|
The Struggle Over Iraqi Oil
Eyes eternally on the prize
antiwar.com
May 7, 2007
by Michael Schwartz
The struggle over Iraqi oil has been going on
for a long, long time. One could date it back to 1980 when
President Jimmy Carter – before his Habitat for Humanity
days – declared that Persian Gulf oil was "vital" to American
national interests. So vital was it, he announced, that the U.S.
would use "any means necessary, including military force" to
sustain access to it. Soon afterwards, he announced the creation
of a Rapid Deployment Joint Task Force, a new military command
structure that would eventually develop into United States
Central Command (Centcom) and give future presidents the ability
to intervene relatively quickly and massively in the region.
Or we could date it all the way back to
World War II, when British officials declared Middle Eastern
oil "a vital prize for any power interested in world influence
or domination," and U.S. officials seconded the thought, calling
it "a stupendous source of strategic power and one of the
greatest material prizes in world history."
The date when the struggle for Iraqi oil began
is less critical than our ability to trace the ever growing
willingness to use "any means necessary" to control such a
"vital prize" into the present. We know, for example, that,
before and after he ascended to the vice presidency, Dick Cheney
has had his eye squarely on the prize. In 1999, for example, he
told the Institute of Petroleum Engineers that, when it came to
satisfying the exploding demand for oil, "the Middle East, with
two thirds of the world's oil and the lowest cost, is still
where the prize ultimately lies." The mysterious Energy Task
Force he headed on taking office in 2001 eschewed conservation
or developing alternative sources as the main response to any
impending energy crisis, preferring instead to make the Middle
East "a primary focus of U.S. international energy policy." As
part of this focus, the
Task Force recommended that the administration put its
energy, so to speak, into convincing Middle Eastern countries
"to open up areas of their energy sectors to foreign investment"
– in other words, into a policy of reversing 25 years of state
control over the petroleum industry in the region.
The
Energy Task Force set about planning how to accomplish this
historic reversal. We know, for instance, that it scrutinized a
detailed map of Iraq's oil fields, together with the
(non-American) oil companies scheduled to develop them (once the
UN sanctions still in place on Saddam Hussein's regime were
lifted). It then worked jointly with the administration's
national security team to find a compatible combination of
military and economic policies that might inject American power
into this equation. According to Jane Mayer of
The New Yorker, the National Security Council directed
its staff "to cooperate fully with the Energy Task Force as it
considered the 'melding' of two seemingly unrelated areas of
policy: 'the review of operational policies towards rogue
states,' such as Iraq, and 'actions regarding the capture of new
and existing oil and gas fields.'"
While we cannot be sure that this planning
itself was instrumental in setting the U.S. on a course toward
invading Iraq, we can be sure that plenty of energy was being
expended in Washington, planning for the disposition of Iraq's
massive oil reserves once that invasion was successfully
executed. In 2002, just a year after Cheney's Task Force
completed its work, and before the U.S. had officially decided
to invade Iraq, the
State Department "established a working group on oil and
energy," as part of its "Future of Iraq" project. It brought
together influential Iraqi exiles, U.S. government officials,
and international consultants. Later, several Iraqi members of
the group became part of the Iraqi government. The result of the
project's work was a "draft framework for Iraq's oil policy"
that would form the foundation for the energy policy now being
considered by the Iraqi parliament.
The Prize
The specific prize in Iraq is certainly worthy
of almost any kind of preoccupation. Indeed, Iraq could someday
become the most important source of petrochemical energy on the
planet.
According to the
U.S. Energy Information Administration, Iraq possesses 115
billion barrels of proven oil reserves, third largest in the
world (after Saudi Arabia and Iran). About two-thirds of its
known oil reserves are located in Shia southern Iraq, and the
final third in Kurdish northern Iraq. However, in energy terms,
only about 10 percent of the country has actually been explored
and there is good reason to believe that modern methods – which
have not been applied since the beginning of the Iraq-Iran War
in 1980 – might well uncover magnitudes more oil. Estimates of
the possible new finds offered by officials of various
interested governments range from 45 billion to 214 billion
additional barrels, depending on the source; but some
non-governmental experts see the final treasure exceeding 400
billion barrels. If the latter figure is correct, then Iraq
would likely become the world's largest source of oil.
For the most part, Iraq's petroleum has
"attractive chemical properties;" that is, its oil is considered
to be of very high quality. Moreover, both its current fields
and many of the potential new discoveries would be extremely
cheap to access, if security weren't such a problem today in
Iraq.
James Paul of the international policy monitoring group, the
Global Policy Forum, offers this positive view:
"According to Oil
and Gas Journal, Western oil companies
estimate that they can produce a barrel of Iraqi oil for less
than $1.50 and possibly as little as $1…. This is similar to
production costs in Saudi Arabia and lower than virtually any
other country."
With the price of a barrel of crude oil today
above $64 a barrel, the potential for profits is stupendous, and
the only question is: Who will pocket them – the oil companies
or the Iraqi government – and, if the former, which oil
companies will those be? It is not inconceivable that any major
oil companies able to claim a large portion of the Iraqi oil
spoils could double, triple, or even quintuple their already
gigantic global profits.
Under Saddam Hussein, Iraqi oil never
fulfilled the potential of even its proven oil fields. A modest
goal for the country's oil industry would have been producing
3.5 million barrels per day, but the temporary disruptions
caused by the Iraq-Iran War and the more permanent ones caused
by UN sanctions imposed after the Gulf War in 1991 severely
limited production. From the late 1990s until the American
invasion in 2003, Iraq averaged around 2.5 million barrels per
day.
Knowledge of this level of underproduction was
certainly one factor in Deputy Secretary of Defense Paul
Wolfowitz's prewar prediction that the administration's invasion
and occupation of Iraq would pay for itself; he hoped for a
quick postwar increase in production to 3.5 million barrels per
day or, at the $30 per barrel price of oil at that time, close
to $40 billion per year in revenues. An expected expansion in
production levels (once the oil giants were brought into the
mix) to perhaps 6.5 million barrels, through the development of
new oil fields or more efficient exploitation of existing
fields, had the potential to more than cover the expected
American short-term military costs and leave the new
Iraqi government flush as well.
This, then, was the allure of melding energy
policy and military policy, as Cheney's energy group and allied
administration officials envisioned it.
The Initial Campaign to Capture Iraqi Oil
With all this history, the particular way the
U.S. sprang into action as soon as its forces arrived in Baghdad
was hardly surprising. While American troops simply stood by as
unrestrained looting severely damaged the dawn-of-civilization
treasures in the National Museum, compromised the ability of
hospitals to deliver health care, and destroyed many government
offices,
large numbers of American soldiers were deployed to protect
the Oil Ministry and its associated holdings. This effort was
certainly emblematic of the newly established occupation's
priorities.
Not long after President Bush declared "major
combat operations in Iraq have ended" under a "Mission
Accomplished" banner on the deck of the aircraft carrier the
USS Abraham Lincoln, Paul Bremer, the new head of the
American occupation, promulgated a series of laws designed,
among other things, to kick-start the development of Iraqi oil.
In addition to attempting to transfer management of existing oil
facilities (well heads, refineries, pipelines, and shipping) to
multinational corporations, he also set about creating an
oil-policy framework, unique in the region, that would allow the
major companies to develop the country's proven reserves and
even to begin drilling new wells.
All these plans were, however, quickly
frustrated, both by the growing Sunni insurgency and by civil
resistance. Iraq's oil workers quickly unionized – even though
Bremer extended Saddam's prohibition on unions in state-owned
companies – and effectively resisted the transfer of management
duties to foreign companies. In one noteworthy moment, the oil
workers actually refused to take orders from Bechtel officials
in the oil hub of Basra, thus preserving their own jobs as well
as the right of the Iraqi state-owned Southern Oil Company to
continue to control the operation in that region. Bechtel's
management contract was subsequently voided.
At the same time, the growing insurgency,
acting on a general Iraqi understanding that a major goal of the
occupation was to "steal" Iraqi oil, systematically began to
attack the oil pipelines that traveled through the Sunni areas
of the country. Within a few months, all oil exports in the
northern part of Iraq were interrupted – and the northern export
pipelines have remained generally unusable ever since.
To resistance of various sorts must be added
the "contribution" of the
major American corporations involved in "reconstructing"
Iraq, notably Halliburton and Bechtel. These crony corporations,
with close ties to the Bush administration, accepted huge fees
to rehabilitate dilapidated or damaged oil facilities. Almost
without fail, they chose not to repair existing plants locally
or to employ the raft of skilled Iraqi technicians who had used
remarkable ingenuity in maintaining these facilities during a
dozen years of UN sanctions. Working under cost-plus agreements
that guaranteed a fixed profit rate no matter how much an
operation ultimately cost, they preferred instead to install
expensive new proprietary equipment. Then, in the absence of any
outside oversight, they ran up huge expenses and frequently
failed to complete their contracts, leaving the oil facilities
they were servicing in states of disrepair or partial repair –
and equipped with technology that local technicians could not
service.
Meanwhile, the major oil companies refused
Bremer's invitation to invest their own money in Iraqi projects,
pointing out the obvious – that the insurgency and the spreading
chaos made such investments unwise. In addition, they were well
aware that
Bremer's regime in Baghdad lacked clear authority to sign
contracts with them. This, in turn, meant that their investments
might be in jeopardy once a legitimate government took power.
When technical sovereignty was finally handed over to an
appointed Iraqi government headed by the CIA's favorite Iraqi
exile, Iyad Allawi, in June 2004, the new premier embraced
Bremer's policy, but to no avail. The international oil
companies were no more impressed with his future than they had
been with Bremer's. Like Wolfowitz, they knew that Iraq "floats
on a sea of oil"; unlike him, they were no dreamers. They
weren't willing to risk their capital in the dangerous and
legally ambiguous circumstances then prevailing.
As a result, the first two years of Bush
administration efforts to "access" Iraqi oil failed – and
dismally so at that. Average production never exceeded the
bottom-of-the-barrel 2.5 million barrels Saddam's regime managed
to extract on its worst days. By 2006, production had slipped
below 2 million barrels per day.
Dealing With the Iraqi Government
It is difficult to judge how much Bremer's
inability to implement the pre-planned oil policy contributed to
the Bush administration decision to reverse its plans for Iraqi
"democracy" – which, as
Juan Cole has pointed out, involved council-based elections,
an electorate restricted to a small elite, and Bremer as "a
MacArthur in Baghdad for years" – and push for an elected Iraqi
government. It certainly is true, however, that this change
triggered a campaign aimed at the "capture of new and existing
oil and gas fields."
As soon as the first elections for a temporary
Iraqi government were completed in January 2005 American
officials in Iraq began lobbying forcefully for adoption of the
very policy that the State Department's pre-invasion Future of
Iraq project had drafted. The State Department planners had
concluded that
production-sharing agreements – a method that granted
multinational oil companies effective control of oil fields
without transferring permanent ownership to them – would be the
basic instrument through which a future "independent" Iraq would
develop new oil fields. Wary by now of being seen as the chief
advocate of this policy, which it so desperately wanted in
place, the Bush administration concocted a strategy that would
enlist the international community in pressuring Iraq to adopt
its program.
This was done by making the
International Monetary Fund (IMF) a key player in Iraqi oil
policy. Through loans in the 1980s and reparations imposed for
his invasion of Kuwait in 1990, Saddam had accumulated $120
billion in external debt, the largest per-capita debt in the
world and a potentially insurmountable obstacle to economic
recovery, even in oil-rich Iraq. One option available to the new
government was to declare this debt "odious," a technical term
in international law referring to debt accumulated by
authoritarian rulers for their own personal or political
aggrandizement.
Saddam's expansionist war against Iran, his
use of public funds to build ostentatious monuments and palaces,
his transfer of billions to his personal accounts, and his
failure to maintain the infrastructure of the country all were
excellent evidence that the debt was indeed odious; and the U.S.
claimed as much for almost $40 billion of it, held by 19
industrialized countries known as the Paris Club. Instead of
seeking to cancel this debt (and the remaining $80 billion)
entirely, however, the Bush administration sent James Baker,
secretary of state under George H. W. Bush, to the Paris Club to
negotiate conditional forgiveness. The resulting agreement
immediately forgave $12 billion, but left $28 billion on the
books. A second $12 billion would be abrogated when the Iraqi
government signed onto "a standard International Monetary Fund
program," and a further $8 billion three years later, after the
IMF confirmed Iraqi compliance. Even if "successful," almost $8
billion would still be outstanding to the Paris Club – together
with $80 billion not covered by the agreement.
The "standard International Monetary Fund
program," not surprisingly, included the now familiar American
policies regarding Iraqi oil, as well as the use of
profit-sharing agreements and a host of other provisions that
would open the Iraqi economy as a whole, and the oil sector in
particular, to investment by multinational corporations. Among
the most punitive of the provisions was a demand for an end to
the economic breadbasket that guaranteed all Iraqi families low
prices for fuel and food staples. In a country with, by 2005,
somewhere between 30 percent and 70 percent unemployment,
average wage levels under $100 per month, and escalating
inflation, these Saddam-era subsidies meant the difference
between basic subsistence and disaster for a large proportion of
Iraqis.
Independent journalists
Basav Sen and Hope Chu summarized the new agreement thusly:
"A move that appears on the surface to be
beneficial for Iraq – debt cancellation – is being used as a
tool of control by the World Bank, the IMF and the wealthy
creditor countries. What is more, it is a tool of control that
will last long after the withdrawal of U.S. combat forces."
Zaid al-Ali, an international lawyer working on development
issues in Iraq, described the agreement as a "perfect
illustration of how the industrialized world has used debt as a
tool to force developing nations to surrender sovereignty over
their economies."
The newly elected
Iraqi National Assembly promptly denounced this agreement as
"a new crime committed by the creditors who financed Saddam's
oppression." This forceful expression reflected the opinions of
the Assembly's constituents. After all, 76 percent of Iraqis
believed that the main reason for the Bush administration's
invasion was "to control Iraqi oil."
As it happened, the protest did not prevent
that government from endorsing the deal. Otherwise, it faced the
prospect of the U.S. – which still had operational control over
Iraqi finances – simply appropriating most of its revenues for
debt service. When the agreement was announced, interim Oil
Minister Thamir Ghadbhan, a British-trained technocrat, publicly
protested the provisions eliminating fuel and food subsidies. He
was subsequently pushed out.
The U.S. then began pressuring the Iraqi
government to draft a definitive petrochemical law that would
conform to the IMF guidelines. Given the levels of resistance to
the very idea, this work was conducted in secret and took until
the end of 2006 to complete. As independent journalist Joshua
Holland described the process:
"Just months after the Iraqis elected their
first constitutional government, USAID sent a BearingPoint
adviser to provide the Iraqi Oil Ministry 'legal and regulatory
advice in drafting the framework of petroleum and other
energy-related legislation, including foreign investment'…. The
Iraqi parliament had not yet seen a draft of the oil law as of
July [2006], but by that time … it had already been reviewed and
commented on by U.S. Energy Secretary Sam Bodman, who also
'arranged for Dr. al-Shahristani to meet with nine major oil
companies – including Shell, BP, ExxonMobil, ChevronTexaco, and
ConocoPhillips – for them to comment on the draft.'"
Even the
Iraqi Study Group, James Baker's Commission, got into the
act at the end of 2006, devoting three pages of its proposal for
a partial redeployment of American forces from Iraq to exhorting
the Iraqis to enact a petrochemical bill that would place its
oil reserves in the hands of the major oil companies.
The Proposed Petrochemical Bill
When the "Draft Hydrocarbon Law" was finally
delivered to the Iraqi Parliament on Feb. 18, 2007, key
provisions had already been leaked and immediately denounced by
the full spectrum of the Iraqi opposition. Taking turns
registering dismay were the majority of the parliament, a wide
range of government officials, the leadership of major Sunni
political parties, the union of oil workers, the Sadrists – the
most powerful Shia grouping – and the visible leadership of the
insurgency.
All this led to many changes in the law,
including the removal of all mention of either privatization or
production-sharing contracts, which would have given
multinational oil companies 15-25 years of basically unregulated
operational control over Iraqi oil facilities. The amended
version in no way excluded the use of PSAs, but it removed the
explosive designation from the actual wording of the law.
It is worth reviewing the logic of PSAs to
understand why the U.S. was so determined to make them a part of
the law, and why many Iraqis were so ferociously opposed.
Production-sharing agreements are generally
applied in circumstances where there is a strong possibility
that oil exploration will be extremely costly or even fail,
and/or where extraction is likely to prove prohibitively
expensive. To offset huge and risky investments, the contracting
company is guaranteed a proportion of the profits, if and when
oil is extracted and sold. In the most common of these
agreements, the proportion remains very high until all
development costs are amortized, allowing the investing company
to recoup its investment expenditures (if oil is found), and
then to be rewarded with a larger-than-normal profit margin for
the remainder of the contract which, in the Iraqi case, could
extend for up to 25 years.
This is perhaps a reasonably fair, or at least
necessary, bargain for a country that cannot generate sufficient
investment capital on its own, where exploration is difficult
(perhaps underwater or deep underground), where the actual
reserves may prove small, and/or where ongoing costs of
extraction are very high.
None of these conditions apply in Iraq: huge
reservoirs of easily accessible oil are already proven to exist,
with more equally accessible fields likely to be discovered with
little expense. This is why none of Iraq's neighbors utilize
PSAs. Saudi Arabia, Kuwait, Iran, and the United Arab Emirates
all pay the multinationals a fixed rate to explore and develop
their fields; and all of the profits become state revenues.
The
advocates of PSAs in Iraq justify their use by arguing that
$20 billion would be needed to develop the Iraqi fields fully
and that favorable PSAs are the only way to attract such heavy
doses of finance capital under the current highly dangerous
circumstances. This assertion seems, however, to be
little more than a smokescreen. No major oil companies are
willing to invest in Iraq now, no matter how sweet the deal. If
order is restored, on the other hand, Iraq would have no trouble
attracting vast amounts of finance capital to develop reserves
that could well be worth in excess of $10 trillion and hence
would have no need whatsoever for PSAs.
Based on leaked information, journalists
reported that the PSAs envisioned by the Iraqi petrochemical law
contained extremely favorable provisions for the oil companies,
in which they would be entitled to 70 percent of profits until
development expenses were amortized and 20 percent afterwards.
This would have guaranteed them at least twice the typical
profit margin over the long run and many times that figure
during the initial years.
There are
other elements in the law (and the possible PSA contracts)
that have also roused resistance inside Iraq. Among the most
controversial:
Insofar as PSAs or their legal equivalent
were enacted, Iraq would lose control over what levels of oil
the country produced with the potential to substantially weaken
the grip of OPEC on the oil market.
The law would allow the oil companies to
fully repatriate all profits from oil sales, almost ensuring
that the proceeds would not be reinvested in the Iraqi economy.
The Iraqi government would not have control
over oil company operations inside Iraq. Any disputes would be
referred instead to pro-industry international arbitration
panels.
No contracts would be public documents.
Contacting companies would not be obliged to
hire Iraqi workers, and could pursue the current policy of
employing American technicians and South Asian manual laborers.
Several African countries with vast mineral
riches have been subjected to these sorts of conditions, with
large multinational companies extracting both minerals and
profits while returning only a tiny fraction of the proceeds to
the local population. As the resources are taken out of the
ground and the country, the local population actually becomes
poorer, while the potential for future prosperity is drained.
The draft petrochemical law, if enacted and
implemented, could ensure that Iraq would remain in a state of
neoliberal poverty in perpetuity, even if order did return to
the country.
The Resistance
The petrochemical law is hardly assured of
successful passage, and – even if passed – is in no way assured
of successful implementation. Resistance to it, spread as it is
throughout Iraqi society, has already shown itself to be a
formidable opponent to the dwindling power of the American
occupation.
The parliament itself may be the first line of
defense. It challenged the original IMF agreement and has
refused to consider the bill for two months, already missing a
March deadline for passage that American politicians of both
parties had pronounced an important "benchmark" by which to
judge the viability of Prime Minister Nouri al-Maliki's
government.
In addition, the government officials
responsible for administering the oil industry could prove
formidable opponents. Rafiq Latta, a London-based oil analyst,
told Nation reporter
Christian Parenti, "The whole culture of the ministry
opposes [the law]…. Those guys ran the industry very well all
through the years of sanctions. It was an impressive job, and
they take pride in 'their' oil."
Perhaps most formidable of all is the
Federation of Oil Unions, with 26,000 members and allies
throughout organized labor. The oil workers overturned contracts
in
2003 and
2004 that would have placed substantial oil facilities under
multinational corporate control; and they
initiated a vigorous campaign against the U.S. sponsored oil
program as early as June 2005 – calling a conference to oppose
privatization attended by "workers, academics, and international
civil-society groups." In January 2006, they convened a
convention composed of all major Iraqi union groups in Amman,
Jordan, which issued a manifesto opposing the entire neo-liberal
U.S. program for Iraq, including any compromise on national
control of oil production.
At a second Amman labor meeting in December of
2006, the Federation of Oil Unions announced its opposition to
the pending law even before it was released.
Iraq's trade unions, speaking in a single voice, declared
that:
"Iraqi public opinion strongly opposes the
handing of authority and control over the oil to foreign
companies, that aim to make big profits at the expense of the
people. They aim to rob Iraq's national wealth by virtue of
unfair, long term oil contracts that undermine the sovereignty
of the State and the dignity of the Iraqi people."
When the bill was made public, oil union
president Hassan Jumaa denounced it before yet
another protest meeting, stating:
"History will not forgive those who play
recklessly with our wealth. … We consider the new law unbalanced
and incoherent with the hopes of those who work in the oil
industry. It has been drafted in a great rush in harsh
circumstances."
He then called on the government to consult
Iraqi oil experts (who had not participated in drafting the law)
and "ask their opinion before sinking Iraq into an ocean of
dark injustice."
If the oil workers and their union allies
decide to organize protests or strikes, they are likely to have
the Iraqi public on their side. Fully three-quarters of Iraqis
believe that the United States invaded in order to gain control
of Iraqi oil, and most observers believe they will surely agree
with the oil workers that this law is a vehicle for that
control. Even
Iyad Allawi has now publicly taken a stand opposing it,
perhaps the best indication that opposition will be virtually
unanimous.
Finally – and no small matter – the armed
resistance is also against the oil law. The Sunni insurgency
underscored its opposition by assassinating
Vice President Adel Abdul Mahdi, a major advocate of the
pending law, on the day the bill was made public. The
significance of the opposition of the Sunni insurgency is
amplified by the stance of the Sadrists, the most rebellious
segment of the Shia majority. Sadr spokesman Sheik Gahaith Al
Temimi warned journalist Michael Parenti that while the Sadrists
would "welcome" foreign investment in oil, they would do so only
"under certain conditions. We want our oil to be developed, not
stolen. If a bad law were to be passed, all people of Iraq would
resist it."
It seems clear that what the oil law has the
power to do is substantially escalate the already unmanageable
conflict in Iraq. Active opposition by the parliament alone, or
by the unions alone, or by the Sunni insurgency alone, or by the
Sadrists alone might be sufficient to defeat or disable the law.
The possibility that such disparate groups might find unity
around this issue, mobilizing both the government bureaucracy
and overwhelming public opinion to their cause, holds a much
greater threat: the possibility of creating a unified force that
might push beyond the oil law to a more general opposition to
the American occupation.
Like so many American initiatives in Iraq, the
oil law, even if passed, might never be worth more than the
paper it will be printed on. The likelihood that any future
Iraqi government which takes on a nationalist mantel will
consider such an agreement in any way binding is nil. One day in
perhaps the not so distant future, that "law," even if briefly
the law of the land, is likely to find itself in the dustbin of
history, along with Saddam's various oil deals. As a result, the
Bush administration's "capture of new and existing oil and gas
fields" is likely to end as a predictable fiasco.
Michael Schwartz, professor of sociology
and faculty director of the Undergraduate College of Global
Studies at Stony Brook University, has written extensively on
popular protest and insurgency, and on American business and
government dynamics. His books include
Radical Protest and Social Structure and
Social Policy and the Conservative Agenda (edited,
with Clarence Lo). His work on Iraq has appeared on numerous
Internet sites, including TomDispatch, Asia Times,
Mother Jones, and ZNet, and in print in Contexts,
Against the Current, and Z Magazine. His e-mail
address is Ms42@optonline.net.
Copyright 2007 Michael Schwartz
Source |
