .0 2 0 .6
3 0 .9
7 9 .4
1953
5 8 .8
1 1 .3
1 9 .2
4 7 .5
C O
.
0
0 0
1954 7 0 .4 2 1 .0 1 7 .0 5 8 .4 83 .0
1955 8 5 .7 1 1 .7 1 3 .7
7 4 .0
8 6 .3
1956
8 7 .3 1 2 .7
14 06 7 4 .0 8 5 .4
1957
7 3 .6
9-5 1 2 .9
6 4 .0 8 7 . I
1958
9 9 .8 7 .8
7 .7
9 2 .2
9 2 .3
1959
1 1 7 .1 1 1 .8 1 0 .1
1 0 5 .3
8 1 .2
I960 1 2 8 .5
2 1 .3
1 6 .6 1 0 7 .2 8 3 .4
* S o u rc e: G. A l - U k a i l i , " N a tu r a l Gas i n t h e OPEC
A r e a ," a p a p e r p r e s e n t e d t o t h e symposium o f t h e d e v e lo p
ment o f t h e p e tr o le u m r e s o u r c e s i n A s ia and t h e P a r E a s t ,
T e h ra n , S e p tem b er, 1962, p . JZ.
211
T h ere have b een no r e l i a b l e e s t i m a t e s o f gas r e
s e r v e s u n t i l now, b u t i t i s b e l i e v e d t h a t I r a q i s c a p a
b l e o f p ro d u c in g 1 ,0 0 0 m i l l i o n c u b ic f e e t a day o f
6
n a t u r a l gas f o r s i x t y - s e v e n y e a r s »
Components o f N a t u r a l Gas i n I r a q
The com ponents o f n a t u r a l g a s d i f f e r from one
f i e l d t o a n o th e r ; so d o e s i t s th e r m a l v a l u e . The t h e r
mal v a lu e f o r K irk u k g a s i s a b o u t 1 ,3 7 8 BTU, w h ile i t i s
7
o n ly 1 ,0 9 0 BTU f o r R um aila g a s .
As t o t h e g a s / o i l p r o p o r t i o n , i t d i f f e r s from one
f i e l d t o a n o t h e r . A b a r r e l o f c ru d e c o n t a i n s a s low as
278 c u b ic f e e t o f gas i n A in Z a la h f i e l d ; i t r e a c h e s 700
8
c u b ic f e e t i n Z u b a l r . T a b le 36 shows th e a n a l y s i s o f
n a t u r a l g a s i n I r a q .
P r i c i n g o f N a t u r a l Gas f o r
N a t i o n a l C onsum ption
I n s e t t i n g a p r i c e f o r d o m e s tic p r o d u c t i o n o f
n a t u r a l g a s , t h r e e a l t e r n a t i v e m ethods may be u s e d .
F i r s t , a p r i c e may be s e t a c c o r d in g t o t h e h e a t
v a lu e o f th e f u e l o i l . A g a l l o n o f f u e l o i l i s p r i c e d
6I b i d .
7I b i d , p . 2 2 .
8I b i d , p . 2 8 .
212
TABLE 36
COMPONENTS OF NATURAL GAS IN IRAQ
Gas
Compo
n e n t s
K irk u k
G a s , %
o f V ol
ume
R um alla
G a s , %
o f V ol
ume
A in Za
l a h Gas
% o f
N a f t -
khana
G a s, %
o f v o l
ume
Z u b a ir
G a s, %
o f V o l
ume
M ethane
5 3 .7
7 9 .0 7 4 .6 4 82 7 1 .2
E th an e 2 1 .0
1 1 .5
1 2 .0 7 9 .8 6 1 1 .6
P ropane
7 .1
4 .4 8 .0 2
3 .2 9 9 .1
B utane 5 .8 1 .6 3 .3 9 1 .5 9 3 .9
B en tan 2 .6
0 .5
1 .1 0 4 0 .5 1 2 .1
H ixan
1 .3 0 .3
0 .4 8
0 .5 3 0 .9
C02 2 .0
1 .5
---------
0 .7 2 1 .2
h25 6 .4
---------
1 .4
---------
N on-burn-
a b le
G ases
---------
1 .2
--------- ---------
- —
S o u rc e : Hamodat, o£. c l t . , p 0 21„
213
a t 8 .2 5 f i l s , t h e r e f o r e , th e p r i c e p e r c u b ic f e e t o f n a t
u r a l gas w i l l be a b o u t 50 f i l s a s shown by th e f o llo w in g
t a b l e . ^
N et h e a t f o r R um aila Gas f i e l d s = i33** =
2 1 1 5 .4
20 2 3 0 .8 BTU/pound.
D e n s ity ( g r a v i t y ) = ^ l.l j ^ t = ,0557 p o u n d /c u b ic f e e t
o r 1 = 1 7 ,9 5 c u b ic f e e t / p o u n d .
• ° 5 5 7
N et h e a t v a l u e = 8 = 1 1 2 7 .0 6 4 BTU/cubic f e e t .
17 *95
We m ig h t a s w e l l p r i c e g as on t h e b a s i s o f h e a t
v a lu e i n th e b u n k e r o i l a s f o l l o w s «
W eight o f one g a l l o n o f b u nker = (4 ,5 4 5 ) (*93)
( 2 .2 ) = 9 .3 l b .
P r i c e o f b u n k e r i n I r a q = 8 ,2 5 f i l s p e r i m p e r i a l
g a l l o n = *89 f i l s / p o u n d „
9 .3
P r i c e o f 1000 c u b ic f e e t o f g a s on th e b a s i s o f
b u n k er = = * ^ 6 o r 50 f i l s .
X ( »y5
S econd, t a k i n g i n t o c o n s i d e r a t i o n t h e c o s t f a c t o r
o f e ac h I n d i v i d u a l p r o j e c t s e p a r a t e l y from o t h e r s , we can
s e t t h e p r i c e f o r t h a t p r o j e c t e q u i v a l e n t t o c o s t , p l u s —
say 10 p e r c e n t — p r o f i t f o r t h e g a s a d m i n i s t r a t i o n .
A t h i r d m ethod would be t o a v e ra g e t h e c o s t o f gas
a l l o v e r t h e c o u n t r y , p l u s a 10 p e r c e n t p r o f i t f o r th e
Gas A d m i n i s t r a t i o n .
^Ibid, pp. 28-29.
214
The l a t t e r method i s c o n s id e r e d t h e most a p p r o p r i
a t e one, s i n c e gas p r o j e c t s a r e p u b lic u t i l i t i e s and f o r
th e b e n e f i t o f a l l p e o p le . M oreover, t h i s method f a c i l
i t a t e s m a n a g e r ia l a s w e ll as a c c o u n tin g w ork.
T r a n s p o r t a t i o n o f N a t u r a l Gas i n I r a q
T here a r e many p o s s i b l e ways t o t r a n s p o r t n a t u r a l
g as i n I r a q . The one t h a t i s now u se d more t h a n any
o t h e r a l t e r n a t i v e m ethod i s by c y l i n d e r . T hese c y l i n d e r s
a r e m a n u fa c tu re d i n Baghdad. When f i l l e d w ith g a s , th e y
a r e s e n t t o consum ers e i t h e r by c a r o r t r a i n .
P i p e l i n e s a r e c o n s id e r e d a n o th e r means t h a t i s
e v e r i n c r e a s i n g i n im p o rta n c e , e s p e c i a l l y i n t r a n s p o r t i n g
l a r g e q u a n t i t i e s o f l i q u i d g a s e s from o i l f i e l d s t o th e
s t o r a g e t a n k s .
Some c h a r a c t e r i s t i c s o f lo n g d i s t a n c e t r a n s p o r t
a r e i f i r s t , In v e s tm e n t and c o s t p e r c u b ic f o o t d e c l i n e
r a p i d l y a s t h e volume c a r r i e d i n c r e a s e s ; seco n d , t h e c o s t
d e c r e a s e s o n ly when t h e p i p e l i n e i s f i l l e d , o th e rw is e
f i x e d c h a r g e s become p r o h i b i t i v e . These f a c t o r s impose
c e r t a i n m a r k e tin g r u l e s w hich aim a t f u l l , smooth and
r a p i d u se o f a v a i l a b l e c a p a c i t y .
The f u l l and r a p i d u t i l i z a t i o n o f a v a i l a b l e p i p e
l i n e c a p a c i t y i s a n e c e s s a r y c o n d i t i o n o f lo n g d i s t a n c e
gas t r a n s p o r t a t i o n . T h e r e f o r e , th e c a p a c i t y o f a p ip e -
215
l i n e m ust be s e l e c t e d so a s t o s t r i k e a b a la n c e b etw een
p r e s e n t and f u t u r e n e e d s i n su c h a way a s t o m inim ize
c o s t s o v e r a p e r i o d o f t e n , f i f t e e n o r tw e n ty y e a r s .
R e a l i z i n g t h e s e f a c t s , t h e Government o f I r a q i s
c o n s t r u c t i n g p i p e l i n e s t o t r a n s p o r t l i q u i d g a s e s from
K irk u k o i l f i e l d s t o B aghdad. The work on t h e s e p i p e
l i n e s i s s t i l l u n d e r c o n s t r u c t i o n .
Tank c a r s and t a n k t r u c k s a r e a l s o p r a c t i c a l means
o f t r a n s p o r t i n g g a s , b u t a t th e p r e s e n t t im e , th e y a r e
n o t u se d i n I r a q .
F i n a l l y , f i l l i n g and d i s t r i b u t i n g s t a t i o n s sh o u ld
be b u i l t th r o u g h o u t t h e c o u n tr y t o k eep up w i t h f u t u r e
a n t i c i p a t e d e x p a n s io n i n t h e demand f o r g a s by b o th
h o u s e h o ld e r s and i n d u s t r y .
Gas P r o j e c t s i n I r a q
i
R u m aila G a s . T h e re I s an 1 8 - l n c h p i p e l i n e w hich
t r a n s p o r t s g a s t o a d iv e r g e n c e s t a t i o n where i t becomes
two b ran c h es* t h e f i r s t b r a n c h , w ith 1 ^ - I n c h d i a m e te r
l i n e h e a d s to w a rd an e l e c t r i c i t y g e n e r a t i n g s t a t i o n i n
N a j e b i a , and t h e p a p e r f a c t o r y i n B a s r a h . The second
b r a n c h , a 1 0 - l n c h p i p e l i n e , g o e s t o a f e r t i l i z e r p l a n t
i n Aby e l - F o l o o s , i n B a s r a h . The c a p a c i t y o f t h i s l i n e
10World Petroleum (February, 1 9 6 5)* P* ^0.
216
i n 196^ , was 66 m i l l i o n c u b ic f e e t a day and was d i s
t r i b u t e d a s f o llo w s
F e r t i l i z e r p l a n t
P a p e r p l a n t
P o l y e th y l e n e and p o l y v i n y l
C h l o r id e P l a n t
H ouses and f a c t o r i e s
E l - N a j e b i a E l e c t r i c i t y
G e n e r a ti n g S t a t i o n
T o t a l
16 m i l l i o n c u b ic
f e e t p e r day
4 m i l l i o n c u b ic
f e e t a day
10 m i l l i o n c u b ic
f e e t a day
10 m i l l i o n c u b ic
f e e t a day
26 m i l l i o n c u b ic
f e e t a day
66 m i l l i o n c u b ic
f e e t a d a y .
I t i s p o s s i b l e t o i n c r e a s e t h e c a p a c i t y o f t h i s p i p e l i n e
to 110 m i l l i o n c u b ic f e e t by 1970. T h e r e f o r e , t h e p e r
c e n ta g e o f u t i l i z a t i o n o f g a s i n th e B a sra h f i e l d s , w i l l
i n c r e a s e t o 28 p e r c e n t on t h e b a s i s o f p r o d u c t i o n
a c h ie v e d i n 1 9 6 ^ . ^
K irk u k G a s . T h e re i s a 1 0 - in c h p i p e l i n e c a r r y i n g
n a t u r a l g a s from t h e K irk u k o i l f i e l d s t o t h e D e b ls power
s t a t i o n n o r t h o f K irk u k , t o g e n e r a t e e l e c t r i c i t y . The
maximum p r o d u c t i o n c a p a c i t y o f t h i s p r o j e c t i s 10 m i l
l i o n c u b ic f e e t d a i l y . T h is p r o j e c t was c o m p lete d i n
1958.
^ M i n i s t r y o f O i l , B aghdad, A s s o c i a t e d 011 i n 196^-.
12
I b i d .
217
K lrku k-B ag hdad Gas P r o j e c t . A 1 6 - in c h p i p e l i n e
t r a n s p o r t s g a s from a s u lp h u r p l a n t In K irk u k t o Baghdad
where t h e g a s s u p p l i e s some m ain p l a n t s l i k e t h e D ura
power p l a n t , N a t i o n a l power p l a n t , cem ent f a c t o r y , and
o t h e r s . The maximum p r o d u c t i o n c a p a c i t y o f t h i s p r o
j e c t i s 7 3 .7 m i l l i o n c u b ic f e e t d a i l y . By 1970, i t s
maximum p r o d u c t i o n c a p a c i t y w i l l be a b o u t 90 m i l l i o n
c u b ic f e e t d a i l y . ^
Baghdad L i q u e f i e d Gas P r o j e c t . An 8 - i n c h g as l i n e
w i l l c a r r y l i q u i d g a s and n a t u r a l g a s o l i n e from s u lp h u r
p l a n t i n K irk u k , to Baghdad, w here l i q u i d gas w i l l be
s e p a r a t e d from n a t u r a l g a s o l i n e , w hich i n t u r n , i s g o in g
t o be d i s t i l l a t e d i n a D ura r e f i n e r y . L iq u id g a s w i l l
th e n be t a k e n t o f i l l i n g s t a t i o n s , where i t w i l l be
t r a n s p o r t e d and m a rk e te d a l l o v e r I r a q . The p r o d u c t i o n
c a p a c i t y o f t h i s p r o j e c t i s 12 th o u s a n d b a r r e l s o f l i
q u id gas a day and a b o u t 1900 b a r r e l s o f n a t u r a l g a s o -
1^
l i n e . I t I s e x p e c te d t o be co m p lete d i n 1967.
By 1970, i t i s e x p e c te d t h a t 57 p e r c e n t o f t h e
n a t u r a l g a s from t h e K irk u k o i l f i e l d s w i l l be u t i l i z e d .
T a k in g n a t u r a l g as i n I r a q a s a w ho le, i t i s a n t i c i p a t e d
13I b l d .
^ I b id ,
218
t h a t ^0 p e r c e n t o f i t w i l l be u t i l i z e d . ^
P e t r o c h e m ic a ls
The p a s t f o u r d e c a d e s have w i t n e s s e d an im p o r ta n t
d ev elo p m en t stem m ing from t h e o i l i n d u s t r y — t h e gro w th
o f t h e m a n u fa c tu re o f o r g a n ic c h e m ic a ls b a se d on p e t r o
leum a s a raw m a t e r i a l .
D evelopm ent i n t h i s f i e l d h as b e en p a r t i c u l a r l y
m arked i n t h e U n ite d S t a t e s , where o v e r o n e - t h i r d o f a l l
c h e m ic a l p r o d u c t i o n i s now b a se d on p e tro le u m ra w - m a te r
i a l . The same t r e n d i s t a k i n g p l a c e i n th e c o u n t r i e s o f
• l Z
W este rn E u ro p e .
W hile p e t r o c h e m i c a l s had t h e i r b e g in n in g i n th e
U n ite d S t a t e s , where t h e i r d ev elo p m en t o u t s t r i p p e d o t h e r
c o u n t r i e s , t h e r a t e o f grow th i s d e c l i n i n g i n r e c e n t
y e a r s . I n 1961, t h e r e w ere ^15 p e tr o c h e m ic a l p l a n t s i n
t h e U n ite d S t a t e s . New p r o j e c t s i n i 960 w ere 118, b u t
d e c l i n e d t o 93 i n 1961 and o n ly 75 i n 1 9 6 2 .^ ?
The s i t u a t i o n was j u s t t h e o p p o s i t e i n o t h e r p a r t s
o f t h e w o rld . I n A u s t r o l a s i a , t h e t r e n d was upw ard;
e x i s t i n g p l a n t s i n I 96I w ere 5 9 » r e a c h i n g 63 i n 1962.
* * * .
15I b i d .
• ^ O i l and P e t r o c h e m ic a l News (London) ( S p r in g ,
1 9 6 5 ), V o l. 11, No. 2, p . 73.
~ ^ Q i l and Gas J o u r n a l (S eptem b er 3» 1 9 6 2 ), p . 9 0 .
219
I n L a t i n A m erica, th e f i g u r e went from 26 i n 1961, t o
36 i n 1962; i n E u ro p e , from 172, i n 1961, t o 191 i n
19625 i n t h e M iddle E a s t , from 5 i n 1961, t o 6 i n 1 9 6 2 .
-t Q
New p r o j e c t s w ent up from 21, i n 1961, t o 3 2 , i n 1962.
P e t r o c h e m i c a l s w i l l c o n ti n u e t o grow i n t h e coming
y e a r s . The r a t e o f g row th i n t h i s f i e l d , w i l l be much
f a s t e r t h a n i n o t h e r c h e m ic a ls , a s can be se e n from
T a b le 37»
I n 1955* t h e p e tr o c h e m i c a l o u tp u t was 24 p e r c e n t
o f a l l c h e m ic a ls on a to n n a g e b a s i s ; i t i s e x p e c te d t o
r e a c h 4 l p e r c e n t by 1 9 7 0 .
I n v a l u e , p e tr o c h e m i c a ls a c c o u n te d f o r 51 Pen c e n t
o f a l l c h e m ic a ls i n 1955» and i s e x p e c te d t o r e a c h 64
p e r c e n t .
C h a r a c t e r i s t i c s o f
P e tr o c h e m ic a l I n d u s t r y
P e t r o c h e m i c a l s depend upon a s o p h i s t i c a t e d chem i
c a l p r o c e s s i n g i n d u s t r y f o r t h e i r o u t l e t s . Many t r a n s
f o r m a t io n s and c o n v e r s io n s a r e i n v o lv e d , b e f o r e p e t r o
c h e m ic a l p r o d u c ts r e a c h t h e consum er a s t i r e s , d e t e r
g e n t s , f e r t i l i z e r s and p e s t i c i d e s .
The P e tr o c h e m ic a l i n d u s t r y i s an e v e r - c h a n g in g
l 8 I b i d . , p . 9 1 .
TABLE 37
THE STATE OF PETROCHEMICALS IN THE W ORLD
1955-1970
Year P ro d u c tio n
( b i l l i o n lb s ,
.)
Year Value
( ^ b i l l i o n )
Year C a p it a l
E x p e n d itu re s
A ll
Chems.
P e tr o
Chems.
% of
T o ta l
A ll
Chemso
P e tr o
Chems.
% of
T o ta l
A ll
Chems.
P e tr o
Chems.
1955 135 32
24
1955
9 .2
3 .7 51 1955
.8
.5
1956
143
35 25 1956 7 .8 4 .2 54
1956 .9 .7
1957
148 38 26
1957 8.7
4 .4
51 1957 .9 .9
1958
165
42
25 1958
8 .4
5.0 59
1958 .6
.7
1959
180 50 28
1959
9 .8
5.7
58 1959 .5 .7
I960 190 60 32 I960 10 .4 6 .4 61 I 960
.5 .7
1965
265 100 38
1965
1 7 .2 1 0 .5 61
1965
.6 .8
1970 330
135
41 1970 24 ,0
1 5 .3
64 1970 .9
1 .4
S ou rcej O il and Gas J o u r n a l (November 20, 1961) , p . 129.
221
i n d u s t r y , w i t h r e g a r d t o b o th p ro d u c t and t e c h n o lo g y ,
l e a d i n g t o a f a s t o b s o le s c e n c e * T here c o u ld be d i f f e r e n t
m ethods t o p rodu ce t h e same p ro d u c t} s y n t h e t i c g a s f o r
ammonia o r m e th a n o l, can be made by p a r t i a l o x i d a t i o n ,
c r a c k i n g t h e m ethane steam p r o c e s s , n a p th a , o r some
19
o t h e r m eans.
The p e tr o c h e m ic a l i n d u s t r y i s h i g h l y c a p i t a l - i n
t e n s i v e , I n c r e a s i n g p r o d u c t i o n o f a s y n t h e t i c ammonia
p l a n t , f o r exam ple, by one t o n a n n u a l ly w i l l c o s t aroun d
$ 5 0 . On t h e o t h e r h a n d , i t w i l l c o s t $ 6 -1 0 t o i n c r e a s e
20
t h e p r o d u c t i o n o f a r e f i n e r y one t o n a n n u a l l y .
As a r e s u l t o f t h e above m en tio n ed c h a r a c t e r i s t i c s ,
t h e p e tr o c h e m ic a l i n d u s t r y i n v o l v e s a v e r y h ig h r i s k .
F a c t o r s A f f e c t i n g t h e E s ta b l i s h m e n t
o f t h e P e t r o c h e m i c a l I n d u s t r y
E v ery c o u n tr y s t a r t i n g on t h e r o a d to w ard i n d u s
t r i a l i z a t i o n i s g i v i n g s e r i o u s a t t e n t i o n t o th e b u i l d i n g
u p o f t h e m a n u f a c tu r in g o f heavy c h e m ic a ls , p a r t i c u l a r l y
p e t r o c h e m i c a l s •
The q u e s t i o n i s n o t w h e th e r t o b u i l d a p e tro c h em
i c a l i n d u s t r y , b u t r a t h e r t h a t o f lo o k in g a t t h e fu n d a -
^ B u l l e t l n o f th e I r a n i a n P e tro le u m I n s t i t u t e
(T ehran) No. 21 (December, 1965)» p . 6 9 7 .
2QI b i d . . p. 6 9 8 .
222
m e n ta l "basis f o r such an i n d u s t r y .
The f o l lo w in g f a c t o r s a r e e s s e n t i a l i n b u i l d i n g a
p e tro le u m in d u s try *
1 . R a w - m a te r ia l, a v a i l a b i l i t y o f r a w - m a t e r i a l i s
e s s e n t i a l f a c t o r i n b u i l d i n g a p e tr o c h e m ic a l
i n d u s t r y ; th e r a w - m a t e r l a l s come e i t h e r from
c ru d e and r e f i n e d o i l , o r n a t u r a l g a s .
2 . The e x i s t e n c e o f com plem entary and consum ing
i n d u s t r i e s , o r a t l e a s t t r y i n g t o b u i l d such
i n d u s t r i e s a t t h e same tim e , a lo n g w ith th e
p e tr o c h e m ic a l p l a n t o r p l a n t s . B u i ld i n g a
f a c t o r y f o r p ro d u c in g r u b b e r w i l l be Incom
p l e t e i f n o t accom panied by t h e b u i l d i n g o f
a n o th e r f a c t o r y f o r p ro d u c in g t i r e s , f o r
i
e x a m p le .
3 . A v a i l a b i l i t y o f l a r g e c a p i t a l . As h a s b een
m e n tio n e d e a r l i e r , p e tr o c h e m i c a l i n d u s t r i e s
a r e c a p i t a l - i n t e n s i v e and r e q u i r e l a r g e i n
v e s tm e n t.
4 . A v a i l a b i l i t y o f s k i l l e d l a b o r .
5• A v a i l a b i l i t y o f th e m a r k e t. I t i s a d v i s a b l e
t o have a d o m e s tic m a rk e t l a r g e enough t o
a b s o rb a l a r g e p e r c e n ta g e o f p r o d u c t i o n ; w h a t
e v e r i s l e f t c o u ld be m ark e te d o u t s i d e .
Types of Petrochemicals
P e tr o c h e m i c a l s c an be b r o a d l y c l a s s i f i e d i n t o f o u r
t y p e s : (1) f e r t i l i z e r s ; (2) d e t e r g e n t s ; (3) p l a s t i c ,
( s y n t h e t i c r u b b e r and f i b e r s ) ; and (4) c h e m i c a l s , s o l
v e n t s , and i n s e c t i c i d e s .
Fertilizers. Fertilizer industry uses as a raw
material, either urea or ammonia. Presently, ammonia
i s w id e ly u s e d , a s t h e f e r t i l i z e r i n d u s t r y u s e s a b o u t
21
75-80 p e r c e n t o f ammonia p r o d u c t i o n .
The p r o s p e c t s f o r t h e f e r t i l i z e r i n d u s t r y a r e
v e r y b r i g h t . W orld p r o d u c t i o n o f f e r t i l i z e r ( e x c lu d in g
C h in a and t h e E a s t e r n b lo c ) r e a c h e d 91 m i l l i o n t o n s i n
t h e a g r i c u l t u r a l y e a r 1 9 5 9 -6 0 . The W estern w o rld a lo n e ,
p ro d u ce d 53•3 P e r c e n t o r more th a n o n e - h a l f o f th e
22
p r o d u c t i o n o f t h a t y e a r .
The im p o rta n c e o f f e r t i l i z e r becomes more im por
t a n t a s c i t i e s e x p an d , t a k i n g away th e farm l a n d s ; a s
p o p u l a t i o n i n c r e a s e s and t h e n e ed a r i s e s t o u s e t h e
a v a i l a b l e t i l l a b l e l a n d more e f f i c i e n t l y t o f e e d more
m o u th s. M oreo ver, f e r t i l i z e r s a r e n o t o n ly u se d i n
p ro d u c in g c r o p s , b u t t h e i r u se i s e x te n d in g t o o t h e r
f i e l d s , su c h a s g r a z i n g and f o r e s t l a n d s .
2- * - 0 il and Gas J o u r n a l , ( F e b ru a ry 3, 1964) , p . 65 .
^^The Arab O il and Gas J o u rn a l ( B e i r u t ) , No. 5
(J an u a ry , 1966).
224
U n h y d ra te ammonia i s u s e d d i r e c t l y i n t h e e a r t h .
T oday, t h e U n ite d S t a t e s u t i l i z e s one t h i r d o f i t s
ammonia. T h is p e r c e n ta g e w i l l i n c r e a s e i n t h e f u t u r e ,
b e c a u se t h i s f e r t i l i z e r i s c h e a p e r t o t r a n s p o r t and
e a s i e r t o u s e . ^
U n t i l r e c e n t l y , ammonium s u l p h a t e was u se d i n
f e r t i l i z e r v e ry w i d e ly . However, i t i s l o s i n g t h e m ar
k e t t o ammonium n i t r a t e . The m ain r e a s o n f o r t h i s
ch an g e, i s due t o a lo w er n i t r o g e n c o n t e n t i n t h e fo rm er
(a b o u t o n e - f i f t h ) and t o a h ig h n i t r o g e n c o n t e n t i n th e
latter (about one-third). Moreover, ammonium-nltrate
24
i s u se d i n e x p l o s i v e s .
The c o s t o f p r o d u c in g ammonium n i t r a t e d ep en d s on
t h e c o s t o f th e n i t r o g e n p r o d u c t i o n . F o r i t i s t h i s
c o s t w hich d e te r m in e s t h e c o s t o f p r o d u c in g f e r t i l i z e r .
The c o s t o f p ro d u c in g n i t r o g e n i s betw een 10 and 20 p e r
c e n t o f t h e t o t a l c o s t o f p ro d u c in g f e r t i l i z e r
I t i s e s t i m a t e d t h a t a f e r t i l i z e r p l a n t i n S audi
A r a b ia p ro d u c in g 51 th o u s a n d t o n s o f u r e a , 20 th o u s a n d
t o n s o f f e r t i l i z e r w i t h p h o sp h a te and 4 , 5 th o u s a n d to n s
o f d i f f e r e n t f e r t i l i z e r , w i l l c o s t b etw een 20 and 32
^ O i l and Gas J o u r n a l , o p . c l t . , p . 66.
2**lbid., p. 6?.
2^The A rab Gas and O i l J o u r n a l , o p . c l t .
225
m i l l i o n d o l l a r s . I n E g y p t, t h e ' c o s t o f a f e r t i l i z e r p l a n t
p ro d u c in g 200 th o u s a n d t o n s o f c a lc iu m n i t r a t e i s p la c e d
a t a ro u n d 20 m i l l i o n d o l l a r s . ^ 8
D e t e r g e n t s . P e tr o le u m - b a s e d d e t e r g e n t s a r e now
u s e d f o r t h e m a n u fa c tu re o f " s o a p l e s s s o a p s . 1 ' They a r e
a l s o u se d i n t h e t e x t i l e i n d u s t r y , b o t h i n s c o u r i n g and
d y e in g p r o c e s s e s .
The s y n t h e t i c d e t e r g e n t i n d u s t r y i s b a se d l a r g e l y
on t h r e e g ro u p s o f c h e m ic a ls : (1) " A lk y l b en zene s u l
p h a t e s ; (2) p o l y e t h y l e n e o x i d e / a l k y l p h e n o l c o n d e n s a te s ;
and (3) t h e s e c o n d a ry a l k y l s u l p h a t e s , a l l o f w hich can
27
be d e r i v e d from p e tr o le u m ."
P l a s t i c , s y n t h e t i c r u b b e r , and f i b e r s . P l a s t i c s
a r e d e r i v e d from e t h y l e n e . They r e a c h t h e consum er i n
a v a r i e t y o f fo rm s, r a n g i n g from t r a n s p a r e n t w ra p p in g
f i l m s , t o e x te n d e d w ire c o a t i n g s and in n u m e ra b le k in d s
o f m olded g o o d s. O th e r new k in d s o f p l a s t i c s p ro d u ced
pQ
a r e p o l y v i n y l c h l o r i d e , p o l y th y l e n e and p o l y s t y r e n e ,
A m a n u f a c tu r e r o f p l a s t i c s i n a d e v e lo p in g c o u n tr y
h as an e a s i e r m a rk e t t o s a t i s f y . T h is i s b e c a u se he can
26I b i d .
27 p il and P e tro c h e m ic a l Equipment News, o p . c i t . .
P. 73.
28I b i d . . p . 73.
r e s t r i c t h i m s e l f t o a few c o l o r s o f one g ra d e o f p l a s t i c
m a t e r i a l , su c h a s p o l y s t y r e n e , and he w i l l be a b le to
29
e s t a b l i s h a lo w - c o s t m o ld in g p l a n t .
F o r t h e c o s t o f e s t a b l i s h i n g a p l a s t i c p l a n t t o
p ro d u ce 1 0 ,0 0 0 t o n s a n n u a l l y , a c c o r d in g t o th e d e s i g n
and s p e c i f i c a t i o n s o f H oecht and Company, see T a b le 3 8 •
T a b le 39 shows w orldw ide p l a s t i c c o n su m p tio n .
B e fo re p ro d u c in g s y n t h e t i c r u b b e r , n a t u r a l r u b b e r
was p ro d u ce d f o r a lo n g tim e from r u b b e r t r e e s i n C e n t r a l
and S o u th A m erica. The e v e r i n c r e a s i n g demand f o r r u b
b e r , e s p e c i a l l y f o r t i r e s , l e d t o th e p l a n t i n g o f r u b b e r
t r e e s i n t h e F a r E a s t . The f e a r t h a t n a t u r a l r u b b e r
would be u n a b le t o cope w ith t h e i n d u s t r i a l demand n e c e s
s i t a t e d d i s c o v e r y o f an a l t e r n a t i v e way o f p ro d u c in g th e
p r o d u c t .
The m a j o r i t y o f s y n t h e t i c r u b b e r now b e in g p r o
d u c ed , i s t h e s t y r e n e - B u t a d i e n e t y p e , u s e d p r i m a r i l y f o r
m aking t i r e s . S ty r e n e i s o b t a i n e d from e t h y l benzene
30
and b u t a d i e n e from b u ta n e g a s .
O u tp u t o f a r u b b e r f a c t o r y w ith a n n u a l c a p a c i t y o f
50 th o u s a n d t o n s , c o s t s betw een 20-25 m i l l i o n d o l l a r s ,
W orld P e tro le u m ( J u n e , 1965) , p . 72.
30
The Arab O il and Gas J o u r n a l , o p • c i t . , p . ^1 .
22?
TABLE 38
THE COST OF ESTABLISHING
A PLASTIC PLANT
I terns C o st i n D o l l a r s
The c o s t o f th e f a c t o r y # 1 ,2 0 0 ,0 0 0
R e g i s t r a t i o n and t r a d e - m a r k f e e s 500,000
T o t a l $ 1 ,7 0 0 ,0 0 0
A nnual p r o d u c t i o n c o sts*
E th y le n e 40 0 ,0 0 0
C h lo r in e 920,000
C h e m ica ls and m is c e ll a n e o u s 1 0 0,000
O p e r a t i o n and m a in te n a n c e 230,000
D e p r e c i a t i o n 10$ 17 0,000
I n s u r a n c e
T o t a l a n n u a l p r o d u c t i o n c o s t s
10 .000
$ 1 ,8 3 0 ,0 0 0
Source* The A rab O i l and Gas J o u r n a l , No. 7
(March, 1966) , p . 4 0 .
228
TABLE 39
WORLDWIDE CONSUMPTION OP PLASTICS (EXCLUDING CHINA
AND THE EASTERN BLOC) 1957-1960*
Year
Thousand
t o n s
P e r c e n ta g e
I n c r e a s e
1957
4011
1958 4300
7 .2
1959
5468 2 7 .2
I 960 6088 1 3 .2
S ou rce 1 The A rab O il and Gas J o u r n a l , No. 7
(M arch, 1966) , p . 4-1.
229
o r betw een $500-700 p e r a n n u a l t o n . When r e d u c in g a n n u a l
p r o d u c t i o n o f t h e f a c t o r y by * 4 -0 p e r c e n t (20 th o u s a n d
to n s a n n u a l l y ) , t h e c o s t d oes n o t go down by t h e same
p e r c e n t a g e , b u t re m a in s b e tw een $10 and 20 m i l l i o n , o r
b etw een $500-$1000 d o l l a r s p e r a n n u a l t o n . ^ 1 T h is i l
l u s t r a t e s t h e e f f e c t o f p l a n t s i z e on c o s t s .
T a b le ^0 shows w o rld c o n su m p tio n o f r u b b e r .
P e tro le u m i s u se d a s a r a w - m a t e r i a l i n m aking f i
b e r s . T e r y le n e i n E n gland and D acron i n t h e U n ite d
S t a t e s a r e p ro d u ce d from x y l e n e . On t h e o t h e r hand,
o r l o n and a c r i l o n a r e p ro d u ce d from a c r y l o n l t r i l e .
N ylon i s p ro d u ce d from A d ip ic a c i d and h e x am eth y len e
32
d ia m in e , w hich c o u ld be o b t a i n e d from p e tr o le u m .
C h e m ic a ls, s o l v e n t s , and i n s e c t i c i d e s . P e tro le u m
i s u se d a s a r a w - m a t e r i a l f o r d i f f e r e n t c h e m ic a ls , such
a s p h e n o l, g l y c e r i n e , u r e a and e x p l o s i v e s .
Many im p o r ta n t s o l v e n t s a r e p ro d u ce d from p e t r o
leum . T h ere a r e a l c o h o l s w hich a r e u s e d a s l a c q u e r s o l
v e n t s and p h a r a m a c e u t i c a ls and t o i l e t p r e p a r a t i o n s }
e s t e r s u se d a s s y n t h e t i c f l a v o r s and p e rfu m e s; k e to n e
33
u se d i n l a c q u e r and n a i l v a r n i s h .
32Q11 and P e t r o c h e m ic a l Equipm ent News, p . 73*
3 3 p o u rth Arab P e tro le u m C o n g re s s , C a ir o . P a p e r No.
36. B - l , p . 26.
TABLE 40
WORLDWIDE CONSUMPTION OF RUBBER (EXCLUDING CHINA AND THE
EASTERN BLOC) 1959-1960*
( i n th o u sa n d s o f to n s)
Country
1959
i 960
W estern
Europe
U n ite d S t a t e s
Canada
O th e r Am erican
C o u n tr ie s
A s ia , A f r i c a
& A u s t r a l i a
T o ta l
N a t u r a l
r u b b e r
S y n th e tic
ru b b e r
T o ta l % o f
S y n th e
t i c t o
T o ta l
N a tu r a l
r u b b e r
S y n th e tic
ru b b e r
T o ta l % of
S y n th e
t i c t o
T o ta l
661 310
971 3 1 .9
649
457
1,106
31.3
564 1,090 1,654
6 5 .9
48? 1 ,0 9 2
1,57 9
6 9 .2
45 58 103 56.3
36 57 93 6 1 .3
104
51
153 32 .9
104
51 155 32 .9
321 88
409
2 1 ,5 348 121
469
2 5 .8
1 .9 6 5 1,597
3,292
^ S .5 1,62 4 1 ,7 7 8 3,402
52.3
The Arab O il and Gas J o u r n a l , No. 7 (March, 1966) , p. 42 .
ro
vo
o
231
I n s e c t i c i d e s a re p ro d u ced from p e tro le u m a l s o .
Some o f t h e s e a r e known a s D .D .T. o r D ic h lo r o - D ie p h e n y -
T r i c h l o r o ; E th a n e , B enzene, H e x a c h l o r l d e , D ic h lo r o p r o -
94
p a n e , to m e n tio n a few o f them .
P e t r o c h e m i c a l s I n I r a q
As t h e d e v e lo p in g n a t i o n s s e e k t o e s t a b l i s h e c o
nomic In d e p e n d e n c e , i t h a s b een n e c e s s a r y t o f i n d and
t a k e a d v a n ta g e o f a v a i l a b l e r e s o u r c e s a s b u i l d i n g b lo c k s
to w ard e s t a b l i s h m e n t o f b a s i c i n d u s t r y .
The n e e d f o r such i n d u s t r y i s a p p a r e n t b e c a u se i t
b r i n g s a b o u t a s p i r a l i n g econom ic r e v o l u t i o n . Employ
ment i s i n c r e a s e d , th e s t a n d a r d o f l i v i n g i s r a i s e d , d e
mand f o r t r a i n e d p e r s o n n e l and t e c h n i c i a n s I s i n c r e a s e d
and t h e i r a v a i l a b i l i t y m a tu re s t h e grow th o f new i n d u s
t r y w h ich , i n t u r n , a c c e l e r a t e s t h e s p i r a l .
S in c e t h e e a r l y d a y s o f o i l p r o d u c t i o n , n a t u r a l
g a s h a s b een b u r n t o f f w i t h o u t m aking any u se o f i t . A
m is s io n o f t h e I n t e r n a t i o n a l Bank f o r R e c o n s t r u c t i o n and
D evelopm ent w hich was s e n t t o I r a q i n 1951* recommended
u t i l i z a t i o n o f t h e n a t u r a l g as from t h e K irk u k o i l f i e l d s .
The r e p o r t s t a t e d t h a t i n I r a q , n a t u r a l g a s was*
3I4.
The Arab O il and Gas J o u r n a l, op. c l t ., p. 41,
232
. . . t h e l a r g e s t , and. p e rh a p s t h e m ost
p ro m is in g i n d u s t r i a l p o s s i b i l i t y i n c o n ju n c
t i o n w i t h o i l , and now a lm o s t t o t a l l y w a s te d .
T h is M is s io n recom m ends, t h e r e f o r e , t h a t
e a r l y c o n s i d e r a t i o n be g iv e n t o t h e e r e c t i o n
n e a r K irk u k , o f a p l a n t w h ich , u s i n g n a t u r a l
g a s and gypsum a s raw m a t e r i a l s , would be
c a p a b le o f p r o d u c in g a n n u a l ly 500»000 to n s
o f amonlum s u l p h a t e f e r t i l i z e r , 1 00,000 t o n s o f
c h e m ic a l s u l p h u r , 100,000 to n s o f c arb o n b l a c k ,
and 300 ,000 t o n s o f cem en t. The c o s t o f t h i s
p l a n t was e s t i m a t e d a t a b o u t 25 m i l l i o n I r a q i
d i n a r s . 35
P e tr o c h e m ic a l P l a n t s u n d e r
C o n s t r u c t i o n
Two p e tr o c h e m ic a l p l a n t s now u n d e r c o n s t r u c t i o n
a r e i a s u lp h u r p l a n t a t K irk u k , and a c h e m ic a l f e r t i
l i z e r p l a n t a t B a s r a h .
S u lp h u r P l a n t a t K i r k u k . T h is p l a n t i s s i t u a t e d
n o r t h o f K irk u k , n e a r t h e o i l f i e l d s . I t w i l l p ro d u ce
s u lp h u r from n a t u r a l g a s , w hich i s b e in g b u r n t o f f a t
t h e p r e s e n t t im e . The p l a n t , a s h as b e e n n o te d ab o v e,
was. s u g g e s te d by t h e I n t e r n a t i o n a l B a n k 's m is s io n t o
I r a q i n 1951* The p l a n t w i l l u s e 950 m i l l i o n c u b ic
m e tr e s o f g as t o p ro d u ce 100 th o u s a n d t o n s o f s u lp h u r
a n n u a l l y . The s u l p h u r , i n t u r n , w i l l be u se d t o p ro d u ce
110 th o u s a n d t o n s o f s u l f u r i c a c i d t o be u se d i n t h e
f e r t i l i z e r p l a n t . The re m a in in g s u l p h u r e , w hich i s a b o u t
^ i n t e r n a t i o n a l Bank f o r R e c o n s t r u c t i o n and D e v elo p
m ent, Economic D evelopm ent i n I r a q (B a ltim o r e i J o h n s
H opkins P r e s s , 1 9 5 1 ) / p . 37.
233
63 th o u sa n d t o n s , w i l l be m a rk e te d l o c a l l y and a b r o a d . 3^
F e r t i l i z e r p l a n t a t B a s r a h . T h is p l a n t w i l l u se
n a t u r a l g a s from R u m aila o i l f i e l d s and o t h e r ra w - m a te r -
i a l s p ro d u ce d i n t h e p l a n t , such a s s u lp h u r a c i d , ammonia
and n i t r i c a c i d . The p r o d u c t i o n c a p a c i t y o f t h i s p l a n t
i s 116 th o u s a n d t o n s o f ammonia, 60 th o u s a n d t o n s of
ammonia n i t r a t e , 20 th o u s a n d to n s o f s u l f u r a c i d and 20
th o u s a n d to n s o f n i t r i c a c i d , p l u s s u l p h a t e p r o d u c t i o n .
The n e ed f o r such a p l a n t i s o b v io u s . I t i s c h i e f l y f o r
l o c a l m ark et t o be u s e d i n b o o s t i n g a g r i c u l t u r a l p ro d u c
t i o n . W hatever i s l e f t , i n e x c e s s o f l o c a l m ark et d e
mand, w i l l be e x p o r t e d .
B ecause demand f o r f e r t i l i z e r i s s e a s o n a l , many
com panies have b u i l t l a r g e r e f r i g e r a t e d s t o r a g e t a n k s ,
t o h o ld a t a tm o s p h e ric p r e s s u r e ammonia pro d u ced d u r i n g
th e o f f - s e a s o n . T h is h a s o f t e n p ro v ed t o be more e co -
q Q
n o m ic a l t h a n p r e s s u r e s t o r a g e .
The c h i e f d ev elo p m e n t i n movement o f ammonia has
b een th e c o n s t r u c t i o n o f i n s u l a t e d , lo w - te m p e r a tu r e b a r g e s
f o r r i v e r t r a n s p o r t . A ls o , t a n k t r u c k s have i n c r e a s e d i n
39
s i z e a s t h e m a rk e ts i n c r e a s e d .
3^Hamodat, o j d , c l t . . p . 1 3 .
3? l b i d . . p . 15.
3^011 and Gas J o u r n a l ( F e b ru a ry 3» 196*0, p . 6 7 .
3 ^ i b i d . . p . 6 7 .
P e tr o c h e m ic a l P l a n t s
u n d e r Study
A sid e from w hat h a s b e en m en tio n ed p r e v i o u s l y ,
t h e r e a r e o t h e r p e tr o c h e m ic a l p r o j e c t s u n d e r s t u d y ,
ko
su c h a s : (1) c a rb o n b l a c k p l a n t ; (2) p o l y v in y l c h l o r
id e p l a n t ; (3) e t h y l e n e p l a n t ; (4) p o l y th y l e n e p l a n t ;
and (5) t i r e s and r u b b e r t u b e s p l a n t .
Carbon b l a c k p l a n t . T h is p l a n t , i f a p p ro v e d , i s
g o in g t o be l o c a t e d i n K irk u k and w i l l u t i l i z e g a s from
t h e K irk u k o i l f i e l d s . The p l a n t w i l l p ro d u ce c a rb o n
b l a c k , w hich i s ;used i n t h e m a n u fa c tu re o f t i r e s , p l a s
t i c s , c o l o r s and i n k .
P o l y v i n y l c h l o r i d e p l a n t . The p o l y v i n y l c h l o r i d e
p l a s t i c i n d u s t r y i s w id e ly e s t a b l i s h e d t h r o u g h o u t th e
w o r ld . The p ro p o se d p l a n t w i l l p r o v id e t h e l o c a l m ark e t
w ith p l a s t i c s and e x p o r t w hat i s i n e x c e s s o f l o c a l
n e e d s . The a n n u a l p r o d u c t i o n c a p a c i t y o f t h i s p l a n t
w i l l be 20 th o u s a n d t o n s .
E th y le n e p l a n t . T h is p l a n t would u t i l i z e g as from
t h e s o u t h e r n f i e l d s t o p rodu ce e t h y l e n e . T h is p ro d u c t
i s an e s s e n t i a l r a w - m a t e r i a l i n t h e p r o d u c t i o n o f p o ly -
t h e l e n e and p o l y v i n y l c h l o r i d e . T hese p r o d u c t s a r e
e s s e n t i a l t o any p e tr o c h e m i c a l i n d u s t r y . The p l a n t ' s
^®Hamodat, ° l t »* P» 13 •
a n n u a l c a p a c i t y w i l l be 3 2 ,0 0 0 t o n s o f e t h y l e n e ,
P o l y t h e l e n e . The p l a n t w i l l be a b le t o p ro d u ce
p l a s t i c s . I t s a n n u a l p r o d u c t i o n would be 20 th o u s a n d
to n s and i t w i l l u s e 21 th o u s a n d t o n s o f e th y l e n e a n
n u a l l y .
T i r e s and r u b b e r t u b e s p l a n t . The l o c a l m ark e t
i s i n n eed o f su ch a p l a n t . The d e s ig n e d a n n u a l p r o
d u c t i o n c a p a c i t y o f such a p l a n t i s 60 th o u s a n d t i r e s
w ith t h e i r t u b e s , o f d i f f e r e n t s i z e s . A l l o f t h e needed
m a t e r i a l s a r e a v a i l a b l e l o c a l l y .
CHAPTER IX
SUMMARY AND CONCLUSION
Summary
I r a q was a sc e n e o f econom ic c o n f l i c t betw een
many d i f f e r e n t E u rop ean i n t e r e s t s , n o t o n ly b e c a u se o f
i t s s t r a t e g i c p o s i t i o n g e o g r a p h i c a l l y , b u t a l s o b e c a u se
o f t h e p o s s i b i l i t i e s o f o i l d i s c o v e r y . P r i o r to World
War I , th e c o n f l i c t among t h e s e i n t e r e s t s became o b v io u s
when i t was c e r t a i n t h a t th e c o u n tr y was r i c h i n o i l .
They a tte m p te d t o s h a r e t h e c o n c e s s i o n s among th e m s e lv e s
w ith o u t even c o n s u l t i n g o r n e g o t i a t i n g w i t h t h e I r a q i
a u t h o r i t i e s •
When o i l was f i r s t e x p o rte d i n 193^, I r a q ' s
r o y a l t i e s from o i l were v e r y low , am oun ting t o o n ly f o u r
s h i l l i n g s (g o ld ) p e r m e t r i c t o n p ro d u c e d . I n 1950, th e y
w ere r a i s e d t o s i x s h i l l i n g s p e r m e t r i c t o n . T hese low
r o y a l t i e s w ere due t o s e v e r a l f a c t o r s , t h e m ost im p o r ta n t
o f w hich w ere th e fo llo w in g *
1 . The s u c c e s s i v e I r a q i G overnm ents were p o l i t
i c a l l y weak and c o u ld n o t e x e r c i s e p r e s s u r e
upon t h e com panies t o r a i s e I r a q ' s s h a r e
236
from o i l .
2 . O i l p r o d u c t i o n was low , due p a r t l y t o in la n d
t r a n s p o r t a t i o n d i f f i c u l t i e s and p a r t l y t o t h e
i n t e r r u p t i o n c a u se d by th e w ar.
3. Low p r i c e s f o r I r a q i o i l i n th e i n t e r n a t i o n a l
m a r k e t s .
hr. The c o s t p r o c e d u r e w hich was i n f a v o r o f th e
o i l c o m p a n ie s.
However, t h i s s i t u a t i o n h a s changed q u i t e r a d i c a l l y
s i n c e 1952» when a f i f t y - f i f t y p r o f i t s h a r i n g agreem ent
was r e a c h e d b e tw ee n I r a q and th e o i l c o m p a n ie s. A ccord
i n g l y , I r a q ’ s p r o d u c t i o n o f o i l i n c r e a s e d and so d i d th e
r e v e n u e .
The c a p i t a l i n v e s t e d i n t h e o i l i n d u s t r y i n
I r a q i s f o r e i g n c a p i t a l b ro u g h t i n by th e B r i t i s h , F re n c h ,
D utch and A m erican i n v e s t o r s . No p a r t i c i p a t i o n o f n a
t i o n a l c a p i t a l h a s b e en p o s s i b l e i n t h i s i n d u s t r y due t o
t h e f a c t t h a t t h e c o m p a n ie s' s t o c k s were n o t made a v a i l
a b le t o t h e p u b l i c .
O i l in v e s tm e n t was a t a low l e v e l when th e o i l
d ev elo p m en t b e g a n . The in v e s tm e n t amounted t o $5*6 m i l
l i o n i n 1928. I n 1 9 5 1 t in v e s tm e n t i n t h e o i l i n d u s t r y
had r e a c h e d $62 m i l l i o n and i n 1963» $156 m i l l i o n . I t
h a s b e en i n c r e a s i n g e v e r s i n c e b u t a t a slow r a t e .
The d i s t r i b u t i o n o f in v e s tm e n t a m o n g - d i f f e r e n t
b ra n c h e s o f t h e o i l I n d u s t r y i n I r a q , w hich i s d o m in a ted
by B r i t i s h i n t e r e s t s , d i f f e r s from t h a t o f S audi A r a b ia ,
w hich i s d o m in a ted by A m erican i n t e r e s t s . T h is i s
a t t r i b u t e d t o t h e d i f f e r e n c e i n em p h asis b etw een t h e two
g ro u p s . Due t o g e o g r a p h i c a l f a c t o r s , t h e A m erican com
p a n ie s expanded p r o d u c t i o n w h ile t h e B r i t i s h com panies
p la c e d g r e a t e r em ph asis on p i p e l i n e t r a n s p o r t a t i o n and
r e f i n e r i e s .
E x p l o r a t i o n a c t i v i t i e s were v e r y low up t o 1958,
b u t th e d r i l l i n g r a t e i n c r e a s e d v e ry r a p i d l y b etw een
1958 and i 9 6 0 , when i t r e a c h e d 2^-8 ,5 5 0 f e e t i n t h e l a t
t e r y e a r . However, d r i l l i n g slow ed down t h e n , r e a c h i n g
i t s minimum a f t e r I9 6 0 , and so d i d th e r a t e o f new ly
d i s c o v e r e d r e s e r v e s . T h is was due t o d i f f e r e n c e s b e
tw een t h e a i l com panies and t h e I r a q i G overnm ent, a s a
r e s u l t o f Law No. 80.
As t o p r o d u c t i o n , a l l p l a n s o f t h e I r a q o i l
com panies a r e s e t f o r f i v e y e a r s i n a d v a n c e . The f i r s t
p l a n was c o n d u c te d i n 19^8 f o r th e p e r i o d 1 9 5 2 -5 6 . The
f o llo w in g p l a n i n 1952 was f o r th e p e r i o d 1 9 57-19 61.
T h i s k in d o f p la n n in g made i t im p o s s ib le f o r p r o d u c t i o n
t o be f l e x i b l e i n t h e f a c e o f ch an g e s i n demand. At
p r e s e n t , o i l i s p ro d u ced i n t h r e e f i e l d s , n am ely , K irk u k ,
239
Mosul and B a s r a h . O i l p r o d u c t i o n began i n 1923 on a
v e r y s m a ll s c a l e . A m a jo r f i e l d was d i s c o v e r e d i n 1927
a t K irk u k ; how ever, p r o d u c t i o n p ro c e e d e d a t a low l e v e l
due t o l a c k o f t r a n s p o r t a t i o n f a c i l i t i e s . A n o t a b l e
i n c r e a s e i n p r o d u c t i o n to o k p l a c e i n 193^ a f t e r two
t w e l v e - i n c h p i p e l i n e s w ere l a i d from K irk u k t o t h e Med
i t e r r a n e a n . But th e g r e a t jump i n p r o d u c t i o n o c c u r r e d
i n 1 9 5 2 , when p r o d u c t i o n i n c r e a s e d t o 1 8 ,8 m i l l i o n m e t r ic
t o n s , as com pared t o 8 .4 m i l l i o n i n th e p r e v io u s y e a r .
S in c e t h e n o i l p r o d u c t i o n h a s m a in ta in e d a h ig h r a t e ,
r e a c h i n g 4 8 .2 m i l l i o n m e t r i c t o n s i n 1 9 6 2 .
The c o s t s o f o i l p r o d u c t i o n i n I r a q a r e low , due
t o : (1) t h e g e o l o g i c a l s t r u c t u r e o f t h e o i l w e l l s ; (2)
th e n a t u r e o f th e c o n c e s s i o n s ; and (3) ch ea p l a b o r .
As to a conservation policy, there has been
none in Iraq. The entire matter was left up to the
judgment of the oil companies. Since Its early day,
and to some extent even now, the petroleum industry was
in the extractive phase characterized by the wasteful
manner in which the subsurface resources were exploited.
This could be attributed on the one hand to the limited
progress made in petroleum engineering throughout the
world at that time, but mostly it was due to the pre
ference of the oil companies for quick profits. The
2^0
f o l lo w in g c o n s e r v a t i o n m ea su re s a r e s u g g e s te d : (1)
s c i e n t i f i c w e l l s p a c in g : (2) m a i n t a i n i n g an a p p r o p r i a t e
g a s - o i l r a t i o : and (3) t h e r a t e o f o f f - t a k e s h o u ld be
ch eck ed and d e te rm in e d p e r i o d i c a l l y .
T r a n s p o r t a t i o n o f o i l was v e r y d i f f i c u l t d u r i n g
t h e f i r s t s t a g e s o f p r o d u c t i o n . T h is s i t u a t i o n l a s t e d
u n t i l 193^» when t h e f i r s t t w e l v e - i n c h p i p e l i n e was
l a i d . T h ese p i p e l i n e s were fo llo w e d by t h e l a r g e r s i x
t e e n - i n c h o nes i n 19^6. S t i l l l a r g e r p i p e l i n e s o f
t h i r t y - i n c h d ia m e te r w ere l a i d i n 1952. The t r a n s p o r
t a t i o n p roblem was s o lv e d f o r some y e a r s t o come w ith
t h e l a y i n g o f t h e l a s t p i p e l i n e , and b e c a u se o f t h i s a
95 P e r c e n t i n c r e a s e i n o i l p r o d u c t i o n from K irk u k o v e r
t h e f i g u r e f o r 1951 was p o s s i b l e .
I r a q i p e tr o le u m com panies a r e p ro d u c in g com panies
o n l y . They have no m a rk e t f a c i l i t i e s o u t s i d e I r a q .
T h e r e f o r e , t h e y d e l i v e r t h e i r o i l e x p o r t s t o t h e i r p a r e n t
com panies a t c o s t p l u s a f e e o f one s h i l l i n g p e r t o n .
T hese p a r e n t com panies i n t u r n c a r r y on t h e m a r k e tin g o f
I r a q i c ru d e o i l .
The volume o f I r a q i e x p o r t s o f c ru d e o i l h a s i n
c r e a s e d s i g n i f i c a n t l y s i n c e t h e e a r l y * 5 0 f s b e c a u se o f:
(1) i n c r e a s e d t r a n s p o r t a t i o n ; (2) r a p i d e x p a n s io n i n th e
econom ies o f W este rn E u ro p ean c o u n t r i e s ; and (3) t h e
241
dollar shortage in Europe diverted their demand to
Iraqi crude which was paid for in sterling.
The Government-companies relations played a
major role in determining crude oil production and ex
port. When these relations were good, the companies
boosted production and exports; when these relations
were unfavorable, the companies tried to penalize Iraq
by restricting their production and exports.
Exports of Iraqi crude oil has seasonal fluc
tuations from one quarter to another; they remain at
the same level during the first quarter, decrease in the
second and third quarters, and increase in the fourth
quarter. In other words, exports follow the fluctuation
In weather during the four seasons of the year.
The effect of the oil exports on balance of pay
ments is noticeable; it amounts to about 90 per cent.
Iraq has been able to maintain an export surplus because
of her oil exports. Moreover, these exports make free
foreign exchange available to Iraq.
The petroleum industry is controlled and oper
ated by an international cartel of seven major petroleum
companies. This cartel takes different shapes and forms.
The methods by which they are able to do this Include:
(1) joint control over the production of oil; (2) joint
2^2
m a r k e tin g c o n tr o l } (3) lo n g - te r m i n te r - c o m p a n i e s b u y in g
and s e l l i n g a g re e m e n ts ; (4) a d m i n i s t e r e d p r i c e s ; and (5)
i n t e g r a t i o n i n th e o i l i n d u s t r y . As a r e s u l t , a l l i n
t e r n a t i o n a l m a jo rs a r e p r e s e n t i n t h e M iddle E a s t i n
one way o r a n o t h e r . The seven i n t e r n a t i o n a l m a jo rs ,
p lu s some s m a l l e r com panies w hich form t h e c o n s o rtiu m
a r e s h a r e h o l d e r s i n I r a n . F o u r o f t h e s e i n t e r n a t i o n a l
m a jo rs a r e i n S audi A r a b ia , w h ile i n K uw ait t h e r e a r e
o n ly two, b u t t h r e e o t h e r s have a s ta k e i n K uw ait th ro u g h
s p e c i a l c o n t r a c t s . I n I r a q and Q a t a r , f o u r i n t e r n a t i o n a l
m a jo rs a r e s h a r e h o l d e r s . These m ost im p o r ta n t J o i n t
o p e r a t i o n s have s e c u re d c o n t r o l by t h e m a jo rs o f M iddle
E a s t e r n o i l .
C o n t r o l o v e r m a rk e tin g and lo n g - te r m i n t e r - c o m
pany b u y in g and s e l l i n g a g re e m e n ts p ro v id e s t i l l a n o th e r
means f o r J o i n t c o n t r o l o v e r o i l . Some o f t h e s e con
t r a c t s a r e t (1) th e G u l f - S h e l l A greem ent o f 1 9 5 7 I (2)
th e A n g l o - I r a n i a n Agreem ent w ith S ta n d a r d o f New J e r s e y
and Socony-Vacuum; and (3) A n g l o - I r a n i a n Agreem ent w ith
Socony-Vacuum•
As t o a d m i n i s t e r e d p r i c e s , th e o i l com panies
have fo llo w e d a p r i c i n g system w hich e l i m i n a t e d p r i c e
d i f f e r e n c e s among th e m s e lv e s . T h is p ro c e d u re i s known
a s a " b a s in g p o i n t s y s te m ." I n t h e e a r l y »2 0 * s, th e
2^3
b a s i n g p o i n t was t h e U .S . G u l f . T h is was n a t u r a l b e
c a u s e th e U n ite d S t a t e s and Mexico w ere th e two l e a d in g
e x p o r t e r s a t t h a t t im e . The P e r s i a n G u lf b a s i n g p o i n t
was e s t a b l i s h e d i n 19^5» a s a r e s u l t o f I n c r e a s e d o i l
p r o d u c t i o n i n t h e M iddle E a s t , and b e c a u se t h e i n t e r e s t s
o f b o th B r i t a i n and th e U n ite d S t a t e s r e q u i r e d t h a t ,
e s p e c i a l l y d u r i n g th e war t im e .
P r i c e l e a d e r s h i p i s a common p r a c t i c e i n any
o l i g o p o l y . The i n c r e a s e i n c ru d e p r i c e s i n th e U .S .
was fo llo w e d by an i n c r e a s e i n M iddle E a s t c ru d e p r i c e s .
The A ra b la n -A m e rle a n O i l Company (ARAMCO) s t a r t e d t h e
move i n 19^7 and was fo llo w e d by E s s o - E x p o r t. The l a t
t e r , on December 6, 19^7» f i v e d a y s a f t e r t h e f i f t y - c e n t
i n c r e a s e i n U .S . c ru d e o i l p r i c e s , i n c r e a s e d i t s p r i c e
f o r P e r s i a n G u lf c ru d e t o a r e c o r d $ 2 .2 2 p e r b a r r e l f o r
s h ip m e n ts t o I t a l y . I n M arch, 19^8, a l l o f th e i n t e r
n a t i o n a l m a jo rs had a u n i f i e d p r i c e o f $ 2 .2 2 p e r b a r r e l
f . o . b . Ras T a n u ra , i n S a u d i A r a b ia , f o r M iddle E a s t e r n
o i l . The exam ple o f p r i c e l e a d e r s h i p was f o llo w e d a t
a l l t i m e s .
However, p r i c e s o f M iddle E a s t e r n o i l d i d n o t
r i s e and f a l l by e x a c t l y t h e same amount a s th e U .S .
G u lf p r i c e s . I n 19^7» U .S . G u lf p r i c e s i n c r e a s e d by
$ 1 .^ 6 p e r b a r r e l above t h e w artim e p r i c e s . M iddle
24-4-
E a s t e r n c ru d e o i l f o llo w e d , b u t n o t a t t h e same r a t e .
They r e a c h e d a peak i n 194-8— o n ly $ 1 .1 7 above t h e w ar
tim e p r i c e s . When U .S . G u lf p r i c e s b e g an t o f a l l i n
1 9 5 9 t M iddle E a s t p r i c e s went down by a l a r g e r m agni
t u d e . As a r e s u l t , a s e p a r a t e b a s i n g p o i n t was e s t a b
l i s h e d a t th e P e r s i a n G u lf .
As t o I r a q i p o s t e d p r i c e s , sh ip m e n ts from th e
S o u th do n o t pose any p ro b lem , s i n c e i t i s i n l i n e w ith
t h e P e r s i a n G u lf p o s t i n g s . However, T r i p o l i o r S id o n
p o s te d p r i c e s f o r I r a q i c r u d e , r e p r e s e n t an i n j u s t i c e
t o I r a q , n o t b e c a u se th e y a r e n o t i n l i n e w ith o t h e r
c ru d e p o s t i n g s , b u t on a c c o u n t o f t h e way th e y a r e c a l
c u l a t e d .
S in c e I r a q h a s no b o r d e r on t h e M e d i te r r a n e a n ,
t h e o i l com panies in v e n t e d " b o r d e r p r i c e s " w hich a re
t h e d i f f e r e n c e betw een p o s te d p r i c e s a t t h e M e d i te r r a n
e an s e a b o a r d and th e c o s t o f t r a n s p o r t i n g t h e c ru d e
th r o u g h S y r i a and L eban on. T h is c o s t i s c a l c u l a t e d
h i g h e r t h a n t h e a c t u a l c o s t o f t r a n s p o r t i n g th e c ru d e
o i l .
As t o t h e p r i c e l e a d e r s h i p f o r I r a q i c r u d e ,
B r i t i s h P e tr o le u m l e a d s t h e p r i c e f a l l , w h ile E sso
l e a d s t h e p r i c e r i s e . A lth o u g h B r i t i s h P e tro le u m i s
n o t th e l a r g e s t , i t n e v e r t h e l e s s c o n t r o l s a s u b s t a n t i a l
zhs
share in the market. Therefore, if other companies do
not follow its lead, this company is going to capture
some of the other companies* share of the market.
On the other hand, Esso leads the price rise
because it is the largest marketer in the area. In
order to force others to follow its move, Esso must be
sure that the move is justified by market conditions,
such as increased costs and enhanced buying power,
which will be (and actually is) recognized by other
sellers as valid reasons for increased prices. The
move of U.S. Steel to raise prices effective December
1^, 1967* is an example of this kind of price leader
ship.
The Organization of Petroleum Exporting Coun
tries (OPEC), was created in response to fluctuation in
international oil prices. This organization came under
severe attack and challenge by international oil com
panies in the early days of its formation. But as
time passed, their hostile attitude has changed and
softened perceptibly. The main purpose of the Organ
ization is to defend the rights of its members. It has
tackled many problems; in some, it has been successful;
others are in progress, but some problems have proved
Impossible to solve.
246
Some i s s u e s t h a t c o n c e rn t h e O r g a n iz a t i o n a r e :
m a r k e tin g a ll o w a n c e s , r o y a l t y e x p e n s in g , c ru d e o i l p o s te d
p r i c e s and t h e i r d e t e r i o r i a t i o n , more work and t r a i n i n g
f o r t h e n a t i o n a l s o f t h e p ro d u c in g c o u n t r i e s , e t c e t e r a .
D u rin g th e l a s t tw e n ty y e a r s , t h r e e im p o r ta n t
d e v e lo p m e n ts have t a k e n p la c e w hich had t h e i r r e p e r c u s
s i o n s i n th e o i l i n d u s t r y t
1 . The n a t i o n a l i z a t i o n o f I r a n ' s o i l by
M o s se d e g h 's governm ent i n t h e e a r l y f i f t i e s
and i t s e f f e c t on o i l p r o d u c t i o n i n o t h e r
a r e a s .
2. The Suez C r i s i s In 1956, w hich s e r v e d a s a
w a rn in g t o W estern E urope and o t h e r consum
in g c o u n t r i e s d e p e n d in g on one s o u rc e o f
s u p p ly ,
3* The f o r m a tio n o f t h e O r g a n i z a t i o n o f P e t r o
leum E x p o r ti n g C o u n t r i e s , i n i 9 6 0 .
T hese e v e n ts w ere e v id e n c e o f t h e b e g in n in g o f
an I n c r e a s e d demand o f th e p ro d u c in g c o u n t r i e s f o r a
more e f f e c t i v e r o l e i n one o f t h e i r m ost Im p o rta n t r e
s o u r c e s .
A lm ost a l l o f t h e p r o d u c in g c o u n t r e i s have form
ed n a t i o n a l o i l com panies of t h e i r own o r a r e now i n t h e
p r o c e s s o f d o in g s o . The I r a n i a n P e tro le u m Law o f 1957,
247
r e q u i r e d a l l newcomers t o t a k e t h e N a t i o n a l I r a n i a n O il
Company a s a p a r t n e r .
I n t h e c a se o f I r a q , I t s n a t i o n a l o i l company
was form ed On F e b ru a ry 8, 196* 1 -, by Law No. 11 o f 1964.
T h is law d e f i n e d th e company’ s o b j e c t i v e s a s b e in g a
f u l l y i n t e g r a t e d o i l company to engage i n any o r a l l
p h a s e s o f t h e o i l i n d u s t r y b o th i n s i d e and o u t s i d e o f
th e c o u n tr y .
T h ere a r e t h r e e t y p e s o f I n t e g r a t i o n * (1) h o r i
z o n t a l ; (2) v e r t i c a l ; and ( 3 ) p r o d u c t i n t e g r a t i o n . The
l e g i s l a t i o n l e f t th e d o o r open f o r t h e n a t i o n a l o i l com
pany t o f o llo w w h ic h ev e r ty p e o r t y p e s o f I n t e g r a t i o n
i t c h o o se s i n t h e c o u rs e o f i t s b u s i n e s s .
I n o r d e r f o r t h e I r a q N a t i o n a l O il Company t o be
a f u l l y i n t e g r a t e d o i l company, i t m ust s t a r t from th e
v e ry b e g in n i n g . I n o th e r^ w o rd s , i t h a s t o go th ro u g h
a l l p h a s e s o f o i l o p e ra tio n s * e x p l o r a t i o n , p r o s p e c t i n g ,
d r i l l i n g and l i f t i n g o i l . The n e x t s t e p would be r e
f i n i n g th e c r u d e , t r a n s p o r t i n g i t t o t h e d i f f e r e n t m ar
k e t s , and s e l l i n g i t t o t h e f i n a l c o n su m ers. T hese
o p e r a t i o n s r e q u i r e v e ry l a r g e c a p i t a l a s i d e from th e
r i s k s I n v o lv e d i n th e e v e n t o i l i s n o t fo u n d . T h is i s
t r u e i n g e n e r a l , and e s p e c i a l l y i n v i r g i n a r e a s where no
work h a s y e t b e e n do n e. B ut f o r INOC, t h i s k in d o f r i s k
i s n o t s i g n i f i c a n t b e c a u se t h e r e a r e many pro v ed s t r u c
ture waiting to be developed.
The National Oil Company has many courses of
action open to It. It may either go into one phase of
the oil business at a time or embark on a full-scale
venture. The former would be a slow process. The other
alternative requires making agreements with foreign cap
ital, such as that recently made with France's ERAP, by
which the latter is going to work as a contractor for
the National Oil Company. The deal with the Soviet
Union is another example.
The development of the refining process has been
highly dynamic, with the state of the art of refining
undergoing change at an ever increasing pace. Prior to
World War I, the oil companies built refineries in oil
producing countries, but even then, Iraq was deprived
of this benefit. With the increased demand for petro
leum products in the industrial countries, the location
of refineries shifted to those centers. The refining
capacity in these consuming countries of Western Europe
has grown far beyond their needs. The Industrial coun
tries of Western Europe have now become net exporters
of petroleum products. These countries even export pro
ducts to the oil producing countries.
L ocal demand f o r p etro leu m p ro d u c ts has in c re a s e d
21+9
i n r e c e n t y e a r s a s a r e s u l t o f (a) p e tro le u m makes up
more th a n 90 p e r c e n t o f l o c a l e n e rg y r e q u i r e m e n ts ;
(b) t h e econom ic g ro w th and c o n s e q u e n t i n c r e a s e i n
n a t i o n a l income w hich have t a k e n p l a c e i n I r a q im prov
in g i t s c o n su m p tio n l e v e l ; and (c) th e I n c r e a s e i n pop
u l a t i o n .
T r a n s p o r t a t i o n o f p e tr o le u m p r o d u c t s from t h e
r e f i n e r i e s t o th e m a jo r d e p o t s , t a n k e r , and th e f i n a l
con sum ers t a k e s p la c e by s h o r t d i s t a n c e p i p e l i n e s , r a i l
r o a d s , t a n k c a r s , w a te r r o u t e s and o t h e r m eans.
P r i o r t o 1951» r e f i n i n g was u n d e r t a k e n by th e
K h anagin Oil Company. However, th e company d id n o t
b u i l d a d e q u a te r e f i n e r i e s o r i n c r e a s e t h e c a p a c i t y o f
th e e x i s t i n g o n e.
The f a c t o r s t h a t h in d e r e d th e g ro w th o f r e f i n
e r i e s i n I r a q a r e b o th p o l i t i c a l and econom ic. The
p o l i t i c a l f a c t o r s a r e a p p a r e n t i n t h e d e s i r e o f consum
in g c o u n t r i e s t o be f r e e from o u t s i d e s o u r c e s o f su p
p l y . The econom ic f a c t o r s i n c l u d e ; (1) t h e consum ing
c o u n t r i e s ' d e s i r e to r e d u c e th e f o r e i g n exchange s p e n t
on p r o d u c ts im p o rte d ; (2) t h e r e f i n i n g i n d u s t r y a s a
s o u rc e o f employm ent; and (3) some p e tr o c h e m i c a ls u se
p e tr o le u m p r o d u c t s .
I n 1951» t h e Government to o k o v e r t h e r e f i n i n g
i n d u s t r y by p u r c h a s in g t h e Alwand r e f i n e r y . However,
250
t h e R a f i d a i n Company was t o a c t on b e h a l f o f t h e Gov
ernm ent u n t i l 1961.
T h ere a r e s e v e r a l r e a s o n s why a n a t i o n a l r e f i n
in g i n d u s t r y i s c o n s i d e r e d a n e c e s s i t y } among them : (1)
s t r a t e g i c s e c u r i t y f a c t o r s : (2) employment f a c t o r s :
(3) t e c h n i c a l p r o g r e s s and know-how; and (4) c o n t r i b u
t i o n t o t h e grow th o f n a t i o n a l incom e.
The Governm ent O i l R e f i n e r i e s A d m i n i s t r a t i o n
b u i l t t h e D ura, M u f tie h and Q ayarah r e f i n e r i e s i n 1 9 5 1 1
1953 and 1955 r e s p e c t i v e l y . The t o t a l r e f i n i n g c a p a
c i t y i n I r a q i n 1965 r e a c h e d 73*510 b a r r e l s / d a y .
As a r e s u l t o f t h e p o l i c i e s f o llo w e d by t h e
f o r e i g n o i l c o m p a n ie s, I r a q d i d n o t g e t i t s f a i r sh a re
o f t h e r e f i n i n g i n d u s t r y . On th e o t h e r hand, t h e I r a q
P e tr o le u m Company b u i l t th e H a i f a r e f i n e r y w ith a c a p a
c i t y o f 9 2 ,0 0 0 b a r r e l s / d a y , a f i g u r e more th a n t h e com
b in e d c a p a c i t y o f a l l th e r e f i n e r i e s i n I r a q .
I t w i l l be n e c e s s a r y t o a t t a c h t h e Government
O i l R e f i n e r i e s A d m i n i s t r a t i o n t o t h e I r a q N a t i o n a l O il
Company a s a f i r s t s t e p f o r t h e company t o e n t e r th e
r e f i n i n g s e c t o r i n t h e d o m e s tic m a rk e t and t h e n move on
l a t e r t o t h e f o r e i g n m a r k e t.
N a t u r a l g a s i s now e n jo y in g an i n c r e a s i n g s h a re
o f th e m a rk e t a s a f u e l i n p l a c e o f d i s t i l l a t e and f u e l
251
oils. It is no longer considered merely a by-product
of oil.
The United States as well as European countries
are making good use of their domestic supply of natural
gas. Iraq, is just beginning to follow in the footsteps
of these countries.
Natural gas can be utilized by injecting it
into oil wells, for energy generation and as a raw ma
terial for petrochemicals.
The sources of natural gas in Iraq are either
oil fields, where the gas is produced at present, or
the gas fields, which the exploration activities of the
oil companies have revealed to be several fields with
great potentialities.
Three methods may be used in pricing natural
gas. First, the price may be set according to the heat
value of the fuel oil. Second, the cost plus formula
for each project, and third, averaging the cost of gas
throughout the country plus a percentage profit.
There are now two ways to transport natural gas
in Iraq. The one that is now used more than any other
alternative method Is by cylinders. Pipelines are con
sidered another means which is ever-increasing in im
portance.
252
The gas projects in Iraq, are: the Bumaila gas,
which is utilized in the electricity generating station
in Najebia, the paper factory in Basrah, and the ferti
lizer plant in Aby-el-Foloos, in Basrah. Kirkuk gas is
used in the Debis power station to generate electricity,
Kirkuk gas is transported to Baghdad by a sixteen-inch
pipeline to supply some minor plants such as the Dura
paper plant, National Power Plant, cement factory and
others. Aside from this, Kirkuk liquid gas is carried
by pipeline to Baghdad to be distillated in a Dura re
finery for distribution all over the country.
The development of petrochemical industries has
been noticeable over the past four decades, especially
in the United States, A similar trend is taking place
in Western Europe.
Petrochemicals are characterized by the follow
ing: (1) petrochemicals depend upon a sophisticated pro
cessing industry for their outlets; (2) petrochemicals
are subject to sudden changes, both in product and tech
nology; and (3) it is a high capital-intensive industry.
The factors that affect the building of a petrochemical
industry are: raw materials, existence of complementary
and consuming industries, availability of large capital,
skilled labor, and finally, the existence of a large
market.
253
P e tr o c h e m ic a ls can be c l a s s i f i e d i n t o f o u r t y p e s j
( 1) f e r t i l i z e r s ; (2) d e t e r g e n t s ; (3) p l a s t i c s and chem
i c a l s ; and (4) s o l v e n t s .
P e tr o c h e m ic a ls i n I r a q a re o f two t y p e s : th o s e
u n d e r c o n s t r u c t i o n and th o s e s t i l l i n th e p la n n in g
s t a g e and u n d e r s tu d y . The p e tr o c h e m ic a ls u n d e r con
s t r u c t i o n a r e : a s u lp h u r p l a n t a t K irk u k and a chem ical
f e r t i l i z e r p l a n t a t B a sra h . The p e tr o c h e m ic a ls und er
s tu d y a t p r e s e n t a r e : c a rb o n b la c k p l a n t s , p o ly v in y l
c h l o r i d e p l a n t , E th ly e n e p l a n t , p o ly e th ly e n e p l a n t , as
w e l l a s t i r e s and ru b b e r tu b e s p l a n t s .
C o n c lu s io n
For t h e f o r t y y e a r s o f th e IPC g r o u p 's o i l o p e r
a t i o n s i n I r a q , t h e e n t i r e t e r r i t o r y o f th e c o u n try was
v i r t u a l l y u n d e r t h e monopoly of th e company. D u ring a l l
t h i s p e r i o d , t h e IPC f a i l e d t o d e v e lo p I r a q ' s o i l i n
a cc o rd a n c e w ith i t s p o t e n t i a l i t i e s . The h i s t o r y o f th e
I P C 's o i l o p e r a t i o n s i n I r a q has been one o f power p o l i
t i c s r a t h e r th a n economic r a t i o n a l e . T h is group h as n o t
t r i e d t o i n t e g r a t e th e o i l i n d u s t r y i n t o th e economy o f
I r a q .
The monopoly o f th e IPC group o ver I r a q ' s o i l has
p la c e d t h e c o u n tr y a t t h e mercy o f t h e o i l com panies i n
a se n se t h a t th e y m a n ip u la te d t h e i r p r o d u c t i o n t o p e n a -
25^
lize Iraq whenever it demanded an improvement in the oil
companies1 concessions in accordance with changes that
occurred over time.
Through these practices, the oil companies have
exhibited their power and ability to determine the gov
ernments revenue, and, consequently, to carry out its
economic plans. Following the passage of Law No. 80 of
1961, Iraq's oil output was stabilized at around one
million bbl/day and remained there for several months.
It was increased through 1963, to a record high follow
ing the overthrow of Kassim. Afterward, however, the
rate of increase dropped due to the unsolved problems
between the oil companies and Iraq. As a result, Libya's
production surpassed that of Iraq, when it passed the
1,252,000 bbl/day in July, 1965, while Iraq's production
was 1,1^9,8^7 during the same period,*
The companies' objective from all this, was to
illustrate their contention that the destiny of the oil
industry in Iraq was determined by the IPC group and
that the country has no alternative but to admit the com
panies' supremacy, and they are the ones to come to for
whatever is needed.
*0 i l and Gas J o u rn a l (Septem ber 27, 1 9 6 5 ),p .6 3 .
255
However, direct foreign investment of the oil
industry in Iraq has some advantages for Iraq's economy.
Being subject to private profit motives and business
calculations, it is likely to be productively employed.
It helps to promote the spread of modern technology and
efficient management methods. It is free from the rigid
interest and amortization requirements that affect inter
national loans.
Yet, foreign capital brought in by the oil com
panies does not have the great effect on Iraq's economy
that is claimed for it by the oil companies themselves,
as well as some writers. In reality, the effect is
very limited, since the petroleum industry by its very
nature works mainly for export to the advanced indus
trial countries.
The oil industry has not engaged in industrial
production for Iraq's market. In the more developed
countries, foreign investment has concentrated more on
industrial production and has been responsible for cap
ital formation to some extent, as in the case of the
United States investment in Canada and British invest
ment in the railroads in the United States, and the
French investment in Russia prior to 1917»
Oil investment has not engaged in any external
256
investments other than the pipelines to the Mediter
ranean Sea. Therefore, the external effects of the oil
investment have also not been significant. These pipe
lines cannot serve any wider purpose. If a railway
had been built, for example, it could have been suit
able for other purposes as well and could directly
benefit the country*s general economic development.
The emergence of the Iraq National Oil Company
is one of the most Important changes in the oil indus
try in Iraq. It is a turning point in the history of
this important industry. The Company's agreement with
France's ERAP and the Soviets represents a significant
step in getting out of its dilemma of conflicting views,
proposals and counterproposals, which left the National
Oil Company paralyzed since its establishment. More
over, if for nothing else, these agreements represent
a breakthrough of the monopoly chain of the IPC group.
The two above mentioned agreements exclude the
prolific field of North Rumaila. It is in the interests
of the INOC to develop this field by itself. It can
conclude off-take agreements with foreign contractors
for the marketing of this crude. In order to avoid com
petition in Western Europe, with the IPC group, the Iraq
National Oil Company may sell In Asia, Africa, Eastern
Europe and South America.
257
It is possible for the Iraq National Oil Com
pany to be an integrated oil company in the coming few
years. The local refining industry is already estab
lished. It Is suggested that the Government Oil Refin
ery Administration, together with the Distribution Ad
ministration of Refined Products, be attached to the
company.
For petrochemical industries and plants, it is
suggested that the Iraq National Oil Company operate
through a separate corporation to be known as the "Iraq
National Petrochemical Corporation." This corporation
would take over the existing petrochemical plants as a
first step. For future projects, it could either work
alone or conclude agreements with foreign companies in
the petrochemical business.
It is also recommended that the existing Gas
Administration be reorganized and attached to INOC
under the title of "Iraq National Gas Company," to
function both locally and in the foreign market.
There is no doubt that the Iraq National Oil
Company has a long way to go, but it is a most promising,
and the inevitable way. It should also be noted that
the time has come for the oil companies to admit the
fact that their prospective operations will depend almost
entirely on their not repeating the mistakes of the past.
The extent of their cooperation with the Government and
the understanding of the country’s pressing problems and
the keen desire of its people for economic development
will be of prime importance.
B I B L I O G R A P H Y
i
BIBLIOGRAPHY
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I n d u s t r y : A Case S tu d y i n N a t i o n a l i s m . S t a n
f o r d : H is p a n ic -A m e ric a n and L u z o - B r a z i l i a n
S t u d i e s , S t a n f o r d U n i v e r s i t y , 1 9 6 3 .
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Asset Metadata

Creator Al-Ali, Mohammed Salih Abdul Rahman (author)

Core Title Economics Of The Oil Industry In Iraq

Degree Doctor of Philosophy

Degree Program Economics

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag Economics, Commerce-Business,Energy,OAI-PMH Harvest

Language English

Contributor Digitized by ProQuest (provenance)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c18-622298

Unique identifier UC11360097

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Legacy Identifier 6813569.pdf

Dmrecord 622298

Document Type Dissertation

Rights Al-Ali, Mohammed Salih Abdul Rahman

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the au...

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