[Dialogue] How Bush's Iraqi Oil Grab Went Awry

[Harry Wainwright]

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How Bush's Iraqi Oil Grab Went Awry


by DILIP HIRO

[posted online on September 26, 2007]

Here is the sentence in The Age of Turbulence, the 531-page memoir of former
Federal Reserve chief Alan Greenspan, that caused so much turbulence in
Washington last week: "I am saddened that it is politically inconvenient to
acknowledge what everyone knows: the Iraq war is largely about oil." Honest
and accurate, it had the resonance of the Bill Clinton's election campaign
mantra, "It's the economy, stupid." But, finding himself the target of a
White House attack--an Administration spokesman labeled his comment,
"Georgetown cocktail party analysis"--Greenspan backtracked under cover of
verbose elaboration. None of this, however, made an iota of difference to
the facts on the ground. 

Here is a prosecutor's brief for the position that "the Iraq War is largely
about oil": 

The primary evidence indicating that the Bush Administration coveted Iraqi
oil from the start comes from two diverse but impeccably reliable sources:
Paul O'Neill, the Treasury Secretary (2001-2003) under President George W.
Bush; and Falah Al Jibury, a well-connected Iraqi-American oil consultant,
who had acted as President Ronald Reagan's "back channel" to Iraqi President
Saddam Hussein during the Iraq-Iran War of 1980-88. The secondary evidence
is from the material that can be found in such publications as the New York
Times and the Wall Street Journal. 

According to O'Neill's memoirs, The Price of Loyalty: George W. Bush, the
White House, and the Education of Paul O'Neill, written by journalist Ron
Suskind and published in 2004, the top item on the agenda of the National
Security Council's first meeting after Bush entered the Oval Office was
Iraq. That was January 30, 2001, more than seven months before the 9/11
attacks. The next National Security Council (NSC) meeting on February 1 was
devoted exclusively to Iraq. 

Advocating "going after Saddam" during the January 30 meeting, Defense
Secretary Donald Rumsfeld said, according to O'Neill, "Imagine what the
region would look like without Saddam and with a regime that's aligned with
U.S. interests. It would change everything in the region and beyond. It
would demonstrate what U.S. policy is all about." He then discussed
post-Saddam Iraq -- the Kurds in the north, the oil fields, and the
reconstruction of the country's economy. (Suskind, p. 85) 

Among the relevant documents later sent to NSC members, including O'Neill,
was one prepared by the Defense Intelligence Agency (DIA). It had already
mapped Iraq's oil fields and exploration areas, and listed American
corporations likely to be interested in participating in Iraq's petroleum
industry. 

Another DIA document in the package, entitled "Foreign Suitors for Iraqi
Oilfield Contracts," listed companies from thirty countries--France,
Germany, Russia, and Britain, among others--their specialties and bidding
histories. The attached maps pinpointed "super-giant oil field," "other oil
field," and "earmarked for production sharing," and divided the basically
undeveloped but oil-rich southwest of Iraq into nine blocks, indicating
promising areas for future exploration. (Suskind., p. 96) 

According to high-flying oil insider Falah Al Jibury, the Bush
Administration began making plans for Iraq's oil industry "within weeks" of
Bush taking office in January 2001. In an interview with the BBC's Newsnight
program, which aired on March 17, 2005, he referred to his participation in
secret meetings in California, Washington, and the Middle East, where, among
other things, he interviewed possible successors to Saddam Hussein. 

By January 2003, a plan for Iraqi oil crafted by the State Department and
oil majors emerged under the guidance of Amy Myers Jaffe of the James A.
Baker III Institute for Public Policy at Rice University. It recommended
maintaining the state-owned Iraq National Oil Company, whose origins dated
back to 1961--but open it up to foreign investment after an initial period
in which U.S.-approved Iraqi managers would supervise the rehabilitation of
the war-damaged oil infrastructure. The existence of this group would come
to light in a report by the Wall Street Journal on March 3, 2003. 

Unknown to the architects of this scheme, according to the same BBC
Newsnight report, the Pentagon's planners, apparently influenced by powerful
neocons in and out of the administration, had devised their own super-secret
plan. It involved the sale of all Iraqi oil fields to private companies with
a view to increasing output well above the quota set by the Organization of
the Petroleum Exporting Countries (OPEC) for Iraq in order to weaken, and
then destroy, OPEC. 

Secondary Evidence 

On October 11, 2002 the New York Times reported that the Pentagon already
had plans to occupy and control Iraq's oilfields. The next day The Economist
described how Americans in the know had dubbed the waterway demarcating the
southern borders of Iraq and Iran "Klondike on the Shatt al Arab," while
Ahmed Chalabi, head of the US-funded Iraqi National Congress and a neocon
favorite, had already delivered this message: "American companies will have
a big shot at Iraqi oil--if he gets to run the show." 

On October 30, Oil and Gas International revealed that the Bush
administration wanted a working group of twelve to twenty people to (a)
recommend ways to rehabilitate the Iraqi oil industry "in order to increase
oil exports to partially pay for a possible U.S. military occupation
government," (b) consider Iraq's continued membership of OPEC, and (c)
consider whether to honor contracts Saddam Hussein had granted to
non-American oil companies. 

By late October 2002, columnist Maureen Dowd of the New York Times would
later reveal, Halliburton, the energy services company previously headed by
Vice President Dick Cheney, had prepared a confidential 500-page document on
how to handle Iraq's oil industry after an invasion and occupation of Iraq.
This was, commented Dowd, "a plan [Halliburton] wrote several months before
the invasion of Iraq, and before it got a no-bid contract to implement the
plan (and overbill the U.S.)." She also pointed out that a Times request for
a copy of the plan evinced a distinct lack of response from the Pentagon. 

In public, of course, the Bush Administration built its case for an invasion
of Iraq without referring to that country's oil or the fact that it had the
third largest reserves of petroleum in the world. But what happened out of
sight was another matter. At a secret NSC briefing for the President on
February 24, 2003, entitled, "Planning for the Iraqi Petroleum
Infrastructure," a State Department economist, Pamela Quanrud, told Bush
that it would cost $7 billion to $8 billion to rebuild the oil
infrastructure, if Saddam decided to blow up his country's oil wells,
according to Washington Post reporter Bob Woodward in his 2004 book, Plan of
Attack (pp. 322-323). Quanrud was evidently a member of the State Department
group chaired by Amy Myers Jaffe. 

When the Anglo-American troops invaded on March 20, 2003, they expected to
see oil wells ablaze. Saddam Hussein proved them wrong. Being a staunch
nationalist, he evidently did not want to go down in history as the man who
damaged Iraq's most precious natural resource. 

On entering Baghdad on April 9, the American troops stood by as looters
burned and ransacked public buildings, including government
ministries--except for the Oil Ministry, which they guarded diligently.
Within the next few days, at a secret meeting in London, the Pentagon's
scheme of the sale of all Iraqi oil fields got a go-ahead in principle. 

The Bush Administration's assertions that oil was not a prime reason for
invading Iraq did not fool Iraqis though. A July 2003 poll of Baghdad
residents--who represented a quarter of the Iraqi national population--by
the London Spectator showed that while 23 percent believed the reason for
the Anglo-American war on Iraq was "to liberate us from dictatorship," twice
as many responded, "to get oil". (Cited in Dilip Hiro, Secrets and Lies:
Operation "Iraqi Freedom" and After, p. 398.) 

As Iraq's principal occupier, the Bush White House made no secret of its
plans to quickly dismantle that country's strong public sector. When the
first American proconsul, retired General Jay Garner, focused on holding
local elections rather than privatizing the country's economic structure, he
was promptly sacked. 

Impassable Hurdles 

Garner's successor, L. Paul Bremer III, found himself dealing with Philip
Carroll--former Chief Executive Officer of the American operations of
(Anglo-Dutch) Royal Dutch Shell in Houston--appointed by Washington as the
Iraqi oil industry's supreme boss. Carroll decided not to tinker with the
industry's ownership and told Bremer so. "There was to be no privatization
of Iraqi oil resources or facilities while I was involved," Carroll said in
an interview with the BBC's Newsnight program on March 17, 2005. 

This was, however, but a partial explanation for why Bremer excluded the oil
industry when issuing Order 39 in September 2003 privatizing nearly 200
Iraqi public sector companies and opening them up to 100 percent foreign
ownership. The Bush White House had also realized by then that
denationalizing the oil industry would be a blatant violation of the Geneva
Conventions which bar an occupying power from altering the fundamental
structure of the occupied territory's economy. 

There was, as well, the vexatious problem of sorting out the thirty major
oil development contracts Saddam's regime had signed with companies based in
Canada, China, France, India, Italy, Russia, Spain, and Vietnam. The key
unresolved issue was whether these firms had signed contracts with the
government of Saddam Hussein, which no longer existed, or with the Republic
of Iraq, which remained intact. 

Perhaps more important was the stand taken by Grand Ayatollah Ali Sistani,
the senior Shiite cleric in the country and a figure whom the occupying
Americans were keen not to alienate. He made no secret of his disapproval of
the wholesale privatization of Iraq's major companies. As for the
minerals--oil being the most precious--Sistani declared that they belonged
to the "community," meaning the state. As a religious decree issued by a
grand ayatollah, his statement carried immense weight. 

Even more effective was the violent reaction of the industry's employees to
the rumors of privatization. In his Newsnight interview Jibury said, "We saw
an increase in the bombing of oil facilities and pipelines built on the
premise that privatization is coming." 

In the immediate aftermath of the invasion, much equipment was looted from
pipelines, pumping stations, and other oil facilities. By August 2003, four
months after American troops entered Baghdad, oil output had only inched up
to 1.2 million barrels per day, about two-fifths of the pre-invasion level.
The forecasts (or dreams) of American planners' that oil production would
jump to 6 million barrels per day by 2010 and easily fund the occupation and
reconstruction of the country, were now seen for what they were--part of the
hype disseminated privately by American neocons to sell the idea of invading
Iraq to the public. 

With the insurgency taking off, attacks on oil pipelines and pumping
stations averaged two a week during the second half of 2003. The pipeline
connecting a major northern oil field near Kirkuk--with an export capacity
of 550,000-700,000 barrels per day--to the Turkish port of Ceyhan became
inoperative. Soon, the only oil being exported was from fields in the less
disturbed, predominantly Shiite south of Iraq. 

In September 2003, President Bush approached Congress for $2.1 billion to
safeguard and rehabilitate Iraq's oil facilities. The resulting Task Force
Shield project undertook to protect 340 key installations and 4,000 miles
(6,400 km) of oil pipeline. It was not until the spring of 2004 that output
again reached the pre-war average of 2.5 million barrels per day--and that
did not hold. Soon enough, production fell again. Iraqi refineries were, by
now, producing only two-fifths of the 24 million liters of gasoline needed
by the country daily, and so there were often days-long lines at service
stations. 

Addressing the 26th Oil and Money conference in London on September 21,
2005, Issam Chalabi, who had been an Iraqi oil minister in the late 1980s,
referred to the crippling lack of security and the lack of clear laws to
manage the industry, and doubted if Iraq could return to the 1979 peak of
3.5 million barrels per day before 2009, if then. 

Meanwhile, the Iraqi government found itself dependent on oil revenues for
90 percent of its income, a record at a time when corruption in its
ministries had become rampant. On January 30, 2005, Stuart W. Bowen, the
special inspector general appointed by the U.S. occupation authority,
reported that almost $9 billion in Iraqi oil revenue, disbursed to the
ministries, had gone missing. A subsequent Congressional inspection team
reported in May 2006 that Task Force Shield had failed to meet its goals due
to "lack of clear management structure and poor accountability", and added
that there were "indications of potential fraud" which were being reviewed
by the Inspector General. 

The endorsement of the new Iraqi constitution by referendum in October 2005
finally killed the prospect of full-scale oil privatization. Article 109 of
that document stated clearly that hydrocarbons were "national Iraqi
property". That is, oil and gas would remain in the public sector. 

In March 2006, three years after the Anglo-American invasion of Iraq, the
country's petroleum exports were 30 percent to 40 percent below pre-invasion
levels. 

Iraq's Flawed Hydrocarbon Law 

In February 2007, in line with the constitution, the draft hydrocarbon law
the Iraqi government presented to parliament kept oil and gas in the state
sector. It also stipulated recreating a single Iraqi National Oil Company
that would be charged with doling out oil income to the provinces on a
per-capita basis. The Bush administration latched onto that provision to
hype the 43-article Iraqi bill as a key to reconciliation between Sunnis and
Shiites--since the Sunni areas of Iraq lack hydrocarbons--and so included it
(as did Congress) in its list of "benchmarks" the Iraqi government had to
meet. 

Overlooked by Washington was the way that particular article, after
mentioning revenue-sharing, stated that a separate Federal Revenue Law would
be necessary to settle the matter of distribution--the first draft of which
was only published four months later in June. 

Far more than revenue sharing and reconciliation, though, what really
interested the Bush White House were the mouthwatering incentives for
foreign firms to invest in Iraq's hydrocarbon industry contained in the
draft law. They promised to provide ample opportunities to America's oil
majors to reap handsome profits in an oil-rich Iraq whose vast western
desert had yet to be explored fully for hydrocarbons. So Bush pressured the
Iraqi government to get the necessary law passed before the parliament's
vacation in August--to no avail. 

The Bush Administration's failure to achieve its short-term objectives does
not detract from the overarching fact--established by the copious evidence
marshaled in this article--that gaining privileged access to Iraqi oil for
American companies was a primary objective of the Pentagon's invasion of
Iraq. 

 

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