Home Page | Photo Page | What's New Page | Contact Page | Oil & Gas Links

The Consortium Agreement of 1954       The government of coup d’ etat signed the Consortium Agreement in 1954.       The Anglo-Persian Oil Company, which had then become the British Petroleum, had 40 percent of shares, and 40% was owned by American oil companies. Of the remaining 20%, fourteen percent of the shares went to the ‘ Royal Dutch-Shell’, and 6% to the French ‘CFP’. Financially, this agreement did not differ much from other agreement in the Middle East, because Iran’s revenues would not move beyond the 50% which was the basis in all of them. In addition to 10 million Pounds it received from Iran, as compensation for Kermanashah refinery and domestic distribution facilities, the British Petroleum also obtained from its new partners who had 60% of the shares of the consortium, the amount of 214 million Pounds (600 million dollars) as key money. From the point of Iran, the contents of this agreement were much more unfavorable than conditions set forth several months earlier in the joint ‘Churchill-Eisenhower’ proposal to Dr. Mosaddegh. Iranian oil production in the first 3 years reached the pre-nationalization era level. From then on, production operations that were limited to Masjid-e-Solaiman and Haftgel fields up to time the oil industry was nationalized, quickly expanded and covered the huge oilfields of Gachsaran, Ahwaz and Aghajarj.

Oil Bill and Company Agreements

In 1957, or three years after then signing of the consortium agreement, the first Iranian oil bill passed into law, which allowed for the signing of agreements based on participation with foreign investors, outside the area where the consortium operated. The participation formula* , which was an innoveation at the time, triggered the dissatisfaction of major oil companies. They, however, gradually changed their attitude and found it a more proper approach to ensuring there continued cooperation with oil producing countries. Iranian praticipation agreements were 50:50 agreements. 50 percent of shares belonged to the National Iranian Oil Company and the remianing 50 percent went to one or several foreign companies. Foreign partner or partners paid 50 percent of their 50 percent. Shares as tax to the gowernment of Iran. As a result, those agreements came to be know as 75:25 agreements.       Tax payment was revised later on and was raised to 85 percent. Also, foreign partners were obliged to pay another as royalty to the National Iranian Oil Company. Contracts of Service Contracts       The oil law of 1957, however, was revised in 1974. As a result, foreign companys’ investments in the upstream oil sector operations, or exploration, development and production became possible only through service contracts*. The law prohibited foreign participation in the production and utilization phases. Based on the new law, foreign companies prepared to sign a service contract, would have to accept the risks associated with exploration operations.       In other words, if operations were not positive in leading them to commercially producing fields, they could not exact the amount they had spent. But if they reached oil, they had to hand over the discovered field to the National Iranian Oil Company and exact their expenses in 10 yearly installments and deduct them from their payments for crude oil they purchased.

The Islamic Ravolution and End of the Contracts.

The consortium agreement of 1954 was also revised in 1974 and a new agreement replaced it. Decisions of the Organization of Petroleum Exporting Countries (OPEC), which were implemented, by member countries, including Iran, further restricted the operations companies.       Concession holding companies practically turned into oil-exporting countries’ service contractors in the late 70s. Their tax payments had increased from 50 percent to 80% and their royalty payments from 12.5 to 20%. Oil prices were also set by producing countrires. Thus, foreign companies were left with just 22 cents per barrel. Consortium member companies had to lift and export much of the crude oil they produced.       They also had to process 300 thousand b/d of crude oil in the Abadan refinery and export products. In addition, they had to pay NIOC, 40% of capital expenses, interest-free, as down-payment for the crude oil produced. The were also obliged to provide NIOC, all technical services required for operations, for a period of 5 years. Because of limitations imposed on companies as a result of OPEC decisions, the implementation of those commitments became difficult. The situation became intolerable for the Consortium after the 1953 agreement, and called for the resumption of negotiations aimed at reaching a new agreement.       Negotiations started in 1976 and went on up to the victory of the Islamic Revolution, and never came to positive results.With the triumph of the Islamic Revolution led by the late Imam Khomaini, the National Iranian Oil Company officially declared the end of Iran’s relation contracts that had been signed with foreign companies before the revolution were declared cancelled based on the Revolutionary Council of 7 January 1979.

Oil Industry after the Victory of the Islamic Revolution
Iranian employees of the oil industry that had played a major role in the Islamic Revolution by their all out presence in popular campaigns, cross-country strikes and interruption of the flow of oil, undertook the management and operations of the industry including exploration, drilling, production, transportation, refining and exploration following the exit of foreign oil companies from Iran.       Despite doubts expressed by international experts, Iranian employees proved their ability and expertise in successfully running the affairs of Iran’s oil industry.       Following the eruption of the imposed war on 21 September 1980, oil, gas and petrochemical industry centers installations and complexes, turned into targets of heaviest enemy air and ground attacks.       In the course of incessant Iraqi air attacks aimed at interrupting Iran’s oil production and exports, as well as disrupting fuel transmission to cities, industries and warfronts, the strategically vital oil industry centers were seriously damaged. The Abadan refinery was demolished and other refineries were attacked many times by the enemy.       * This fromula is very similar to the ‘Buy-Back’ agreements.       Kharg Island and other oil export terminals were continusly targest heavy enemy fire. Despite such intense pressures, which were aimed at shattering the backbone of the country’s oil industry and economy, oil export did not halt even for a single day. The period witnessed a new episode came to be known as ‘Oil-Tankers war’, in the course of which even oil-wells and oil platforms were also targeted by enemy invasions.       With about a thousand martyrs, the captivity and martyrdom of Engineer Mohammad Javad Tondgoodyan, then Minister of Petroleum, oil industry employees and experts protected and expets protected and maintained production, refining and export facilities, and continuously acted and rebuilt installations damaged in enemy air raids. By implementing innovative plans, they countered enemy plots, and brought about conditions, undre which, neither the country nor the combatants faced any problems. more ...                                                        back
Home Page | Photo Page | What's New Page | Contact Page | Oil & Gas Links