Oil, power, and the Middle East: how oil companies shaped the Region and its people

Monis Bukhari
10 min readMay 2, 2023

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A century ago, several powerful oil and gas companies divided the Middle East into spheres of influence, shaping the region’s political and economic landscape. The impact of this division was far-reaching, affecting the lives of millions of people and perpetuating a legacy of colonialism and imperialism that continues to shape the region to this day.

The Red Line Agreement was a secret agreement signed in 1928 between five major oil companies, which divided the Middle East into spheres of influence for each of the signatories. The purpose of the agreement was to regulate the exploration and production of oil in the region, and to allow the companies to coordinate their activities and share information. The agreement was controversial at the time for perpetuating colonialism and imperialism in the region.

There were various agreements related to the oil industry in the Middle East before the Red Line Agreement of 1928.

One of the earliest agreements was the D’Arcy Concession, signed in 1901 between the British entrepreneur William Knox D’Arcy and the Shah of Iran. Under this agreement, D’Arcy was granted exclusive rights to explore for oil in Iran in exchange for a share of the profits.

Another important agreement was the Turkish Petroleum Company Agreement of 1912, which granted rights to explore for oil in Ottoman-controlled territories to a consortium of companies led by the British government. This agreement was later modified in 1914 to include the German government.

During World War I, the British, and French governments also signed the Sykes-Picot Agreement of 1916, which divided the Middle East into spheres of influence for the two countries. This agreement laid the groundwork for the political situation in the region before the Red Line Agreement.

After the war, the new countries that were created in the Middle East granted concessions to foreign companies to explore for oil. For example, in Iraq, the Iraq Petroleum Company was granted a concession to explore for oil in 1925.

The Red Line Agreement was not the first agreement related to the oil industry in the Middle East, but it was one of the most significant, as it brought together several major oil companies and laid the foundation for their coordination and cooperation in the region.

Before…

The history and circumstances that led to the Red Line Agreement of 1928 can be traced back to the early 20th century, when the world’s demand for oil began to increase rapidly. At the time, the Middle East was seen as a major potential source of oil, but the region was controlled by the Ottoman Empire, which was declining.

During World War I, the British and French governments began to explore the possibility of securing access to the region’s oil resources. The British government, in particular, saw the Middle East as a vital strategic asset and sought to establish control over the region’s oil resources.

In 1916, the British and French governments signed the Sykes-Picot Agreement, which divided the Middle East into spheres of influence for the two countries. This agreement laid the groundwork for the political situation in the region before the Red Line Agreement.

The northern part of Sykes-Picot agreement
The northern part of Sykes-Picot agreement

After the war, the Ottoman Empire was dissolved, and the region was divided into new countries under the control of European colonial powers. The new countries included Iraq, Jordan, Lebanon, and Palestine, among others.

The Red Line Agreement itself was the result of negotiations between five major oil companies: Standard Oil of California, Royal Dutch Shell, Compagnie Française des Pétroles (later Total S.A.), Near East Development Corporation (later ExxonMobil), and Anglo-Persian Oil Company (later BP). The companies had been exploring for oil in the region and realized that it would be more efficient to work together and share information.

The Red Line Agreement
The Red Line Agreement map

The thought of the Red Line Agreement likely began in the early 1920s, as the oil companies began to explore the region and assess its potential. The negotiations for the agreement took several years, as the companies had to work out the details of how they would share information and coordinate their activities.

Overall, the Red Line Agreement was a product of the political and economic situation in the Middle East in the early 20th century, as European powers sought to control the region’s resources and build their empires. The agreement itself was an attempt by oil companies to coordinate their activities and secure access to the region’s oil resources.

The agreement was named after the red line that was drawn on a map of the Middle East, dividing the region into spheres of influence for each of the signatories. The purpose of the agreement was to regulate the exploration and production of oil in the region, which was then under the control of the Ottoman Empire.

Under the terms of the agreement, the signatories agreed to share information about their oil exploration and production activities in the region, and to consult each other on matters related to oil production and transportation.

The Red Line Agreement was controversial at the time, as it effectively divided the Middle East into spheres of influence for foreign oil companies, and excluded local companies from participating in the region’s oil industry. The agreement was also criticized for perpetuating colonialism and imperialism in the region.

Despite these criticisms, the Red Line Agreement remained in effect until the 1950s, when it was replaced by a series of new agreements that gave greater control of the region’s oil resources to the governments of the Middle Eastern countries.

After…

The new agreements that replaced the Red Line Agreement were a series of bilateral agreements between the oil companies and the governments of the Middle Eastern countries where the oil was located. These agreements were negotiated in the 1940s and 1950s, as the region gained independence from colonial powers and the oil industry evolved.

One of the most important of these agreements was the Consortium Agreement, signed in 1954 between the Iranian government and a consortium of oil companies that included BP, Royal Dutch Shell, and others. Under this agreement, the Iranian government took a majority stake in the oil industry, while the consortium companies retained a minority stake and provided expertise and investment.

Similar agreements were signed in other Middle Eastern countries, such as Iraq, Kuwait, and Saudi Arabia, as those countries gained control of their oil resources. These agreements allowed the governments to control their oil industries and receive a greater share of the profits, while still allowing foreign companies to participate in exploration and production.

Overall, these new agreements marked a shift in the balance of power in the Middle Eastern oil industry from foreign companies to the governments of the region. However, they also continued to rely on foreign investment and expertise, and some critics argue that they perpetuated a form of neocolonialism in the region.

The new agreements that replaced the Red Line Agreement were not without their criticisms. Some of the main criticisms include:

1. Unequal distribution of profits: Critics argue that the new agreements continued to favor foreign companies over the host countries, and that the distribution of profits was still heavily skewed towards the companies rather than the countries where the oil was located.

2. Lack of transparency: Some critics argue that the new agreements were not transparent enough and did not provide enough information on how the profits were being distributed and how the oil industry was being managed.

3. Neocolonialism: Some critics argue that the new agreements perpetuated a form of neocolonialism, whereby foreign companies continued to have significant influence over the oil industry in the Middle East, even if the host countries had gained control of their oil resources.

4. Environmental impact: The oil industry has significant environmental impacts, including air and water pollution, greenhouse gas emissions, and habitat destruction. Some critics argue that the new agreements did not do enough to address these environmental impacts, and that the host countries were not adequately compensated for the damage caused by the oil industry.

Overall, the new agreements marked a shift in the balance of power in the Middle Eastern oil industry, but they also continued to raise concerns about the distribution of profits, transparency, neocolonialism, and environmental impact.

The consequences of neocolonialism in the oil industry have been significant and far-reaching. Some of the main consequences include:

1. Exploitation of resources: Neocolonialism in the oil industry has often led to the exploitation of natural resources in the host countries, without providing adequate compensation or benefits to the local population. This has resulted in environmental degradation, loss of land and resources, and economic inequality.

2. Political instability: Neocolonialism in the oil industry has frequently been associated with political instability in the host countries. The presence of foreign companies and the unequal distribution of profits can create tensions and conflicts between different groups in the country, leading to political instability and even violence.

3. Economic dependency: Neocolonialism in the oil industry has typically resulted in economic dependency on the foreign companies, as the host countries rely on the companies for investment, expertise, and technology. This can make it difficult for the countries to diversify their economies and become less dependent on the oil industry.

4. Inequitable distribution of wealth: Neocolonialism in the oil industry has often led to an inequitable distribution of wealth, with the foreign companies and the local elites benefiting the most, while the majority of the population remains poor and marginalized.

5. Underdevelopment: Neocolonialism in the oil industry has frequently hindered the development of the host countries, as the profits from the oil industry are not invested in the local economy, but instead flow out of the country. This can lead to underdevelopment in other sectors, such as education, healthcare, and infrastructure.

Overall, neocolonialism in the oil industry has had significant negative consequences for the host countries and their populations, including exploitation, political instability, economic dependency, inequitable distribution of wealth, and underdevelopment.

There are several examples of countries that have been affected by neocolonialism in the oil industry. Here are a few:

1. Nigeria: Nigeria is one of the largest oil producers in Africa, but the oil industry has been associated with corruption, environmental degradation, and violence. Foreign companies, including Shell, have been accused of exploiting Nigeria’s oil resources without providing adequate compensation or benefits to the local population. This has led to protests, conflicts, and even violence in the Niger Delta region, where most of Nigeria’s oil is located.

2. Venezuela: Venezuela has some of the largest oil reserves in the world, but the oil industry has been associated with corruption, political instability, and economic inequality. Foreign companies, including Chevron and ConocoPhillips, have been accused of benefiting from Venezuela’s oil resources while the majority of the population remains poor and marginalized. The government’s efforts to assert greater control over the oil industry have also led to tensions with foreign companies and other countries.

3. Iraq: Iraq has some of the largest oil reserves in the world, but the oil industry has been associated with conflict, political instability, and economic hardship. Foreign companies, including BP and ExxonMobil, have been accused of benefiting from Iraq’s oil resources while the country struggles with poverty, violence, and political turmoil. The US-led invasion of Iraq in 2003 and subsequent efforts to rebuild the country have also been criticized for perpetuating neocolonialism in the oil industry.

4. Iran: Iran has some of the largest oil reserves in the world, but the oil industry has been associated with political instability and economic inequality. Foreign companies, including BP and Total, have been accused of benefiting from Iran’s oil resources while the majority of the population remains poor and marginalized. The US-led sanctions on Iran have also been criticized for perpetuating neocolonialism in the oil industry and hindering the country’s development.

Overall, neocolonialism in the oil industry has had significant negative consequences for many countries around the world, including Nigeria, Venezuela, Iraq, and Iran.

In conclusion…

The Red Line Agreement had a profound and lasting impact on the political scene in the Middle East. By dividing the region into spheres of influence for a handful of powerful oil companies, the agreement perpetuated a legacy of colonialism and imperialism that has shaped the region’s political and economic landscape for more than a century.

One of the key consequences of the Red Line Agreement was the unequal distribution of wealth and power in the region. The foreign oil companies that controlled the Middle East’s oil resources were able to extract enormous profits, while the people of the region saw little benefit from their own natural resources. This created economic inequality and contributed to political instability and conflict.

The Red Line Agreement also contributed to the perception of the Middle East as a region that is vulnerable to outside interference and exploitation. This perception has persisted until now, and has led to a deep sense of resentment and mistrust towards foreign powers and corporations.

Overall, the Red Line Agreement represents a dark chapter in the history of the Middle East, and its legacy of colonialism and imperialism continues to shape the region’s political and economic landscape. While the agreement is no longer in effect, its effects are still felt today, and there is a growing awareness of the need to address the historical injustices that it perpetuated.

Resources and references:

1. “The Red Line Agreement: The Struggle for Control of the Middle Eastern Oil Fields” by David S. Painter

2. “Oil and Politics in the Gulf: Rulers and Merchants in Kuwait and Qatar” by Jill Crystal

3. “The Middle East and the West: WWI and Beyond” by Philip Robins

4. “The History of the Middle East” by Peter Mansfield

5. “A Century of Oil: The Middle East in the 20th Century” by Mary Ann Tétreault

6. “The Prize: The Epic Quest for Oil, Money, and Power” by Daniel Yergin

7. “The Great War for Civilisation: The Conquest of the Middle East” by Robert Fisk

8. “The Secret History of the Middle East: The Influence of Secret Agencies” by Youssef Aboul-Enein and Basil Aboul-Enein

9. “Oil and World Power: A Geographical Interpretation” by Peter J. Taylor

10. “The Battle for the Arab Spring: Revolution, Counter-Revolution and the Making of a New Era” by Lin Noueihed and Alex Warren

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Monis Bukhari

Arab researcher, passionate about culinary history, geography, and social history. Uzbek, raised in Syria, resides in Germany. With Arab-Turk roots.