Red Line Agreement

The Red Line Agreement is the name given to an agreement signed by partners in the Turkish Petroleum Company (TPC) on July 31, 1928. 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 Petroleum Exporting Countries (OPEC), which was formed in 1960.

It has been said that, at a meeting in 1928, Calouste Gulbenkian, an Armenian businessman and philanthropist, 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 joined ARAMCO. Although the Red Line Agreement was effectively a dead letter after this date, IPC continued to operate.