Oil and War in Iraq

Oil and War in Iraq have been inextricably intertwined, it seems, in the war plans of both the Pentagon and the oil industry--otherwise known as "Big Oil"--long before the recent war in Iraq.

However, in the words of one US oil company executive, the plans for Iraq's oil "'all turned out a lot more complicated than anyone had expected'. Instead of the anticipated post-invasion rapid expansion of Iraqi production (an expectation of an additional 2m b/d entering the world market by now), the continuing violence of the insurgency has prevented Iraqi exports from even recovering to pre-invasion levels." [1]

"In short," wrote Ian Rutledge, in the April 11, 2005, Financial Times (UK), "the US appears to have fought a war for oil in the Middle East, and lost it. The consequences of that defeat are now plain for all to see." [2]

The Plans: Pentagon, State Department and "Big Oil"

Greg Palast, writing March 17, 2005, for BBC News' Newsnight, reported that insiders at the U.S. Department of State related that there were two conflicting plans "setting off a hidden policy war between neo-conservatives at the Pentagon, on one side, versus a combination of 'Big Oil' executives and US State Department 'pragmatists'" on the other. "'Big Oil' appears to have won." [3]

Palast wrote that, "The latest plan, obtained by Newsnight from the US State Department was ... drafted with the help of American oil industry consultants." In fact, insiders told Palast, "planning began 'within weeks' of Bush's first taking office in 2001, long before the September 11th attack on the US."

According to Falah Aljibury, an "Iraqi-born oil industry consultant," Aljibury not only "took part in the secret meetings in California, Washington and the Middle East" but also "interviewed potential successors to Saddam Hussein on behalf of the Bush administration." Additionally, Aljibury "described a State Department plan for a forced coup d'etat."

Conflict arose as the "industry-favoured plan was pushed aside by a secret plan, drafted just before the invasion in 2003, which called for the sell-off of all of Iraq's oil fields. The new plan was crafted by neo-conservatives intent on using Iraq's oil to destroy the Opec cartel through massive increases in production above Opec quotas."

Robert Ebel, a "former Energy and CIA oil analyst, now a fellow at the Center for Strategic and International Studies," told Palast that the "sell-off was given the green light in a secret meeting in London headed by Ahmed Chalabi shortly after the US entered Baghdad." Ebel said that "he flew to the London meeting at the request of the State Department."

Aljibury, Palast writes, "claims that plans to sell off Iraq's oil [were] pushed by the US-installed Iraqi Governing Council in 2003, [which, in turn,] helped instigate the insurgency and attacks on US and British occupying forces."

According to Aljibury, "Insurgents used this, saying, 'Look, you're losing your country, you're losing your resources to a bunch of wealthy billionaires who want to take you over and make your life miserable'." This could be seen in "an increase in the bombing of oil facilities, pipelines, built on the premise that privatisation is coming," he said.

Palast learned from Philip Carroll, former CEO of Shell Oil USA "who took control of Iraq's oil production for the US Government a month after the invasion," that he had "stalled the sell-off scheme." Carroll said that "he made it clear to Paul Bremer, the US occupation chief who arrived in Iraq in May 2003, that: 'There was to be no privatisation of Iraqi oil resources or facilities" while he was involved.

However, Ariel Cohen of the Heritage Foundation told Palast that an "opportunity had been missed to privatise Iraq's oil fields," as he advocated the plan "as a means to help the US defeat Opec."

The new plans, which Newsnight and Harper's Magazine obtained from the State Department under the Freedom of Information Act, "called for creation of a state-owned oil company favoured by the US oil industry. It was completed in January 2004 under the guidance of Amy Jaffe of the James Baker Institute in Texas." Former US Secretary of State Baker is "now an attorney representing ExxonMobil and the Saudi Arabian government."

Jaffe told Newsnight that the oil industry "prefers state control of Iraq's oil over a sell-off because it fears a repeat of Russia's energy privatisation. In the wake of the collapse of the Soviet Union, US oil companies were barred from bidding for the reserves."

Jaffe also said that "US oil companies are not warm to any plan that would undermine Opec and the current high oil price." "I'm not sure," she said, "that if I'm the chair of an American company, and you put me on a lie detector test, I would say high oil prices are bad for me or my company."

Philip Carroll agreed, telling Newsnight "Many neo conservatives are people who have certain ideological beliefs about markets, about democracy, about this, that and the other. International oil companies, without exception, are very pragmatic commercial organizations. They don't have a theology."

Segments of the plans can be viewed at gregpalast.com. Link to Palast's "US Plans for Iraq's Oil" on page.

Iraq's Oil to "drive Iraq's economic revival"

• The public interest group Judicial Watch, in July 2003, "after a protracted court battle with the White House," obtained documents utilized by the controversial Cheney Energy Task Force. It was discovered that the task force "led by Vice President Dick Cheney was examining maps of Iraq's oil assets in March 2001, two years before the United States led an invasion to oust Saddam Hussein."

The task force had maps which showed "Iraq's oil fields, its major refineries and pipelines," a list of "companies from countries that were interested in doing business with Saddam's regime, ranging from Algeria to Vietnam," details of "oil and gas projects in Saudi Arabia and the United Arab Emirates, and [which included] information on the cost and status of projects in those countries." [4]

• "Bush's Cabinet agreed in April 2001 that 'Iraq remains a destabilising influence to the flow of oil to international markets from the Middle East' and because this is an unacceptable risk to the US 'military intervention' is necessary." [5]

• In December 2002, the Center for Strategic and Budgetary Assessments, "a respected Washington think tank, prepared a classified briefing commissioned by Andrew Marshall, the Pentagon's influential director of the Office of Net Assessment, on the future role of U.S. Special Forces in the global war on terrorism. One recommendation was that "oil funds be used to defray the costs of a military occupation in Iraq." [6]

• In the December 13, 2002, briefing, deputy secretary of defense Paul Wolfowitz said that the "'the cost of the occupation, the cost for the military administration and providing for a provisional [civilian] administration, all of that would come out of Iraqi oil.'" [7]

• In April 2003, on the day that Baghdad fell, Cheney said that "Iraq's oil production could hit 3 million barrels a day by the end of the year, even though the task force had determined that Iraq was generating less than 2.4 million barrels a day before the war." [8]

• Iraq's oil was described June 10, 2003, as "the repository of hope for the United States-led alliance and the Iraqi people themselves. Money from oil, the George Walker Bush administration has said repeatedly, will drive Iraq's economic revival, which in turn will foster the country's political stability." [9]

• However, the June 10, 2003, issue of The New York Times featured an article by Neela Banerjee proclaiming that "Looting, sabotage and the continued lack of security at oil facilities, ... are the most recent problems the industry and its American overseers must address in order to get petroleum flowing again, especially for export." [10]

At the time, neither interim oil minister Thamir Ghadhban nor American advisers in Iraq had "proposed a new structure for the industry, which might make it easier to argue that new people are needed" and the oil industry was still "working the old state-run model under which the ministry oversees the two companies -- Northern Oil and South Oil -- and other agencies in charge of exploration, pipelines and other equipment and exports," Banerjee wrote. [11]

• A report produced by a Pentagon task force "secretly established" Fall 2003 "as part of the planning for the war" to study Iraq's oil industry "described the Iraqi oil industry as so badly damaged by a decade of trade embargoes that its production capacity had fallen by more than 25 percent." Contrary to the task force's findings, deputy secretary of state Paul Wolfowitz "told Congress during the war that we are dealing with a country that can really finance its own reconstruction, and relatively soon.'" [12]

• The Baltimore Sun remarked April 6, 2004, that the "claim that Iraq might be able to double its oil production and pay for its own reconstruction once Saddam Hussein was removed from power seems surreal a year later." [13]

• On the eve of the handover of Iraq from the Coalition Provisional Authority on June 30, 2004, despite promises by the CPA to rebuild and expand Iraq's infrastructure, Iraq was "still not producing as much electricity or as much oil on a sustained basis as it was just before the war," which was attributed to "sabotage by insurgents and incompetence and profiteering by big US companies like Halliburton that captured virtually all of the reconstruction contracts, despite the much greater experience of Iraqi firms." [14]

• In October 2004, USA Today reported that the U.S.-led invasion had "resulted in the loss of an average of 2 million barrels a day of Iraqi oil from world markets."

"Instead of rosy promises by the neoconservatives of the Bush administration who pushed for the invasion — partly on the premise that they would turn it into America's private gasoline-pumping station — the contrary has occurred." [15]

• Asia Times reported February 26, 2005, that "Although the exact cost of the Iraq invasion to the American taxpayer is not known, recent figures suggest it is a lot more than has been publicly suggested and will grow considerably higher. Part of the problem in estimating costs is that the war is obviously not over; it just keeps going, and going, and going." [16]

Competition for Iraq's oil

"Iraq has the world’s second largest proven oil reserves. According to oil industry experts, new exploration will probably raise Iraq’s reserves to 2-300 billion barrels of high-grade crude, extraordinarily cheap to produce, leading to a gold-rush of profits for international oil firms in the post-Saddam era. The four giant firms located in the US and the UK have been keen to get back into Iraq, from which they were excluded with the nationalization of 1972. They face companies from France, Russia, China, Japan and elsewhere, who already have major concessions. But in the post-war setting, with Washington running the show, the US-UK companies expect eventually to overcome their rivals and gain the most lucrative oil deals that will be worth hundreds of billions, even trillions of dollars in profits in the coming decades." Global Policy Forum.

The First Gas Contract

In September 2008, oil giant Shell become the first western oil company to win significant access to the energy sector in Iraq since the 1970s, in a $4bn deal, which angered the industry's critics who argued that there had been no competitive tendering. Shell signed an agreement with the OIl Ministry to form a joint venture with the South Gas Company, in Basra to process and market natural gas extracted on 19,000 sq km (7,300 sq miles) of land.

"Iraq has one of the world's largest natural gas resource bases and I am delighted that the Iraqi government, including the ministry of oil, have supported Shell as the partner for joint venture with the South Gas Company," Linda Cook, executive director of Shell was reported as saying. The company will own 49% of the new Iraqi business.

The contract was condemned by critics. Greg Muttitt from Platform, a British-based organisation which monitors oil companies, criticised the secrecy of the deal. "What has definitely happened here is that a country under occupation has introduced an oil policy that is favourable to western oil companies. The [US] state department has already admitted that it has advisers working on oil policy and there is a likelihood they may have drafted the Shell contract."

Although the gas was originally for local markets, in time it may be exported as LNG to the Mediterranean or Britain.

Service Contracts

In October 2008, at a meeting in London, Iraq provided the oil majors with details of the service contracts under which it hoped the companies will help boost the country’s oil output. The delegation, led by Iraq’s oil minister Hussain al-Shahristani, presented prequalified companies with geological data on the fields, as well as details on the financial terms of the contracts and the process for applying. Although Shell and BP helped the Iraqis appraise the fields, the Iraqis maintained that all companies will compete on an equal basis.

The contracts on offer were service contracts, which mean the winners will be paid a flat fee to produce the oil rather than receive an equity stake in the fields or any share of profits. Forty-one companies, including most of the big international oil companies, have qualified to bid. Iraq wanted the deals finalized by mid-2009.

Concessions to the Oil Companies

In March 2009, the Iraqi government was forced into action over the low oil price. It proposed to give foreign oil companies a majority stake in projects developing oil and gas fields. The government admitted that foreign companies could bid for as much as 75 percent of the profit from new oil and natural gas development projects, up from the previous limit of 49 per cent.

Iraq’s oil minister, Hussain al-Shahristani, who was attending an OPEC meeting in Vienna, said that Iraq would be open to bids from such companies as Exxon Mobil and Royal Dutch Shell for 75 percent stakes in new development projects. This move was seen as controversial and likley to add to tensions around the country’s controversial oil law.

Iraq was also offering new and existing fields for development by foreign oil companies, outside of the formal bidding rounds for new fields, which had previously been open to only a small number of major oil companies. For example, in March the Iraqi Oil Ministry invited bids for digging 30 new wells in three major southern oil fields, including the Halfaya field, which is classified as “super giant” and has five billion barrels of proven reserves. Those bids are due in only a month and clearly fall outside of the existing bid rounds.

Deputy Prime Minister Barham Salih, who led an Iraqi government review on reforming the oil sector, said that giving foreign companies more incentives was long overdue. “It’s acknowledged almost universally that the present oil policy and management has been a disaster,” Mr. Salih said. The review of oil policy, which was completed at the beginning of this month, has called for rethinking the ban on production-sharing agreements and giving the oil companies more stake in profits. “The status quo is unacceptable,” Mr. Salih said.

Resources

Also see

• Authorization for Use of Military Force Against Iraq Resolution of 2002
• Big Oil, Big Lies
• Energy Infrastructure Planning Group
• Enron
• Future of Iraq Project
• Halliburton
• Iraqi Interim Government
• Iraqi sovereignty: Exit Strategy from Iraq
• John O'Neill
• New Iraq
• Post-war Iraq
• privatization of Iraq
• reconstruction of Iraq
• US-Azerbaijan Chamber of Commerce (follow linkage re Middle East-Caspian oil)
• war profiteering