The history of foreign capital seeking investment in Iraq oil goes
back to the latter part of the nineteenth century when Iraq was still
part of the Ottoman Empire. ² It was not until 1925, however, that the
first concession for the exploration and production of oil was granted
to the Turkish Petroleum Company (subsequently renamed Iraq Petro-
leum Company -- IPC) for a period of seventy-five years. Oil was first
struck in commercial quantities in 1927. Two affiliates of IPC, Mosul
Petroleum Company (MPC) and Basra Petroleum Company (BPC),
secured additional concessions from the Iraqi Government. MPC was
awarded a seventy-five-year concession in 1932; and BPC obtained
another seventy-five-year accord in 1938. The three concessions covered
the total area of Iraq. ³

These three companies were owned in equal shares of 23.75 percent by
British Petroleum (BP), Shell Petroleum (Shell), Compagnie Français des
Petroles (CFP), and Near Eastern Development Corporation, which was
owned equally by Standard Oil of New Jersey ( Exxon) and Mobil. The
remaining 5 percent went to Participation and Exploration Company.

The 1951 nationalization of the oil industry in Iran, the adoption of
the principle of profit-sharing between some of the companies and host
governments such as Venezuela and Saudi Arabia, and the persistent
demand of Iraq for more royalties led to a series of negotiations between
IPC, MPC, and BPC and the government. These negotiations culmi-
nated in the agreement of 1952 ⁴ -- henceforth called the Agreement --
the two most important provisions of which are: (1) The hitherto fixed
payment per unit of production was replaced by a new formula of profit-
sharing according to which the government would receive annually 50
percent of the profits resulting from the operations of the companies in
Iraq. Profits were defined as the difference between the posted price of
oil exports and the cost of production, and (2) the government was
entitled to receive f.o.b. seaboard terminal, as part of its 50 percent
share, up to 12.5 percent of the net production. The government had
the option to sell this amount at whatever price it could obtain.

The Agreement was an important landmark in Iraq's petroleum his-
tory and economy in that it ushered in an era of unprecedented growth
in the oil sector.

The growth of the oil industry was a response to the worldwide in-
crease in demand for petroleum in the post-World War II period. It
resulted from the need to rebuild the shattered economies of Europe,

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