CHAPTER XVI

FROM WASHINGTON TO GENOA

The Struggle for the Oil-fields of Russia

A period of calm followed the Washington Conference. On his way to the United States, Sir John Cadman, the Grand Master of British Oil Policy, was lavish with protestations of peace and good will. He affirmed that British policy in no way aimed at eliminating Americans from the oil-bearing regions of the world, and he even declared himself in favour of co-operation between British and American capital in the exploitation of oil. "If," he added, "there are restrictions in certain Dominions and Colonies, it is because the home Government could not resist the demand for them. Besides, in Canada, the biggest company, the _Imperial Oil_, is American. In Trinidad there is a law excluding all but British companies from oil concessions upon Crown lands, but no restriction exists upon other lands in the colony. In Burma also the participation of foreign capital is forbidden, but this prohibition is of long standing; it goes back 35 or 40 years, and there is reason to believe that it may soon be repealed."

Sir John Cadman went so far as to declare that he categorically repudiated all governmental intervention in the oil question. In the mouth of one of the directors of the _Anglo-Persian_, this statement is somewhat amusing.

But undoubtedly, the British Government, feeling that it had gone too far, realized the necessity of dropping some ballast. During the Washington Conference, on the fringe of the main naval agreement, an oil truce was secretly negotiated. Britain even consented to allow the _Standard Oil_ to establish itself in the five provinces of Northern Persia which had formerly been reserved for Russian interests. In order to obtain concessions form the Persian Government, in spite of the initial opposition of the _Anglo-Persian_, the _Standard_ had not hesitated to make use of the American minister at Teheran.[37] _The support which the representatives of Washington never refused has always been one of the principal causes of its triumphs._

But the struggle between Britain and the United States was not long in breaking out again with renewed intensity, this time for the conquest of the remaining oil lands, now escheat, from the Caucasus to the Urals and Turkestan. The Genoa Conference will be regarded by history, not so much as a great effort towards world peace, as a "Conference on Oil," at which the immense riches of the old Tsarist Empire were offered by Tchitcherin to the appetites of the Powers. I have developed this point in the preface to the Russian edition of this book, which has recently been translated under the direction of M. Melik-Noubaroff, formerly President of the Imperial Technical Commission of Baku and chief engineer of the Nobel Company: "Though Russia, which held first place in the world's production for a few years at the beginning of the twentieth century, has now dropped back to third place, the reserves contained in her soil still exceed 1,000 million cubic metres, almost equalling those of the United States and Alaska together (1,113 million cubic metres). Persia and Mesopotamia, Mexico itself, as well as the north of South America, rank after her. All other countries are far behind. The time will come, perhaps in less than twenty years (exceptional circumstances apart) in view of the terrific rate of consumption, when the reserves of the United States will be exhausted; then Russia will play a big part in the world." The developed areas throughout Russia, Siberia, and the Caucasus are much smaller than the extent of the proved deposits, which themselves are but a small fraction of those whose existence has been indicated with certainty by preliminary surveys. The oil resources of Russia represent alone _one-sixth of the reserves of the world_. Hence the greed and covetousness with which they were regarded at Genoa.

The question of oil is the primary political question of the present age, but in this Conference at which the future of Europe was to be enacted, France was the only nation which seemed not to notice the fact.

The Quai d'Orsay had not deigned to appoint a single oil expert to Genoa.[38] More than that, I am in a position to state that the only one of the French delegates who was acquainted with the oil question had received precise instructions before his departure to keep strictly aloof from all discussions about oil. It was, of course, manifestly impossible to expect to settle the question of Russia's oil at Genoa in the absence of any representative of the United States. The French delegation therefore held only a watching brief.

By this self-denial France at any rate earned the distinction of taking no part in the scandalous concession-hunting which went on behind the scenes at Genoa while the Soviet delegates were discussing the great principles of international morality with the official representatives of the Powers. Into this feverish atmosphere the news dropped like a bomb-shell that Krassin had signed a contract conferring upon the _Royal Dutch-Shell_ a monopoly of the oil in the Caucasus. The news caused a great sensation, and immediately provoked solemn denials, which were more resounding than convincing. The few oil magnates and their satellites who were not already at Genoa hurried thither prepared for battle. The French Government at once dispatched M. Laurent Eynac.

The Cabinet, however, had decided that he alone should be attached to the delegation in an official capacity. And it was not until the afternoon of the day upon which it made this decision that it recognized the necessity of adding M. Pincan, the very able director of the Oil and Petrol Department of the Ministry of Commerce, on account of the fact that M. Eynac for over a year had been out of touch with his former colleagues.

The French delegation adopted the Belgian point of view upon the restitution of private property, and energetically defended French pre-War interests in Russian oil, which, in December 1920, represented a value of 200 million francs. A common policy was elaborated in conjunction with the principal Belgian oil companies, whose importance in the Caucasus equalled our own, with a view to the defence of rights acquired before and after the nationalization of mines and factories by the Soviets. In order to obtain absolute equality of treatment for French interests in the Caucasus, M. Laurent Eynac very pointedly called the British Government's attention to the stipulations of the San Remo Agreement. He relied upon Article 2 of the Agreement, based upon the principle of cordial co-operation and reciprocity in all countries where the oil interests of France and Britain can in practice be combined, and upon Article 6, which runs thus:

In the territories which belonged to the late Russian Empire the two Governments will give their joint support to their respective nationals in their joint efforts to obtain petroleum concessions and facilities to export and to arrange delivery of petroleum supplies.

The British Government, anxious not to obstruct the private negotiations of the _Royal Dutch-Shell_ and the Soviets, got out of the difficulty very skilfully by giving to this latter clause a restricted interpretation. On May 15, 1922, in the House of Commons, Mr. Chamberlain went so far as to declare that Article 6 and the other analogous provisions of the San Remo Agreement would only become effective if French and British nationals decided jointly to acquire specific concessions. Nationals of a single country, like the British trusts, would therefore retain complete liberty of action.

If, in the light of these explanations, one appreciates the threat of monopoly contained in the insertion, at the instance of the British delegation, of Clause 7 in the Memorandum of May 2, 1922, stipulating that in cases where the exploitation of property formerly belonging to foreigners could be assured only by incorporating them in a general group, the preferential right to the restitution of the property should not apply, one is driven to wonder what in such circumstances has become of the cordial "Franco-British co-operation" spoken of in the San Remo preamble. Would it not be merely an empty formula?

* * * * *

For a long time past, the _Royal Dutch-Shell_ had been striving to obtain a grasp of the oil deposits in Russia, and thus to realize, by arrangement with the British Government, its dream of world hegemony in oil. Its only reason for not amalgamating with the _Anglo-Persian_ and the _Burmah Oil_ at the beginning of 1922 was fear of American reprisals. The question was much debated, but after considerable hesitation Mr. Lloyd George refused to give his consent; so soon after the Naval Pact of Washington it would have caused something approaching a sensation in the United States and would have appeared intentionally provocative.

As soon as Britain had signed the trade agreement with Moscow, the _Royal Dutch_ opened negotiations with the Soviet representatives, and it was not long before these relations bore fruit in the sale of 10,000 tons of oil to the _Asiatic Petroleum_, one of the _Royal Dutch-Shell_ subsidiaries.

I may mention here that the signatories on behalf of the co-operatives of Russian producers were Krassin, Rakovsky, Mrs. Varvara Polovtsef, Victor Nogin, and Basil Krysin. The notorious agreement between the _Shell_ and the Soviets, which agitated the Press of the whole world and produced a scandal which almost wrecked the Conference, was not concluded at Genoa; it was drafted in London during February in the following form:--

The Russian Soviet Government is prepared to give consideration to a proposal by which the sale of all oil products available for export from the various oil-fields of Russia would be placed in the hands of a syndicate formed upon the following basis:--

The initial capital will be provided by equal contributions from the Russian Government and the foreign group.

The management of the syndicate will have control of all sales and will be entrusted to a Council composed of an equal number of representatives of the Russian Government and the foreign group.

The syndicate will be responsible to the Russian Government for the most favourable sale of oil products possible. In order to derive the maximum advantage from such sale, the syndicate will provide or within an agreed period create the necessary distributive organization, which will entail a certain capital expenditure.

It is suggested that the capital thus required be raised by the issue of bonds bearing a fixed rate of interest.

Payment of the interest upon these bonds will be guaranteed by the foreign group.

The syndicate will receive, as remuneration for its activities, a certain commission upon all sales, which commission will be fixed upon a sliding scale according to the quantities sold.

For quantities not exceeding 100,000 tons 5 per cent. is suggested; for larger quantities a proportionate rate will be arranged by mutual agreement. Furthermore, it is understood that any surplus realized by the sale of Russian oil over and above the export price of the American market will belong entirely to the syndicate.

After meeting working expenses, the profits thus realized will be applied in the first place to the payment of the interest upon any bonds which the syndicate may issue, and the balance will be divided equally between the two parties to the syndicate, i.e., the Russian Government and the foreign group.

These arrangements will hold good for five years certain, after which period the Russian Government will have the right to redeem the bonds at the price of issue or upon such other terms as may be stipulated at the time of issue, and to terminate the agreement. The Russian Government, however, will be obliged to give one year's notice at the end of the fourth year if it desires to terminate the agreement. In default of such notice, the agreement will hold good for another period of five years.

It is understood that the Russian Government reserves the right at any time to sell oil products directly to foreign Governments, but such sales will in no case exceed 50 per cent. of the total quantity available for export in any year.

The success of the syndicate will depend entirely in the early stages upon transport facilities between the places where the stocks of oil products are available and the ports of embarkation. Unfortunately, at the present time these facilities are in some measure lacking, and with a view to remedying the situation, the foreign party to the syndicate will be required to invest at least £500,000 in the transport system. This sum, as well as all other sums mentioned below, will be guaranteed by the Russian Government, and in case of necessity will be secured upon the stocks of Russian oil.

This money will be used for the purchase of the necessary rolling stock, for the maintenance of pipe-lines, and, if required, for the installation of new pipe-lines for the various products.

Against the sums thus employed, transport bonds will be issued bearing interest at the rate of 8 per cent.; furthermore, these bonds will carry the right to a bonus, the amount of which will be determined by the quantity of oil products transported over and above a pre-arranged quantity.

The amount of this bonus will be fixed by mutual agreement, and will take the form of an agreed tax upon each pool of oil products transported in Russia over and above a pre-arranged quantity.

Payment of the interest upon these bonds will be guaranteed by the Russian Government, and in case of necessity will be secured upon the existing stocks of oil.

The transport organization thus formed by the rolling stock to be acquired and by that which is at present available will be under the management of a Council composed of an equal number of delegates of the Russian and the foreign group.

All rolling stock and everything belonging to this joint undertaking will be exempt from requisition or confiscation whether by the Central Government or by local authorities.

The Council of the undertaking will be free to appeal for qualified foreign workmen, and in general to administer and manage the business in the best interests of the enterprise and the objects it has in view.

Any additional capital which may be required will be provided by equal contributions from the Russian Government and the foreign group.

Such additional capital will be raised by the issue of bonds bearing interest at a rate to be fixed by mutual agreement at the time of issue, the Russian Government being responsible for the subscription of one-half of the issue and the foreign group for the subscription of the other half.

These bonds will carry the right to a bonus in the same way as the bonds mentioned above.

The activities of the Council of the joint undertaking will be subject to all laws and decrees of the Russian Socialist Federal Soviet Republic and to all regulations which may be in force.

Of all the employés of the syndicate in Russia, 50 per cent. only may be non-Russian.

If an agreement upon this basis is deemed possible, the foreign group will have the right to appoint representatives in Russia to examine conditions of transport, to take samples of existing stocks, etc.

After the expiry of ten years the Russian Government will be free to redeem the transport bonds at the price of issue or upon such other terms as may be stipulated at the time of issue.

It is clearly understood that these terms will provide for certain bonuses at the time of redemption to be calculated upon the average profits of the joint enterprise during the last two years of its operations.

The Russian Government will signify its intention to redeem these bonds by the end of the ninth year at latest.

I am aware that serious changes in this contract were contemplated by the two parties in the course of the negotiations. _They were only to be introduced if Mr. Lloyd George succeeded in bringing about the_ de jure _recognition of the Federal Soviet Republic_. This agreement, which was duly initialled, _but not signed_, at Genoa, referred only to concessions for deposits not hitherto exploited. But the Soviet Government had given an oral promise to hand over to the English the fields which were already developed and which had been nationalized for the past four years. Moreover, during this winter, British groups, through Krassin as intermediary, had entered into relations with the former owners and had negotiated with them for the resumption of their concessions. The Bolshevik Government has always urged foreign Powers seeking to acquire a share of Russian oil to deal separately with the dispossessed owners in order to protect themselves against all possible claims in the future.

From the very beginning of 1922, the _Royal Dutch_ spread a rumour in France that it was experiencing difficulties with the British Government and must rely upon the support of the French Government. This manoeuvre succeeded so well that, when the French representatives at Genoa were given precise information about the impending conclusion of the agreement between the _Shell_ and the Soviets, they shrugged their shoulders and smiled contemptuously; the rivalry between the _Royal Dutch_ and Great Britain was unquestionable. If the great trust obtained certain advantages, France would benefit; it was best to let it carry on. Their disillusionment was bitter.

* * * * *

Now the British Government, in conjunction with the _Royal Dutch-Shell_, has been seeking to obtain for itself the products of the oil wells of the Caucasus, not since 1922, but since 1919. The early negotiations proceeded slowly. Mr. Lloyd George had then but little confidence in the permanence of the Bolshevik régime. He did not even contemplate negotiations with its representatives. The financiers of the _Royal Dutch-Shell_ approached only the most important of the dispossessed Russian oil magnates. On July 27, 1920, one of the most powerful subsidiaries of the trust, the _Bataafsche Petroleum_, bought a large quantity of the shares in Caucasian companies owned by MM. Mantasheff, Lianosoff and Pitoieff. For the celebrated Russian actor, Pitoieff, is also a great oil proprietor. The purchase price was fixed at £11,042,000, of which £645,000 was paid in cash. The balance was to be paid by instalments, but the Russian proprietors have not received even the first.

Events had moved quickly. Mr. Lloyd George had developed a sudden and violent sympathy with the Government of Moscow. He now saw in it a saviour who would secure for dormant British industry the work of reconstructing the immense devastated empire. He had decided to bestow upon it his official blessing, to obtain that of all Europe, and to approve its theories and practices, in particular nationalization. Henceforward, the _Shell_ considered it had no further concern with the proprietors of the old régime. And Colonel Boyle, one of its most active agents, entered into relations with Krassin, who _promised to reserve to the_ Royal Dutch-Shell _the monopoly of the export of Russian oil_.

Krassin promised everything he was asked, and allowed the contract to be drafted. But as soon as there was talk of signing it at Genoa, he gave the project such publicity that the general diplomatic hue-and-cry which resulted prevented its signature. _It was the Soviets themselves which divulged their agreement with the_ Shell. They have no wish to place the greatest riches of Russia in the hands of a single people, and especially a people so successful and ambitious as the British. The British Government just failed to realize its greatest dream; the conquest of the remaining oil deposits throughout the world--a conquest which would have assured its supremacy in the future and would have made all other peoples its tributaries.

But, in spite of everything, I believe in the future of the British people, one of whose leaders was not afraid to say, twenty years before Germany had begun to dream of European hegemony: "I believe in this race, one of the greatest governing races the world has ever known, this Anglo-Saxon race, proud, tenacious, self-confident, resolute, which no climate and no vicissitude can corrupt, and which will infallibly be the predominant force in future history."

FOOTNOTES:

[Footnote 37: I believe that the exploitation of these deposits will shortly be placed in the hands of the Sinclair Company, one of the most powerful American concerns after the _Standard_. A large number of shares in this company have recently been bought by the _Standard_.]

[Footnote 38: Nevertheless, it had been warned as early as the previous March of the agreement which was afoot between the _Shell_ and the Soviets, and it had seen the text of the contract.]