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part 2 - Who will get Iraq's oil and on what terms

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That was true at the top as well. Serving as oil minister in the Iraqi
Interim Government was Thamir Ghadbhan, a British-trained technocrat who
at one time had been Chief of Planning under Saddam Hussein and was
widely respected for his political independence and his opposition to
the previous regime (Saddam had ended up imprisoning him at Abu Ghraib).
Despite working closely with American advisors, Ghadbhan was replaced
with Ibrahim Bahr al-Uloum, a close associate of Ahmed Chalabi, the
exile favored by some war planners to run the country as a kindler and
gentler - but no doubt just as corrupt - version of Saddam Hussein.

According to Greg Muttit, an analyst with the British oil watchdog
Platform, Uloum at first seemed to be a malleable figure. He told the
Financial Times that he personally favored PSAs and would give priority
to U.S. oil companies, "and European companies, probably."

But Uloum would later publicly protest the elimination of fuel
subsidies, a key provision of the country's economic restructuring,
saying, "This decision will not serve the benefit of the government and
the people. This decision brings an extra burden on the shoulders of
citizens." He was, as the Associated Press reported, given "a forced
vacation." In the end it would turn out to be a permanent one; Chalabi,
who was Deputy Prime Minister at the time, took over the job himself
(supposedly as "acting" Minister for 30 days, but his term would last a
year). Chalabi had no previous experience in the oil biz, but was a
reliable, pro-Western figure with little in the way of nationalist zeal
to get in the way of being a good lap-dog. As leader of the Iraqi
National Congress, he had said he favored the creation of a U.S.-led
consortium to develop Iraq's oil fields. "American companies will have a
big shot at Iraqi oil," Chalabi told the Washington Post in 2002.

According to Alexander Cockburn, Chalabi also orchestrated the ouster of
Mohammed Jibouri, executive director of the state's oil marketing
agency, who had offended the Swiss giant Glencore by telling its
executives that they couldn't trade Iraqi oil after their extensive
dealings with Saddam Hussein.

An emerging, although still fragile, civil society was another source of
potential trouble. Iraqi trade unions were a thorn in the side of the
CPA - shutting down the port of Khor az-Zubayr in protest of a rip-off
deal with the Danish shipping giant Maersk, halting oil production in
the South to demand the re-hire of laid-off Iraqi workers and kicking
Halliburton subsidiary Kellogg Brown and Root out of their refineries.
Perhaps it's not a coincidence, then, that the only significant law that
Paul Bremer left on the books from the Hussein era was a prohibition
against organizing public-sector workers; Raed Jarrar, an Iraqi analyst
with the NGO Global Exchange told me "the unions are basically illegal -
they're having a lot of legal problems."

Of course, none of that guaranteed that the Iraqis would stay on the
preferred path, especially after the election of an ostensibly sovereign

That's where the most common - almost ubiquitous - tool of
neocolonialism, debt, came into play. In this case, massive, crushing
debt run up by a dictator who treated himself and his cronies to palaces
and imported luxuries, spent lavishly on weapons for Iraq's war with
Iran - fought in part on behalf of the U.S. - and owed billions of
dollars in reparations for invading Kuwait in 1990.

To put Iraq's foreign debt in perspective, if the country's economy were
the size of the United States', then its obligations in 2004,
proportionally, would have equaled around $55 trillion dollars,
according to IMF figures (and that doesn't include reparations from the
first Gulf War).

Clearly, that amount of debt was unsustainable, and the Bush
administration launched a full-court press to get creditor nations to
forgive at least part of the new government's debt burden. Former
Secretary of State James Baker, long the Bush family's "fixer," was
dispatched on a tour of the world's capitals to cut deals on behalf of
the Iraqis.

The administration adopted the language of debt relief activists to
frame their pitch, surprising many in the NGO community. Bush, and
Baker, called it "odious" debt that had financed the whims of a brutal
dictator and was used contrary to the interests of the Iraqi population.
Under international law, "odious" debt, in theory at least, doesn't need
to be forgiven; it's written off as a dictator's illicit gains. As one
might expect, wealthy creditor nations have long resisted the concept.

Debt relief activists Basav Sen and Hope Chu wrote that the move "seemed
inexplicable at first." But it soon became clear that Iraq's debt relief
program was, in fact, a way of locking in Iraq's radical new economy.

The largest chunk of debt, $120 billion, was owed to the Paris Club, a
group of 19 industrialized nations. Baker negotiated a deal whereby the
Paris Club would forgive 80 percent of Iraq's debt, but the catch - and
it was a big one - was that Iraq had to agree to an economic "reform"
package administered by the International Monetary Fund, an institution
dominated by the wealthiest countries and infamous across the developing
world for its painful and unpopular Structural Adjustment Programs.

The debt would be written off in stages; 30 percent would be cancelled
outright, another 30 percent when an elected Iraqi government accepted
an IMF structural reform agreement and a final 20 percent after the IMF
had monitored its implementation for three years. This made the IMF a
powerful watchdog over the country's new economy, despite the fact that
the institution's own share of the country's outstanding debt was less
than 1 percent of the total.

Among a number of provisions in the IMF agreement, along with
privatizing state-run companies (which resulted in the lay-offs of an
estimated 145,000 Iraqis), slashing government pensions and phasing out
the subsidies on food and fuel that many Iraqis depended on, was a
commitment to develop Iraq's oil in partnership with the private sector.
Then-Finance Minister Adel Abdul Mehdi said, none too happily, that the
deal would be "very promising to the American investors and to American
enterprise, certainly to oil companies." The Iraqi National Assembly
released a statement saying, "the Paris Club has no right to make
decisions and impose IMF conditions on Iraq," and called it "a new crime
committed by the creditors who financed Saddam's oppression." And Zaid
Al-Ali, an international lawyer who works with the NGO Jubilee Iraq,
said it was "a perfect illustration of how the industrialized world has
used debt as a tool to force developing nations to surrender sovereignty
over their economies."

The IMF agreement was announced in December of 2005, along with a new
$685 million dollar IMF loan that was to be used, in part, to increase
Iraq's oil output. The announcement came a month after Iraqis went to
the polls to vote for their first government under the new Constitution.
The timing, according to the Washington Post, was meant to spare Iraqi
"politicians from voters' wrath." That was a wise idea; immediately
following the agreement's signing gas prices skyrocketed and Iraqis rioted.

The icing on the cake is that the deal James Baker negotiated with the
Paris Club refers to Iraq as an "exceptional situation"; no precedent
was set that would allow other highly indebted countries saddled with
odious debt from their own past dictators to claim similar relief.

The December deadline the Iraqi government is expected to meet for the
completion of its final Oil Law is a "benchmark" in the IMF agreement.

In an investigation for The Nation, Naomi Klein discovered that Baker
had pursued his mission with an eye-popping conflict of interest. Klein
learned that a consortium that included the Carlyle Group, of which
Baker is believed to have a $180 million stake, had contracted with
Kuwait to make sure that it was paid the money it was owed by Iraq. When
Baker met with the Kuwaiti Emir to beg forgiveness for Iraq's odious
debt, he had a direct interest in making sure he didn't get it.

Another major creditor was Saudi Arabia. The Carlyle Group has extensive
business dealings with the kingdom, and Baker's law firm, Baker Botts,
was representing the monarchy in a suit brought by the families of the
victims of 9/11.

The most recent IMF report (PDF) shows how successfully he failed:
"While most Paris Club official creditors have now signed bilateral
agreements, progress has been slow in resolving non-Paris Club official
claims, especially those of Gulf countries," it says. It's likely that
Iraq, a country occupied for over three years, devastated by 12 years of
sanctions and with a per capita GDP of $3,400, will end up paying
reparations to Kuwait, a prosperous state with a per capita GDP of over
$19,000, for the five months Saddam occupied his neighbor in late 1990
and early 1991.

Iraq will still face a mountain of debt even if it meets all the
"benchmarks" required of it - the IMF expects the country's debt service
to equal five percent of its economic output in 2011 and warns that even
a minor price shock in the oil market "would require significant
borrowing from the international markets to close the financing gaps."

"Sovereign" debt is transferable between governments; if a new
strong-man arises or Iraq becomes a loose federation, the debt will
remain on the books and defaulting on it, while a possibility, has
serious long-term consequences.

All of this is about bringing different forms of pressure onto Iraq's
nascent government, not controlling it, and that's an important
distinction. A neocolonial power respects a country's sovereign laws, as
long as it has significant input in writing them. Before and since the
"handover" to Iraq's government, the Green Zone has been over-run with
"advisors" from Big Oil. Aram Roston wrote: "it's clear that there is
not just the one Iraqi Oil Ministry but a parallel 'shadow' ministry run
by American advisers."

Immediately after the invasion, Phillip Carroll, a former Chief
Executive with Royal Dutch-Shell, and a 15-member "board of advisors"
were appointed to oversee Iraq's oil industry during the transition
period. According to the Guardian , the group's chief executive "would
represent Iraq at meetings of Opec." Carroll had been working with the
Pentagon for months before the invasion - even while the administration
was still insisting that it sought a peaceful resolution to the Iraq
crisis - "developing contingency plans for Iraq's oil sector in the
event of war." According to the Houston Chronicle, "He assumed his work
was completed, he said, until Defense Secretary Donald Rumsfeld called
him shortly after the U.S.-led invasion began and offered him the oil
adviser's job." Carroll, in addition to running Shell Oil in the U.S.,
was a former CEO of the Fluor Corporation, a well-connected oil services
firm with extensive projects in Saudi Arabia and Kuwait and at least
$1.6 billion in contracts for Iraq's reconstruction. He was joined by
Gary Vogler, a former executive with ExxonMobile, in Iraq's Office of
Reconstruction and Humanitarian Assistance.

After spending six months in the post, Carroll was replaced by Robert
McKee, a former ConocoPhillips executive. According to the Houston
Chronicle, "His selection as the Bush administration's energy czar in
Iraq" drew fire from Congressional Democrats "because of his ties to the
prime contractor in the Iraqi oil fields, Houston-based Halliburton Co.
He's the chairman of a venture partitioned by the … firm."

The administration selected ChevronTexaco Vice President Norm Szydlowski
to serve as a liaison between the Coalition Provisional Authority and
the Iraqi Oil Ministry. Now the CEO of the appropriately named Colonial
Pipeline company, he continues to work with the Iraq Energy Roundtable,
a project of the U.S. Trade and Development Agency that recently
sponsored a meeting to "bring together oil and gas sector leaders in the
US with key decision makers from the Iraq Ministry of Oil."

Terry Adams and Bob Morgan of BP, and Mike Stinson of ConocoPhillips
would also serve as advisors during the transition.

After the CPA handed over the reigns to Iraq's interim government, the
embassy's "shadow" oil ministry continued to work closely with the
Iraqis to shape future oil policy. Platform's Greg Muttit wrote that
"senior oil advisers-now based within the Iraq Reconstruction Management
Office (IRMO) in the U.S. Embassy ... included executives from
ChevronTexaco and Unocal." After the handover, a senior US official
said: "We're still here. We'll be paying a lot of attention and we'll
have a lot of influence. We're going to have the world's largest
diplomatic mission with a significant amount of political weight."

The majors have also engaged in good, old-fashioned lobbying. In 2004,
Shell advertised for an Iraqi lobbyist with good contacts among Iraq's
emerging elites. The firm sought "A person of Iraqi extraction with
strong family connections and an insight into the network of families of
significance within Iraq." According to Platform, just weeks after the
invasion, in a meeting with oil company execs and Australian Foreign
Minister Alexander Downer in London, Former British Foreign Secretary
Sir Malcolm Rifkind promised to personally lobby Dick Cheney for
contracts on behalf of several firms, including Shell.

Meanwhile, major oil firms were positioning themselves so that they'd
have the best contacts in the new government. According to the
Associated Press, "The world's three biggest integrated oil companies" -
BP, ExxonMobil and Royal Dutch/Shell - "struck cooperation or training
deals with Iraq" in 2005. "It's a way to maintain contact and get the
oil officials to know about them," former Iraqi Oil Minister Issam
Chalabi told the AP. And it seems to have worked; in May, Iraq's current
Oil Minister, Husayn al-Shahristani, said that one of his top priorities
would be to finalize an oil law and sign contracts with "the largest

Washington has its hands all over the drafting of that law. Early on, in
2003, USAID commissioned BearingPoint, Inc. - the new name for the
scandal-plagued Arthur Anderson Consulting - to submit recommendations
for the development of Iraq's oil sector. BearingPoint was the firm that
designed the country's economic transformation under a previous USAID
contract, so it was no surprise that its report reinforced the
preference for PSAs that "everybody [kept] coming back to" during
meetings of the State Department's "Future of Iraq Project."

In February, just months after the Iraqis elected their first
constitutional government, USAID sent a BearingPoint advisor to provide
the Iraqi Oil Ministry "legal and regulatory advice in drafting the
framework of petroleum and other energy-related legislation, including
foreign investment." According to Muttit, the Iraqi Parliament had not
yet seen a draft of the oil law as of July, but by that time it had
already been reviewed and commented on by U.S. Energy Secretary Sam
Bodman, who also arranged for Iraq's Oil Minister "to meet with nine
major oil companies - including Shell, BP, ExxonMobil, ChevronTexaco and
ConocoPhillips - for them to comment on the draft."

All of these points of pressure are only what we can see in the light of
day. There is certainly much more occurring under the table. Raed Jarrar
told me that he "was personally familiar with the kind of intimidation
that can be brought by both the U.S. military and civilian" personnel,
and that he would be shocked if "multiple millions of dollars in bribes"
were not changing hands. The IMF noted in its latest report (PDF) that
"corruption related to the production and distribution of refined fuel
products was rampant." Last March, 450 Oil Ministry Employees were fired
for suspected corruption, and Mohammed al-Abudi, the Oil Ministry's
Director General for Drilling, said that "administrative corruption" was
pervasive. "The robberies and thefts are taking place on a daily basis
on all levels", he said, "committed by low-level government employees
and by high officials in leadership positions of the Iraqi state." The
same day that the UN legitimized the occupation, George Bush signed
Executive Order 13303 providing full legal immunity to all U.S. oil
companies doing business in Iraq in order to facilitate the country's
"orderly reconstruction."

Yet, despite a five-year effort, Big Oil still sits on the sidelines,
wary of the disorder and violence that's plagued the country.
Ironically, it appears that China may well receive the first deal in
post-Saddam Iraq (although it's one negotiated with Hussein's government
before the war). The Kurdish autonomous region has signed three PSAs -
none with the majors - although there is some dispute about their
validity (and, at this writing, there are reports that the Kurds are in
negotiations with Royal Dutch-Shell and BP, among others).

At this point, the situation is very fluid. Last week, Iraqis were
shocked when a controversial measure that might lead to the country's
effective break-up was passed in the Parliament by one vote. The major
Sunni parties and Muqtada al Sadr's ministers boycotted the session in
outrage. Muddying the waters further is a heated debate about whether a
somewhat ambiguous provision in the Iraqi constitution already gives
provincial governments the right to hold onto oil revenues rather than
send them to the central government. The results of all of these debates
will have an enormous impact on Iraq's chances to build an autonomous
and potentially prosperous country down the road.

It's possible that the administration and its partners, expecting to be
greeted with open arms by the Iraqi people, badly overplayed their hand.
Iraq's new government is faced with what may prove to be an
insurmountable crisis of legitimacy based largely on the fact that it's
seen as collaborating with American forces. Overwhelming majorities of
Iraqis of every sect believe the U.S. is an occupier, not a liberator,
and are convinced that it intends to stay in Iraq permanently. Raed
Jarrar put it this way: "If, today, you were to go in front of
Parliament and ask: 'who is opposed to demanding a timetable for the
Americans to withdrawal?' nobody would dare raise their hand. The debate
is about how soon you set it." The passage of a sweetheart oil law that
puts long-term control of the country's oil wealth in the hands of
Western firms would validate Iraqis' fears of a permanent U.S. presence
and could prove to be a tipping point. It's also possible Iraq's
government won't make it to December; at this writing, rumors of a
"palace coup" are swirling around Baghdad, according to Iraqi lawmakers.

What is clear is that the future of Iraq ultimately hinges to a great
degree on the outcome of a complex game of chess - only part of which is
out in the open - that's playing out right now, and oil is at the center
of it. It's equally clear that there's a yawning disconnect between
Iraqis' and Americans' views of the situation. Erik Leaver, a senior
analyst at the Institute for Policy Studies in Washington, told me that
wrangling over the distribution of Iraq's oil wealth is "definitely
causing problems on the ground" but the entire topic is taboo in polite
DC circles. "Nobody in Washington wants to talk about it," he said.
"They don't want to sound like freaks talking about blood for oil." At
the same time, a recent poll asked Iraqis what they believed was the
main reason for the invasion and 76% gave "to control Iraqi oil" as
their first choice.


/Joshua Holland is an AlterNet staff writer./