Iraq Petroleum Company (IPC)

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IRAQ PETROLEUM COMPANY (IPC)

Successor to Turkish Petroleum Company.

The Iraq Petroleum Company (IPC) was organized in 1928 from the remains of the Turkish Petroleum Company (TPC). In 1927, TPC discovered the large Kirkuk field in the Kurdish Mosul region of Iraq. Seven years later, IPC completed a crude oil pipeline with termini in Tripoli, Lebanon, and in Haifa, then in the British mandate of Palestine. Its oil exports reached 1 million tons per year by the end of 1934, but revenues remained modest until the 1950s.

Iraq's militant oil policy can be explained by the country's dependence on pipelines to move crude oil to market, and by its history of bitter conflicts with IPC. The IPC pipeline to Haifa, vulnerable to sabotage, was severed during the Arab–Israel War (1948), and the pipeline through Syria was blown up during the Arab–Israel War (1956). Shipments of crude through the IPC pipeline in Syria were halted for three months in 1966 and 1967 because of a dispute over transit fees between IPC and the government of Syria. This was a preview of the relative ease with which transit countries were able to halt the flow of crude oil through IPC-owned pipelines following the imposition of sanctions by the United Nations in response to Iraq's invasion of Kuwait in August 1990.

Iraq's conflicts with IPC began during the negotiations over the original TPC concession. The government had demanded a 20 percent equity share in the company to give it some influence on management policies, including production levels. The TPC partners resisted giving a share to Iraq and called upon their home governments, then engaged in carving the Ottoman Empire into mandates for themselves, to help them. Needing British support to prevent the Mosul vilayet from being lost to Turkey, the government of Iraq reluctantly signed an agreement giving TPC a concession until 2000 and omitting the provision for an equity share for itself.

The most serious dispute between Iraq and IPC was over the laggardly development of Iraq's oil resources. IPC concentrated on developing its fields in Mosul, which depended upon the limited capacity of vulnerable pipelines to transport crude to markets. Development of the southern oil fields, close to the gulf where export via tanker was possible, did not occur until the 1950s. Iraq was convinced that IPC's foreign ownership was responsible for this delay, although other factors, such as the Red Line Agreement, are also likely explanations. IPC's foreign owners agreed to revise their concession agreement in 1952 to conform to the new industry standard of 50–50 profit sharing without the rancor that accompanied these negotiations in Iran. IPC also went along with another industry standard in 1959 and 1960, unilaterally reducing the prices paid to host governments for crude oil. This prompted Iraq to join four other oil-exporting countries to found the Organization of Petroleum Exporting Countries (OPEC) in 1960.

Negotiations between the government of Iraq and IPC in the early 1960s were beset by the inability of each side to understand the reasons behind the positions taken by the other. In December 1962 Iraq's Public Law 80 (PL 80) called for re-possession of more than 99 percent of IPC's land-holdings, including its share of the southern oil fields. The law also established the Iraq National Oil Company (INOC). PL 80 allowed Iraq to preserve its income stream from IPC, which retained its producing properties in Kirkuk, but also initiated a protracted struggle with IPC over the law's legitimacy. After intensive negotiations, IPC regained control of the southern oil fields in a new agreement initialed in 1965 but lost these rights after passage of Public Law 97 in August 1967, which gave INOC exclusive rights to develop all the territory expropriated under PL 80. IPC threatened to sue purchasers of oil from the disputed fields. INOC developed the disputed fields by itself and disposed of production through barter agreements, in order to circumvent the IPC ban on crude sales.

Following the 1968 coup and the installation of the al-Baʿth party, the government of Iraq moved rapidly toward nationalization. Continued conflicts over IPC's production rates, and company demands to be compensated for losses it had sustained as the result of PL 80, led to Public Law 69 (1 June 1972). This law nationalized IPC and established a state-owned company to take over its operations in Kirkuk. In response, IPC extended its embargo to cover oil from Kirkuk. The immediate impasse between Iraq and IPC was resolved in an agreement reached in February 1973, in which substantial concessions were made by both sides. By the end of the year, however, Iraq had nationalized all foreign oil holdings, including all of the remaining properties of IPC.

see also arab–israel war (1948); arab–israel war (1956); baʿth, al-; kirkuk; organization of petroleum exporting countries; red line agreement.