A Note on the Red Line Agreement

Abstract

On 31 July 1928 a working agreement was signed setting up the first international consortium to exploit oil resources in the Middle East. The prewar Turkish Petroleum Company (TPC) was reconstituted, joining together the Anglo-Persian Oil Company (APOC), the Royal Dutch Shell Company, the Compagnie Française des Pétroles (CFP), and a five-member American consortium headed by Standard Oil of New Jersey. The four parties each took a 23¾ percent share, with another 5 percent going to C. S. Gulbenkian, an Armenian entrepreneur who had vested rights in the company predating the First World War.1 In 1925 before the final terms of partnership had been settled, the TPC had obtained an oil development concession from Iraq. Included in the TPC articles of association was an ordinance of self-denial, the famous “Red Line” agreement. Under its terms each member of the Turkish Petroleum Company consented not to seek oil rights within the boundaries of the old Ottoman Empire except through the TPC. While any other company could bid for concessions, the Red Line accord—so named because the affected area was delimited by a red line drawn around it on a map—had the effect of suppressing competitive bidding by the most powerful companies in the industry, thus restricting the ability of local regimes to play one company against the other. It was one of the initial cases of oil company cooperation on an international scale.