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% 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 those will 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 pre-war
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, former 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% and 70% 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% 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 February 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 which 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% of profits until
development expenses were amortized and 20% 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 insuring 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 Sheikh Gahaith Al Temimi warned
journalist Christian 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.