[Dialogue] Bush's Petro-Cartel Almost Has Iraq's Oil

Mon Oct 16 13:28:31 EST 2006

AlterNet

Bush's Petro-Cartel Almost Has Iraq's Oil

By Joshua Holland, AlterNet
Posted on October 16, 2006, Printed on October 16, 2006
http://www.alternet.org/story/43045/

Editor's note: this is the first of a two-part series.

Iraq is sitting on a mother lode of some of the lightest, sweetest, most
profitable crude oil on earth, and the rules that will determine who will
control it and on what terms are about to be set.

The Iraqi government faces a December deadline, imposed by the world's
wealthiest countries, to complete its final Oil Law. Industry analysts
expect that the result will be a radical departure from the laws governing
the country's oil-rich neighbors, giving foreign multinationals a much
higher rate of return than with other major oil producers, and locking in
their control over what George Bush called Iraq's "patrimony" for decades,
regardless of what kind of policies future elected governments might want to
pursue.

Iraq's energy reserves are an incredibly rich prize; according to the US
Department of Energy <http://www.eia.doe.gov/emeu/cabs/iraq.html> , "Iraq
contains 112 billion barrels of proven oil reserves, the second largest in
the world (behind Saudi Arabia) along with roughly 220 billion barrels of
probable and possible resources. Iraq's true potential may be far greater
than this, however, as the country is relatively unexplored due to years of
war and sanctions." For perspective, the Saudis have 260 billion barrels of
proven reserves.

Iraqi oil is close to the surface and easy to extract, making it all the
more profitable. James Paul, Executive Director of the Global Policy Forum,
points out <http://www.globalpolicy.org/security/oil/2002/12heart.htm>  that
oil companies "can produce a barrel of Iraqi oil for less than $1.50 and
possibly as little as $1, including all exploration, oilfield development
and production costs." Contrast that with other areas where oil is
considered cheap to produce at $5 per barrel, or the North Sea where
production costs are $12-16 per barrel.

And Iraq's oil sector is largely undeveloped. Former Iraqi Oil Minister
Issam Chalabi (no relation to the neocons' favorite exile, Ahmed Chalabi)
told the Associated Press that "Iraq has more oil fields that have been
discovered, but not developed, than any other country in the world."
British-based analyst Mohammad Al-Gallani told the Canadian Press that of
526 prospective drilling sites, just 125 have been opened.

But the real gem -- what one oil consultant called the "Holy Grail" of the
industry -- lies in Iraq's vast Western desert. It's one of the last
"virgin" fields on the planet, and it has the potential to catapult Iraq to
number one in the world in oil reserves. Sparsely populated, the Western
fields are less prone to sabotage than the country's current centers of
production in the North, near Kirkuk, and in the South near Basra. The
Nation's Aram Roston predicts <http://www.thenation.com/doc/20040112/roston>
Iraq's Western desert will yield "untold riches."

Iraq also may have large natural gas deposits that so far remain virtually
unexplored.

But even "untold riches" don't tell the whole story. Depending on how Iraq's
petroleum law shakes out, the country's enormous reserves could break the
back of OPEC, a wet dream in Western capitals for three decades. James Paul
predicted that "even before Iraq had reached its full production potential
of 8 million barrels or more per day, the companies would gain huge leverage
over the international oil system. OPEC would be weakened by the withdrawal
of one of its key producers from the OPEC quota system." Depending on how
things shape up in the next few months, Western oil companies could end up
controlling the country's output levels, or the government, heavily
influenced by the U.S., could even pull out of the cartel entirely.

Both independent analysts and officials within Iraq's Oil ministry
anticipate that when all is said and done, the big winners in Iraq will be
the Big Four -- the American firms Exxon-Mobile and Chevron-Texaco, and the
British BP-Amoco and Royal Dutch-Shell -- that dominate the world oil
market. Ibrahim Mohammed, an industry consultant with close contacts in the
Iraqi Oil Ministry, told the Associated
<http://washingtontimes.com/business/20050315-120755-8864r.htm>  Press that
there's a universal belief among ministry staff that the major U.S.
companies will win the lion's share of contracts. "The feeling is that the
new government is going to be influenced by the United States," he said.

During the twelve-year sanction period, the Big Four were forced to sit on
the sidelines while the government of Saddam Hussein cut deals with the
Chinese, French, Russians and others (despite the sanctions, the U.S.
ultimately received 37 percent of Iraq's oil during the period, according to
the independent committee that investigated the Oil-for-food program, but
almost all of it arrived through foreign firms). In a 1999 speech, Dick
Cheney, then CEO of the oil services company Halliburton, told a London
audience that the Middle East was where the West would find the additional
fifty million barrels of oil per day that he predicted it would need by
2010, but, he lamented, "while even though companies are anxious for greater
access there, progress continues to be slow."

Chafing at the idea that the Chinese and Russians might end up with what is
arguably the world's greatest energy prize, industry leaders lobbied hard
for regime change throughout the 1990s. With the election of George W. Bush
and Dick Cheney in 2000 -- the first time in U.S. history that two veterans
of the oil industry had ever occupied the nation's top two jobs -- they
would finally get the "greater access" to the region's oil wealth after
which they had long lusted.

If the U.S. invasion of Iraq had occurred during the colonial era a hundred
years earlier, the oil giants, backed by U.S. forces, would have simply
seized Iraq's oil fields. Much has changed since then in terms of
international custom and law (when then-Deputy Secretary of Defense Paul
Wolfowitz did in fact suggest
<http://www.washingtonpost.com/ac2/wp-dyn/A17347-2004Apr16?language=printer>
seizing Iraq's Southern oil fields in 2002, Colin Powell dismissed the idea
as "lunacy").

Understanding how Big Oil came to this point, poised to take effective
control of the bulk of the country's reserves while they remain,
technically, in the hands of the Iraqi government -- a government with all
the trappings of sovereignty -- is to grasp the sometimes intricate dance
that is modern neocolonialism. The Iraq oil-grab is a classic case study.

It's clear that the U.S.-led invasion had little to do with national
security or the events of September 11. Former Treasury Secretary Paul
O'Neill revealed
<http://www.cbsnews.com/stories/2004/01/09/60minutes/main592330.shtml>  that
just 11 days after Bush's inauguration in early 2001, regime change in Iraq
was "Topic A" among the administration's national security staff, and former
Terrorism Tsar Richard Clarke told
<http://www.cbsnews.com/stories/2004/03/19/60minutes/main607356.shtml>  60
minutes that the day after the attacks in New York and Washington occurred,
"[Secretary of Defense Donald] Rumsfeld was saying that we needed to bomb
Iraq." He added: "We all said . no, no. Al-Qaeda is in Afghanistan."

On March 7, 2003, two weeks before the U.S. attacked Iraq, the UN's chief
weapons inspector, Hans Blix, told the UN Security Council that Saddam
Hussein's cooperation with the inspections protocol had improved to the
point where it was "active or even proactive," and that the inspectors would
be able to certify that Iraq was free of prohibited weapons within a few
months' time. That same day, IAEA head Mohammed ElBaradei reported that
there was no evidence of a current nuclear program in Iraq and flatly
refuted the administration's claim that the infamous aluminum tubes cited by
Colin Powell in making his case for war before the Security Council were
part of a reconstituted nuclear program.

But serious planning for the war had begun in February of 2002, as Bob
Woodward revealed
<http://www.washingtonpost.com/wp-dyn/articles/A17347-2004Apr16.html>  in
his book, Plan of Attack. Planning for the future of Iraq's oil wealth had
been under way for longer still.

In February of 2001, just weeks after Bush was sworn in, the same energy
executives that had been lobbying for Saddam's ouster gathered at the White
House to participate in Dick Cheney's now infamous Energy Taskforce.
Although Cheney would go all the way to the Supreme Court to keep what
happened at those meetings a secret, we do know a few things thanks to
documents obtained by the conservative legal group JudicialWatch. As Mark
Levine wrote in The Nation($$
<http://www.thenation.com/docprem.mhtml?i=20051212&s=levine> ):

. a map of Iraq and an accompanying list of "Iraq oil foreign suitors" were
the center of discussion. The map erased all features of the country save
the location of its main oil deposits, divided into nine exploration blocks.
The accompanying list of suitors revealed that dozens of companies from
thirty countries--but not the United States--were either in discussions over
or in direct negotiations for rights to some of the best remaining oilfields
on earth.

Levine wrote, "It's not hard to surmise how the participants in these
meetings felt about this situation."

According to  <http://www.talkingpointsmemo.com/archives/002873.php> The New
Yorker, at the same time, a top-secret National Security Council memo
directed NSC staff to "cooperate fully with the Energy Taskforce as it
considered melding two seemingly unrelated areas of policy." The
administration's national security team was to join "the review of
operational policies towards rogue states such as Iraq, and actions
regarding the capture of new and existing oil and gas fields."

At the State Department, planning was also underway. Under the auspices of
the "Future of Iraq Project," an "Oil and Energy Working Group" was
established. The full membership of the group -- described by the
<http://www.globalpolicy.org/security/oil/2003/0407exilescall.htm> Financial
Times as "Iraqi oil experts, international consultants" and State Department
staffers -- remains classified, but among them, according to Antonia
Juhasz's  <http://alternet.bookswelike.net/isbn/0060846879> The Bush Agenda,
was Ibrahim Bahr al-Uloum, who would serve in Iyad Allawi's cabinet during
the period of the Iraqi Governing Council, and later as Iraq's Oil Minister
in 2005. The group concluded that Iraq's oil "should be opened to
international oil companies as quickly as possible after the war."

But the execs from Big Oil didn't just want access to Iraq's oil; they
wanted access on terms that would be inconceivable unless negotiated at the
barrel of a gun. Specifically, they wanted an Iraqi government that would
enter into Production Service Agreements (PSAs) for the extraction of Iraq's
oil.

PSAs, developed in the 1960s, are a tool of today's kinder, gentler
neocolonialism; they allow countries to retain technical ownership over
energy reserves but, in actuality, lock in multinationals' control and
extremely high profit margins -- up to thirteen times oil companies' minimum
target, according to an analysis by the British-based oil watchdog Platform
(PDF <http://www.carbonweb.org/documents/crude_designs_small.pdf> ).

As Greg Muttit, an analyst with the group, notes
<http://www.niqash.org/content.php?contentTypeID=171&id=1259> :

Such contracts are often used in countries with small or difficult
oilfields, or where high-risk exploration is required. They are not
generally used in countries like Iraq, where there are large fields which
are already known and which are cheap to extract. For example, they are not
used in Iran, Kuwait or Saudi Arabia, all of which maintain state control of
oil. 

In fact, Muttit adds, of the seven leading oil producing countries, only
Russia has entered into PSAs, and those were signed during its own economic
"shock therapy" in the early 1990s. A number of Iraq's oil-rich neighbors
have constitutions that specifically prohibit foreign control over their
energy reserves.

PSAs often have long terms -- up to 40 years -- and contain "stabilization
clauses" that protect them from future legislative changes. As Muttit points
out, future governments "could be constrained in their ability to pass new
laws or policies." That means, for example, that if a future elected Iraqi
government "wanted to pass a human rights law, or wanted to introduce a
minimum wage [and it] affected the company's profits, either the law would
not apply to the company's operations, or the government would have to
compensate the company for any reduction in profits." It's Sovereignty Lite.

The deals are so onerous that they govern only 12 percent of the world's oil
reserves, according to the International Energy Agency. Nonetheless, PSAs
would become the Future of Iraq Project's recommendation for the fledgling
Iraqi government. According to the Financial Times, "many in the group"
fought for the contract structure; a Kurdish delegate told the FT,
"everybody keeps coming back to PSAs."

Of course, the plans for Iraq's legal framework for oil have to be viewed in
the context of the overall transformation of the Iraqi
<http://www.alternet.org/waroniraq/39466/>  economy. Clearly, the idea was
to pursue a radical corporatist agenda during the period of the Coalition
Provisional Authority when the U.S. occupation forces were a de facto
dictatorship. And that's just what happened; under L. Paul Bremer, the CPA
head, corporate taxes were slashed, a flat-tax on income was established,
rules allowing multinationals to pull all of their profits from the country
and a series of other provisions were enacted. These were then integrated
into the Iraqi Constitution and remain in effect today.

Among the provisions in the Constitution, unlike those of most oil
producers, is a requirement that the government "develop oil and gas wealth
. relying on the most modern techniques of market principles and encouraging
investment." The provision mandates that foreign companies would receive a
major stake in Iraq's oil for the first time in the thirty years since the
sector was nationalized in 1975.

Herbert Docena, a researcher with the NGO Focus on the Global South, wrote
<http://www.redpepper.org.uk/iraq/x-oct05-docena.htm>  that an early draft
of the Constitution negotiated by Iraqis envisioned a "Scandinavian-style
welfare system in the Arabian desert, with Iraq's vast oil wealth to be
spent upholding every Iraqi's right to education, health care, housing, and
other social services." "Social justice," the draft declared, "is the basis
of building society."

What happened between that earlier draft and the Constitution that Iraqis
would eventually ratify? According to Docena:

While [U.S. Ambassador to Iraq Zalmay] Khalilzad and his team of US and
British diplomats were all over the scene, some members of Iraq's
constitutional committee were reduced to bystanders. One Shiite member
grumbled, 'We haven't played much of a role in drafting the constitution. We
feel that we have been neglected.' A Sunni negotiator concluded: 'This
constitution was cooked up in an American kitchen not an Iraqi one.'

With a Constitution cooked up in DC, the stage was set for foreign
multinationals to assume effective control of as much as 87 percent of
Iraq's oil, according to projections by the Oil Ministry. If PSAs become the
law of the land -- and there are other contractual arrangements that would
allow private companies to invest in the sector without giving them the same
degree of control or such usurious profits -- the war-torn country stands to
lose up to $194 billion vitally important dollars in revenues on just the
first 12 fields developed, according to a conservative estimate by Platform
(the estimate assumes oil at $40 per barrel; at this writing it stands at
more than $59). That's more than six times the country's annual budget.

To complete the rip-off, the occupying coalition would have to crush Iraqi
resistance, make sure it had friendly people in the right places in Iraq's
emerging elite and lock the new Iraqi government onto a path that would lead
to the Big Four's desired outcome.

See part two tomorrow. 

Joshua Holland <mailto:%20joshua.holland at alternet.org>  is an AlterNet staff
writer. 

-------------- next part --------------
An HTML attachment was scrubbed...
URL: /pipermail/dialogue_wedgeblade.net/attachments/20061016/98d0e5f4/attachment-0001.html 
-------------- next part --------------
A non-text attachment was scrubbed...
Name: not available
Type: image/gif
Size: 1533 bytes
Desc: not available
Url : /pipermail/dialogue_wedgeblade.net/attachments/20061016/98d0e5f4/attachment-0001.gif 