Oil Nationalisation and Managerial Disclosure: The Case of Anglo-Iranian Oil Company, 1933-1951 Neveen Talaat Hassan Abdelrehim BA (Hons) Accounting, MA Accounting A Doctoral Thesis Submitted in partial fulfilment of the requirements for the award of The Degree of Doctor of Philosophy of The University of York The York Management School September 2010 Table of Contents Page Summary of Thesis ---------------------------------------------------------------------------- v Acknowledgments ----------------------------------------------------------------------------- vi Declaration ------------------------------------------------------------------------------------ viii List of Abbreviations ------------------------------------------------------------------------- ix List of Tables ----------------------------------------------------------------------------------- xi List of Figures --------------------------------------------------------------------------------- xii List of Appendices --------------------------------------------------------------------------- xiii Chapter 1: Introduction ---------------------------------------------------------------------- 1 1.1 Introduction ---------------------------------------------------------------------------- 1 1.2 Background of the research --------------------------------------------------------- 4 1.3 Research Problem and Research Questions --------------------------------------- 6 1.4 Research objectives ------------------------------------------------------------------- 7 1.5 Motivation of the study -------------------------------------------------------------- 8 1.6 Conceptual framework -------------------------------------------------------------- 10 1.7 Methodology-------------------------------------------------------------------------- 16 1.7.1 The use of secondary data and archival sources in historical analysis -- 18 1.7.2 The use of empirical evidence in historical analysis ----------------------- 18 1.8 Structure of the thesis --------------------------------------------------------------- 23 Chapter 2: AIOC History, oil and Iranian politics (History and Debates)------- 26 2.1 Introduction --------------------------------------------------------------------------- 26 2.2 The establishment of the AIOC ---------------------------------------------------- 26 2.2.1 The importance of oil----------------------------------------------------------- 27 2.2.2 The D‟Arcy concession -------------------------------------------------------- 28 2.3 AIOC‟s domination in Iran --------------------------------------------------------- 29 2.3.1 1933 Agreement ----------------------------------------------------------------- 32 2.3.2 1947 negotiations and the Supplemental Agreement ---------------------- 34 ii 2.4 Nationalisation in 1951 ------------------------------------------------------------- 37 2.4.1 Musaddiq‟s motivations for nationalisation --------------------------------- 47 2.4.2 Senior Management (Fraser) -------------------------------------------------- 52 2.5 Negotiations to reach a settlement after AIOC‟s nationalisation ------------- 57 2.5.1 The Stokes mission ------------------------------------------------------------- 59 2.5.2 Undermining Musaddiq -------------------------------------------------------- 61 2.5.3 Coup in 1953 and NIOC ------------------------------------------------------- 62 2.6 Summary ------------------------------------------------------------------------------ 66 Chapter 3: Employee relations and Iranianisation------------------------------------ 68 3.1 Introduction --------------------------------------------------------------------------- 68 3.2 Iranianisation: Claims and Counter Claims -------------------------------------- 70 3.2.1 Iranianisation and Article 16 -------------------------------------------------- 71 3.2.2 Negotiating Iranianisation and Article (16) --------------------------------- 73 3.3 Iranian claims for discrimination within the AIOC: Empirical evidence ---- 79 3.3.1 Housing --------------------------------------------------------------------------- 84 3.3.2 Wages ----------------------------------------------------------------------------- 88 3.3.3 Medical Treatment -------------------------------------------------------------- 90 3.4 Counter Claims by the AIOC: Empirical Evidence ----------------------------- 92 3.4.1 The Public and Private position of the AIOC senior management ------ 92 3.4.2 Review of empirical evidence ------------------------------------------------- 99 3.5 Summary ---------------------------------------------------------------------------- 101 Chapter 4: Profit distribution by the AIOC ------------------------------------------ 103 4.1 Introduction ------------------------------------------------------------------------- 103 4.2 The 1933 concession: Claims and Counter Claims --------------------------- 105 4.3 Iranian Claims and AIOC Counter claims: Empirical Evidence ------------ 108 4.3.1 Difference in the value of gold ---------------------------------------------- 108 4.3.2 Taxes and Immunities -------------------------------------------------------- 110 4.3.3 Company‟s Reserves and Profits ------------------------------------------- 113 4.3.4 Royalties ----------------------------------------------------------------------- 124 4.3.5 Dividends ---------------------------------------------------------------------- 129 4.3.6 Subsidiaries (Establishments outside Iran) -------------------------------- 130 4.3.7 The financial inspection of the companys books ------------------------- 132 iii 4.3.8 The price of oil products ----------------------------------------------------- 134 4.3.9 Period of the concession ----------------------------------------------------- 135 4.3.10 Company‟s shares ------------------------------------------------------------- 136 4.4 Tactical Plans of AIOC to face Iranian accusations: Empirical Evidence ----------------------------------------------------------------------------- 137 4.5 Response of Fraser to Iranian accusations: Empirical Evidence ------------ 141 4.6 Summary ---------------------------------------------------------------------------- 146 Chapter 5: The AIOC’s Stock Market reaction to nationalisation: Event Analysis and empirical results -------------------------------------------- 149 5.1 Introduction ------------------------------------------------------------------------- 149 5.2 Methodology------------------------------------------------------------------------ 151 5.2.1 Event Study -------------------------------------------------------------------- 151 5.2.2 Market Efficiency ------------------------------------------------------------- 154 5.2.3 Data ----------------------------------------------------------------------------- 157 5.2.4 Market Adjusted Model ------------------------------------------------------ 159 5.2.5 Hypotheses Testing ----------------------------------------------------------- 162 5.3 Analysis ----------------------------------------------------------------------------- 164 5.3.1 Historical Analysis ------------------------------------------------------------ 164 5.3.2 Event Window ----------------------------------------------------------------- 171 5.3.3 Economic impact of nationalisation on AIOC investors ---------------- 172 5.3.4 Information impact of nationalisation on AIOC investors -------------- 174 5.4 Summary ---------------------------------------------------------------------------- 181 Chapter 6: Conclusion --------------------------------------------------------------------- 184 6.1 Introduction ------------------------------------------------------------------------- 184 6.2 Conclusions from the study ------------------------------------------------------ 184 6.3 Reflections -------------------------------------------------------------------------- 196 6.4 Usefulness of research methods ------------------------------------------------- 198 6.5 Limitations of this study ---------------------------------------------------------- 198 6.6 Contribution to knowledge ------------------------------------------------------- 199 6.7 Suggestions for further research ------------------------------------------------- 201 Appendices ----------------------------------------------------------------------------------- 203 Bibliography --------------------------------------------------------------------------------- 226 iv Summary of Thesis The principal aim of this thesis is to contribute towards the understanding of the Anglo-Iranian Oil Company (AIOC, now British Petroleum) practices in Iran and thereby providing a clear picture of how nationalisation evolved on 1st May 1951 and how it was perceived by the stock market. Nationalisation brought into sharp focus issues affecting key AIOC stakeholder groups, including Iranian employees, Iranian government and UK investors which became the subject of claim and counter-claim from the AIOC board and Iranian nationalist opinion. As a consequence of these disputed claims, a propaganda battle became a crucial ingredient of the crisis, not least because a key objective of the AIOC management was to maintain investor confidence in the face of a major threat to its asset base but also reflecting the AIOC‟s ability to defend itself from the claims made by the Iranian government about unfairness in the sharing of proceeds, and discrimination against Iranians. In fact, this was crucial in absolving the company from any blame for the international crisis. As a result, in considering the above effects, by using AIOC as a case study, contrasts are drawn between the AIOC‟s management‟s public view of the crisis and the actual events as documented in the literature, official papers, and financial records. It is worth noting that this research will examine the extent to which the company exploited and manifested Iranian rights by drawing on evidence from major neglected documents. Furthermore, this research will examine the degree to which imperialism has been applied to the Iranian society. The study shows that the AIOC was not prepared to give up any of its control over the Iranian oil resources nor to improve the concession for the Iranians. With that rationale, the AIOC failed to fulfil its Corporate Social Responsibility (CSR) obligations towards the Iranian employees and the company‟s treatment of Iran was unfair in terms of profit sharing. The study also highlights that the AIOC management did a good job in maintaining the investors‟ confidence and in defending the company from the Iranian claims at a time of the nationalisation crisis. v Acknowledgments My gratitude goes to many people who provided important support that helped this research project to materialise. Firstly, I would like to express my sincere thanks and my appreciation to my supervisors, Professor Steven Toms and Professor Josephine Maltby, for their guidance and support throughout the process. Their fruitful supervisions and insights opened up a wide range of exciting new paths for me to explore. Also, I would like to thank my Thesis Advisory Panel member, Philip Linsley, for his constructive comments and suggestions on earlier versions of this thesis. Moreover, I would like to express my gratitude to Professor David Higgins, Director of the Ph.D. Programme, for his kind support and prompt responses to Ph.D. students‟ requirements. I also would like to thank the administrative staff for their help and support. Furthermore, I would like to thank the participants at the BHC conference, Athens, March 2010, for helpful comments on an earlier version of a paper extracted from chapter 3. Also, I am grateful for the anonymous referees from the Enterprise and Society Journal on their comments on that paper as well. Also, I would like to thank the participants at the ABH conference, York, July 2010, for their useful comments on an earlier version of a paper extracted from chapter 4. I am grateful to the participants at the EBHA conference, Glasgow, August 2010, for their stimulating comments on an earlier version of a paper extracted from chapter 5. I would like to give my sincere thanks to the Egyptian Government for funding this research and also thanks to Port said University, Egypt, for giving me the scholarship to pursue my higher education at The York Management School. I also gratefully thank Peter Housego and Joanne Burman at BP archives for access to the archival records, and for their support while I was using the archive. I am most grateful to my husband Sameh Danina for his love, patience, encouragement and support during the PhD period. Without his support, I would not have been able to reach the end of this process. To my son Mohamed whose vi motivating and lovely character brought a different and interesting dimension to this journey. I am also very grateful to my brother, Hany, for his continuous support from thousands of miles away. Last but not least, I am dedicating this piece of work to the soul of my parents and I am indebted to them for giving me a chance to acquire knowledge and education and for making me believe in my capabilities from a very early age. vii Declaration I declare that this thesis is all my own work and the sources of information and material I have used (including the internet) have been fully identified and properly acknowledged as required in the guidelines. York, 24 September 2010 N.T.H. Abdelrehim viii List of Abbreviations AIOC The Anglo-Iranian Oil Company APOC The Anglo-Persian Oil Company AR Abnormal Returns BP British Petroleum BPP British Parliamentary Papers Burma Oil The Burma Oil Company BV Book Value CAPM Capital Asset Pricing Model CAR Cumulative Abnormal Returns CIA Central Intelligence Agency CSR Corporate Social Responsibility EMH Efficient Market Hypothesis EPS Earnings Per Share FO Foreign Office FT30 Financial Times Industrial Ordinary Shares Index IID Independently and Identically distributed ILO International Labour Organisation MOC The Majlis Oil Committee MV Market Value NIOC The National Iranian Oil Company OLS Ordinary Least Squares OPEC Organisation of the Petroleum Exporting Countries PI Price Index RI Return index ix RWM The Random Walk Model SOA Supplemental Oil Agreement U.N Security Council United Nation Security Council US Foreign Policy United States Foreign Policy World War II Second World War x