The First Kuwait Oil Agreement

A Record of Negotiations, 1911-1934

A.H.T. Chisholm

• Publisher: Routledge
• Year: 2012
• Topic: History
• eBook ISBN:
  9781136274787
• Subtopic: Business History
• Index: History

First Published in 1975. The first Kuwait oil concession agreement, granted on 23rd December 1934 by the late Shaikh Ahmad al Jaber al Subah to the Kuwait Oil Company Ltd., has been of fundamental importance in the history of the State of Kuwait; whose great increase in prosperity and international influence during the last twenty-eight years has directly resulted from its oil production since 1946 under the Agreement and its 1951 successor. Hitherto no full or authoritative account of the very long and complex commercial and political negotiations preceding the Agreement has been compiled; and consequently all descriptions of them so far published (except those merely quoting the Agreement's terms and naming the parties concerned) have contained substantial omissions or errors of fact involving a wrong impression of what actually occurred. This text is a record of the negotiations between 1911 and 1934.

CHAPTER 1

November 1911 to June 1923

The first recorded expression of interest in the oil possibilities of Kuwait was in November 1911. Shaikh Mubarak al Subah, then in the fifteenth year of his reign, had secured the independence of Kuwait twelve years previously from the designs of the Turkish Empire by signing an Agreement with Britain in 1899. The Agreement, signed on behalf of the British Government by its Political Resident in the Gulf (1), included an undertaking that the Shaikh, his heirs and successors would not ‘cede, sell, lease, mortgage or give for occupation or for any other purpose any portion of his territory to the Government or subjects of any other power’ without the previous consent of the British Government. This proviso was destined many years later to cause complications in the negotiations for Kuwait’s oil concession from 1928 onwards.

On 3rd November 1911 Mr Greenway, Managing Director of Anglo-Persian Oil Company Ltd. (2) wrote from London to the British Political Resident (3) in Bushire requesting his opinion as to whether ‘a valid concession for working oil in Kuwait’ was obtainable from the Shaikh;

if so, I should like you to put forward an application on behalf of the Anglo-Persian Oil Co. for a Prospecting License, the draft terms of which I will send you later on if you think there is any chance of a Concession being obtainable. The question of whether or not there are oil deposits of any value in Koweit is, of course entirely problematic, and consequently we should only in the first place be prepared to take out a Prospecting License, which in view of the difficulties of prospecting in this place should be for a fairly long period, say 2–3 years.

British Admiralty Commission and first geological survey of Kuwait, 1913

At that time conditions in Arabia, where Kuwait’s Arab and Turkish neighbours were struggling for supremacy, were too disturbed for this application for an oil concession to be put forward. But two years later a British Admiralty Commission headed by Admiral Slade, which had arrived in Persia to examine and report on the operations and prospects of the Anglo-Persian Oil Co. in 1912 and 1913, visited Kuwait in November 1913 (4) to discuss its oil potentialities with Shaikh Mubarak; who had also permitted them earlier in that year to carry out the first geological survey of Kuwait. This took place in March 1913 and its findings, issued in May (5), assessed the area’s oil chances as highly speculative though on the whole ‘not unfavourable’, recommending the central plain of Burgan as the best site for test drilling.

In October 1913, in connection with the Commission’s November visit, Shaikh Mubarak and the British Political Resident exchanged letters (6) of importance for the subsequent history of Kuwait’s oil. Writing to the Shaikh for his agreement to this visit by Admiral Slade to Kuwait ‘in order that he may inspect the places showing traces of bitumen at Burgan and elsewhere’ the Political Resident also asked that, if hopes of finding oil resulted, the Shaikh would agree not to give a concession in this regard to anyone other than a person nominated and recommended by the British Government. Replying the same day (the letters were confirming their discussion of the subject the day before), Shaikh Mubarak agreed both requests.

Early next year Anglo-Persian Oil Co. sent a geologist to Kuwait to inspect the seepages at Burgan and Bahra, but owing to the outbreak of the 1914–18 War it was not until 1917 that the Company was granted permission by Shaikh Salim (Shaikh Mubarak had died in 1915, being succeeded by Shaikh Jaber, who died early in 1917) to make its first geological survey in Kuwait. This conformed generally with its predecessor of 1913, recommending test operations at Burgan, and resulted in the Company’s asking the Political Resident in October 1917 for permission to negotiate for oil rights in Kuwait. Owing to the difficult war conditions then prevailing throughout Arabia and Turkish Mesopotamia (now Iraq), the Political Resident advised postponement. It was not until May 1918 that the Chairman (see Note 2) of APOC in London formally applied to the British Foreign Office (7), in a letter whose main purpose was to apply for a concession ‘covering all oil deposits which may be contained in such part or parts of Mesopotamia’ as might come under British control after the war, for the scope of any such concession to be also extended ‘so as to cover the territories of the Sultan of Koweit in which we have already carried out a considerable amount of geological investigation in anticipation of obtaining the concession’.

Shaikh Ahmad, Ruler of Kuwait 1921–50

The final stages of the war in 1918, and Middle East peace treaties and resettlement in 1919 and 1920, prevented any progress with this application until May 1921. Three months previously Shaikh Salim had died, being succeeded by Shaikh Ahmad (8), whose long rule was to cover not only the thirteen years of negotiations culminating in the first Kuwait oil-concession agreement of December 1934 but also, before his death in 1950, the first phase of his State’s huge oil developments.

In May 1921 APOC reminded the British Foreign Office (see Note 7) of their 1918 application, requesting as regards Kuwait that the Political Resident should be instructed to apply to the Shaikh for ‘an exclusive prospecting licence’ for oil in favour of the Company in his territory, with a concession to follow if oil were discovered. The Company offered to send their own representative to negotiate with the Shaikh if this course were preferred by the political authorities.

This letter received a brief acknowledgement in June on behalf of Mr (later Sir) Winston Churchill (9), then head of the Colonial Office (the British Government department to which principal responsibility for Kuwait affairs had recently been transferred from the Foreign Office), stating that after consulting the India Office and the Petroleum Department of the Board of Trade (see Note 7), ‘a further communication’ would follow ‘in due course’. But it needed a further reminder by APOC in October to elicit on 24th December a full reply. The Colonial Office then stated that there were no objections to negotiations for such an oil agreement being opened immediately with the Shaikh of Kuwait, but pointed out that, following Shaikh Mubarak’s exchange of letters with the Political Resident in October 1913, such negotiations had to be conducted by the Political Resident acting on British Government instructions.

Mr Winston Churchill authorises APOC negotiations, October 1922

The Company replied on 6th January 1922 agreeing and after considerable further correspondence regarding negotiating points and procedures required by the British Government (which were all agreed, though some reluctantly (10), by the Company) they were at last informed on 16th October 1922 that

Mr Secretary Churchill has caused the India Office to be requested to instruct the Political Resident in the Gulf to render assistance to the representatives of your company in negotiating an agreement with the Shaikh of Kuwait of the nature indicated in the correspondence ending with your letter under reply.

Early in 1922 the APOC had received a telegram from their Resident Director in Persia, Sir Arnold Wilson (11) to whom, on receipt of the Colonial Office’s letter of 24th December 1921, they had countermanded previous instructions to start direct negotiations with Shaikh Ahmad. Sir A. Wilson, who was on terms of personal friendship with the Shaikh, had telegraphed that ‘the Shaikh of Kuwait has informed me privately that he will readily accept any arrangement desired by the Company and approved by Government’. As soon as Sir A. Wilson had been informed of the British Government’s letter of 16th October 1922, he telegraphed to the Company in London on 7th November proposing to go immediately from Abadan to Kuwait to open negotiations which, as indicated in that letter’s last paragraph, no longer had to be conducted solely by the Political Resident. In reply he was told that the opening of negotiations should be delayed, owing to the Company’s heavy programme of engagements and developments in progress elsewhere. Meanwhile, drafts of possible proposals to be submitted to Shaikh Ahmad, embodying conditions required by the British Government departments concerned in conformity with current concession procedures and precedents and agreed by the Company before the Colonial Office had sanctioned their negotiations, were the subject of much correspondence both between APOC and H.M.G. in London and between the Political Resident and the Company in Persia.

In January 1923 the Political Agent (12) in Kuwait without informing APOC initiated their negotiations with Shaikh Ahmad, describing to him the Company’s proposed terms (13) for exploration and prospecting licenses and a subsequent mining lease (this being then the form required by old Colonial Office precedents for overseas mineral concessions) for his consideration, as a basis for negotiation with the Company’s representatives as soon as he wished to discuss the matter with them. The Shaikh’s initial reaction was favourable to the exploration and prospecting licenses but not to the mining lease, whose proposed Rupees 3 Annas 8 per ton royalty on crude oil he did not like, suggesting instead ‘25 % royalty on net crude oil’.

During the next two months these proposed terms continued under discussion between APOC and H.M.G. and the Political Resident in the Gulf, and also between the Political Agent and Shaikh Ahmad in Kuwait. In March the Company provided the Political Agent with a draft concession agreement (14) as a basis for further negotiation with the Shaikh, including all his proposed modifications except his suggested alteration in the royalty basis. It also combined the two licences and the mining lease as originally discussed into one ‘Concession Agreement’ in what the Company considered a more modern and convenient form.

Major Holmes (EGS) concession proposals, May 1923

But, while this revised draft was being considered by the Political Resident and before he had agreed its presentation to Shaikh Ahmad, an unexpected development occurred which, by introducing a rival candidate for Kuwait’s oil concession, was to involve the Shaikh in ten years bargaining with the two rivals in competition, with one more year to follow before he eventually granted to them jointly the Kuwait oil concession in December 1934. This was the following telegram received by Shaikh Ahmad on 9th May 1923 from Bahrain:

I have most important letters from Ameen Rihani who has made enquiries concerning myself and Company advising Your Excellency not to grant oil concessions to any other Company without first seeing the terms offered by my Company. My representative will bring by next steamer the letters and terms to present to Your Excellency. Am pleased to inform you that I have secured the approval of His Highness Ibn Saud of my Company and secured the concessions against all other Companies who negotiated with His Highness.

Major Holmes

Major Frank Holmes (15) was to play such an important part in Kuwait’s oil history from 1923 onwards that his career to that date must be briefly described (for full details see Note 15). Born in New Zealand in 1874, he was a mining and metallurgical engineer of world-wide practical and managerial experience, having worked for various companies, mainly gold and tin mining enterprises, in Africa, Australia, Malaya, New Zealand, Mexico, Russia, and South America before the 1914–18 War. During the war he served as a major in the British forces in France, Egypt, and Mesopotamia (now Iraq). In 1918, when engaged in arranging supplies from Abyssinia through Aden for the British Army in Mesopotamia, he first visited the Arabian Gulf at Basrah. He had previously had no acquaintance with the oil industry, but as a mining engineer was interested in what he then saw of APOC’s Abadan refinery and the oil industry in Persia, and what he heard of oil seepages and water problems on the Arabian Gulf coast. Demobilised from the Army in 1919, Holmes rejoined his pre-war mining associates in London, who in August 1920 formed a small company, Eastern & General Syndicate Ltd. (16), with the object of obtaining concessions and investigating business opportunities in Arabia. Holmes was employed by this company, for whom he went in 1921 to Aden and in 1922 to Bahrain, which thereafter became the headquarters of his Arabian activities. Having visited King Ibn Saud at Ojair (see Note 22) in November 1922 for inconclusive discussions of an oil concession, he eventually succeeded on 6th May 1923, in obtaining from the King for the EGS an exclusive option for exploration of oil and mining rights in his province of El Hasa. One of Holmes’s friends and supporters in his negotiations with Ibn Saud was Amin Rihani, a well-known naturalised-American writer and historian of Syrian origin, and during those negotiations he had obtained first-hand information about Kuwait from a Kuwaiti then in the King’s entourage. Such was the background of Holmes’s telegram from Bahrain to Shaikh Ahmad in Kuwait on 9th May 1923, three days after signing his E1 Hasa oil option with King Ibn Saud.

Holmes followed up his telegram by sending his interpreter-assistant (Holmes spoke no Arabic), Mohammed Yatim (17), to Kuwait by the mail-boat from Bahrain with introductory letters both to the Shaikh and to several prominent Kuwaitis. These included the Shaikh’s secretary Mullah Saleh (see Note 17), who was already on friendly terms with Yatim, a member of one of the most important merchant families of Bahrain. Holmes made his first visit to Kuwait a few days later. With such introductions and as a friend of King Ibn Saud he was well received by the Shaikh, with whom before leaving for Baghdad and London on 25th May, he had outlined suggested terms (on more generous lines than those hitherto proposed to the Shaikh by APOC; see below) for an oil concession for future negotiation after discussion with his EGS principals in London and also laid the foundations for what was to prove a life-long personal friendship with Shaikh Ahmad.

Holmes’s intervention had immediate repercussions both on the British political authorities in the Gulf and on the APOC who were already negotiating through them with the Shaikh. The latter was reminded by the Political Agent, while Holmes was in Kuwait, of his obligation (in accordance with Shaikh Mubarak’s undertaking in 1913) not to negotiate oil concessions except with persons nominated and recommended by the British Government which had not so far been approached by either Holmes or his London principals. To this the Shaikh rejoined on 23rd May that as Holmes was a British subject and had suggested terms more favourable than those hitherto proposed by APOC, and was going to London to pursue the matter with his principals, a British company which would doubtless make the necessary arrangements with the British Government, his actions to date had been wholly correct; as regards negotiations with Holmes he would not undertake these until the British Government had approved the EGS application in London.

The APOC in London, on hearing of Holmes’s visit to Kuwait, telegraphed their Abadan management on 17th May to make every effort to get their latest draft Kuwait concession, which H.M.G. in London had by now approved for presentation, signed by the Shaikh; which the Political Resident had been instructed to try to get him to do. They added that Eastern & General Syndicate Ltd. had already asked them to join them in obtaining a Kuwait Concession, but they had declined.

Sir Arnold Wilson’s (APOC) concession proposals, June 1923

APOC’s General Manager (see Note 11) at Abadan, Sir A. Wilson, arrived in Kuwait on 31st May, a few days after Holmes’s departure to London. The Political Resident arrived from Bushire the next day, when the APOC’s draft concession was formally presented by Sir A. Wilson to the Shaikh and commended to the latter’s favourable consideration by the Political Resident. On 2nd June, Sir A. Wilson accompanied by Mirza Muhammad (see Note 119) met the Shaikh (18) to discuss the draft and, he hoped, open negotiations with a view to its early agreement. The Shaikh however said he was unable as yet to discuss the terms of the draft concession, th...

Table of contents

• Cover
• Halftitle
• Title
• Copyright
• Contents
• Frontispiece
• Foreword
• Glossary
• Bibliography
• Chronology
• Record of Negotiations
• Chapter 1: November 1911 to June 1923
• Chapter 2: July 1923 to May 1932
• Chapter 3: June 1932 to February 1934
• Chapter 4: February 1934 to 23rd December 1934
• Notes
• Maps
• Index