The Great Iraq Oil Grab

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The Great Iraq Oil Grab

Via NY Transfer News Collective * All the News that Doesn't Fit

AlterNet - May 22, 2006
http://www.alternet.org/waroniraq/36463/

The Great Iraq Oil Grab

By Joshua Holland

The official reasons the U.S. invaded Iraq don't hold water.

So, as the man said, follow the money ... straight to the oil fields.

There's a story, perhaps apocryphal, that Pentagon planners wanted to name
the invasion of Iraq, "Operation Iraqi Liberation." Only when someone
realized that the acronym -- O.I.L. -- might raise some uncomfortable
questions, was "Operation Iraqi Freedom" born.

Supporters of the Iraq war airily dismiss chants of "no blood for oil" as a
manifestation of the antiwar crowd's naoveti. They point out that Iraq's
government still controls its oil and argue that we could have simply bought
it on the open market.

Both of those claims are true on their face, but bringing Iraq's vast oil
wealth under the control of foreign multinationals -- with U.S. firms the
best positioned to develop it -- was always central to U.S. plans for Iraq.
That Iraq's oil will continue to be "owned" by the "Iraqi people" is what
differentiates classical 19th-century colonialism practiced by British
officers in pith helmets from the neocolonialism the United States perfected
in the second half of the 20th century. The newer brand can be summed up
like this: We'll respect your sovereignty and abide by your domestic laws --
as long as we can help you write those laws to guarantee our firms'
profits.

That's the central tenet of corporate globalization. Trade deals like NAFTA
- -- and the agreements implemented by the WTO -- are designed to "harmonize"
countries' domestic laws regulating everything from capital flow to food
safety to the environment in order to make them friendly to international
investment. In Iraq, that philosophy was taken to an extreme, at gunpoint
and with disastrous consequences.

Oil -- the engine that drives Iraq's potentially rich economy -- was the
prize that made it worth a full-scale commitment of American armed forces.

Oil lust

It was a prize that the first oil presidency -- the president, vice
president and national security advisor are all former oil execs -- lusted
after long before the attacks of 9/11. The Washington Post reported that
even as the Bush transition team prepared to take power in 2001, changing
Iraq's regime and seizing its oil were already on the table:

Early discussions among the administration's national security
"principals" -- Cheney, Powell, Tenet and national security adviser
Condoleezza Rice -- and their deputies focused on how to weaken Hussein
diplomatically. But Deputy Defense Secretary Wolfowitz proposed sending in
the military to seize Iraq's southern oil fields and establish the area as a
foothold from which opposition groups could overthrow Hussein.

Former Treasury Secretary Paul O'Neill told author Ron Suskind that ***
Cheney also supported an invasion of Iraq before Sept. 11, and the New
Yorker's Jane Mayer reported on a top secret National Security Council
document dating back seven months before the terror attacks that gave some
insight into the vice president's thinking:

It directed the N.S.C. staff to cooperate fully with [Cheney's secretive]
Energy Task Force as it considered the "melding" of two seemingly unrelated
areas of policy: "the review of operational policies towards rogue states,"
such as Iraq, and "actions regarding the capture of new and existing oil and
gas fields."

In her new book, "The Bush Agenda," Antonia Juhasz detailed how, six months
before the invasion, the administration brought in a group of oil executives
to advise them on Iraqi oil policy (this occurred as President Bush was
telling the American people that he had no intention of going to war). The
State Department also set up a consulting group under the "Future of Iraq
Project" called the "Oil and Energy Working Group." After some back and
forth among the various consultants, a consensus was reached that Iraq's
oil "should be opened to international oil companies as quickly as possible
after the war."

But they couldn't just say that, or the war's proponents wouldn't be able to
sneer at those unruly antiwar types. After the invasion, the administration
did a yeoman's job of deflecting the criticism; Bush called Iraq's oil
wealth its "patrimony" and promised it would stay in the hands of the Iraqi
people. When all of Iraq's state firms were privatized, the administration
exempted Iraq's national oil company.

But that was political cover. The administration and the oil execs who
consulted on the policy, knowing that fully privatizing Iraq's oil
production would give their critics powerful ammunition, took an approach to
Iraq's oil that largely flew beneath the media's radar. They decided on
writing a new "transitional" oil law that gave foreign companies a far
greater cut of the country's oil wealth than they've been able to get
anywhere else in the Middle East.

Oily new laws

I recently conducted an interview with Juhasz, who explained the details:

The United States crafted a new oil law for Iraq that provided for
production sharing agreements (PSAs), which are contractual terms between a
government and a foreign corporation to explore for, produce and market
oil. Production sharing agreements are not used by any country in the Middle
East or, in fact, by any country that's truly wealthy in oil. They're used
to entice investors into an area where the oil is expensive to produce or
there isn't a lot of oil.

But Iraq's oil reserves are very easy and cheap to get to. You essentially
just stick a pipe in the ground and you get oil. There's absolutely no
reason for Iraq to enter into PSAs, but there's every reason for Western oil
companies to want them -- they provide the best terms short of full
privatization of the oil.

[It's estimated that] Iraq has 80 oil fields. Seventeen of them have been
discovered. Under the new oil law -- written into the constitution -- those
17 will be under the control of the Iraqi national oil company.

All undiscovered oil fields are now open to the PSAs. That means,
depending on how much oil there is in Iraq, foreign companies will have
control over at least 64 percent of Iraq's oil and as much as 84 percent.

PSAs are the worst possible deals for countries; in Latin America some of
the worst PSAs gave domestic governments royalties of just one percent of
their natural gas revenues.

Iraq's permanent oil law is being written with the help of Bearingpoint Inc.
under a contract from USAID. The Virginia-based company (which was KPMG
until it changed its name after being embroiled in the Arthur Anderson
accounting scandal) prepared a report for the Bush administration in 2003
that concluded "foreign participation [is] the most efficient way of
developing the sector," according to Dow Jones. A USAID spokesman said the
company "will be providing legal and regulatory advice in drafting the
framework of petroleum and other energy-related legislation, including
foreign investment."

The principles embedded in the transitional oil law can't be dismissed down
the road by Iraq's legislature with a simple vote; they were built into the
country's Constitution, a document that Iraqis approved without having a
firm grip on its details. (Read more of the interview with Juhasz for some
insight into how that happened.)

Chapter 4, Article 109, specifies that all new oil fields will be developed
"relying on the most modern techniques of market principles and encouraging
investment." While the constitutions of other energy-rich countries lay out
principles regarding their resources, Iraq's is unique in specifying that
future governments must develop the country's most valuable commodity in
tandem with foreign multinationals.

Contrast that with other oil producers; Saudi Arabia's state oil company,
Saudi Aramco, has a monopoly on oil production, and it enters into
agreements with foreign companies for specific parts of the process. The
Saudi government imposes a special tax on foreign energy companies' revenues
from those processes and invests the windfall from high oil prices in
education and infrastructure.

Under Iraq's new laws, those kinds of policies -- common among oil-producing
countries -- are prohibited.

Rewarding the corporations

Saying that Iraq's vast oil reserves -- projected by some analysts to be the
largest in the world, greater than Saudi Arabia's -- was the sole motivation
for the U.S. invasion of Iraq simplifies a complex issue. Opening Iraq's
economy has the potential to reward the Bush administration's corporate
allies with enormous windfalls as the country rebuilds after 25 years of
war. Iraq has a well-educated work force and is well-positioned on global
trade routes. Oil is the cherry on the sundae.

That's why Iraq's new oil laws have to be viewed in a larger context.
Gaining control of the bulk of Iraq's oil was a key part of a broader
economic invasion of the country, launched by an administration dominated by
ideologues who view the agenda of corporate globalization as a vital part
of the United States' national, as well as economic, security.

The Coalition Provisional Authority, under L. Paul Bremer (who U.N. envoy
Lakhdar Brahimi called the "dictator of Iraq") instituted an infamous set of
"100 rules" -- rules that privatized Iraq's state companies, threw open its
economy to foreign investment, established a flat tax and instituted a
dozen other measures that the big-business right has lobbied for around the
world -- largely unsuccessfully -- for decades.

They not only slashed corporate taxes and allowed foreign multinationals to
take 100 percent of their profits out of the country, they also gave them --
by law -- the same status as Iraqi firms. That means that all the things
countries like Iraq do to direct a portion of their foreign investment
income into developing their domestic economies are off the table: Foreign
firms can't be asked to invest in the local economy or buy goods from
domestic firms or hire a certain number of Iraqi workers or build schools
and health clinics or any of the other strategies that are common in poor
but resource-rich countries. Saudi Arabia's tax on foreign energy producers
would violate Iraqi law.

The same company that's helping draft Iraq's permanent oil law, BearingPoint
Inc., planned Iraq's entire economy under a previous contract. All of the
Bremer rules worked their way into the Iraqi Constitution as well; Chapter
6, Article 126, specifies that although the rest of the orders issued by the
Transitional Authority are canceled, the "100 orders" remain on the books.

Sayonara, Saddam

None of this is a conspiracy theory, as the war's supporters are wont to
claim. All of it is well-documented in the public record. The national
security arguments about Saddam Hussein's "WMD" and supposed ties to Al
Qaeda -- all disproved -- only took centerstage after the attacks of 9/11.
In the decade before, industry groups that are now closely tied to the Bush
administration issued a string of position papers and op-eds urging the
ouster of Saddam specifically in order to open Iraq's economy, and they
openly lobbied for war on those terms.

People like *** Cheney, George Schultz and Henry Kissinger (L. Paul Bremer
was a protigi of Kissinger's) warned that American energy firms were at a
competitive disadvantage as long as Saddam Hussein remained in power. While
more than a third of Iraq's oil ended up in the United States during the
years of sanctions against the Hussein regime, it mostly came through
foreign middlemen -- Saddam gave few contracts directly to American firms,
and that was intolerable to the U.S. business community.

Historians will debate the precise motivations for the American attack on
Iraq for years to come. When official explanations don't stand up to
scrutiny, it raises the question, cui bono? -- who benefits? After various
architects of the war spent a decade pushing an attack on Iraq in order to
open its economy, they came to power, and they did, in fact, invade the
country and open its economy. Ultimately, that's the most compelling
argument that it was, indeed, an invasion of Iraq's oil-rich economy more
than anything else. Follow the money.

[Joshua Holland is an AlterNet staff writer.]

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