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Iran's Fabulous Oil...and Other Popular Fables | The Nation

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Iran's Fabulous Oil...and Other Popular Fables

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The west was easily gulled by the promise of a new era of progress and prosperity under the Shah.

About the Author

A. Kessel
A. Kessel, an Iranian engineer employed by the Anglo-Iranian Oil Company, is a research associate at the University of...

An agreement settling the long-standing Iranian oil dispute has been initialed between the Iranian government and a consortium -- cartel is not a very respectable word -- of eight oil companies. Congratulatory notes have criss-crossed among the President of the United States, the Shah, Mr. Eden, and the various ambassadors, ministers, and oil company officials concerned, not to speak of Herbert Hoover, Jr. who seems to have been rewarded with something more concrete than congratulations. The New York Times called the agreement "a diplomatic victory for the West." The Iranians have been told that they are now embarked on a new era of national progress and prosperity. And the Shah and his ministers, renewing their "two years of treason" campaign against the former Mossadegh regime, are exhorting the Iranian parliament to ratify the agreement or else.

These widespread expressions of optimism are based on a number of misconceptions which have been sedulously propagated internationally ever since Iran nationalized its oil in 1949. For instance it has been widely publicized that Iran's general economy, as well as the government's revenues, are dependent upon the continued flow of black gold. This is a shockingly false picture. Let us examine the allegation in the light of four criteria: the oil industry's contribution to the national budget, its contribution to the national income, its contribution to employment, and, finally, its role in the life of the Iranian people.

The National Budget. The highest annual net money return to the Iranian government by the oil industry was in 1948-49 and amounted to $30,000,000. The national budget that year was approximately $300,000,000. Thus the oil revenue amounted to about 10 per cent of the national budget. It is true that since most of the oil revenue was in foreign exchange, its value was greater than the figures indicate. But by no stretch of the imagi-nation can the revenue be calculated as forming the "major share" of the national budget.

The National Income. Iran is a large country (over 600,000 square miles), sparsely populated (about 18 to 20 millions), predominantly agricultural, and sadly lacking in statistics. Any estimate of its national income is bound to be hardly more than a reasonable guess. The latest such guess appears in the U.N. Statistical Year Book for 1952, which puts the figure at about $1,800,000,000 annually during recent years. Experts will affirm that the figure is more likely to be an under- than an overestimate.

How much did the oil industry contribute to the national income? First, there are the cash revenues which accrue directly to the government, second, the wages and salaries earned by Iranians in the industry, third, the goods and services purchased by the in-dustry in Iran. Even at the peak of its operation, the industry employed fewer than 100,000, mostly unskilled labor. Assuming an average income for these workers of $500 a year (an optimistic guess, about six times greater than the national average), this amounts to $50,000,000. The industry's purchases in Iran are limited, for its technical equipment, and the nontechnical goods and services for its non-Iranian employees, are purchased abroad. If we put the figure at $20,000,000 a year we are probably overesti-mating.

Let us recapitulate. Oil royalties at their peak amounted to $30,000,000; wages and salaries, $50,000,000; goods and services, $20,000,000. The oil industry's total contri-bution amounted to $100,000,000 -- or about 6 per cent of the annual national income of $1,800,000,000.

Shall we be generous and allow for a figure of 10 per cent?

Employment. Iran's male labor force can be estimated at 5,000,000 persons. The oil in-dustry never employed more than 100,000,000, or about 2 per cent.

Oil Industry's Role. To the vast majority of the people of Iran the oil industry simply does not exist. They get nothing from it directly or indirectly. At least 85 per cent of the people live on a primitive agriculture, 20 per cent still lead a nomadic tribal existence. It has yet to be proven that the oil industry has raised the abysmally low standard of living of these Iranian masses by any substantial amount.

For two years, under Mossadegh's regime, the Abadan refineries were closed with no observable deterioration in the country's standard of living. If anything, conditions im-proved somewhat -- employment was slightly higher, production was up a little, the trade balance was slightly more favorable. If it is true that when the new government took over after last year's pseudo-revolution the national coffers were empty, then this was not because the oil industry had been shut down. The main reasons lie in major shortcomings of the socio-economic organization of Iranian society which have no rela-tion to the oil industry.

WHY was there no settlement of the oil dispute during Mossadegh's regime? The public was given all sorts of reasons: the chauvinistic Iranians had lost their commonsense, the stubborn playactor, Mossadegh, was unreasonable; the Communists had taken over the country; the Iranian government was refusing to pay compensation to Anglo-Iranian. But there is another and more likely reason which never reached the headlines. The world oil cartel sets the world market price and wants to be able to continue doing so. Mossadegh's terms, in contrast, demanded independence of operation, including sales at prices outside the cartel's control. And it may be said in passing that Iran's production was potentially large enough and cheap enough to have posed a real threat to world prices under such conditions.

Some of the truth did leak out. The New York Times of August 26, 1953, wrote of the existing concern "for the world market price system for oil rather than with the question of compensation for Anglo-Iranian." And four day later the Times wrote: "If the Anglo-Iranian Company should regain control, the Iranian oil supplies might be channeled into world markets with a minimum of disturbance to prices . . . Should no agreement be made with Anglo-Iranian, the reentry of Iranian oil in the international market could be serious. Another organization without adequate distribution outlets might drastically re-duce prices in order to find a market. This would create chaos in world oil markets, for only a relatively few areas could compete in price with the low-cost production of Iran." On September 22,1953, the Times referred to Iranian oil as "barred from world markets for more than two years by the successful British commercial blockade backed by world oil interests."

THE inside story of the "popular revolt" which overthrew the Mossadegh regime in August last year will be known only after the various secret documents involved are made public. One may safely conjecture, however, that the story given to the press did not tell the whole truth. It may or may not be relevant, for instance, that the "revolution" broke out in Iran only a short time after Mossadegh had succeeded in selling $3,000,000 worth of oil to the Japanese, and the British had already lost their case in the Japanese courts trying to prevent the unloading of the oil.

The exact terms of the new agreement have not yet been divulged, but it is interesting to compare what we know of them to the terms of the old concession. The now defunct agreement with Anglo-Iranian was scheduled to remain in effect until 1993 -- approximately another forty years. The new agreement is for twenty-five years with provisions for three automatic renewals of five years each, i.e., a total of forty years. Production, export, marketing, and all other operations are to be carried out by the consortium which, except for the presence of an Iranian member on the board, will be predominantly non-Iranian. Royalties to the Iranian government will be based on a fifty-fifty sharing of all marketing operations, an arrangement similar to that in Saudi Arabia, and one which American oil interests tried to induce Anglo-Iranian to offer to Iran at the time of nationalization.

It would appear then that the only real gain to the Iranian government in the new agreement is that the American oil companies assume responsibility for compensating Anglo-Iranian. (Time estimated the amount involved as $600,000,000) in return for the privilege of sharing the profits.

What are the disadvantages to Iran? One is entitled to wonder, of course, how much the entrance of six powerful American oil companies into the Iranian domestic scene is going to affect the freedom of operation of the Iranian government. Apart from this, there is a more fundamental issue: the gains accruing to a society, especially an underdevel-oped one, from the operation of any large industry are not confined to immediate cash returns. There are invaluable indirect factors, such as the creation of a skilled labor force, the growth of subsidiary service industries, the development of new industries re-lated to the first, the creation of a sense of responsibility and managerial know-how on both the local and national level. During the forty years which Anglo-Iranian operated in Iran such indirect gains to the Iranian economy were infinitesimal. The oil industry has been simply an isolated production island with a minimum number of contacts with the rest of the economy. There is no reason to suppose that the new consortium will act any differently from Anglo-Iranian. Indeed, from the point of view of a company operating solely for profit, there is no other way to act.

On the other hand the gains to Iran of continued independent operation of the nationalized industry in the form of increased self-reliance, a greater sense of political independence, and faster technological development under the pressure of necessity, would have far outweighed the loss in cash revenue. And had there existed no world oil cartel, there is every reason to believe that even the cash revenues would have proved as great as are now promised.

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