From Persia to Iran: the Politics of the Change of Name and its Impact on the Oil Concession

In 1900, Persian officials offered William Knox D’Arcy, an Englishman, the chance of acquiring an oil concession in Persia. The first of its kind in the Gulf region, the oil concession granted D’Arcy ‘a special and exclusive privilege to search for and obtain, exploit, develop, render suitable for trade, carry away and sell natural gas, petroleum, asphalt and ozokerite throughout the whole extent of the Persian Empire for a term of sixty years’.

The Persian Oil Concession was originally granted to the D’Arcy Exploration Company in 1901, providing that the company pay Persia sixteen percent of its net profits. However, this unsophisticated wording – written in the earliest years of oil exploration – made the precise royalties hard to determine. A further agreement, known as the Armitage-Smith Agreement, was signed in 1920 providing further clarity to the terms.

Although D’Arcy undertook the enterprise as a personal adventure for profit, the concession had a strong influence on the development of the Anglo-Persian Oil Company (APOC) and was ultimately to steer British Government interests in the region.

The D’Arcy Concession

In 1908, after oil was discovered in Persia by D’Arcy’s engineers, the British Government began to exert more influence over the company’s affairs; in doing so, they displeased the Persians. However, the tide had already turned: by 1914, long before it was re-named the British Petroleum Co. Ltd in 1954, the British Government held the majority of shares in the company.

Persia Becomes Iran

Internal changes within the country were also to affect the relationship between the authorities and the company. After the fall of the Qajar Empire in 1925, the Pahlavi dynasty took a different approach to the concession and to concomitant British interests.

Grievances voiced from the end of the First World War against the company were not just financial and commercial: the autocratic Government was seeking an ‘Iranianization’ of the company, which was accused of not employing the Iranian workforce. A similar attitude, intended to protect the country from foreign interests and influences, propelled Reza Shah’s decision, in 1935, to change the name of the country from its exonym, Persia – the name by which the country was known externally but which referred only to a single province – to its endonym, Iran – the name by which the country had been known internally.

1932: The Persian Government Revokes the Oil Concession

The company’s growth was affected by the recession in 1930 and, in 1931, royalties were reduced to a quarter of the previous year’s. In November 1932, the Shah himself cancelled the concession, allegedly because the APOC was not acting in Persia’s interests. In addition, it was claimed that the company was neither extracting enough oil and minerals from the territory, nor paying enough royalties. The political reasons for the cancellation were more likely rooted in a desire to be emancipated from British interests, while the financial motivation was for the renegotiation of higher royalties, which would drive revenues and, in particular, finance Reza Shah’s modernization plans.

In Defence of Empire

As the Soviet paper Izvestia wrote at the time, the cancellation of the concession represented ‘a serious breach of the colonial policy of England’. After a long debate within the Foreign Office, both the company and the British Government agreed to challenge the Shah’s right to cancel the concession.

Interestingly, the government directly intervened to support the interests of the company, to the extent that the cancellation of the 1901 D’Arcy Concession was considered a dispute between Britain and Iran and was referred to the Council of the League of Nations.

The Council considered the action of the British Government contrary to international law, finding that they had no right to make a diplomatic issue of the case. The dispute was solved informally by the two parties, under the supervision of the Council’s rapporteur, and negotiations for a new concession began in April 1933.

A New Concession

A new concession, valid until 1993, was quickly renegotiated and signed on 28 April 1933, with the company, now renamed as the ‘Anglo-Iranian Oil Company’ (AIOC). This new agreement obliged the AIOC to employ more Iranians, to refine oil in Iran and to widen the concession to the sea bed in the Gulf. In doing so, the concession helped to define the border with Iraq in the Shatt el-Arab and to delimit Iranian coastal waters in the Gulf.