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The
Iraqi oil is plentiful, of high quality and cheap to produce.
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Chaos and lawlessness have gripped
large parts of Iraq following the US-British invasion. The
country’s civilian population finds itself bereft of jobs and
even basic services. Museums, hospitals, universities, power
stations, water plants, and telecomm facilities have been
stripped bare by looters, leaving the country in dire straits.
Several weeks after the end of major fighting, ordinary Iraqis
have seen little in the way of benefits from whatever
reconstruction is going on. Indeed, the focus of the occupation
regime is more on emergency repairs than on a major
rehabilitation of Iraq’s dilapidated and war-destroyed public
infrastructure.1
Less
visible than the pedestrian plundering afflicting Iraq’s
cities and archeological treasures, another looting operation
from on high is in the works: the Bush administration has been
moving with great alacrity to take control of the major prize to
be won in Iraq – strategic control over the country’s
considerable oil wealth.
While
the invaders tolerated the widespread ransacking, they moved
swiftly to secure the country’s oil facilities. In Baghdad,
the oil ministry was heavily guarded and was thus spared the
fate of other Iraqi ministries, which went up in flames. But the
occupiers’ inconsistent attitude toward looting has backfired:
in the two months since the official end of the war, general
looting and sabotage have impeded even the oil industry,
frustrating efforts to quickly return oil production to prewar
levels.2
It
has become clear that there is a yawning gap between the Bush
administration’s sharply focused war plans and the absence of
workable postwar plans. Post-Saddam Iraq is caught in the
twilight of an occupation veering between high imperial purpose
and profit-making impulses. Symptoms of crony
capitalism-championing privatization schemes and rewarding
corporations closely connected to the Bush team with
reconstruction contracts collide with strategic visions of
remaking Iraq in the US image. And the sobering reality of
unrelenting chaos that has engulfed much of the country may well
unravel Washington’s ambitions to present a remade Iraq as an
irresistible political and economic model for the rest of the
Middle East and to use this new asset to reinforce US leverage
over the world oil market.
Legitimizing
Conquest
The
Bush administration was eager to have its occupation of Iraq
legitimized by the United Nations. However, it first had to
ensure that the international body – legally in charge of
Iraqi oil sales under the sanctions regime – was effectively
sidelined and tasked primarily with humanitarian issues.
Click
here
for full text of Resolution 1483. |
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The
desired UN imprimatur came in late May, when the Security
Council approved a resolution
drafted by the US government with British and Spanish support.
Although leading war opponents – France, Germany, and Russia
– made much of several concessions that altered an initial
draft, Washington and London essentially got what they wanted.3
Reluctant to continue confronting the Bush administration and
afraid that they would be depicted as obstructionists harming
ordinary Iraqis’ interests, the war opponents caved in. But
hidden “carrots” were also used to marshal their consent:
under the Security Council resolution, the UN-administered
“oil for food” program will run for another six months,
permitting several billion dollars worth of contracts –
initialed but not operational at the time of the invasion – to
be consummated. A large share of this business involves Russian,
French, and Chinese firms.
The
Security Council resolution lifts the sanctions imposed on Iraq
in 1990 (with the exception of arms-related provisions) and
gives the occupiers (dubbed “the Authority” in the
resolution) sweeping powers. The Authority will have broad
control over the Iraqi oil industry, principally by means of a
Development Fund for Iraq, into which all of Iraq’s oil export
revenues, all funds left over from the UN’s “oil for food”
program, and all assets of the former Iraqi government located
anywhere in the world are to be transferred.4
The
Authority is vested with the sole decisionmaking power over the
use of these revenues (leaving a yet-to-be-created Iraqi interim
administration with no more than “consultation” rights). The
resolution bars any legal challenges by rival claimants to
Iraq’s oil revenues until December 2007. But since the initial
draft of the resolution mentioned no time limit at all, the 2007
date was characterized as a “critical concession” by the
United States.5
The
initial draft empowered the Authority for one year, but
specified an automatic extension “to continue thereafter as
necessary, unless the UN Security Council decides otherwise”6
– meaning that the US and Britain could have vetoed any effort
to terminate their self-awarded mandate. The final resolution
provides for a review by the Security Council after one year but
still does not require an explicit reauthorization of the
occupation regime.7
Without a timetable for establishing a legitimate government,
the occupation – and control over Iraqi oil – is essentially
open-ended.
Open
for Business
Most
of the individuals assembled under L. Paul Bremer III to run the
occupation regime lack the kind of expertise in reconstruction,
nationbuilding and humanitarian assistance that Iraq so badly
needs. Closely linked to US corporate interests, they are
instead primed to streamline the privatization of the Iraqi
economy.8
For example, Gary Vogler, a former ExxonMobil executive, is the
newly minted senior adviser to the oil ministry.9
And Dan Amstutz, a former executive of Cargill and well-equipped
to represent the commercial interests of US grain companies, has
been pegged as the point man for agricultural reconstruction.10
The
Wall Street Journal reported on May 1 that beginning in February
2003 – well before the start of the war – the Bush
administration had drafted “sweeping plans to remake Iraq’s
economy in the US image.” Detailed planning for such a
makeover will apparently be left to a range of US financial
consulting firms (including BearingPoint, Booz Allen Hamilton,
Deloitte Touche Tohmatsu, and PricewaterhouseCoopers).11
The
plan envisions asset sales, private concessions, leases, and
management contracts across the Iraqi economy, including the oil
industry. It foresees that the first year would be spent
building consensus for privatization, to be followed by asset
transfers over a three-year period.12
The Wall Street Journal article compares the program to what was
done in Russia but does not mention the corruption, massive job
loss, and gaping inequality that ensued during the Russian
makeover.
Calling
the shots in the oil industry is Philip Carroll, who was named
on May 4 to head an advisory board to the Iraqi oil ministry.13
Carroll was chief executive officer (CEO) of Shell Oil, the US
arm of Royal Dutch/Shell in the 1990s, and subsequently became
head of the construction giant Fluor, a company he ran until
2002.14
Carroll still owns substantial stock in both of these
corporations.15
He is not known as an Iraq oil specialist and apparently had
never been to the country prior to his appointment.
An
innocent observer may well wonder why Carroll was chosen when
Iraqi nationals presumably have much better insights about the
requirements of getting Iraq’s oil industry back on its feet.
The answer lies in the difference between a disinterested
rebuilding program and an effort to establish foreign control,
as suggested by Raad Alkadiri, a director at PFC Energy in
Washington, DC, when he said: “But the bottom line is [that]
bringing in people from the outside gives you a better chance of
controlling the oil sector, even directly.”16
The
Halliburton Empire
A bounty of postwar reconstruction contracts is being awarded to
a closely drawn circle of politically well-connected US
corporations. Halliburton, Bechtel, and Fluor are companies that
have generously supported Republican politicians and whose
executives are no strangers to the revolving door connecting
government and corporate jobs.17
Perhaps
no company is better connected than Halliburton – the oil
services and construction firm that Dick Cheney headed from 1995
to 2000 before running for vice president. Halliburton’s
government contracting business surged under CEO Cheney in the
1990s, and it surged again in the wake of the September 11
attacks.18
Prior to the invasion, the company had completed a classified
study for the Pentagon, assessing the state of the Iraqi oil
industry and how to revive it after the war.19
In early March, the Army Corps of Engineers secretly awarded
Kellogg, Brown & Root (KBR, a Halliburton subsidiary) a
no-bid contract to fight oil well fires and make emergency
repairs.20
Persistent probing by Congressman Henry Waxman brought to light
that the company was also given a far more lucrative, and
somewhat open-ended, role in running Iraq’s oil facilities and
in distribution of petroleum products. (The contract has an
overall ceiling of $7 billion but is expected to yield a maximum
of $800 million for KBR, given that it is to be opened to
bidding later in 2003.21)
The secret deal was apparently struck as early as November 2002
– at a time when the administration insisted that no decision
had yet been made to go to war.22
KBR
is also making money in other ways, including a $36 million
contract to rebuild and operate Camp Arifjan (a US Army base in
Kuwait), a $28 million program to build and maintain
prisoner-of-war camps, and a $62 million undertaking to feed and
house troops in Iraq. These projects are carried out in the
context of an exclusive US Army contract awarded in December
2001, under which the company provides a broad range of
logistical services to Army troops deployed outside the United
States. With the mushrooming of US military bases in the last
two years, Halliburton has set up shop in Afghanistan,
Uzbekistan, Djibouti, Cuba (Guantanamo Bay), and now Iraq. The
2001 contract – the Logistics Civil Augmentation Program or
Logcap in Pentagon-lingo – spans a decade and has no cost cap.
Because the company receives a set percentage of its
contract-related expenses, it has an incentive to bill more in
order to maximize profits.23
What
merits such generosity? Perhaps it has nothing to do with the
fact that Dick Cheney used to be the Halliburton CEO. (Although
Cheney sold his Halliburton stock when he left the company to
run for vice president, he still receives annual deferred
compensation payments until 2005.24)
Perhaps it’s irrelevant that Joe Lopez, a military aide to
Cheney when he was defense secretary in the early 1990s and who
was subsequently hired by Halliburton at Cheney’s suggestion,
is in charge of KBR’s Pentagon contracts.25
After all, the vice president’s office and Halliburton
spokespeople strenuously deny that any favoritism is involved in
the awarding of these contracts.
Halliburton
may be qualified for the job, but its performance has not
exactly been free of blemish. The December 2001 contract was
awarded even though KBR had been sued for overbilling the Army
between 1995 and 1997, allegedly to the tune of $6 million. The
company paid $2 million to settle but did not admit any
wrongdoing.26 There have
been other irregularities as well. Among them are allegations
that the company overcharged the Army for support operations for
troops deployed in Bosnia, a deal worth $3 billion so far.27
And in 2002, Halliburton was investigated by the Securities and
Exchange Commission for alleged accounting improprieties during
Cheney’s tenure.28
The
political and commercial fates of Dick Cheney, Halliburton and
Iraq have repeatedly intersected. As defense secretary in the
first Bush administration, Cheney directed the 1991 Gulf War. He
also initiated the policy to make much greater use of private
contractors in running military bases. This practice is now a
major profit center for Halliburton. After the war – Cheney
took the CEO job after Bush Senior lost his reelection bid –
Halliburton made money by selling oilfield supplies to Iraq and
helping it to repair some of the war damage incurred due to US
bombing.29 As George W.
Bush’s vice president, Cheney was a major player in drumming
up support for the recently concluded war, and now his former
company again stands to benefit handsomely from the carnage in
Iraq.
The
Future of Iraq’s Oil
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Looting and sabotage have impeded the oil industry.
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Following a quarter century of wars and international sanctions,
Iraq’s oil industry is dilapidated and in need of
extensive rehabilitation. Halliburton and others are set to make
a killing on related work. But beyond reconstruction, a big
outstanding question concerns Iraq’s longer-term oil
development. How much will Iraqi production capacity expand in
coming years? Who will decide? Will there be a big role for
foreign multinationals, bringing 30 years of state control to an
end?
Iraqi
oil – plentiful, of high quality, cheap to produce – is
indeed a major prize for any oil company. Although many
companies continue to explore for oil in far-flung places, often
under forbidding physical conditions, the Middle East harbors
most of the world’ remaining oil. In the 1960s, the world oil
industry discovered an average of 47 billion barrels per year.
But as companies concentrated their search outside the Middle
East (in response to nationalization in most Organization of
Petroleum Exporting Countries (OPEC) countries), the annual rate
of discovery plummeted to 35 billion barrels in the 1970s, 24
billion in the 1980s, and a mere 14 billion in the 1990s.30
Against the background of ever-rising demand, there is simply no
avoiding the Middle East.
Assuming
a significant role for foreign companies – which is what
Philip Carroll and others have indicated31
– who will get preferential access to Iraq’s riches? To what
extent will existing contracts concluded by Russian, French, and
Chinese companies with Saddam Hussein’s regime be upheld?
Before the war, there were thinly veiled threats that companies
whose home governments refused to support an invasion would be
shown the door. By implication, the big winners in such a
reshuffling were to be the US and British companies –
ExxonMobil, Chevron-Texaco, BP, Shell – which were left out in
the cold by the nationalization of 1972.
It’s
possible that the Russians, French, and others will not be
entirely excluded, if only to induce them to accept and
legitimate the new masters of Iraq. But the manner in which the
reconstruction contracts have been handled to date suggests a
winner-take-all attitude in Washington. In a recent interview,
Philip Carroll hinted again that contracts signed with Saddam
Hussein’s regime may be voided or subject to renegotiation.32
As
of early July, the future of Iraq’s oil is still a matter of
speculation. In the first place, rehabilitating oil facilities
and preparing the ground for an expansion of output will take
time. Current projections are that because of widespread
looting, it will take 18 months just to return to prewar
production levels of 3 million barrels per day.33
So it’s not surprising that no concessions have been awarded
and no contracts have been negotiated so far.
A
Two-Pillar Strategy?
Both
Iraq’s desperate need for revenue and the Bush
administration’s energy policy preferences point to a future
in which Iraq’s immense petroleum deposits will be far more
fully exploited than at any time in the past. But there is the
sticky question of Iraq’s future status within OPEC.
Unrestrained
Iraqi oil production would undermine OPEC’s ability to set oil
prices and might even trigger a price war among member
countries. Though some have argued for pulling Iraq out of OPEC,
several rounds of talks between the State Department and exiled
Iraqi oil experts reportedly generated broad consensus that Iraq
should remain an OPEC member but be exempt from the
organization’s quota restrictions. This option is also favored
by Philip Carroll.34
A
weakened OPEC and lower oil prices would not be unwelcomed by
the Bush White House. After all, cheap oil is an essential
ingredient of the administration’s energy policy, which
foresees virtually unrestrained growth of US oil consumption, as
spelled out in Dick Cheney’s 2001 task force report.35
But
there are other considerations that may yet win the day. If oil
prices dip too low, large segments of US oil production will be
rendered uncompetitive. This outcome may be less of a concern
for the large multinationals, but it is of critical interest to
domestic oil producers, which form an important part of George
Bush’s power base. Very low prices could also trigger greater
political instability among oil producing nations in the Middle
East, potentially undermining US allies in the region.
In
the end, US economic interests require oil prices that are low
but not too low and an avoidance of wild price swings. Saudi
Arabia has long played a key role in this regard – ensuring
stability by making up for any shortfalls in output elsewhere in
the world and by paring back its own production when supply
gluts threaten to drive prices into the ground.
But
in the aftermath of September 11, 2001, there are indications
that Saudi Arabia may no longer be as politically reliable as
was once the case. It is in this context that a boost in Iraqi
oil production is critical. Then, instead of exclusively relying
on Riyadh, Washington could erect Iraq as an alternate pillar
helping to shore up US dominance of the oil-rich Middle East and
ensuring US access to oil on favorable terms.
For
such visions to become reality, however, Iraq needs to be
pacified. The upheaval following the overthrow of Saddam Hussein
suggests that it’s far from a foregone conclusion that the
occupation regime will be able to govern Iraq and bend the
country to Washington’s designs. The privatization of Iraq’s
oil may yet derail, if the occupation regime finds itself unable
to provide a sufficiently secure and stable investment
environment. It would be an ironic outcome if the very triumph
of Donald Rumsfeld’s war doctrine – reliance on “smart”
weapons and fewer soldiers to achieve victory – also meant
that there simply weren’t enough occupation forces to pacify
Iraq.
Although
the Bush administration was exceedingly well prepared in its
drive toward war, it apparently has given far less thought to
maintaining order in the conflict’s aftermath.
*This
report was originally published in Foreign
Policy In Focus.
Michael
Renner is a senior researcher at Worldwatch Institute
and a policy analyst for Foreign Policy In Focus. He can be
reached at mrenner@i-2000.com
1-
Edmund L. Andrews, “US Focus in Iraq Is on Repairs, Not
Building,” New York Times, June 20, 2003.
2-
Edmund L. Andrews, “Iraqi Smugglers Are Brazen and Don’t
Stop at Oil,” and Neela Banerjee, “Barrels of Oil Exported
for the First Time Since the War,” both in New York Times,
June 23, 2003.
3-
Felicity Barringer, “Security Council Almost Unanimously
Approves Broad Mandate for Allies in Iraq,” New York Times,
May 23, 2003.
4-
The approved text can be found in: United Nations Security
Council, “Spain, United Kingdom of Great Britain and Northern
Ireland and United States of America: Draft Resolution,”
S/2003/556, May 21, 2003.
5-
Ibid; Colum Lynch, “US Proposes Broader Control of Iraqi Oil,
Funds,” Washington Post, May 9, 2003; “US-UK-Spain
Revised Draft Resolution on Post-War Iraq,” Global Policy
Forum.
6-
“US-UK-Spain Revised
Draft Resolution on Post-War Iraq,” Global Policy Forum.
7-
United Nations Security Council, “Spain, United Kingdom of
Great Britain and Northern Ireland and United States of America:
Draft Resolution,” S/2003/556, May 21, 2003.
8-
Edmund L. Andrews, “Overseer in Iraq Vows to Sell Off
Government-Owned Companies,” New York Times, June 23, 2003.
9-
Donald L. Barlett and James B. Steele, “Iraq’s Crude
Awakening,” Time, May 10, 2003.
10-
The Transnational
Foundation (Sweden).
11-
Neil King, Jr., “Bush Officials Devise a Broad Plan for
Free-Market Economy in Iraq,” Wall Street Journal, May 1,
2003.
12-
Ibid.
13-
Neela Banerjee, “3 Get Top Posts to Revive Iraqi Oil Flow,”
New York Times, May 4, 2003.
14-
Neela Banerjee, “Shell Veteran in Line for Iraq Oil Post,”
New York Times, April 3, 2003.
15-
Peter S. Goodman, “US Advisor Says Iraq May Break with
OPEC,” Washington Post, May 17, 2003.
16-
Neela Banerjee, “Oil Experts Say U.S. Hasn’t Come to Grips
with Blueprint for Industry,” New York Times, April 23, 2003.
17-
Danny Penman, “US Firms Set for Postwar Contracts,” The
Guardian, March 11, 2003; Sheryl Fred, “Postwar Profiteers,”
TomPaine.com; Robert Bryce and Julian Borger, “Cheney Is Still
Paid by Pentagon Contractor,” The Guardian, March 12, 2003.
18-
Dan Baum, “Nation Builders for Hire,” New York Times
Magazine, June 22, 2003.
19-
Mark Fineman, “Getting Iraq’s Oil Pumping Again,” Los
Angeles Times, April 22, 2003.
20-
Edward Epstein, “Firm Linked to Cheney Wins Oil-Field
Contract,” San Francisco Chronicle, March 8, 2003.
21-
US Army Corps of Engineers, “DoD
Mission for Repair and Continuity of Operations of the Iraqi Oil
Infrastructure,”; Mark Fineman, “Halliburton Unit’s
Bill for Iraq Work Mounts,” Los Angeles Times, May 9, 2003;
Edward Epstein, “Congress Curious About Iraq Deals,” San
Francisco Chronicle, May 20, 2003.
22-
Jason Leopold, “Defense
Dept. Secretly Tapped Halliburton Unit to Operate Iraq’s Oil
Industry,” ZNet, May 13, 2003, as reposted on Global
Policy Forum.
23-
Lisa Myers and NBC News Investigative Team, “Halliburton Cash
Registers Ring in Iraq,” MSNBC.com, May 3, 2003.
24-
Robert Bryce and Julian Borger, “Cheney Is Still Paid by
Pentagon Contractor,” The Guardian, March 12, 2003.
25-
Jeff Gerth and Don Van Natta, Jr., “In Tough Times, a Company
Finds Profit in Terror War,” New York Times, July 13, 2002.
26-
Keith Ashdown, “Hail to the Chief Executive Officer,” The
Waste Basket (Taxpayers for Common Sense), August 9, 2002.
27-
“Halliburton
Unit Got Exclusive Military Bid,” CBS News.com, August 4,
2002.
28-
Farhad Manjoo, “War Inc.,” Salon.com, March 17, 2003.
29-
Greater use of private contractors and Halliburton sales to Iraq
from Dan Baum, “Nation Builders for Hire,” New York Times
Magazine, June 22, 2003.
30-
“Oil
War,” BBC, March 26, 2003, as reposted in Global Policy
Forum.
31-
Peter S. Goodman, “US Advisor Says Iraq May Break With
OPEC,” Washington Post, May 17, 2003.
32-
Ibid.
33-
Neela Banerjee, “Barrels of Oil Exported for the First Time
Since the War,” New York Times, June 23, 2003.
34-
Carola Hoyos, “Exiles Call for Iraq to Let in Oil
Companies,” Financial Times, April 7, 2003; Peter S. Goodman,
“US Advisor Says Iraq May Break with OPEC,” Washington
Post,
May 17, 2003.
35-
National Energy Policy Development Group, Reliable, Affordable,
and Environmentally Sound Energy for America’s Future
(Washington: US Government Printing Office, May 2001).
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