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Who will get Iraq's oil and on what terms

From:   Nabil Bahu <

**Part **** ****I**** ****:**** **** Bush's Petro-Cartel Almost Has
Iraq's Oil******

By Joshua Holland

Monday 16 October 2006

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, "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 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 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 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 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

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 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
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

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 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($$):

… 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 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
Financial Times as "Iraqi oil experts, international consultants" and
State Department staffers - remains classified, but among them,
according to Antonia Juhasz's 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).

As Greg Muttit, an analyst with the group, notes:

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
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 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.


*Part I**I **:** ** The US Takeover of Iraqi Oil***

Tuesday 17 October 2006

With 140,000 U.S. troops on the ground, the largest U.S. embassy in the
world sequestered in Baghdad's fortified "Green Zone" and an economy
designed by a consulting firm in McLean, Virginia, post-invasion Iraq
was well on its way to being a bonanza for foreign investors.

But Big Oil had their sights set on a specific arrangement - the
lucrative Production Sharing Agreements that lock in multinationals'
control over energy resources for long terms and are virtually unheard
of in countries as rich in easily-accessible oil as Iraq.

The occupation authorities would have to steer an ostensibly sovereign
government to the outcome they desired and they'd have to overcome any
resistance they encountered from the fiercely independent and
understandably wary Iraqis along the way. Finally, they'd have to make
sure that the Anglo-American firms were well positioned to win the
lion's share of the choicest contracts.

Dealing with the most likely points of opposition began almost
immediately. While the Oil Ministry, famously, was one of the few
structures the invading forces protected from looters in the first days
of the war, the bureaucracy's human assets weren't so lucky. With a
stroke of the pen, Coalition Provisional Authority boss L. Paul Bremer
fired hundreds of ministry personnel, ostensibly as part of the program
of "de-Baathification." But, as Antonia Juhasz, author of The Bush
Agenda, told me, "it wasn't an indication that they were a party to
Saddam Hussein's crimes … they were fired because they could have stood
in the way of the economic transformation." Some fraction were certainly
hard-core Baathists, but they were all veterans of the country's oil
sector; they knew the industry, they knew what the norms in neighboring
countries were and they had no loyalty to the occupation forces. Some
had to go.

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