In 1869, the Ottoman Empire was in the midst of an era of constitutional reform known as the Tanzimat period. The Empire had recovered from its reputation as the “sick man” of Europe, as the Crimean War had resulted in pledges of the Great Powers of Europe to respect the independence and territorial integrity of the Ottoman Empire. Government reforms led to a modern conscripted army, banking system reforms, the replacement of religious law with secular law and guilds with modern factories. 1869 was thus a year of relative calm in the Empire. But it was a restive calm pregnant with tension. For Europe, unbeknownst to its leaders at the time, was on a collision course that would leave 37 million of its young dead, two major empires wiped out from the face of the planet, a peace settlement that aroused the vindictiveness of a young, shrill Austrian corporal, and the creation of the modern Middle East.
An Unprophetic Prophecy: The Emergence of the “Mr. Five Percent”
But the “War to End All Wars” would also enable an Armenian born in Turkey in the seemingly insignificant year of 1869 to take a red pencil and delineate the first oil boundaries of the Middle East, enabling oil exploration and investment in the region and, notably, keeping 5% of the revenues for himself.
Calouste Gulbenkian, later to be called “Mr. Five Percent,” was born in Constantinople. When he was seven years old, Gulbenkian received a Turkish five-shilling piece as a gift and promptly rushed to the bazaar with it to purchase an old coin. His father, an Armenian oil importer/exporter, very unprophetically berated his son on his earliest known financial deal: “If that’s the way you’re going to use your money, you’ll end up in the gutter.” Calouste Gulbenkian would never live in the gutter, largely because he made the number five his friend.
In his early teens, Gulbenkian’s father sent him to King’s College in London, where he studied petroleum engineering. He was then sent to study the Russian oil industry at Baku, an oil-rich region which later became famous as the casus belli for Hitler’s invasion of Russia.
Gulbenkian soon gained the reputation as a strange and solitary figure- a genuine eccentric. Once he leaped into the corporate world, this reputation only strengthened. He went to great lengths to avoid meetings, but scrutinized every word of written communications, replying with a torrent of telegrams. Further, isolation characterized his personal connections. He once said, “Oil friendships are very slippery.” He used his mystique to his advantage. He was a sagacious introvert. He kept people guessing.
Life Upended: Gulbenkian’s Armenian Angst
By the mid-1890s, the emergence of European nationalism had occasioned many subjects of the Ottoman Empire to assert their independence, thus upending the “Crimean Resolution” that secured the territorial integrity of the empire. Sultan Abdul Hamid II, in his efforts to reinforce Ottoman hegemony, reasserted Pan-Islamism (or enforced Islam) as a state ideology. This directly led to the suspension of the Ottoman Parliament (whose multiple representatives were anathema to the Pan-Islamic uniformity that the Sultan desired) and the fierce persecution of the Armenians, who were Christian (Armenia was the first Christian nation in history, becoming so in A.D. 301), and considered to be second-class citizens of the Empire. As noted above, Gulbenkian and his family were Armenians, so in consequence of the state-sanctioned “Hamidian Massacres” (the massacre of the Armenians), he and his family fled to Egypt, where Gulbenkian met Alexander Mantashev, a prominent Armenian oil magnate and philanthropist. It was Mantashev who first gave Gulbenkian access to the world of oil.
Mantashev introduced Gulbenkian to influential oil and gas industry contacts in Cairo, who provided him the connections and business know-how that enabled him to arrange deals in the oil business when he moved to London a short time after his stay in Egypt.
Starting Up in London & Turkish Reform
In 1902, he became a naturalized citizen of Britain. In 1907, he facilitated the merger of Royal Dutch Petroleum Company with “Shell” Transport and Trading Company. He did well for himself. He emerged as a major shareholder of the newly formed company, Royal Dutch Shell. It was with this merger that he cultivated the habit of retaining 5% of the shares of the oil companies he developed. Thus the name, “Mr. Five Percent” began to gain resonance.
By 1908, the Sultan’s violent reform efforts had aroused the ire of a group called “The Young Turks,” who inaugurated a revolution that resulted in the reinstitution of the Ottoman parliament, marking the onset of the Second Constitutional Era. As a result of the “Young Turk Revolution”, the National Bank of Turkey, in which Gulbenkian was a major shareholder, was established to stimulate the country’s economic development.
The Young Turks
“Mr. Five Percent,” who by this time was already the Financial and Economic Advisor to the Ottoman embassies in London and Paris, initiated negotiations with British and German interests that had separately and unsuccessfully sought oil concessions from the Turkish government. But Gulbenkian turned what might have been a disadvantage- being an immigrant from a very different culture- into an advantage- bringing the East and West together.
Launching the Turkish Petroleum Company
These first negotiations established the pattern for Gulbenkian’s future corporate adroitness in several respects. First, he took what seemed an impossible situation and found a solution by indefatigably pursuing a solution to the problem. Second, he united different parties in the cause of a greater good, in this case the award of concessions, but in later years the disciplined and peaceful exploitation of the natural resources of the Middle East.
His efforts led to the founding of the Turkish Petroleum Company in 1912 to exploit the rich oil fields in Iraq, then a subject state in the Ottoman Empire. Royal Dutch Shell held a 25% stake in the company, the National Bank of Turkey owned 35%, German interests held an additional 25%, while the remaining 15% belonged to Calouste Gulbenkian.
In 1913-14 the Turkish Petroleum Company was reorganized. The ownership quotas were redistributed among the Anglo-Persian Oil Company (modern day BP), the Royal Dutch Shell Group and the German interests, with Gulbenkian agreeing to reduce his share from 15% to 5% so as to help conclude the negotiations. “Mr. Five Percent” was making his mark.
The First World War: Ottoman Empire Cast into Oblivion
But then in 1914 all hell broke loose, as the assassination of the heir to the Austro-Hungarian throne by a Serbian nationalist in Sarajevo set off a domino effect which led the Great Powers into the First World War. The fate of the Austro-Hungarian Empire was a harbinger of things to come for the Ottoman Empire. Both Empires fought on the side of the Central Powers. By 1919, the Central Powers had been defeated. The Ottoman Empire vanished off the face of the earth as a result of defeat. A series of punitive, region-specific treaties were imposed by the Allied Powers. The Treaty of Sèvres was intended to enact the partition of the Ottoman Empire. But it was never ratified by the Sultan and was rejected by the Turkish Republican Movement, leading to the Turkish Independence War and, ultimately, to the 1923 Treaty of Lausanne, in which Turkey gave up all claims to the remainder of the multitudinous Ottoman Empire. In return the Allies recognized Turkish sovereignty within its new borders.
During the dismantling of the Ottoman Empire, Iraq came under British control. Intense and prolonged negotiations were conducted to decide which companies could invest in the Turkish Petroleum Company. The TPC was granted exclusive oil exploration rights to Iraq in 1925.
“Mr. Five Percent’s” Legacy: the Red Line Agreement
At this stage the U.S. had become increasingly interested in the region and was determined not to be excluded from the proceedings. Gulbenkian once again played a decisive role in the negotiations which resulted in the “Red Line Agreement” of 1928, signed by Anglo-Persian Oil Company, Royal Dutch Shell, Compagnie Française des Pétroles and a consortium of American energy companies called the Near East Development Corporation. The “red line” was Gulbenkian’s hand-drawn addition to the map during the talks: setting out the borders of the former Ottoman Empire to divide the petroleum interests of the major powers.
The Red Line Agreement required the signatories to seek concessions only as part of this group within the red line. Gulbenkian had ensured that the Great Powers would act in concert in an ordered manner, and had secured his 5% shareholding once again. The Pasha of Iraq actually gave Gulbenkian the entire Iraqi oil concession, but the latter saw the wisdom in divesting the vast majority of his concession so that corporations would be able to develop the whole concession. It was during this time that he famously said, “Better a small piece of a big pie, than a big piece of a small one.” Gulbenkian grew wealthy on the 5% remainder.
It was his greatest achievement. He accomplished for the oil sector in former Ottoman territory what government leaders achieved diplomatically. As part of this settlement however, he decided to settle a score from his youth by negotiating that 5% of the employees in the oil fields of the Iraq Petroleum Company (which had been the Turkish Petroleum Company) should be Armenian. He was proud of the fact that this incited the enmity of the Soviet government, which had annexed Armenia in 1922.
Gulbenkian Gets Culture: 1930s Interlude
Thus by the 1930s Gulbenkian had grown wealthy. He decided to start an art collection which he kept in a private museum at his Paris residence. But his corporate prowess did not abate as a consequence of his partaking of the high life. In 1938, reading the tea-leaves of immanent war, he incorporated in Panama a company to hold his assets in the oil industry. The company was called Partex, which is currently a subsidiary of the Calouste Gulbenkian Foundation headquartered in Lisbon, Portugal.
An Unfortunate Alliance: Gulbenkian in the Second World War
By the outbreak of the Second World War in Autumn 1939, Gulbenkian had acquired diplomatic immunity as the Iraqi Minister in Paris. He followed the French government when it fled to Vichy, unfortunately serving the pro-Hitler Pétainist Vichy France regime as its Iranian minister. Despite his links to the UK, he was temporarily declared an enemy alien as a result of his association with the Vichy government, and his UK oil assets were sequestered. They were returned to him with compensation at the end of the war.
An Armenian in Lisbon Bids Farewell
In 1942, in the midst of the war, Gulbenkian left France for neutral Portugal, where he resided in Lisbon until his death in 1955. His Armenian wife predeceased him in 1952. He left behind a son and a daughter. His net worth at the time of his death was estimated to be between $280 million and $840 million. He was wise to choose five as his favorite number.
He is buried at St. Sarkis Armenian Church in London, which is fitting. Gulbenkian was a sponsor of the church, to provide “spiritual comfort” to the Armenian community and a place of gathering for “dispersed Armenians.”
An Open-Ended Legacy
For Gulbenkian was himself a dispersed Armenian. But history operates in unpredictable ways. It was as a result of his departure from Turkey that he was able to do for the oil sector in the Middle East what diplomats did on the world stage. He opened up the world market for oil exploration in Iraq and thus set the stage for the unfolding of this process throughout the MENA region. He has been dubbed the “Talleyrand of oil diplomacy” (Talleyrand was Napoleon’s diplomat, known in the U.S. for his adept diplomacy associated with the 1803 Louisiana Purchase).
But his primary accomplishment has also proven to posterity to be his most ambivalent one. Just as the Allies’ redrawing of the MENA map after World War One led to both the creation of the modern Middle East and the seemingly endless entanglement of the West with this strife-ridden region, so too did Gulbenkian’s “Red Line” foster an animus to Western encroachment in the region that has contributed to the anti-Western character of much of MENA today. The definitive pronouncement on his legacy has yet to be made. Given the ongoing tumult in the region, one can reasonably conclude that we’re about 5 percent there.