The collapse of the European powers opened up the world for others. To cover the shortfalls in agricultural production and to pay for weapons and munitions, the Allies took on huge commitments, commissioning institutions such as J. P. Morgan & Co. to ensure a constant supply of goods and materials.122 The supply of credit resulted in a redistribution of wealth every bit as dramatic as that which followed the discovery of the Americas four centuries earlier: money flowed out of Europe to the United States in a flood of bullion and promissory notes. The war bankrupted the Old World and enriched the New. The attempt to recoup losses from Germany (set at an eye-watering and impossibly high level equivalent to hundreds of billions of dollars at today’s prices) was a desperate and futile attempt to prevent the inevitable: the Great War saw the treasuries of the participants ransacked as they tried to destroy each other, destroying themselves in the process.123
As the two bullets left the chamber of Princip’s Browning revolver, Europe was a continent of empires. Italy, France, Austro-Hungary, Germany, Russia, Ottoman Turkey, Britain, Portugal, the Netherlands, even tiny Belgium, only formed in 1831, controlled vast territories across the world. At the moment of impact, the process of turning them back into local powers began. Within a matter of years, gone were the emperors who had sailed on each other’s yachts and appointed each other to grand chivalric orders; gone were some colonies and dominions overseas – and others were starting to go in an inexorable progression to independence.
In the course of four years, perhaps 10 million were dead from fighting, and half the same again from disease and famine. Over $200 billion had been spent by the Allies and the Central Powers fighting each other. European economies were shattered by the unparalleled expenditures that were exacerbated by falling productivity. Countries engaged in the fighting posted deficits and clocked up debts at a furious pace – debts they could not afford.124 The great empires that had dominated the world for four centuries did not slip away overnight. But it was the beginning of the end. Dusk was beginning to descend. The veil of shadows from behind which western Europe had emerged a few centuries earlier was starting to fall once again. The experience of war had been shattering; it made control of the Silk Roads and its riches more important than ever.
17
The Road of Black Gold
Few of William Knox D’Arcy’s classmates at London’s prestigious Westminster School can have thought that he would go on to have a prominent role in reshaping the world – especially when he did not arrive back for the start of term in September 1866. William’s father had been caught up in some unsavoury business in Devon that led to him being declared bankrupt and deciding to move with his family to start a new life in the quiet town of Rockhampton in Queensland, Australia.
His teenage son got on with his studies quietly and diligently enough, qualifying as a lawyer and in due course setting up his own practice. He made a comfortable living and became an upstanding member of the local community, serving on the committee of the Rockhampton Jockey Club and indulging a love for shooting whenever time permitted.
In 1882, William had a stroke of fortune. Three brothers named Morgan had been looking to exploit what they thought was a potentially large gold find at Ironside Mountain, just over twenty miles away from Rockhampton. In search of investment to help them establish a mining operation, they turned to the local bank manager, who in turn pointed them in the direction of William Knox D’Arcy. Intrigued by the possibility of a good return on his capital, Knox D’Arcy formed a syndicate with the bank manager and another mutual friend, and invested in the Morgan brothers’ scheme.
As with all mining operations at their outset, a cool head was needed as an alarming amount of cash was swallowed up in the search for a jackpot. The Morgan brothers soon lost their nerve, rattled by the rate at which their funds were being expended, and sold their interest to the three partners. They sold at just the wrong moment. The gold deposits at what had been renamed Mount Morgan turned out to be among the richest in history. Shares that had been sold in the business shot up 2,000-fold in value, while over a ten-year period the return on the investment was 200,000 per cent. Knox D’Arcy, who controlled more shares than his partners and over a third of the business, went from being a small-town lawyer in Australia to one of the richest men in the world.1
It was not long before he packed up in Australia and headed for England in triumph. He bought a magnificent town house at 42 Grosvenor Square and a suitably grand estate at Stanmore Hall, just outside London, which he had remodelled and decorated with the finest furnishings money could buy, hiring Morris & Co., the firm set up by William Morris, to take care of the interiors. He commissioned a set of tapestries from Edward Burne-Jones that took four years to weave, such was their quality. Entirely appropriately, they celebrated the quest for the Holy Grail – a suitable cipher for the discovery of incalculable treasure.2
Knox D’Arcy knew how to live the good life, renting a fine shooting estate in Norfolk and taking a box by the finishing post at the Epsom races. Two drawings in the National Portrait Gallery capture his character perfectly. One has him sitting back contentedly, with a jovial smile on his face, his generous girth testimony to his enjoyment of fine food and excellent wines; the other has him leaning forward as if to share stories of his business adventures with a friend, champagne glass in front of him, cigarette in hand.3
His success and extraordinary wealth made him an obvious man to seek out for those who, like the Morgan brothers, needed investors. One such was Antoine Kitabgi, a well-connected official in the Persian administration who was put in touch with Knox D’Arcy towards the end of 1900 by Sir Henry Drummond-Wolff, former British envoy in Teheran. Despite being a Catholic from a Georgian background, Kitabgi had done well for himself in Persia, rising to become director-general of Persian Customs and a man with fingers in many pies. He had been involved in several attempts to draw in investment from abroad to stimulate the economy, negotiating or attempting to negotiate concessions for outsiders to take positions in the banking sector and in the production and distribution of tobacco.4
These efforts were not entirely motivated by altruism or patriotism, for men like Kitabgi realised that they could parlay their connections into lucrative rewards if and when deals were agreed. Their line of business was opening doors in return for money. This was a source of deep irritation in London, Paris, St Petersburg and Berlin, where diplomats, politicians and businessmen found the Persian way of operating opaque, if not downright corrupt. Efforts to modernise the country had made little progress, while the old tradition of relying on foreigners to run the armed forces or take key administrative roles resulted in frustration all round.5 Every time Persia took one step forward, it seemed to take another back.
It was all very well criticising the ruling elite, but they had long been trained to behave in this way. The Shah and those around him were like over-indulged children who had been taught that if they held out long enough, they would be rewarded by the great powers, who were terrified that they would lose position in this strategically crucial region if they did not cough up. When Shah Moẓaffar od-Dīn was not invested with the Order of the Garter during his visit to England in 1902 and refused to accept any lesser honour, he left the country making it clear he was ‘very unhappy’; this prompted senior diplomats to set about convincing the reluctant King Edward VII, in whose gift membership of the order lay, to invest the Shah after his return home. Even then there were mishaps with this ‘terrible subject’ when it was discovered that the Shah did not possess knee-breeches, which were deemed essential to the investiture – until one resourceful diplomat discovered a precedent where a previous recipient had received the honour wearing trousers. ‘What a nightmare that Garter episode was,’ grumbled the Foreign Secretary Lord Lansdowne afterwards.6
And in fact, while the bribery that went hand in hand with getting anything done in Persia seemed vulgar, in many ways the Persians who scuttled back and forth through the corridors of
power and the great financial centres of Europe in the late nineteenth and early twentieth century were not dissimilar to the Sogdian traders of antiquity who travelled over long distances to do business, or the Armenians and Jews who played the same role in the early modern period. The difference was that where the Sogdians had to take goods with them to sell, their later peers were selling their services and their contacts. These had been commoditised precisely because there were handsome rewards to be made. Had there been no takers, doubtless things would have been rather different. As it was, Persia’s location between east and west, linking the Gulf and India with the tip of Arabia, the Horn of Africa and access to the Suez Canal, meant that it was courted at no matter what cost – albeit through gritted teeth.
When Kitabgi approached Drummond-Wolff and was put in touch with Knox D’Arcy, who was described as ‘a capitalist of the highest order’, he had his eye not on Persia’s tobacco or banking sector but on its mineral wealth. And Knox D’Arcy was the perfect person to talk to. He had struck gold once before in Australia; Kitabgi offered him the chance to do so again; this time it was black gold that was at stake.7
The existence of substantial oil deposits in Persia was hardly a secret. Byzantine authors in late antiquity wrote regularly of the destructive power of ‘Median fire’, a substance made from petroleum most likely taken from surface seepages in northern Persia comparable to the inflammable ‘Greek fire’ that the Byzantines made from outflows in the Black Sea region.8
The first systematic geological surveys in the 1850s had pointed to the likelihood of substantial resources below the surface and led to a series of concessions being given to investors, lured by the prospect of making their fortunes at a time when the world seemed to be disgorging its treasures to lucky prospectors, from California Gold Country to the Witwatersrand basin in southern Africa.9 Baron George de Reuter, founder of the eponymous news agency, was one who moved in on Persia. In 1872, de Reuter gained ‘the exclusive and definite privilege’ to extract whatever he could from ‘the mines of coal, iron, copper, lead and petroleum’ across the whole of the country, as well as options on the construction of roads, public works and other infrastructure projects.10
For one reason or another, these came to nothing. There was fierce local opposition to the grant of licences, with populist figures like Sayyid Jamāl al-Dīn al-Afghānī deploring the fact that ‘the reins of the government [were being] handed to the enemy of Islam’. As one of the most vocal critics wrote, ‘the realms of Islam will be soon under the control of foreigners, who will rule therein as they please and do as they will’.11 There was also international pressure to contend with, which led to the original de Reuter concession being declared null and void barely a year after it had been agreed.12
Although de Reuter agreed a second concession in 1889 that gave him the rights to all Persia’s mineral resources other than precious metal – in return for substantial ‘gifts’ of money to the Shah and his key officials as well as an agreed royalty payment on future profits – this lapsed when efforts to find oil that could be exploited in commercially viable quantities failed within the designated ten-year time frame. Life had not been made any easier by what one leading British businessman described as ‘the backward state of the country, and the absence of communication and transport’, made worse by the ‘direct hostility, opposition and outrage from high officials of the Persian Government’.13 Nor was there any sympathy in London. There were risks to doing business in this part of the world, one internal minute noted; anyone who expected things to work as they did in Europe was extremely foolish. ‘It is their own fault’ if expectations were left disappointed, it stated coldly.14
Knox D’Arcy was, nevertheless, intrigued by the proposition put to him by Kitabgi. He studied the findings of the French geologists who had been surveying the country for the best part of a decade and took soundings from Dr Boverton Redwood, one of Britain’s leading experts on petroleum and author of handbooks on oil production and on the safe storage, transportation, distribution and use of petroleum and its products.15 There was no need to do all this research, Kitagbi meanwhile assured Drummond-Wolff, asserting that ‘we are in the presence of a source of riches [that are] incalculable’.16
Knox D’Arcy was interested enough by what he read and heard to strike a deal with those whose help would be needed to win a concession from the Shah, namely Edouard Cotte, who had served as de Reuter’s agent and was therefore a familiar face in Persian circles, and Kitabgi himself – while Drummond-Wolff was also promised a reward further down the line should the project be successful. Knox D’Arcy then approached the Foreign Office to get its blessing for the project, and duly sent his representative Alfred Marriott to Teheran to commence negotiations with a formal letter of introduction.
While the letter itself had little intrinsic value, requesting simply that the bearer be offered whatever assistance he may require, in a world where signals could easily be misread the signature of the Foreign Secretary was a powerful tool, suggesting that the British government stood behind Knox D’Arcy’s initiative.17 Marriott looked at the Persian court with wonder. The throne, he wrote in his journal, was ‘entirely encrusted with diamonds, sapphires and emeralds, and there are jewelled birds (not peacocks) standing on the sides’; at least, he was able to report, the Shah was an ‘exceedingly good shot’.18
In fact, the real work was done by Kitabgi, who according to one report managed to secure ‘in a very thorough manner the support of all the Shah’s principal Ministers and courtiers, not even forgetting the personal servant who brings His Majesty his pipe and morning coffee’ – a euphemism for greasing their palms. Things were going well, Knox D’Arcy was told; it seemed likely that a petroleum concession would ‘be granted by the Persian government’.19
The process of getting an agreement in writing was tortuous. Unseen obstacles appeared from nowhere, prompting cables back to London to ask for advice from Knox D’Arcy – and for authorisation to fork out still more. ‘I hope you will approve this as to refuse would be to lose the affair,’ Marriott urged. ‘Don’t scruple if you can propose anything for facilitating affairs on my part,’ came the reply.20 Knox D’Arcy meant that he was happy to be liberal with his money, and was willing to do whatever it took to get what he wanted. It was impossible to tell when new demands were made or promises given as to who the real beneficiaries were; there were rumours that the Russians had got wind of the negotiations, which were supposedly being conducted in secret, and false trails were laid to put them off the scent.21
And then, almost without warning, word came through (while Marriott was at a dinner party in Teheran) that the Shah had signed the agreement. In return for £20,000, with the same amount in shares to be paid on the formation of the company, plus an annual royalty of 16 per cent on net profits, Knox D’Arcy, described in the formalities as a man ‘of independent means residing in London at No. 42 Grosvenor Square’, was granted sweeping rights. He was awarded ‘a special and exclusive privilege to search for, obtain, exploit, develop, render suitable for trade, carry away and sell natural gas, petroleum, asphalt and ozokerite throughout the whole extent of the Persian Empire for a term of 60 years’. In addition, he received the exclusive right of laying pipelines, establishing storage facilities, refineries, stations and pump services.22
A royal proclamation that followed announced that Knox D’Arcy and ‘all his heirs and assigns and friends’ had been granted ‘full powers and unlimited liberty for a period of sixty years to probe, pierce and drill at their will the depths of Persian Soil’, and entreated ‘all officials of this blessed kingdom’ to help a man who enjoyed ‘the favour of our splendid court’.23 He had been handed the keys to the kingdom; the question was whether he could now find the lock.
Experienced observers in Teheran were not convinced. Even if ‘petroleum is discovered, as their agents believe will be the case’, noted Sir Arthur Hardinge, Britain’s representative to Persia, major challenges lay ahead.
It was worth remembering, he went on, that ‘the soil of Persia, whether it contains oil or not, has been strewn of late years with wrecks of so many hopeful schemes of commercial and political regeneration that it would be rash to predict the future of this latest venture’.24
Perhaps the Shah too was gambling that little would come of the affair and that he could simply help himself to upfront payments as he had done in the past. It was certainly true that the economic situation in Persia at this time was dire: the government was facing a major budgetary shortfall, producing a precarious and worrying deficit, with the result that it was worth cutting corners to get money from Knox D’Arcy’s deep pockets. This was also a time of intense anxiety within the British Foreign Office, which paid much less attention to the newly awarded concession than it did to the overtures Teheran was making both to London and, worryingly, to St Petersburg in the years before the First World War.
The Russians reacted badly to news of the Knox concession. As it was, they had almost managed to derail the award when the Shah received a personal telegram from the Tsar urging him not to proceed.25 Knox D’Arcy had been sufficiently worried that Russian noses would be put out of joint by the agreement that he had directed that rights in the northern provinces be specifically excluded so as ‘to give no umbrage’ to Persia’s powerful northern neighbour. From London’s point of view, the worry was that Russia would over-compensate for losing out by being more accommodating to the Shah and his officials than ever.26 As Britain’s representative in Teheran warned Lord Lansdowne, the award of a concession might be ‘fraught with political and economic results’ if oil was found in any meaningful quantity.27 There was no disguising the truth that pressure was ratcheting up in the rivalry for influence and resources in the Gulf region.
The Silk Roads: A New History of the World Page 41
