Introduction

1.1Politically related disclosure: Iran and Egypt

In 1950 and 1951 the BP chairman’s statement in the annual report contained a large section about Iranian nationalisation of the company’s assets by Musaddiq revealing that BP’s status and rights in Iran have been seriously affected. Despite the negative consequences of nationalisation, the chairman statement in 1950 discussed the important developments by the company following the loss of Iranian supplies to reassure stakeholders that there had been no serious disruptions to oil supplies. Furthermore, the 1951 annual report displayed graphs and photos for the first time (almost 2 pages) highlighting new agreements in the Middle East other than Iran noting the continued operations of BP although the flow of supplies was disturbed by the nationalisation event.

Disclosures noting actions of Iranian government and the impact of loss of Iranian supplies continued to be made in BP and Shell chairman statements in 1952 and 1953. In 1952, it was disclosed that this was the first full year during which the company had no oil production from Iran and the effect of this deprivation on the business, despite the greatly increased supplies which the company obtained from other sources. On a similar theme, in Shell’s chairman statement reference⁴⁵ was made to the problems arising from the loss of supplies from Iran and the difficulty of finding alternative. It is worth noting that in 1954 the tone of the chairman in both companies was neutral noting the successful negotiations and the resumption of diplomatic relations between the Iranian and British governments.

BP believed that the bulk of its oil requirements could be met by increased production in the Western Hemisphere, which could be attained from the large amount of surplus capacity in United States. Thus, “the company was seeking to have a proper settlement rather than immediate use of the canal in the face of economic necessity. The improved supply position also implies that a complete return to normal routings in the near future would almost certainly mean considerable bunching of tankers at arrival ports and some delays awaiting discharge and this might prompt us to maintain our large ships on the Cape route” ⁴⁶.

In contrast, in 1956 and 1957 politically related disclosures in Shell chairman statement were extensive but not as condemnatory as those dealing with the Iranian nationalisation which did not involve Shell assets. The chairman referred to the Suez crisis in his statement in the year 1956 saying that it has been as important and also as striking as in any year since the end of the war. The effects of them will be of long duration and will have fallen upon many far and wide but there cannot be any industry which has been more intimately involved than the oil industry.

1.2Arguments against taxation

UK and foreign tax rates were dramatically high and damaging to both companies and continued to appear highly until 1954. For instance, 1952, 1953 and 1954 BP chairman’s statement noted the damaging tax rate and claiming for relief from UK taxation in respect of Kuwait taxation. Furthermore, the chairman argued that UK tax rate was damaging as for example after providing £19,342,232 for taxation on profits, the amount available for reserves and dividends is £24,382,850 compared with £25,165,966 for 1952. The chairman also noted that the rate of taxation on motor fuel remained at a level so high often representing more than half the price paid by the consumer.

The same trend applied to Shell chairman’s statements, where he noted in 1952, 1953 and 1954 that UK tax rate is damaging and that it militates against UK companies in a very substantial degree-namely the treatment granted under the tax laws of UK for depletion of oil reserves and in fact any other mineral reserves. Shell’s chairman also noted in his statement a growing realization that taxation of industrial profits can reach a point where, while meeting immediate government needs it must have serious financial repercussions through the attrition of capital resources.

In 1955, there was only one small disclosure in BP’s chairman statement related to foreign (Kuwait) taxation, explaining that necessary adjustments of previous years’ profits have been credited to General Reserve. In similar vein, there was limited disclosure in 1955 in Shell’s chairman statement against the rationality of high taxes.

However, it is worth noting that there was absence of general taxation disclosures made by BP and Shell in 1951, 1956 and 1957 thus drawing the attention to actions of both companies which was in their financial interests. Literally, the above explains that both firms tend to complain less in a crisis and this is illustrated from the analysis of BP and Shell where they were relatively quiet on UK taxation during the Iranian nationalisation and Suez crises. The absence of disclosures commenting on UK taxation highlights the periods in which both BP and Shell were dependent on UK government support to discuss aspects of a helpful foreign policy.

1.3Arguments against trade barriers and government interference

Disclosures against trade barriers and government interference increased during the Iranian and Suez crises due to nationalistic economic policies in Iran and Egypt. For instance, in 1951 and 1952 BP chairman noted in his statements (2 pages disclosure) that there are increasing trade barriers by the Iranian government and British government as they failed to reach a solution. The international Bank for Reconstruction and Development approached the British and Iranian governments and stated to assist in working out any practicable suggestion offering a reasonable prospect of success.

With the Suez crisis, there were extensive disruptions in the company’s operations because of governmental restrictions that had negative consequences on the performance of BP and Shell. No singe group was more affected by closure of the Suez Canal and the “damage in Syria to the pipeline system to the East Mediterranean than BP, with its big producing interests in the Middle East and its large marketing interests in Europe”⁴⁷. The Suez crisis led to a dramatic shift in Europe’s oil sources and the US became a crucial emergency supplier. By the end of May 1957, the oil crisis had ended with the reopening of the canal and IPC pipelines. But as with Iran, the Suez crisis had its economic repercussions. HMG’s policy during the Suez crisis was that none of their ships will use the Canal during the crisis. And payment of canal dues by British companies will be arranged according to circumstances. The HMG stated that the Ministry of Fuel and power were taking steps to obtain powers to protect companies in UK from breach of contract in event of emergency⁴⁸. Meanwhile, H.M.G has approached the U.S government with a request of operational co-operation with the American oil companies to overcome shortages of supplies which might otherwise arise. In this connection it was agreed that Shell and BP would keep closely in touch with their French Associates on matters arising from “their own refinery and supply committee and are considering detailed plans”⁴⁹. Mr. Butler, chairman of Shell, expressed the view that it is essential for some assessment of the dollar angle to be made by the H.M.G⁵⁰. Neville Gass and Bill Snow met HMG officials including John Maud of Fuel and Power to discuss the political situation and implications of the Suez crisis. They all appreciated that the political situation in the Middle East had quite obviously given good reason to enhance the oil companies desire to get the best treaty possible “to secure their investments whilst on the other hand that very same deterioration in the political situation obviously made a tough treaty much more difficult of attainment”⁵¹.

Mr. Watson of the UK Foreign Office said that “the foreign office had been considering for some time, in collaboration with the U.S. Government, the problems which might arise in the maintenance of oil supplies to the Western World in the event of free passage through the Suez Canal being interfered with”⁵². Mr. Watson made it clear that “they were fully aware of the consideration that was being given to enlargement of the canal by the Suez Canal in conjunction with representative shipping organisations but in the Foreign office’s view this only represented one aspect of the problem. …..essentially what they wanted was for the oil companies to consider the costs of transporting Middle East oil to the West by alternative means compared with utilisation of the canal. ……The foreign office considered that the risk of interference with canal traffic by Egypt was greater than the risk to pipelines by other Arab States or serious interference with oil production itself. ….But it was left that Shell and ourselves would think the problems over and in due course put forward our joint ideas to the foreign office”⁵³.

Disclosures against trade barriers and governmental restrictions illustrates how companies are willing to maximize their wealth of capital and have power to control their operations without interference. Having said that, several disclosures (4 pages) in 1956 and 1957 BP chairman statements argued that the expansion in the BP group’s business in 1956 would have been at a higher rate but for the retarding effects of the closure of the Suez Canal, and the damage in Syria to the Iraq Petroleum Company’s pipeline system to Eastern Mediterranean, there was about 1,000,000 tons less than in 1956.
Mr. Butler, chairman of Shell, reported that there had been some pressure from Shell’s and BP’s associated companies in Europe to know “what was going on. Shell were advising their companies, if approached by their governments not to overstress or dramatise the situation”⁵⁴. In a correspondence between Fraser and Drake, Fraser mentioned that “his present policy is to hang as close to Shell’s coat tails as he can. Fraser was overplaying the need for co-operation with them but fortunately it suits them as it means they appear as the leaders”⁵⁵. Fraser explained that he is getting increasingly worried over the complete inability here to get any kind of co-ordination into this situation. He said “The lack of this co-ordination must in my view be severely hurting our already virtually impossible task”⁵⁶. Fraser emphasised that the situation here regarding purchases and diversions could not in both BP and Shells view be more gloomy. He said “our American business friends individually are sympathetic and would I am sure assist if they could. They are however safeguarding their own positions”⁵⁷. As a result of foregoing attitude, Fraser anticipated from all the information available that BP is going to be able to purchase or divert anything but small lots here and there and until the U.S. allowables are increased and the small problem of using other than U.S. flagships for runs around this coast is straightened. Fraser regretted that this cable has to be so pessimistic but he is convinced that any change for the better can only come if they have something to play with other than money. He suggested that “BP can sell at a low price Middle East Oil for future delivery over long periods. He also suggested having a bartering shipping tonnage to provide more oil and be an economy in shipping. Fraser also recommended utilising the under liftings of Jersey and Socony under their long term contracts as a bargaining point to get something from them”⁵⁸ Fraser emphasised that U.S.A. can be directly aiding Britain and France unless they seek to force their political policies on Britain. By this means or seek to create a large vacuum in Middle East into which U.S. interests can be sucked⁵⁹.