Blood and Oil

Title: Blood and Oil – A Prince’s Memoir of Iran, From the Shah to the Ayatollah

Editor: Manucher Farmanfarmaian, Roxane Farmanfarmaian

Publisher: Random House New York 2005 (First published: 1997)

ISBN: 0-8129-7508-1

Pages: 482

Born as a prince of the ousted Qajar dynasty in Iran, Manucher Farmanfarmaian rose to hold prominent positions in the Iranian administrative system by dint of hard work, western education and most importantly, connections to people who wielded real power in Shah’s Iran. He was born to Prince Abdol Hossein Mirza Farmanfarma in 1917. The Shah, during the Pahlavi dynasty took a dim view of the Farmanfarmaians who controlled enormous power, owing to the numerous siblings holding vast amounts of land, business, administrative and foreign service positions. The author studied in Paris and Birmingham, obtaining degrees in Petroleum engineering. He rose to become the director of the National Iranian Oil Company (NIOC), which was nationalized during the 50s. He became Iran’s ambassador to Venezuela in 1972 and returned to Iran just before the 1979 Islamic revolution. Hunted by Khomeini’s revolutionary guards, he fled the country and settled in Venezuela to lead a peaceful, retired life till his death.

The book presents a vivid picture of Iran and its transformation from an underdeveloped country in the early 20^th century to an oil rich state by its end. The British monopolized Iranian oil in the form of a concession ceded from them in the form of the APOC (Anglo-Persian Oil Company), which later metamorphosed to British Petroleum. Political pressure from opposition forces resulted in the nationalization of the company and Iranians took control of it. The author claims that he had a deciding role in the formation of OPEC, the organization of oil-exporting countries in 1961. Iran, being an underdeveloped country, with a monarchy which has lost all touch with people was controlled by aristocratic families who owed allegiance to the Shah through matrimonial relationships, further cemented by ostentatious social gatherings to remain the lime light. Dissidence simmered among the public, which went unnoticed even by western intelligence agencies. When Ayatollah Khomeini returned from Paris to assume control of the state left by the Shah, things changed rapidly for the worse for these aristocrats, who had to eat the dust. One by one, they were hunted out and subjected to swift punishment, often without a decent trial.

The book is an interesting read which brings out various facets of Iranian civil society as it existed under the monarchs. The stark contrast between the haves and have-nots are evident between the lines, though the author is not unduly sympathetic to the socialist cause. When the Shah decided to effect a redistribution of land by appropriating it from the aristocrats, he opposed it on the flimsy ground that the gift positioned the new owners in an disadvantageous position, as they now had to care for the land and the means of cultivation which was until then taken care of by the lords. All top jobs were distributed among the relatives and friends of those in power. Whenever the author was in need of a job, all he needed to do was visit some of his cousins or brothers handling an important government portfolio and ask them to position him in a suitable chair already identified by him!

The book is easy to read and the story line very captivatingly arranged. As his notes were lost in the uprisings, he claims to have narrated all details from memory. The style is commendable, which was really put in place by his daughter and co-author Roxane. Hafez’s verses adorn the beginning of each chapter.

On the other side, the book is unduly long which need to be abridged. Arranged in smaller print, the book is not so easy to read. At the end of the day, the reader is not without some reservation against the author’s point of view which seemed to be skewed.

The book is recommended.

Rating: 2 Star

The Corporation That Changed The World

Title: The Corporation That Changed The World – How the East India Company Shaped the Modern Multinational

Editor: Nick Robins

Publisher: Orient Longman 2006 (First)

ISBN: 81-250-3022-0

Pages: 190

Nick Robins is a prominent international author on corporate and financial matters, whose expertise is brought to arresting detail in the threadbare discussions of a powerful multinational company, formed in 1599, which exerted its tentacles far and wide and destroyed the lives of millions of Indians in the process, the East India Company (EIC). Founded as a joint-stock company for the task of carrying out trade with the East, the company gained territorial possessions and acted like a soverign power with no regard to the well being of the subject people. It systematically overthrew the political, economic, social and cultural framework of India by aggression, diplomacy and outright cheating. When the people rose up in revolt, the agitation was put down severely, but the aim of the revolutionaries succeeded in rooting out the company from India. Robins describes all these aspects in a sympathetic way and points out the pitfalls in today’s mindless globalization rhetoric.

In the 15th century, Portugal handled 75% of European spice trade. Protestant revolt in Holland resulted in blockade of Antwerp and Dutch traders were ousted from Lisbon. This forced the Dutch to ply their ships direct to India and pepper prices tripled. Spurred by the immense profits garnered by the Portuguese and Dutch traders, Queen Elizabeth signed the royal charter for establishing a British company in 1599. This was a joint-stock company, in which the investors pooled their money for making the dangerous journey to India. They were also given privileges to mint own coins in overseas territories, exercise justice in its settlements and the right to wage war. It grew several-fold and by 1774, 14% of England’s trade input was from this company. It operated in a more democratic way as compared to Dutch VOC. Each shareholder, possessing shares of £500 could participate in the election, and everyone having £2000 worth shares could contest for the post of director. The organisation was strictly hierarchical and the officers employed overseas could carry on private trade with other Asian ports. The company was given monopoly of bringing the oriental produce to England. EIC first established factories in today’s Indonesia, but wars with the Dutch expelled them from the Spice Islands. Textiles was the item of choice it exported from India, causing much hardships to British textile mill owners and labourers, as “The company had long been the target of protests from protectionist interests, critical of its growing imports of Indian calicoes. ‘When the East India ships come in’, they argued, ‘half our weavers play’. Others contended that competition from India kept wages in the wool and silk industries at starvation levels. The pressure was intensified when 5,000 weavers marched on Parliament. On their return journey, the weavers attacked East India House and broke open its doors, forcing the intervention of local milita” (p.52-53).

Company’s territorial ambitions were galvanized when Siraj-ud-Daula, the Nawab of Bengal invaded Calcutta in 1756. He was summarily defeated in 1757 at the Battle of Plassey, in which 50,000 Bengali troops surrendered to the 3,000 company troops, out of which only 1,000 were Englishmen. It could snatch victory due to the treacherous intervention of Mir Jaffar, Daula’s trusted minister. In recognition of the company’s superior position, the then Mughal emperor, Shah Alam II granted them the diwani (tax collection rights) of Bengal in 1764. A commercial organization could now collect land taxes forcibly from the public, give a portion to the toothless Mughal and reexport the remaining to England. Thus, the Company in collusion with the Mughal robbed India of her riches. Till that moment in history, gold flowed to India to pay for textiles. With this momentous step, the flow reversed. Robert Clive pocketed for himself a large share and was tried in England for financial misdemeanours. Speculation and grabbing of rice by company’s tax collectors exacerbated the Bengal famine of 1769-70, in which an estimated 10 million people (1/3rd of the Bengali population) perished. The excesses and immoral operations of the company overseas evoked outrage back home, resulting in the Regulating Act of 1773, which ushered in more government control.

EIC also contributed to the American war of independence in an indirect way. In the mean time, the company had engaged in importing tea from China, which was very lucrative. Most of the tea was reexported to America. Taxes in England caused the company’s tea to be dearer in America, which could not compete with smuggled tea from elsewhere in Europe. The new Tea Act abolished the tax in England and levied it upon arrival in America. This caused heated opposition from the colonists, resulting in the famous Boston Tea Party of 1773. The high handed deals of company officials attracted much scorn from intellectuals at home, like Edmund Burke, who was known for his humanist approach and who proceeded with impeachment motion against Warren Hastings, the governor-general of the company. His accusations against Hastings ran thus, “It is with confidence that, ordered by the Commons, I impeach Warren Hastings Esquire, of high crimes and misdemeanours. I impeach him in the name of the people of India, whose laws, rights and liberties, he has subverted, whose properties he has destroyed, whose country he has laid waste and desolate. I impeach him in the name and by virtue of those eternal laws of justice he has violated. I impeach him in the name of human nature himself, which he has cruelly outraged, injured, and oppressed, in both sexes, in every age, rank, situation and condition of life” (p.135). George Dempster (1732-1818), a former director of the company and an MP also opposed British rule in India.

Increased expenditure of military strained the finances of the company. Between 1763 and 1805, soldiers in its payroll increased from 18,000 to 154,500. It defeated Tipu in 1792 and annexed Malabar. Company’s losses mounted from £9 million in 1792 to £30 million in 1809. It sought to regain the losses from taxes, which the Indian taxpayer had to bear. Protectionist measures in England also weighed against free trade with India, in the form of 78% duty on calicoes and 31% on muslins. In the meantime, Industrial Revolution picked up in England, resulting in increased automation and reduced operating costs, which made the mills 400 times more productive than the Indian weaver. Indian textiles suddenly found themselves to be at a disadvantage and its market collapsed. This caused loss of jobs in India and William Bentinck remarked that Indian plains were bleached with the bones of weavers. To offset the losses in textiles, company turned to Chinese tea. But, they had nothing to offer the Chinese other than gold, which they were reluctant to do. Instead, they smuggled opium to China by bribing the officers. The company had a monopoly of opium production in Bihar and hence could set the price. Its cultivation in Malwa under the Marathas brought down prices, which prompted the company to attack and defeat them. Increased production from Malwa however reduced the prices. It exported 2,000 chests of opium (of 63.5 kg) in 1800 which bounced to 105,000 chests in 1879. The health and wealth of the Chinese were in the wicked company’s hands. When China banned the imports, the Royal Navy itself intervened and ensured free flow of the narcotic drug in two Opium wars.

In the 19th century, India’s role as an exporter of finished product weakened and it fell to the role of a supplier of raw materials for the emerging British industries. In 1811, India’s exports consisted of textiles (33%), opium (24%), indigo (19%), raw silk (8%) and raw cotton (5%), whereas it changed to textiles (nil), opium (30%), cotton (19%), indigo (11%) and sugar (10%) in 1850. The company’s special trading privileges ended in 1833 and the first war of independence in 1857 forced the crown to abolish the company and take over its Indian possessions in 1858. The company was formally wound up in 1874, with shares converted to government bonds.

Robins ends with a long chapter on similarities of the erstwhile company with modern multinational corporations which are also not bound by national laws. He argues that an Ethic gene must be included in the company law. The Alien Tort Claims Act (ATCA) in America is described to be a step in the right direction, citing the case of Unocal which was indicted for its unscrupulous deals in Burma.

The book is highly recommended.

Rating: 3 Star

Blood of the Earth

Title: Blood of the Earth – The Battle for the World’s Vanishing Oil Resources

Author: Dilip Hiro

Publisher: Penguin 2008 (First published 2007)

ISBN: 978-0-14-310401-8

Pages: 379

Dilip Hiro is a renowned author who writes fiction as well as non-fiction and selects middle-eastern issues frequently. Oil is also a predominantly middle-eastern issue which affects all parts of the globe. Whatever happens in that strife-torn area, is bound to vigorously shake the lives of people even living in far remote areas. A good example is the pro-democratic struggle going on in Libya. The people, fed up with a dictator who reigns over them for the last four decades are desperate to get rid of him at all cost, as seen by deaths of hundreds of protestors. Libyan oil is now blocked and it has pushed up the price much above $100 a barrel. This book is a compendium of petroleum which is also called the blood of the earth. It covers the origins, identification of utility, usage and the critical influence of oil in contemporary world. Geopolitics is more or less shaped by the subtle swings of power oscillating between the oil-haves and oil-have-nots. The sole superpower in the world is itself impotent to rein in the predatory attitudes of petroleum producers who have no compunction in boosting up the price of their commodity to sky-high levels.

Commercial oil production began in mid-19^th century at Titusville, Pennsylvania in the U.S. Digging of oil wells picked up momentum soon after in Texas and Azerbaijan in central Asia. It may be curious to note that the first commercial oil well in Asia was dug at Digboi, India. Most of these first-generation wells have now been dried up and the fields themselves give diminishing returns. The average yield of American wells is 10 bpd (barrels per day) whereas the figure runs into thousands of bpd in Qatar for typical wells. Oil was first struck at Iran and then in Saudi Arabia by 1930s. The oil boom which occurred after World War II ended the coal era once and for all.

Petroleum originated in the deep bowels of earth by a process spanning several millions of years. Dead algae and planktons sink downwards to the bottom of the ocean and forms a layer. Over millions of years, this carpet hardens into nutrient rich rock called Kerogen shale, a mixture of compounds with large molecules containing carbon and hydrogen. The high pressure and temperature obtaining at depths of 2300 – 4600m, often reaching 100 – 135 deg C cooks the shale further. The high temperature breaks down the heavy molecules to smaller molecules of oil and gas. Oil is ideally seen at depths of 2300 m, below which the occurrence of gas is more probable. It is very crucial that the lighter than air gas is not bubbled off back onto the surface. Deposits of salt and anhydrous calcium sulphate left behind by receding seas act as perfect seals as seen in the mega oil fields of Kuwait and Saudi Arabia. The quality of the crude is different based on the composition and it is graded into degrees between 15 and 45 defined by the American Petroleum Institute.

The output from an oil well follows a bell-curve, first proposed by M King Hubbert, a U.S. geologist. This indicates a peak in the production, beyond which it dwindles. It is expected that the world would experience the peak in somewhere in this decade. Even super giant oil fields like Burgan in Kuwait and Ghawar in Saudi Arabia are showing signs of fatigue. OPEC will continue production until peaking around the year 2025. Non-OPEC production will be seriously affected by shortfalls and those countries are likely to depend on OPEC in the coming years. Development of new technologies are essential for these nations to take out the remaining oil from underground.

Oil is undeniably interlinked to world politics. Oil replaced coal for transport in the beginning of 20^th century. In 1912, Britain, a large producer of coal moved to oil-fuelled warships for their efficiency, speed and better capacities. The Anglo Persian Oil Company (APOC) was formed to prospect for oil in Iran. Once its efforts proved successful, the British government procured majority stake in it. One of the deciding factors in favour of Allied forces during the World War I was the naval blockade of Germany which cut off its oil supplies. The inter-war period was notable for locating oil in Iran and Saudi, and also for Mexico nationalizing its oil production capability in 1938. The second world war was also motivated in part due to oil ambitions of the players. Japan, themselves bereft of any local oil, coveted the resources of Indonesia while fearing U.S. intervention. To temporarily disable the Americans, they made a pre-emptive strike at Pearl Harbour in 1941, thus setting in motion a disastrous trail for themselves. Germany’s attack of the USSR was a twist in the European front affecting the outcome in the end. Russia had occupied a large portion of Romanian oil fields and it was to release these facilities and also to annex the Azerbaijan oil fields that Hitler turned against his former friends and allies, again with tragic consequences. Hitler intended to take hold of middle-east oil by pincer movements from Azerbaijan and North Africa. U.S. befriended ibn Saud to exclude British companies from the kingdom. An informal agreement was arrived upon by which Saudi oil was taken by U.S, Iranian oil by the British and the rest, by mutual sharing. Attempts at nationalization of oil resources by Iranian premier, Mohammed Mussadiq was foiled by the CIA and MI6 in their first ever operation against a democratically elected regime. During 1958, Soviet Union appeared as a contender for the western oil companies. To outsmart the Russians, western oil companies slashed the prices considerably, which affected the economies of middle-eastern states. OPEC was formed in 1961 to prevent such happenings in the future and it mandated the companies to consult with the governments in fixing the price and production rates. The 1967 and 1973 wars against Israel and Arab states infuriated the latter who shut off the oil. Prices boomed five-fold from $1.37 to $7 per barrel, shaking the western civilization itself at its roots. The second oil shock in 1979-80 following the Islamic revolution in Iran was another reminder for the west to seek alternate sources for energy needs.

Oil is traded in major exchanges like the New York Mercantile Exchange (NyMex – called WTI, West Texas Intermediate), Rotterdam spot market and at London Petroleum Exchange (Brent Crude). Futures trading began in 1983 which helped stabilize the markets and undermined the price setting power of OPEC. Gulf War and the competition among Arab states slashed the price of oil in 1985-86. After the war ended, Kuwait asked Iraq to return $12-14 billion it had received from Kuwait in the form of oil it supplied to Baghdad’s customers during the war. Saddam Hussein refused, claiming that the war with Iran was for the common benefit of other Arab states and they had a responsibility to share costs. An infuriated Kuwait began flooding the market with cheap oil, cutting the price from $18 to $11 in 1990. A cut of $1 in the price of oil would diminish the Iraqi economy by $1 billion. Saddam invaded and annexed Kuwait in 1990. He then controlled 20% of the world’s proven resources as against 26% of Saudi Arabia. U.S. intervened and after 43 days of one-sided operations, Iraq conceded defeat with an estimated damage of $190 bn to its infrastructure. The urge to control Iraq’s oil directly prompted U.S. to invade Iraq and deposed Saddam in 2003.

The imperative to find alternate sources of oil led to a scramble for oil fields in the 90s. Fresh reserves were identified in Azerbaijan, Caspian sea and Kazakhstan. Under U.S. pressure a giant pipeline was laid from Baku in Azerbaijan to Ceyhan port in Turkey through Tbilisi in Georgia, called BTC pipeline. Kazakh oil was later linked to the pipeline. American and Chinese companies are vying with each other and with Lukoil and Gazprom of Russia for Kazakh oil. China has adopted oil and other resources as articles of state policy and has agreed into trading agreements with African nations such as Angola, Nigeria and Sudan. Latin American countries like Brazil and Bolivia are rich in oil, but their consumption is fast rising to negate the chances of exporting it. Venezuela is an oil-rich state, which openly oppose American interests and engages in subsidized supplies to the poor, even in U.S! Oil demand surged, as China became a net importer of oil in 1993 because of its economic takeoff. Its companies reached pacts with oil producers worldwide. First oil well in India was found in 1867 at Nahorpung, while laying rail lines from Calcutta to the tea estates of Assam. Bombay High, developed in 1974 caters to one-thirds of Indian output. Private companies are also involved in oil exploration now.

It is imperative for the world to look for alternatives for oil. Natural gas is a good option, but that too is produced by the same cartel as oil. Russia, Qatar and Iran are the major players. Nuclear power is an option which was relied upon less and less by the west after the incidents at Three-mile Island in 1979 and Chernobyl in 1986. India and China are investing in more nuclear power plants. Another older option is coal, of which India and U.S. has reserves lasting for two centuries. The biggest drawback of coal is the pollution it engenders which can be alleviated by the technology called IGCC (Integrated Gasification Combined Cycle) which generates syngas from coal. Price is costlier, but the technology is very clean. Conversion of coal to oil is possible with a conversion ratio of 1.5 barrels of oil for 1 ton of coal. The method is economical only if oil price stays above $35 a barrel (2005 values).

Divorcing the internal combustion engine from automobiles is a prime consideration for bringing down the consumption of oil. There have been steps in the right directions in the form of hybrid vehicles like Toyota Prius. Judging from the present trends, it is likely that fuel cell-powered vehicles would become the norm of the future, perhaps as early as 2050. Production of hydrogen for use in fuel cells is to be boosted up. Wind energy is a very viable alternative with Germany in the world leadership, producing 10% of their total power from wind. India is vying to catch up with a proposed 1000MW wind field near Mumbai.

The book is quite easy to read, the style being simple and uncluttered. The author has introduced a ‘petroleum alphabet’ for driving home the point that oil has become an inalienable aspect of modern life. Some very interesting quotations are included, the star of them being the one said by Sheikh Ahmad Zaki Yamani, a former oil minister of Saudi Arabia – “The Stone Age did not end for lack of stones, and the oil age will end long before the world runs out of oil”. A fine set of maps are given in the first section and an equally good chronology at the end. The book is graced with an index, thought it seemed not comprehensive. When looked for finding IGCC in the index, it drew a blank, though the term is repeated 4-5 times in the text.

On the negative side, the life sketches given about persons as they are introduced seemed to be boring and beside the point. It was felt that the reader need not know that Hubbert was a puffy-faced man who appeared in one or two pages. These were uninteresting and diluted the focus of narration. Also, the chapters on India and China was not at all concentrated on the oil aspect. It simply described the amazing economic progress achieved by these countries in the first decade of the new century and as such, the description would have suited any book on contemporary financial matters. Needless details are given, and it may safely be assumed that the description could have been compressed into 2-3 pages. Altogether, the writing though simple, is more often uninteresting. In the end, the reader is likely to end up with a feeling that the author has wasted an opportunity to bring such a time-relevant concept as petroleum. Another serious drawback is the lack of technical depth of the book. The author could have come up with a little more detail of the exploration, drilling and refining of crude oil. As such, there are no such details, spoiling the utility of the book.

The book is recommended.

Rating: 3 Star