Red Line Agreement



The Red Line Agreement is an agreement signed by partners in the Turkish Petroleum Company (TPC) on July 31, 1928, in Ostend, Belgium. The agreement was signed between Anglo-Persian Company (later renamed British Petroleum), Royal Dutch/Shell, Compagnie Française des Pétroles (later renamed Total), Near East Development Corporation (later renamed ExxonMobil) and Calouste Gulbenkian (Mr. Five Percent), who retained a 5% share. The aim of the agreement was to formalize the corporate structure of TPC and bind all partners to a "self-denial clause" that prohibited any of its shareholders from independently seeking oil interests in the ex-Ottoman territory. It marked the creation of an oil monopoly, or cartel, of immense influence, spanning a vast territory. The cartel preceded easily by three decades the birth of another cartel, the Organization of Petroleum Exporting Countries (OPEC), which was formed in 1960.

The Red Line Agreement was signed following the discovery of an immense oil field Baba Gurgur in Iraq and TPC gained a concession for Iraq. Under the terms of the agreement, each of the four parties received a 23.75% share of all the crude oil produced by TPC. The remaining 5% share went to Gulbenkian, who was a partial stakeholder within the TPC. In 1929, TPC was renamed the Iraq Petroleum Company, or IPC.

As Giacomo Luciani (2013) writes: "'Having formed IPC, [Calouste] Gulbenkian insisted that participants in the consortium sign what became known as the Red Line Agreement (Yergin 1991: 203–6). The red line was drawn on a map to define the territories formerly under the sovereignty of the Ottoman Empire, and the agreement stated that participants in the IPC consortium pledged to be involved in the exploitation of any oil to be discovered within the red line exclusively through consortia with the same composition as the IPC. Hence, if one of the IPC consortium members were to discover any oil or obtain a concession elsewhere within the red line, it would have to offer this asset to the remaining members in the same ‘geometry’ as in the IPC.'"It has been said that, at a meeting in 1928, Gulbenkian drew a red line on a map of the Middle East demarcating the boundaries of the area where the self-denial clause would be in effect. Gulbenkian said this was the boundary of the Ottoman Empire he knew in 1914. He should know, he added, because he was born in it and lived in it. The other partners looked on it attentively and did not object. They had already anticipated such a boundary. (According to some accounts, the “red line” was not drawn by Gulbenkian but by a French representative.) Except for Gulbenkian, the partners were the supermajors of today. Within the “red line” lie the entire ex-Ottoman territory in the Middle East including the Arabian Peninsula (plus Turkey) but excluding Kuwait. Kuwait was excluded as it was meant to be a preserve for the British.

Years later, Walter C. Teagle of Standard Oil of New Jersey remarked that the agreement was “a damn bad move”. However, it served to define the sphere of operations of TPC's successor, the Iraq Petroleum Company (IPC). The writer Stephen Hemsley Longrigg, a former IPC employee, noted that "the Red Line Agreement, variously assessed as a sad case of wrongful cartelization or as an enlightened example of international co‑operation and fair-sharing, was to hold the field for twenty years and in large measure determined the pattern and tempo of oil development over a large part of the Middle East". Apart from Saudi Arabia and Bahrain where ARAMCO and BAPCO prevailed, IPC monopolized oil exploration inside the Red Line during this period.

American oil companies Standard Oil of New Jersey and Socony-Vacuum were partners in IPC and therefore bound by the Red Line Agreement. When they were offered a partnership with ARAMCO to develop the oil resources of Saudi Arabia, their partners in IPC refused to release them from the agreement. After the Americans claimed that World War II had ended the Red Line Agreement, protracted legal proceedings with Gulbenkian followed. Eventually the case was settled out of court and the American partners were allowed to join ARAMCO. The Red Line Agreement became a legacy document after this date, as IPC continued to operate existing concessions under its terms but the shareholder companies were allowed independently to seek new oil concessions across the Middle East.