Turkey, the Great Powers, and the Bagdad Railway: A study in imperialism

by Edward Mead Earle

French Capitalists Share in the Spoils

France, relieved of the necessity of supporting Russia’s strategic objections to the Bagdad Railway, was glad to compromise with Turkey—in return for compensatory concessions to French investors. The sharp rebuff given M. Pichon by the Young Turks in the loan negotiations of the spring and summer of 1910 had convinced French diplomatists and business men alike that a policy of bullying the new administration at Constantinople would be futile.[10] Continued obstruction of Ottoman economic rehabilitation could have but two effects: to injure French prestige and prejudice the interests of French business; to drive the Young Turks into still closer association with the German Government and still greater dependence upon German capitalists. On the other hand, a conciliatory policy might be rewarded by profitable participation of French bankers in the economic development of Turkey-in-Asia and by a revival of French political influence at the Sublime Porte.

Even before the negotiation of the Potsdam Agreement the Young Turks had smiled upon French financial interests in the hope that the French Government might adopt a more friendly attitude toward the new régime in Turkey. In June, 1910, for example, the Smyrna-Cassaba Railway was authorized to extend its existing line from Soma, in western Anatolia, to Panderma, on the Sea of Marmora. The concession carried with it the highest kilometric guarantee (18,800 francs) ever granted a railway in the Ottoman Empire, although the construction of the line offered fewer engineering and financial difficulties than other railways which had been constructed under less favorable terms. From the standpoint of the Turkish Government, however, the Soma-Panderma railway offered economic and strategic returns commensurate with the investment, for it was part of a comprehensive plan for the improvement of commercial and military communications in Asia Minor.[11]

The acceptance of this concession by French capitalists—presumably with the approval, certainly without the opposition, of their Government—was an interesting commentary on the official attitude of the French Republic toward the Bagdad Railway. If it was unprincipled for Germans to accept a guarantee for the construction and operation of their railways in Turkey, it is difficult to ascertain what dispensation exempted Frenchmen from the same stigma. If the Anatolian and Bagdad systems were anathema because of their possible utilization for military purposes, little justification can be offered for the Soma-Panderma line, which, completed in 1912, was one of the principal factors in the stubborn defence of the Dardanelles three years later.

Shortly after the promulgation of the Soma-Panderma convention additional steps were taken by the Ottoman Government toward the further extension of French railway interests in Anatolia and Syria. Negotiations were initiated with the Imperial Ottoman Bank for the award to a French-owned company, La Société pour la Construction et l’Exploitation du Réseau de la Mer Noire, of a concession for a comprehensive system of railways in northern Anatolia. It was proposed to construct elaborate port works at the Black Sea towns of Heraclea, Samsun, and Trebizond, and to connect the new ports by railway with the inland towns of Erzerum, Sivas, Kharput, and Van. Connections were to be established at Boli and Sivas with extensions to the Anatolian Railways, and at Arghana with a branch of the Bagdad line to Nisibin and Diarbekr. Thus adequate rail communications would be provided from the Ægean to the Persian Gulf, from the Black Sea to the Syrian shore of the Mediterranean.[12]

Simultaneously, negotiations were being carried on between the Ottoman Ministry of Public Works and the Imperial Ottoman Bank for extensive concessions to the French Syrian Railways, owned and operated by La Société du Chemin de Fer de Damas-Hama et Prolongements. Provision was made for the construction of port and terminal facilities at Jaffa, Haifa, and Tripoli-in-Syria; a traffic agreement was negotiated with the Ottoman-owned Hedjaz Railway, pledging both parties to abstain from discriminatory rates and other unfair competition; tentative arrangements were made for the construction of a line from Homs to the Euphrates. Provisional agreements embodying the Black Sea and Syrian railway and port concessions were signed in 1911, but technical difficulties of surveying the lines, together with the political instability occasioned by the Tripolitan and Balkan Wars, postponed the definitive contract.[13]

After the Treaty of Bucharest, August 10, 1913, the Ottoman Government was more determined than ever to do everything in its power to eliminate French opposition to railway construction in Asia Minor and to secure French aid in the further economic development of Turkey. Crushing defeats at the hands of the Italians and the Balkan states had emphasized the deficiencies of Ottoman communications, Ottoman economic and military organization, Ottoman financial resources. The national treasury, emptied by the drain of three wars, needed replenishment by an increase in the customs duties, to which French sanction would have to be obtained, and by a foreign loan, for which it was hoped French bankers would submit a favorable bid. All of these questions were so closely associated with the question of political influence in the Near East, however, that it was obviously desirable to arrive at some modus vivendi between French and German interests in Ottoman railways and in Ottoman financial affairs. Accordingly, the Young Turk Government prevailed upon the Imperial Ottoman Bank and the Deutsche Bank to discuss a basis for a Franco-German agreement, and Djavid Bey was despatched to Paris to conduct whatever negotiations might be necessary with the French Government.

On August 19 and 20 and September 24, 25, 26, 1913, a series of important meetings was held in Berlin to ascertain upon what terms French and German investments in Turkey might be apportioned with the least possibility of conflict. German interests were represented by Dr. von Gwinner and Dr. Helfferich; the chief of the French negotiators were Baron de Neuflize, a Regent of the Bank of France, and M. de Klapka, Secretary-General of the Imperial Ottoman Bank. Supposedly the conferences were conducted only between the interested financiers, but the discussions were participated in by representatives of the French, German, and Ottoman foreign offices. Obstacles which, at the start, seemed insurmountable were overcome at the Berlin meetings and a series of minor conferences which followed. The result was one of the most important international agreements of the years immediately preceding the Great War—the secret Franco-German convention of February 15, 1914. The terms of this agreement, heretofore unpublished, may be summarized as follows:[14]

1. Northern Anatolia was recognized as a sphere of French influence for purposes of railway development. Arrangements were concluded for linking the Anatolian and Bagdad systems with the proposed Black Sea Railways, and traffic agreements satisfactory to all of the companies were ratified and appended to the convention. It was agreed that the port and terminal facilities at Heraclea should be constructed by a Franco-German company.

2. Syria, likewise, was recognized as a French sphere of influence. In particular, the right of the Syrian Railways to construct a line from Tripoli-in-Syria to Deir es Zor, on the Euphrates, was confirmed. A traffic agreement between the Bagdad and Syrian companies was ratified and appended to the convention.

3. The regions traversed by the Anatolian and Bagdad Railways were defined as a German sphere of influence. A neutral zone was established in Northern Syria to avoid infringement upon German or French rights in that region.

4. The Deutsche Bank and the Imperial Ottoman Bank each pledged itself to respect the concessions of the other, to seek no railway concessions within the sphere of influence of the other, and to do nothing, directly or indirectly, to hinder the construction or exploitation of the railway lines of the other in Asiatic Turkey.

5. It was agreed that appropriate diplomatic and financial measures should be taken to bring about an increase in the revenues of the Ottoman Empire, sufficient, at least, to finance all of the projected railways, both French and German. Construction of the lines already authorized, or to be authorized, should be pursued, as far as possible, pari passu, each group to receive subsidies from the Ottoman Treasury in about the same proportion.

6. The Deutsche Bank agreed to repurchase from the Imperial Ottoman Bank all of the latter’s shares and debentures of the Bagdad Railway and its subsidiary enterprises, amounting to Fr. 69,400,000. Payment was to be made in like value of Imperial Ottoman bonds of the Customs Loan of 1911, Second Series, which had been underwritten by a German syndicate.

Certain observations should be made regarding the character of this convention, if its full significance is to be appreciated. It was an agreement between two great financial groups in France and Germany; as such it was signed by M. Sergent, Sub-Governor of the Bank of France; M. de Klapka, Secretary-General of the Imperial Ottoman Bank; and Dr. Karl Helfferich, Managing Director of the Deutsche Bank. In addition, it was an understanding between the Governments of France and Germany; as such it was signed by M. Ponsot, of the French Embassy in Berlin, and by Herr von Rosenberg, of the German Foreign Office. A speech of Chancellor von Bethmann-Hollweg to the Reichstag, December 9, 1913, acknowledged the official character of the negotiations being conducted by the French and German bankers. That the French Government considered the convention a binding international agreement is made perfectly clear by a despatch of Baron Beyens, Belgian Minister in Berlin, to M. Davignon, Belgian Minister of Foreign Affairs, February 20, 1914, in which the attention of the Belgian Government is officially called to the existence of the convention.[15] The agreement, furthermore, was acceptable to the Ottoman Government, for the Sultan promptly confirmed the concessions for the new Black Sea and Syrian lines and for the necessary extensions to the Anatolian Railways. Much has been written about governmental support of investors in foreign countries, but, so far as the author has been able to ascertain, this is the first instance in which a financial pact and an international agreement have been combined in one document. No longer are treaties negotiated by diplomatists alone, but by diplomatists and bankers!

From the standpoint of the French interests involved, the February convention of 1914 was an eminently satisfactory settlement of the Bagdad Railway controversy. French capitalists secured concessions for more than 2,000 miles of railways in Asiatic Turkey, thus eliminating the danger of eventual German control of all communications in the Ottoman Empire. The Imperial Ottoman Bank was relieved of the risk of carrying an investment of almost seventy million francs in the Bagdad enterprise—an investment which had been a “frozen asset” because of the persistent refusal of the French Government to admit the Bagdad securities to the Bourse. In return, the Bank received a large block of Imperial Ottoman bonds, which were readily negotiable and which materially increased French influence in the Ottoman Public Debt Administration. Furthermore, as a result of a tacit agreement with the Deutsche Bank, the Imperial Ottoman Bank was awarded the Imperial Ottoman Five Per Cent Loan of 1914, amounting to $100,000,000, upon terms affording a handsome profit to the underwriters.[16] As for the French Government, it was enabled to emerge gracefully from the difficult situation in which it found itself after the Potsdam Agreement. France no longer was obliged to pursue a purely Russian policy in the Near East, for the Tsar’s Government—in addition to withdrawing its objections to German railways in Asiatic Turkey—gave its consent to the construction of the French Black Sea Railways with the sole proviso that the system should not be completed in its entirety until Russia had constructed certain strategic railways necessary to assure the safety of the Caucasus frontier.[17]

German diplomacy, on the other hand, had strengthened its position in the Near East by securing definite recognition of central and southern Anatolia, northern Syria and Mesopotamia as German spheres of interest. German financiers acquired exclusive control of the Bagdad enterprise and were assured that there would be no further obstruction of their plans by the French Government. The French promise to coöperate in improving the financial situation in Turkey meant that funds would be forthcoming for continued construction of uncompleted sections of the Bagdad Railway. The Young Turks were delighted at the prospect that the Powers might finally consent to the much-needed increase in the customs duties. They were no less delighted to know that railway construction in Asia Minor—which held out so much promise for the economic development and the political stability of the country—was to go on unimpeded by Franco-German rivalry and antagonism.[18]

There was some harsh criticism in Great Britain, however, of the advantages which France had obtained for herself in the Ottoman Empire. Sir Mark Sykes, an eminent student of Near Eastern affairs, believed that the new state of affairs was worse than the old. Speaking in the House of Commons, March 18, 1914, he warned the Foreign Office that “the policy of French financiers will produce eventually the collapse of the Ottoman Empire.... Take the proposed loan arranged with the French Government, for something over £20,000,000. In order to get this there are concessions which I cannot help feeling are more brazen and more fatal than any I have seen. The existing railways in Syria meander for miles to avoid legitimate profits in order to extort a guarantee. Alongside these railways you can see the merchants’ merchandise and the peasants’ produce rotting because the railway people do not trouble to warehouse the stuff or to shift it. They have got their guarantee, and they do not care. These concessions, which have been extracted from Turkey, mean a monopoly of all Syrian transit; and, further, a native press is to be subventioned practically in the interest of these particular monopolies.... In practice, loans, kilometric guarantees, monopolies, and a financed native press must, whether the financiers desire it or not, pave the way to annexation. I submit that this is not the spirit of the entente. The British people did not stand by the French people at Agadir to fill the pockets of financiers whose names are unknown outside Constantinople or the Paris Bourse.... The Ottoman Empire is shaken, and the cosmopolitan financier is now staking out the land into spheres of interest. An empire may survive disaster, but it cannot survive exploitation. A country like Turkey, without legislative capacity, without understanding what the economics of Europe mean and at the same time rich, is a lamb for the slaughter.”[19]

This trenchant criticism of French policy might have been taken more seriously had Great Britain herself been actuated by magnanimous impulses. Instead, British financiers were joining the common scramble for concessions, and British statesmen were pursuing with ruthless avidity every means of protecting British imperial interests.