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Business Diplomacy: Walter Teagle, Jersey Standard, and the Anglo-French Pipeline Conflict in the Middle East, 1930–1931

Published online by Cambridge University Press:  13 December 2011

Edward Peter Fitzgerald
Affiliation:
Edward Peter Fitzgerald is associate professor of history atCarleton University in Ottawa, Canada.

Abstract

British, Dutch, French, and American oil companies set up a multinational consortium in 1928 with a view to dominating petroleum production in the Middle East. Development of the consortium's first oilfield in northern Iraq depended on the construction of a pipeline to the Mediterranean sea-board, but rival great-power ambitions in the region blocked selection of a suitable route. Walter Teagle, president of Standard Oil of New Jersey, devised a compromise that he successfully pressed on both the French government and the chairman of the consortium, Sir John Cadman. Using company records and state papers now available in France, this article explains how Teagle's intervention arose and why it was crucial to the resolution of the Anglo-French pipeline conflict.

Type
Articles
Copyright
Copyright © The President and Fellows of Harvard College 1993

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References

1 The government's dominant influence was reinforced in 1931 when the state subscribed 35 percent of CFP's capital in return for 45 percent of the voting shares. Today Total ranks among the largest integrated oil companies in the world, but at this time it was a very modest enterprise indeed. CFP's shares had been introduced on the Paris stock market only in June 1929, and the book value of its capitalization stood at 150 million francs—about $6 million. By comparison, Jersey Standard's share capitalization in 1930 was over $1.18 billion, and the net value of its total assets surpassed $1.6 billion. Calculated from data in Total's corporate records, and from Larson, Henrietta M., Knowlton, Evelyn H., and Popple, Charles S., History of Standard Oil Company (New Jersey), vol. 3, New Horizons, 1927–1950 (New York, 1971), 813–15.Google Scholar

2 Jersey and Socony originally held 50 percent of Near East Development; they subsequently bought up the shares of their three partners and held all of Near East's equity by 1934.

Throughout this article there are references to “the British groups” in the consortium, a term that the French and Americans used to designate Anglo-Persian and Shell. The label was fully warranted in the case of Anglo-Persian (51 percent government-owned), but it is worth recalling for the sake of accuracy that majority control of Shell's operating companies was vested in Dutch, not British, hands. This fact did not prevent Shell from acting, in a diplomatic sense, as a “British” multinational.

3 The standard source is Wall, Bennett H. and Gibb, George S., Teagle of Jersey Standard (New Orleans, La., 1974), chaps. 1–6Google Scholar. See also Gibb, George Sweet and Knowlton, Evelyn H., History of Standard Oil Company (New Jersey), vol. 2, The Resurgent Years, 1911–1927 (New York, 1956), 254–58Google Scholar, and Yergin, Daniel, The Prize: The Epic Quest for Oil, Money, and Power (New York, 1991), 197–99.Google Scholar

4 McBeth, B. S., British Oil Policy, 1919–1939 (London, 1985), 58Google Scholar. The quotation is from Teagle's speech to the American Petroleum Institute in November 1920. For an incisive discussion of the link between Teagle's desire to obtain foreign reserves and his determination to preserve Jersey's share of the domestic market, see Olien, Diana Davids and Olien, Roger M., “Running Out of Oil: Discourse and Public Policy, 1909–1929,” Business and Economic History 22 (Winter 1993): 5155Google Scholar.

5 See Everit J. Sadler to Teagle, 27 September 1921: “I agree with your idea that [Jersey] cannot hope to get serious backing from the State Department if it attempts to enter the Mesopotamian field alone…. [Nevertheless] the association [with other firms] is highly undesirable except to gain the support of the State Department.” Quoted in Gibb and Knowlton, Resurgent Years, 292.

6 Ibid., chap. 11; see also Wall and Gibb, Teagle of Jersey Standard, 209—16, Shwadran, Benjamin, The Middle East, Oil and the Great Powers (New York, 1973), 215–38Google Scholar, and Hogan, Michael J., Informal Entente: The Private Structure of Cooperation in Anglo-American Economic Diplomacy, 1918–1928 (Columbia, Mo., 1977), 178–85Google Scholar. For the U.S. diplomatic campaign in support of the companies, Fraser, Henry S., Diplomatic Protection of American Petroleum Interests in Mesopotamia, Netherlands East Indies, and Mexico (Washington, D.C., 1945), 130Google Scholar, and DeNovo, John, American Interests and Policies in the Middle East, 1900–1939 (Minneapolis, Minn., 1963Google Scholar), chap. 6, provide the most detailed treatment. See also the summaries by Randall, Stephen J., United States Foreign Oil Policy, 1919–1948 (Kingston, Ont., 1985) 3341Google Scholar, Chester, Edward W., United States Oil Policy and Diplomacy: A Twentieth-Century Overview (Westport, Conn., 1983), 219–28Google Scholar, and Vietor, Richard H. K., Energy Policy in America since 1945: A Study of Business-Government Relations (New York, 1984), 2627CrossRefGoogle Scholar, as well as the colorful sketch by Yergin, The Prize, 194–206. There is a stimulating analysis of this episode by Stivers, William, “International Politics and Iraqi Oil, 1918–1928: A Study in Anglo-American Diplomacy,” Business History Review 55 (Winter 1981): 317–40CrossRefGoogle Scholar, which distills the conclusions of his monograph Supremacy and Oil: Iraq, Turkey, and the Anglo-American World Order, 1918–1930 (Ithaca, N.Y., 1982)Google Scholar.

7 Wall and Gibb, Teagle of Jersey Standard, 216; Larson, Knowlton, and Popple, New Horizons, 146.

8 This retelling of the activities of Jersey Standard's president proceeds entirely from sources external to that corporation. Requests for access to the historical records of Exxon and Mobil were turned down—with courtesy, but without possibility of appeal. Two anonymous readers who commented on an earlier version of this paper confirmed the long-standing character of Exxon's archival policy; they also alluded to the widespread rumor that Jersey Standard, stunned by government subpoenas in the early 1950s, subsequently decided to destroy its historical records. Unhappily, this grim possibility is consonant with the explanation I received from Exxon's corporate and public affairs department in August 1988: “To keep the company's storage costs within reason, the vast majority of our files are destroyed after 10 years.”

In any case, the sources for this article are derived from the company records of Compagnie Française des Pétroles (today, Total) and the state papers of the French foreign and finance ministries. The following abbreviations are used: CFP = records of Groupe Total-CFP; MAE = archives of the Ministère des Affaires Etrangères; FIN = archives of the Ministère de l'Economie et des Finances. Box, volume, and file indications are listed according to the conventions employed by these depositories. (Documents in French are quoted in translation, which are my own.)

9 There is an extensive literature on the partition of the Middle East after the First World War. The best scholarly overview remains Nevakivi, Jukka, Britain, France and the Arab Middle East, 1914–1920 (London, 1969)Google Scholar, but see also the detailed and very readable account by Fromkin, David, A Peace to End All Peace: The Fall of the Ottoman Empire and the Creation of the Modern Middle East (New York, 1989)Google Scholar. Useful summaries include Polk, William R., The Arab World (Cambridge, Mass., 1980), chaps. 8–9Google Scholar; Sachar, Howard M., The Emergence of the Middle East, 1914–1924 (New York, 1969), chap. 9Google Scholar; and Yapp, M. E., The Making of the Modern Near East, 1792–1923 (London, 1987), chaps. 5–6Google Scholar. The role of the “oil factor” in the Middle Eastern partition is covered by Marian Kent, Oil and Empire: British Policy and Mesopotamian Oil, 1900–1920 (London, 1976)Google Scholar, and Edward Peter Fitzgerald, “France's Middle Eastern Ambitions, the Sykes-Picot Negotiations, and the Oilfields of Mosul, 1915–1918,” Journal of Modern History (forthcoming, Dec. 1994). For France's treatment of Faysal, see Tannenbaum, Jan K., France and the Arab Middle East, 1914–1920 (Philadelphia, Pa., 1978)Google Scholar, and Zeine, Zeine N., The Struggle for Arab Independence: Western Diplomacy and the Rise and Fall of Feisal's Kingdom in Syria (Beirut, 1960)Google Scholar. For Britain's decision to “recycle” Faysal, see Klieman, Aaron S., Foundations of British Policy in the Arab World: The Cairo Conference of 1921 (Baltimore, Md., 1970), chap. 7Google Scholar.

10 The Ministry of Finance was initially worried about the price of providing practical support for a French pipeline route. By 1929, however, Raymond Poincaré had agreed to state loan guarantees to back a bond issue by the Lebanese and Syrian administrations so that they could finance infrastructural improvements intended to bolster the case for the northern route. The full cabinet later confirmed this decision. See Poincaré to Mercier, 10 January 1929, and Finance Ministry to Mercier, 2 Jan. 1930, in FIN, B32310, file 4.

11 The best guide to these different bureaucratic orientations is Davies, Colin, “British Oil Policy in the Middle East, 1919–1932” (Ph.D. diss., University of Edinburgh, 1973), chaps. 10–11Google Scholar.

12 This is a rather bald summary of an exceedingly intricate story for which there is no really satisfactory account. Standard works on Middle Eastern oil hardly mention the pipeline issue. Shwadran deals with the pipeline in four sentences and does not even allude to the existence of a conflict over its route (Oil and the Great Powers, 240 and 242). In his Oil in the Middle East, Its Discovery and Development (London, 1954), 7677Google Scholar, Stephen Hemsley Longrigg summarizes the line's construction but soft-pedals the conflictual aspect, as does Rondot, Jean, La Compagnie Française des Pétroles, du franc-or au pétrole-franc (Paris, 1962), 3941Google Scholar. Neither Daniel Yergin's comprehensive history, The Prize, nor Fiona Venn's thematic survey, Oil Diplomacy in the Twentieth Century (London, 1986)Google Scholar, brings up the pipeline problem at all.

A useful if contestable overview of the question is provided by Nouschi, André, “Pipelines et politique au Proche-Orient dans les années 1930,” Rélations internationales 19 (Autumn 1979): 279–94Google Scholar. The author is unaware of Teagle's role and therefore mistakenly portrays the outcome as the result of French proposals that the American group agreed to accept. A sounder approach, though largely restricted to the British government's part in the story, can be found in Davies, “British Oil Policy in the Middle East,” chaps. 10–11. (I am currently at work on a study of the pipeline episode as part of a history of Compagnie Française des Pétroles in the Red Line consortium from 1928 to 1948.)

13 It cannot be repeated too often that the Middle East became the foremost oil-producing region in the world only well after the Second World War. Before then the Middle East accounted for only a small fraction of global crude production. For example, in 1938 some 15,860,000 tonnes of crude oil were lifted from Middle Eastern fields: 29 percent came from IPC's properties in Iraq, versus 65 percent from Anglo-Persian's long-established fields in southwestern Iran. In comparison, Venezuelan crude output was 73 percent greater than that of the entire Middle East, and U.S. oilfields produced over ten times the volume of total Middle Eastern output in 1938. (My calculations from data provided by Venn, Oil Diplomacy, 171, 175.)

14 The majors' fears about potential interlopers were not fanciful. A rival had already appeared in the person of B.O.D. Company, Ltd, a multinational financial syndicate that had approached Baghdad for concessionary rights in 1928. See Longrigg, Oil in the Middle East, 74. The best scholarly discussion of the make-up and history of B.O.D. is Mejcher, Helmut, Die Politik und das Öl im Nahen Osten, vol. 1, Der Kampf der Mächte und Konzerne vor dem Zweiten Weltkrieg (Stuttgart, 1980), chaps. 2–3Google Scholar.

15 See IPC's draft revised convention circulated to the groups on 17 Dec. 1929, FIN, B32310, file 3, and CFP, 81.1/25.

16 Several considerations stood behind this Iraqi demand. I have already noted King Faysal's political ambitions and his long-standing grievance against the French (and thus against their northern route) for the way they had evicted him from Syria in 1920. His government also desired to obtain a Baghdad-to-Haifa railroad in the pipeline corridor; and the British High Commission in Baghdad supported this objective for the contribution it would make to imperial communications.

17 Dan Towl, Jersey Standard's pipeline expert, put the total cost of a northern line to Tripoli at $42 million. The two alternative southern routes leading to Haifa were significantly longer and more expensive by $8 and $13 million, respectively. (Copies of Towl's report of 26 Feb. 1930 can be found in MAE, RC18-40, B-Pétroles, file 67, and in FIN, B32310, file 4.)

18 The French Foreign Ministry was convinced that these two companies were colluding in order to obtain a success for British imperial policy, which they saw as Sir John Cadman's special goal. They also believed that Sir Henri Deterding, the influential head of Royal Dutch-Shell, favored the longer Haifa route as a way of delaying development of the Kirkuk field. See Coulondre to Berthelot, 15 Aug. 1930, MAE, RC18-40, B-Pétroles, file 70.

19 Jules Mény, “Note sur la réunion des groupes à Londres le 13 août 1930,” 14 Aug. 1930, MAE, RC18–40, B–Pétroles, file 70.

20 Coulondre to Berthelot, 15 Aug. 1930, MAE, RC18-40, B-Pétroles, file 70. The Foreign Ministry remained convinced that an informal approach via Teagle would be more effective than a diplomatic démarche in Washington. Drafts of dispatches to the Washington embassy show that Paris did consider informing the State Department of the pipeline impasse “in case the American group consults it”; but this was ruled out as “premature” after contacts with Teagle developed. (Coulondre to Jules Henry, 21, 27 Aug. and 10 Sept. 1930, MAE, RC18-40, B-Péetroles, files 70 and 71.) I have found no evidence of a subsequent approach to the American government, and the absence of official American correspondence from the French diplomatic files suggests that Teagle also did not believe Washington's involvement would be useful.

21 See Bussière, Eric, Paribas, 1872–1992: l'Europe et le monde (Antwerp, 1992), 106–9Google Scholar.

22 See Kuisel, Richard F., Ernest Mercier, French Technocrat (Berkeley, Calif., 1967), 34Google Scholar.

23 Mény to Mercier, 18 Aug. 1930, CFP, 81.1/25; Louis de Sartigues, “Note pour Monsieur de Laboulaye—Pétroles de Mésopotamie,” 18 Aug. 1930, and Sartigues to Coulondre, 26 Aug. 1930, MAE, RC18-40, B-Pétroles, file 70. These documents are all based on the account of the meeting that Finaly gave Jules Mény, a senior CFP executive, on Monday afternoon, 18 August. In addition to the activities of its marketing subsidiaries in France, Jersey Standard was also the majority shareholder in a new refinery then under construction at Port Jérôme in the Seine estuary.

24 Towl had already carried out a field survey of possible pipeline routes in 1929. (See note 13.)

25 Mény to Mercier, 18 Aug. 1930, CFP, 81.1/25. Burgin telephoned this news to Mény at eleven o'clock on Monday evening.

26 “Tardieu le mirobolant,” literally, “Tardieu the marvel.” A member of the Republican Left in the Chamber of Deputies, Tardieu became prime minister in November 1929. His two cabinets lasted until December 1930, when the repercussions of a financial scandal undermined his parliamentary support. For his career see Binion, Rudolph, Defeated Leaders: The Political Fate of Caillaux, Jouvenal, and Tardieu (New York, 1960), chaps. 17–23Google Scholar; Chastenet, Jacques, Histoire de la Troisième République, vol. 5, Les années d'illusions, 1918–1931 (Paris, 1960), 188200Google Scholar; and Bonnefous, Edouard, Histoire politique de la Troisième République, vol. 4, Cartel des Gauches et Union Nationale, 1924–1929 (Paris, 1960), 369–81Google Scholar, and vol. 5, La République en danger: des Ligues au Front Populaire, 1930–1936 (Paris, 1962), 1–49. For Tardieu's animus toward Jersey Standard, see Nowell, Gregory P., “The French State and the Developing World Oil Market: Domestic, International, and Environmental Constraints, 1864—1928,” Research in Political Economy 6 (1983): 236–37 and 239–40Google Scholar.

27 The complex provisions of the law of 30 March 1928 are summarized in Grayson, L. E., National Oil Companies (New York, 1981), 2425Google Scholar, Murat, Daniel, L'intervention de l'état dans le secteur pétrolier en France (Paris, 1969), 3132Google Scholar, Melby, Eric D. K., Oil and the International System: The Case of France, 1918–1969 (New York, 1981), 100102Google Scholar, and Assembléee Nationale, Rapport fait au nom de la Commission d'enquête pariementaire sur… les sociétés pétrolières opérant en France… (Paris, 1974), 103–5. For more detailed analyses, see Meo, Guy Di, Pétrole et gaz naturel en France: un empire menacé, 1 (Lille, n.d.), 85—92Google Scholar, and Touret, Denis, Le régime français d'importation du pétrole et la Communauté Economique Européenne (Paris, 1968), 2936Google Scholar.

28 This provision, which was adopted on national security grounds, actually worked against the overall purpose of the law, which was to give the French state some counter-vailing power against the “oil trusts.” It strengthened rather than weakened the hold of the multinationals on the French market, because the costs of mandatory stockholding (including the construction of new tank farms) raised up-front capital costs and therefore discouraged potential new entrants. See the perceptive remarks by Nowell, “France and the Developing World Oil Market,” 246–47.

29 See Kuisel, Ernest Mercier, 37–38. The state convention was modified during its stormy passage through the Chamber of Deputies in March 1931, and the obligatory purchase clause was dropped.

30 Laboulaye, “Note—Affaire des pétroles de Mésopotamie,” 24 Aug. 1930; Présidence du Conseil, “Note pour Monsieur de Laboulaye,” 24 Aug. 1930; Sartigues to Coulondre, 26 Aug. 1930; all in MAE, RC18-40, B-Pétroles, file 70.

31 Laboulaye, “Note pour le Président du Conseil—Pétroles de Mésopotamie,” 23 Aug. 1930, MAE, RC18-40, B-Pétroles, file 70.

32 Untitled and undated French translation of Teagle's memorandum, which Finaly delivered to the prime minister's office on 27 Aug. 1930, MAE, RC18-40, B-Pétroles, file 70.

33 The letter of thanks came from Finaly, but it was in fact drafted by Louis Pineau, head of the National Fuel Office, and then approved by both the Quai d'Orsay and CFP before it was given to Finaly. “Project de réponse à M. Teagle,” 6 Sept. 1930, MAE, RC18-40, B-Pétroles, file 71.

34 Teagle to Finaly, personal letter, 2 Sept. 1930, MAE, RC18-40, B-Pétroles, file 71. Teagle found it “extremely unfortunate that this question [revision of the concession] has been influenced by political features brought about by the pipeline situation.”

35 Mény, “Note pour M. Tronchère,” 21 Aug. 1930, CFP, 81.1/25. Mény had held talks with Coulondre and Etienne Flandin, minister of trade and industry, and he believed that they shared CFP's appreciation of this problem.

36 “Project de réponse à M. Teagle,” 6 Sept. 1930, MAE, RC18-40, B-Pétroles, file 71.

37 The meeting took place on Friday, 26 September, in Finaly's residence. Seidel was managing director of Româno-Americana, Jersey's Rumanian subsidiary, and became a member of Jersey Standard's board in 1929. Since 1919 he had been based in Paris with responsibility for Jersey's foreign production operations in Europe and the Middle East. See Gibb and Knowlton, Resurgent Years, 276 and 318.

38 “Réunion chez M. Berthelot, du 27 septembre 1930, au snjet de l'Iraq Petroleum,” MAE, RC18-40, B-Pétroles, file 71.

39 Ibid. Pineau subsequently upped the stakes to impossible levels by trying to forbid CFP from taking any part in a joint request to the Iraqi government for revision. Pineau to Mercier, 4 Oct. 1930, MAE, RC18-40, B-Pétroles, file 72. (Several documents in the Foreign Ministry's archives convey the unmistakable impression that Mercier and Pineau could not stand each other.)

40 Mercier and Cayrol to E. J. Brown (secretary of IPC's board of directors), 27 Sept. 1930, CFP, 81.1/26.

41 “Réunion chez M. Berthelot, du ler Octobre 1930, au sujet de l'IPC—Pipe-line,” MAE, RC18-40, B-Pétroles, file 72.

42 Far from desiring to prevent such a campaign, Mercier was actually obliquely threatening Cadman with one. The notorious venality of the French financial press meant that CFP would have no trouble fomenting a newspaper attack against IPC—and for a quite modest price. See Jeanneney, Jean-Noël, L'argent caché: milieux d'affaires et pouvoirs politiques dans la France du XXe siècle, 2d ed. (Paris, 1984), 205–30Google Scholar.

43 Mercier to Berthelot, 6 Oct. 1930, and Mény, “Aide-Mémoire—Entrevue de Sir John Cadman, MM. Ernest Mercier et Mény le dimanche 5 Octobre à 11 heures à l'Hôtel Bristol,” CFP, 81.1/26.

44 Mercier to Berthelot, 6 Oct. 1930, and Mény, “Aide-Mémoire—Entrevue de Sir John Cadman, MM. Ernest Mercier et Mény le dimanche 5 Octobre à 11 heures à l'Hôtel Bristol,” CFP, 81.1/26.

45 IPC board of directors, minutes of the meeting of 10 Oct. 1930, MAE, RC18-40, B-Pétroles, file 72; IPC, “Pipeline to Mediterranean Seaboard,” 10 Oct. 1930 [the six resolutions]; Mény to Borduge, 16 Oct. 1930, FIN, B32310, file 4; Mény to Pineau, 16 Oct. 1930, CFP, 81.1/27.

46 French translation of an untitled IPC memorandum, 14 Oct. 1930, MAE, RC18-40, B-Pétroles, file 72.

47 See, for instance, Mény to Pineau, 16 Oct. 1930, and CFP to Pineau, 30 Oct. 1930, CFP, 81.1/27. These long memoranda were written to explain and justify the company's assent to the October accords. Several parts display a markedly defensive tone, showing that CFP's executives expected criticism that they were concerned to deflect.

48 Coulondre, “Note pour le Ministre,” 7 Nov. 1930, FIN, B 32310, file 4.

49 Finaly to Teagle, telegram [French version], 21 Dec. 1930, and Tronchère to Pineau, 24 Dec. 1930, CFP 81.1/27; Berthelot to Coulondre, handwritten summary of a phone conversation with Finaly, 23 Dec. 1930, and Tronchère to Berthelot, 24 Dec. 1930, MAE, RC18-40, B-Pétroles, file 73.

50 Here Teagle was touching, albeit obliquely, on another difference that separated CFP from the other major groups in the Red Line consortium. CFP was not just a small company in a world of giants. Then in existence for six years, it had yet to produce a single barrel of oil. This point goes far to explain the majors' ill-disguised condescension toward the ambitions of the French company, as well as the extreme sensitivity of CFP's executives to slights, real or imagined, from their partners.

51 Léon to Berthelot, personal letter, 18 Feb. 1931, MAE, RC18-40, B-Pétroles, file 75. Léon said his talk with Teagle had taken place on a confidential basis; there can be no doubt, however, that Teagle knew his interlocutor would inform the Quai d'Orsay of his advice.

52 A full citation of the Hogan book appears in note 6.

53 Davies, “British Oil Policy in the Middle East,” 350.

54 IPC, “1929 Pipe Line Survey, Addenda to Report by Mr. D.O. Towl,” pp. 19–21, in FIN, B32310, file 4; undated French translation of Teagle's memorandum sent by Finaly to the prime minister's office on 27 Aug. 1930, MAE, RC18-40, B-Pétroles, file 70.

55 The anecdotal biography by Rowland, John and Cadman, Basil, Ambassador for Oil: The Life of John, First Baron Cadman (London, 1960)Google Scholar is of little use for this question. As the head of Anglo-Persian, Cadman figures prominently in Ferrier, R. W., The History of the British Petroleum Company, vol. 1, The Developing Years 1901–1932 (Cambridge, England, 1982)Google Scholar. Unfortunately the brief section Ferrier allocates to Iraq does not take up the pipeline issue at all. The best indications of Cadman's “hidden agenda” on the pipeline are given by Davies, “British Oil Policy in the Middle East,” 305n2 and 307.

56 Davies, “British Oil Policy in the Middle East,” 350.

57 Recall Mercier's account of his stormy talk with Cadman on 5 October 1930; Cadman had been most interested in Mercier's reference to Teagle's interview with Tardieu and his intimation of American support for the French group.

58 Lépissier to MAE via Beirut, telegram, 26 Jan. 1931, MAE, LE18–40, Irak, vol. 70.

59 Di Meo, Pétrole et gaz naturel en France, 1:93.

60 Both Total and the French Foreign Ministry have been exceptionally cooperative in opening their rich collections for this research project. Although somewhat less forthcoming, the French Finance Ministry has also allowed access to an important range of files. The same cannot be said of the French National Archives, which holds the papers of the Ministry of Trade and Industry and the National Fuel Office. A request to examine those records was summarily refused in 1989.