Financial Times (London, England)
April 14, 2005 Thursday
London Edition 1

Carving up the Middle East’s resources

By JAMES DRUMMOND

If the birth and tortured early history of Iraq’s oil industry are
any guide, the omens for foreign investment in the country’s
hydrocarbon sector are not great.

The full scale of the country’s potential became apparent in 1927
when the Baba Gurgur 1 well outside Kirkuk in northern Iraq flowed at
95,000 barrels of oil a day.

By then, the country had become the scene of operations of the
infamous Calouste Gulbenkian, an Armenian trader born in Istanbul who
founded the Turkish Petroleum Company and became known as Mr Five Per
Cent because that was his share of TPC.

In its first incarnation, the other shareholders in the TPC were
Anglo-Persian – better known today as British Petroleum – Royal
Dutch/Shell and Deutsche Bank. After the First World War, Deutsche
lost its stake.

Subsequently, the CFP, the French state-owned oil company, and the
Near East Development Company, consisting of Standard Oil of New York
and Standard Oil of New Jersey, joined the consortium.

The Turkish Petroleum Company then morphed into the Iraq Petroleum
Company but not before Gulbenkian had committed his partners in the
TPC to the famous Red Line agreement in 1928.

Under the accord, none of the TPC partners was allowed to invest
inside a specified area without the agreement of the others.

The area was massive, covering most of the area of the old Ottoman
empire. It included Turkey in the north but excluded Kuwait and Iran.
Gulbenkian thus had an effective veto on investment by many of the
world’s leading oil companies in what became the most lucrative oil
play in the world.

The veto earned him a fortune and obstructed the US attempts to
exploit Middle East oil.

In its first incarnation, the Turkish Petroleum Company had secured a
concession in Iraq until 2000 in which the company paid royalties to
the Iraq government of just 15 cents a barrel. The concession was
unilaterally revoked in the early 1960s by the radical government of
Abdel Karim Qassim that ousted the monarchy.