Pt.2/4:OIL WARS IN IRAQ(GPF-LONGPAPER/NOV-2003)




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Part 2 of 4

Oil Companies in Iraq:
A Century of Rivalry and War

By James A. Paul
Global Policy Forum www.globalpolicy.org

Oil Rents, Corruption and Conflict

Just as governments like the US and the UK need oil companies to
secure fuel for their global war-making capacity, so the oil
companies need their governments? military power to secure control
over global oilfields and transportation routes. It is no
accident, then, that the world?s largest oil companies are located
in the world?s most powerful countries.

Power has primacy in the oil business, because of the incomparable
value of key fields. Production costs vary widely from one place
to another, leading to intense competition for the lowest-cost
locations. The difference between cost and sales price is so large
that economists sometimes refer to the gap as a "rent"
an extraordinary profit advantage enjoyed by the low-cost
producer.11

All producer companies want to gain control of such lucrative
profits, by fair means or foul. Company rivalry typically leads
beyond ordinary market-based competition. As many studies show,
companies and their sponsor governments do not shrink from backing
dictatorial governments, using bribery and corruption, promoting
civil violence and even resorting to war, to meet their commercial
goals and best their competitors.12 The modern history of the
Middle East bears witness to this process. In one notorious
example, US intelligence services recruited in 1959 a young Iraqi
thug named Saddam Hussein to take part in the assassination of
Iraqi Prime Minister Abd el-Karim Qasim. Washington feared that
the nationalist Qasim might act independently and alter the
favorable terms under which their oil companies operated.13 A few
years earlier, in 1953, the CIA engineered a coup in Iran,
overthrowing the democratic government of Mohammed Mossadegh and
installing the autocratic Shah, in order to gain control over
Iranian oil and redistribute British production shares to US
companies.14

A recent court case in France, involving high officials of the
national oil company Elf Aquitaine, provides a glimpse of more
recent operations in this world of oil intrigue and covert
competition between the giant companies. The case revealed bribes,
espionage, sexual favors, arms smuggling, civil strife and plots
to overthrow governments, all with the complicity of French
military and intelligence services as well as politicians at the
highest levels. These actions had a terrible effect on a number of
oil-producing countries, mostly in Africa. They spread
malfeasance, corruption and anti-democratic practices in France as
well. 15

Special Government Favors and "National Security"

Those who deny oil company complicity in the Iraq War always
insist that the companies have little political influence, that
they are "out of the loop" in Washington, that they are just
one industry group among many others. These arguments are utterly
false. The oil companies have always enjoyed "insider"
privileges with the US and UK governments, resulting in many
unique favors in the name of "national security."

The United States government offers the companies extremely
favorable tax treatment, including the "oil depletion
allowance" and "intangible drilling costs" far more
than the ordinary capital depreciation available to other
companies. In 1960, at the behest of the National Security
Council, the international companies obtained the lucrative
"foreign tax credit," enabling deductions for taxes or
royalties paid to foreign governments. In 1974, while the US
corporate tax rate was 48%, the nineteen largest oil companies
paid a tax rate of only 7.6%.16

The companies have also enjoyed unofficial immunity from
anti-trust or anti-monopoly laws. Though the US government knew
for decades about the international oil cartel, federal
authorities took no enforcement action until 1952, when President
Harry Truman ordered a criminal anti-trust suit. The companies
mobilized all their legal and political muscle to quash the
case. General Omar Bradley, Chairman of the Joint Chiefs of Staff,
reportedly approached the President and successfully urged that
the "national security" required a softening of the
government?s legal stance. Shortly afterwards, the National
Security Council decided on various limitations to the suit that
further weakened the government?s case. Though the judicial
process lumbered on for fifteen years, the oil companies had
nothing to fear and remained safely protected by the national
security umbrella. Today, after a decade of mega-mergers, the
companies still escape anti-trust scrutiny.17

US military/security policy has served the oil companies as
comprehensively as have the tax and legal rulings. Virtually every
US presidential security doctrine since World War II has aimed at
protecting company interests in the oil-rich Persian Gulf. The
Truman Doctrine, the Eisenhower Doctrine, and the Nixon, Carter,
and Reagan Doctrines all asserted Washington?s special concerns in
the Gulf and arrogated to the United States special rights to
"protect" or "defend" the area. Recently-released
secret papers show that during the oil crisis and Arab oil embargo
of 1973, Washington seriously considered sending a military strike
force to seize some of the region?s richest fields in Saudi
Arabia, Kuwait and Abu Dhabi.18

In 1979, President Jimmy Carter set up the US Central Command, a
permanent military force designed to intervene in the Middle East
on short notice. Presidents have expanded and strengthened this
force several times since. Headquartered in Florida, but with a
number of bases in the Middle East, the command maintains
pre-positioned supplies and heavy weapons at Diego Garcia in the
Indian Ocean and it can call on strike aircraft units, global
satellite intelligence, cruise missiles, rapidly deployable ground
troops and carrier-based naval fleets.19

In testimony to Congress in 1999, General Anthony C. Zinni,
commanding officer of the Central Command, affirmed the importance
of the Persian Gulf region, with its huge oil reserves. It is a
"vital interest" of "long standing," he said, and the
United States must have free access to the region?s
resources.20

Close Personal Ties between Companies and Governments

Given the close political relations between the oil companies and
their governments, it should be no surprise to find close ties at
the personal level binding companies and governments together. The
career of Allen Dulles serves as a case in point. He began as a US
diplomat in the Middle East and rose to be chief of the Near East
section of the State Department. In the early 1920s, he led the
campaign to win US oil firms? participation in Iraq. Later he
served as a corporate lawyer at Sullivan and Cromwell, New York?s
leading counsel for the oil industry. After wartime intelligence
service, he was named head of the CIA by President Eisenhower. As
CIA chief, he arranged for the overthrow of Mossadegh, winning a
place in Iran?s rich oil fields for US firms. In every assignment
he consistently served company interests.21

Max Thornberg came to the US State Department as senior petroleum
advisor in 1941, directly from Bahrein Petroleum, a joint venture
of Standard Oil of California. Thornberg operated nearly
independently of his government superiors. He continued to receive
his company salary, informed company executives of private
government meetings and actively promoted company proposals. He
apparently could not conceive of a conflict of interest. Having
worked in the industry his whole life, he thought of industry
goals and those of the US government as being identical.22

The administration of President George W. Bush represents an
especially close set of personal ties between the oil companies
and the government at the very highest level. The president
and his father were both longtime industry insiders from Texas and
chief executives of their own oil companies. Other oil figures at
the top of the administration include Vice President *** Cheney,
former CEO of Halliburton, the nation?s largest oil-services
company, and National Security Advisor Condolezza Rice, a former
director of Chevron Texaco, after whom the company named one of
its supertankers. These very visible figures give the
administration its peculiarly strong oil flavor. In the earliest
days of the administration, they promoted a number of striking
industry-favorable policy decisions, such as the rejection of the
Kyoto Treaty on global warming, the ouster of the head of the
Intergovernmental Panel on Climate Change, and the elaboration of
a strongly pro-oil national energy plan.

In the UK, close ties likewise bind companies and successive
governments together, The government even held a majority stake in
BP, with seats on the board, until 1987. By contrast to the United
States, where the oil companies are first among such peers as
General Motors, Walmart and Citigroup, in the UK, oil giants Shell
and BP tower far above the next tier firms like British Telecom,
Unilever and ICI.23 From such heights, UK oil executives speak
almost as unofficial members of government. In recent years, a
number of personal ties stand out, especially the close friendship
between Prime Minister Tony Blair and BP CEO John Browne (Lord
Browne of Maddingley). The Blair-Browne relationship was so close
that wags in the press called the company "Blair Petroleum,"
though it would have been more accurate to say that Blair was the
BP Prime Minister. At least a dozen BP executives held government
posts or sat on official advisory committees, including Browne?s
immediate predecessor David Simon (Lord Simon of Highbury). Simon
had stepped down as BP CEO to serve as Blair?s unelected Minister
for European Trade and Competitiveness from May 1997 to July
1999.24 Later on, Tony Blair?s longtime friend and personal
assistant Anjl Hunter, director of government relations and known
as "the gatekeeper" in Downing Street, joined BP as head of
public relations in the summer of 2002, just as the war was
actively brewing.25

After a century of closely-combined action on the global stage,
company chieftans and government leaders see their relationship as
cooperative and thoroughly complementary. In April, 2003, shortly
after the war in Iraq, Lord Browne responded tartly to critics by
saying: "It is quite ethical and appropriate for a global
company, based in the UK, to be supported by the British
government."26 He did not, of course, go into the details.

Seven Oil Wars to Control Iraq

End Part 2







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