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Concession Agreements

Commercial extraction of oil began at the turn of the century, when exploration and exploitation rights were granted to foreigners. The first of these was an Englishman, W.K. D'Arcy, who in 1908 discovered commercial quantities of petroleum. D'Arcy's discovery led to the formation of the Anglo-Persian Oil Company in 1909, which, after 1935, operated as the Anglo-Iranian Oil Company (AIOC).

Disagreements over revenues arose almost immediately between the government and the newly formed oil company. The interpretative agreement reached in 1920 temporarily quieted matters. When revenues fell sharply at the beginning of the Great Depression, however, Iran canceled the concession, causing Britain to take the case to the League of Nations in 1932. Before the league came to a decision, a significant modification of the original concession was negotiated by Iran and the company acting on their own. Royalty payments, previously a share of company profits, were supplanted by a fixed payment per ton of oil produced. Minimum payments to the government were established, and the life of the concession was extended by 32 years (until 1993), although the concession area was reduced about 80 percent.

After continued disputes over the terms of the contract with the AIOC, the Majlis voted to nationalize the petroleum industry in 1951. In 1954 the AIOC was renamed the Consortium, reflecting the 40-percent ownership held by British Petroleum, 14 percent by Royal Dutch Shell; 7 percent each by Gulf Oil, Socony-Mobil, Esso (later Exxon), Standard Oil of California, and Texaco; 6 percent by Compagnie Française des Pétroles; and 5 percent by various interests collectively known as the Iricon Agency. The Consortium's concession was to run through 1979, with the expectation of negotiable fifteen-year options. Instead, at the request of the Iranian government, in 1973 the Consortium agreed to form a new agency to market Iranian petroleum. The Consortium members in return received a privileged buyer status for a twenty-year supply of crude petroleum.

This agreement was interrupted because of strikes in the oil fields in 1978 during the rebellion against Mohammad Reza Shah. Petroleum exporting was not resumed until his departure on January 16, 1979. Subsequently, the NIOC canceled the 1973 marketing agreement with former Consortium members, offering them instead a special nine-month supply agreement, after which they lost special buyer status.

Data as of December 1987