BP Essay ⋆ Business Essay Examples ⋆ EssayEmpire

The third largest of the six super majors, British Petroleum (BP) originated when the last Shah of Persia (before that country became known as Iran) granted an oil concession to British land speculator William Knox D’Arcy in 1901. Fittingly, the company that has been so intertwined with modern Middle Eastern history was founded to drill for oil in the first major oil discovery in the Middle East. In the century since, it has expanded to open productions in 22 countries.

The super majors are the six oil companies that rose to the top of the industry in the 1990s, in the flurry of mergers following the decline in the price of oil. The older term Big Oil, used in reference to the cooperative behavior and lobbying of oil companies, is often used now to refer specifically to the super majors. Each super major has revenues in the hundreds of billions of dollars, benefiting from vast stores of petroleum products and natural gas and oil resources. BP currently employs 115,000 workers, with revenues of $274 billion.

D’Arcy found oil in 1908, making the first major oil discovery in the Middle East, and founded the Anglo Persian Oil Company in order to pursue his claim. The refinery built in Abadan was, until the 1960s, the largest in the world. Nearly as soon as it began operations, the British government “partially nationalized” the company in order to guarantee an oil supply for its ships, which proved even more critical when World War I broke out.

When the D’Arcy concession was first granted, there was no way of knowing if oil would ever be found—indeed, the engineer who eventually found it had been instructed to give up hope, and told that the operation was going to be canceled, but by delaying his response for a matter of weeks he managed to pull the company’s fat out of the fire. When the company thus became such an extraordinary success, and the nature of oil wealth became clear to the Persian government, pressure mounted to renegotiate terms. This was a critical time in the nation’s history—not long after World War I, in 1925, Reza Khan overthrew the Qatar Dynasty and became Shah, instituting a significant effort at modernization that included railroad construction and nationwide public education.

It was the new Shah’s request that the rest of the world refer to once-Persia as Iran, and the Anglo Persian Oil Company became the Anglo-Iranian Oil Company (AIOC). New terms were negotiated slowly, complicated by the global economic destabilization of the Great Depression. Though the rate of royalty paid to the Iranian government increased, the AIOC’s accounting practices saw that the amount paid remained largely the same. Nationalization helped the company survive, with the British government making decisions the private sector could not have—such as refusing to acknowledge the Iranian government’s decision to rescind the D’Arcy concession.

Though the Shah was the guiding force behind Iran’s demands for better treatment under the agreement, he was still broadly pro-British, and sought to preserve a good relationship with his various European and western allies. Unfortunately, since those connections included both the British and the Germans, as the world approached the precipice of World War II he was forced to make a decision. He abdicated rulership of Iran in favor of his son, Reza Pahlavi, rather than lose British support. However, as far as appeasing British interests, this backfired. Dr. Mohammed Mossadegh was elected prime minister in 1951, and nationalized Iranian oil, a move with widespread approval in the country because of AIOC’s refusal to split profits 50-50 with Iran, as was done in Saudi Arabia. Both the communist party and the Islamic fundamentalists supported nationalization as well.

This, then, put Iranian interests at odds with British interests, AIOC’s interests, and in the early days of the Cold War, it was perceived that it then put them at odds with American interests as well. Nationalized Iranian oil could become communist oil. In 1953 the United States and newly elected President Eisenhower were persuaded to join the British effort to depose

Mossadegh, and the CIA’s Operation Ajax was the lever used to dislodge him. Mossadegh was arrested on August 19, 1953, and the Shah’s rule was strengthened in order to prevent future prime ministers from being able to do anything so drastic.

Still, public opinion was so strongly turned against AIOC that a new consortium of companies was formed, bearing the name used during the brief period of nationalized oil—the National Iranian Oil Company—of which AIOC, renamed British Petroleum, was given a 40 percent share. The consortium split profits 50-50 with Iran, on an honor basis—in other words, Iran had no authority to conduct an audit, nor access to the consortium’s records, no choice but to accept that the amount it was given was correct. The other shareholders in the consortium were European and Western oil companies, including those that became the other super majors; BP’s share, though not a controlling one, was the largest.

The Iranian Revolution

The Shah was now in an untenable position, despite his increased power. Though he was beholden to Western powers for increasing his authority, and for Iran’s more or less friendly relationship with the world outside the Middle East, he was at the same time considered too traditional and conservative by those Westerners. As time wore on and the young Shah became the old Shah, his Western allies were embarrassed by the association. When he faced another coup by fundamentalists, he found himself without aid. The Islamic Revolution of 1979 removed him from power, ended BP’s 70 year association with Iran, put the Ayatollah Khomeini in power, and—when the United States allowed the Shah entrance to the country in order to have access to medical facilities—resulted in the seizure of American hostages, a crisis that lasted throughout the 1980 presidential campaign and helped to bring conservative Ronald Reagan into power, over conciliatory incumbent Jimmy Carter.

At this point, BP was already operating outside of Iran, and while the loss of Iranian oil hurt it—and the Western world in general—it had been developing oil production in Alaska since 1959, and in the North Sea since 1965. It had also acquired one of the pieces of Standard Oil created by trustbusting: Standard Oil of Ohio. Ironically, while oil was being nationalized again in Iran, that same year the British government—under the conservative economic reforms of new Prime Minister Margaret Thatcher—began privatizing BP, selling off its interest in the company in large pieces through 1987. In 1998 the company merged with Amoco, another former Standard Oil company, and was briefly known as BPAmoco until it renamed itself simply BP in 2000, retrofit for a new slogan: Beyond Petroleum.

Both BP and Amoco brands remained in use for a time, as both service stations and branded gasoline, Amoco-branded gasoline having consistently ranked highest in customer satisfaction for years. As of 2008, the Amoco brand is being phased out in much of the United States. BP also owns and operates a number of other store brands: BP Connect is used throughout the world, BP Travel Centres are known for their enormous food courts in Australia, ARCO operates along the west coast of the United States, while Air BP provides aviation fuel and Marine BP provides marine fuels.

Bibliography:

W. Ferrier and James H. Bamberg, The History of the British Petroleum Company, vol. I–III (Cambridge University Press, 2000);
Karl E. Meyer and Shareen Brysac, Kingmakers: The Invention of the Modern Middle East (W.W. Norton, 2008).

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