You are in > International
Iraq: the oil and the endgame
But the USA has not given up on one of its main objectives: control of Iraqi oil.
Former United States diplomat Peter W. Galbraith recently observed that:
The case for the war is no longer defined by the benefits of winning—a stable Iraq, democracy on the march in the Middle East, the collapse of the evil Iranian and Syrian regimes—but by the consequences of defeat.
In reality, Galbraith argues, the US has already lost the war:
Iraq after an American defeat will look very much like Iraq today—a land divided along ethnic lines into Arab and Kurdish states with a civil war being fought within its Arab part. Defeat is defined by America's failure to accomplish its objective of a self-sustaining, democratic, and unified Iraq. And that failure has already taken place, along with the increase of Iranian power in the region.
Galbraith's proposal, which he implies would have the support of Hillary Clinton, other prominent Democrats and even the more realistic of the Republicans, is for the US military to retreat to a secure base in Kurdistan:
The argument for so doing is straightforward: it secures the one part of Iraq that has emerged as stable, democratic, and pro-Western; it discharges a moral debt to our Kurdish allies; it deters both Turkish intervention and a potentially destabilizing Turkish– Kurdish war; it provides US forces a secure base that can be used to strike at al-Qaeda in adjacent Sunni territories; and it limits Iran's gains.
Galbraith did not mention one other compelling argument: the Kurdish region of Iraq contains very substantial deposits of petroleum.
Depending on estimates, Iraq has either the second or the third largest global reserves of that substance. Oil is not only by far the world's most important source of energy, but is also the source of great profits to several of the worlds largest corporations. Yet in the in the build-up to the war, the contention that Iraq's oil resources might be a factor in US policy was was emphatically denied. As the Washington Post reported:
"There are certain things like that, myths, that are floating around," Rumsfeld told Steve Kroft of CBS Radio in November 2002. "It has nothing to do with oil, literally nothing to do with oil."
Pro-war experts pointed out what they claimed was a fatal flaw in the 'oil war' analysis. Writing for Business Week in March 2003, Nobel prize-winning economist Gary S. Becker argued:
If oil were the driving force behind the Bush Administration's hard line on Iraq, avoiding war would be the most appropriate policy...
Since oil is sold in a fluid world market, any nation, including the U.S., can get pretty much all the oil it wants by paying world prices. So the U.S. would be better off if it encouraged Iraq to export more, not less, oil because that would lower oil prices. Yet America has not done this. Since the Persian Gulf War, it has led the international community in restricting Iraqi production as a means of pressuring Saddam Hussein to dismantle his weapons of mass destruction.
Outbreak of a war in Iraq would cost the U.S., not save it, large sums of money. Already the runup to war has sent oil prices spiraling upward, imposing, in effect, a large tax on all energy consumers. War would initially cause prices to escalate further...
Consequently, if the major driver of American policy toward Iraq were concern about oil and its cost, it would be best to avoid a Middle East conflict and the risk of much higher prices. A war with Iraq is not about oil. It is about Saddam Hussein and the threat he poses to his neighbors, his people, and to nations around the world.
From Becker's next article about Iraqi oil, published in June 2003, it appeared that having conquered Iraq to save the Iraqis and others from Saddam, the occupiers then discovered that they had the responsibility to decide- purely on the grounds of efficiency- what should be done with the country's petroleum resources. The Nobel prizewinner was on hand with some timely and cautious advice- immediate privatisation carried out directly by the occupying forces would convey the wrong impression:
An important advantage of leaving most privatizations to the new Iraqi government is that the coalition would avoid charges that it 'gave away' assets to favored foreign and local companies. Still, coalition administrators can provide a timetable for privatizing, drawing on the experiences of other nations that have done so.
Obviously, it is immensely important to crank up the country's oil production: For the immediate future, those revenues will be the leading contributor to Iraq's gross domestic product...
The Iraqi oil industry would be far more efficient if it were extensively privatized. But even a democratically elected Iraqi government could not immediately challenge the emotion in the Middle East behind government ownership of oil. Such a government might be able to transfer many complementary oil activities to the private sector through competitive open bidding by international consortiums that include Iraqi and other Middle East participants. Among these activities are maintenance of production facilities, refining of oil to produce gasoline and other products, exploration for additional deposits, and transportation of oil.
Thus Becker envisaged a situation in which Iraq would have a government which is nominally democratic, but in fact operates according to a 'timetable' set in the USA. As he suggested, plenty of experience had been accumulated in the former USSR and Central Europe, and in many other countries, for the practice of this kind of democracy.
The hand on the spigot
The argument put by Gary S. Becker on the eve of the March '03 invasion works as proof that achieving the lowest possible world market price for petroleum in the short term is not the consistent over-riding objective of US policy. Other evidence also bears this out. Also in March 2003, former Saudi oil minister Sheikh Zaki Yamani told the BBC that:
US interests would not be served by a very low price.
A number of US states are oil producers, and a low price of oil these states would hit them hard, he said.
When the price of oil collapsed in 1986, George Bush senior - then US Vice President - asked Saudi Arabia to raise the price of oil, he recalled.
"America does not want a very low price of oil, that is obvious," said Sheikh Yamani.
It could be added that low oil prices can also hurt the earnings of the oil companies. Three US oil companies- Exxon-Mobil, Chevron and ConocoPhillips- have declared combined profits of $72.7 billion in 2007.
However, Sheikh Yamani expressed to the BBC his firm view on the importance of oil in motivating the invasion of Iraq:
He said the US is aiming to secure its oil supplies. In his view, the US wants to reduce its dependence on oil from the Gulf, and from Saudi Arabia in particular.
He said the US accused Saudi Arabia of being the main source of terrorist activities, backing them financially and ideologically...
For the US, he said, the real answer is to have Iraqi crude.
Iraq could quadruple its current level of oil production - taking it to eight million barrels a day - by the end of the decade, he said.
And much of it could be exported via the Eastern Mediterranean Sea, ending US dependence on oil passing through the Strait of Hormuz - a narrow waterway leading out of the Gulf.
Yamani's remarks are illuminating. In terms of global political power, the issue is not so much the level of the oil price but who controls the oil price. Traditionally, the US has used its relationship with Saudi Arabia to influence petroleum prices; but that causes the United States to be overly dependent on its relationship with a country whose loyalty may not be reliable. And the USA also needs to guarantee its own supplies of oil.
That somebody might wish to control energy supplies in order to politically dominate other countries is publicly recognised by US and other Western elites- except that such motivations are never applied to their own side. Vladimir Putin, for example, is routinely accused of using the gas produced in his own country as a means of blackmailing other European nations. And during the Congressional election campaign in November 2006, feeling the need to augment the case for US troops to stay in Iraq, George W. Bush was reported as follows in the Washington Post:
"You can imagine a world in which these extremists and radicals got control of energy resources," he said at a rally here Saturday for Rep. Marilyn Musgrave (R-Colo.). "And then you can imagine them saying, 'We're going to pull a bunch of oil off the market to run your price of oil up unless you do the following. And the following would be along the lines of, well, 'Retreat and let us continue to expand our dark vision.' "
Bush said extremists controlling Iraq "would use energy as economic blackmail" and try to pressure the United States to abandon its alliance with Israel. At a stop in Missouri on Friday, he suggested that such radicals would be "able to pull millions of barrels of oil off the market, driving the price up to $300 or $400 a barrel."
The Washington Post report included an official clarification:
White House spokesman Tony Fratto said Saturday that Bush's latest argument does not reflect a real shift. "We're still not saying we went into Iraq for oil. That's not true," he said. "But there is the realistic strategic concern that if a country with such enormous oil reserves and the corresponding revenues you can derive from that is controlled by essentially a terrorist organization, it could be destabilizing for the region."
...Fratto... argued that even if radicals could not move the markets dramatically with Iraqi oil, they would use the country as a base to topple other governments in the Middle East such as Kuwait and Saudi Arabia, which would give them "a lot more oil to blackmail with."
It is only natural for US leaders to impute to others the idea of restricting the supply of essential items, produced in ones own country or in territories under ones control, to other nations in order to achieve political ends. When the USA does this, it's not called blackmail, it's called sanctions. But to wield global power it is usually not necessary to issue direct threats. The mere fact of the US military presence in and around the territory of oil-exporting countries is enough to influence political decisions in other oil-importing countries, allies and potential rivals alike.
Blame Marx, not Mohammed
In his June 2003 Business Week article, Gary S. Becker was careful to absolve Islamic ideas of responsibility for what he called the "decades of economic stagnation in Iraq" and other countries in the Middle East:
Many attribute this lack of economic success to the influence of Islam on Middle Eastern culture. But this assertion ignores the fact that traditional Islam is perhaps more sympathetic than Christianity to private enterprise and a market economy. Muhammad, after all, was a merchant before he received the revelation. The Koran teaches respect for private property, business contracts, and trade.
Instead, he put the blame on ideas and practices of more recent origin:
The main obstacle to modern economic development for Middle Eastern nations has been bad policy, often inspired by the teachings of Karl Marx and other Western intellectuals. State enterprises and government regulations still dominate the economies of Egypt, Iran (under both the Shah and the mullahs), Iraq, Saudi Arabia, and Syria. Important industries, including oil production and refining, are controlled directly by the government or by private monopolies that depend on the state.
Becker's assertion fits neatly with neo-liberal ideology, but does not fit the facts. Under conditions of nationalisation and state planning, Iraq's GDP grew by a very impressive 8.7% per annum between 1960 and 1978. Much of the revenue from oil exports was invested in infrastructure and a massive expansion of the education system. Iraq's decades of decline began with the costly eight-year war with Iran; this was succeeded by the mass destruction of the country's industry and infrastructure by the USA during the 1991 Gulf War; subsequent recovery was blocked by twelve years of sanctions.
Nevertheless. The invasion of Iraq offered an opportunity to begin reversing the nationalisations which took place in the OPEC countries during the 1960s and '70s. Gary S. Becker continued:
Coalition forces in Iraq have the chance to set an example for Islamic nations everywhere by promoting prosperity for the downtrodden and disadvantaged through market policies.
But as Becker noted, the downtrodden masses do not appreciate that privatisation would bring them prosperity: instead, they are 'emotionally' attached to the idea of state ownership of oil resources. Hence the need for the occupying power to hold Iraq's 'sovereign' government to timetables for reform.
Iraq's proposed hydrocarbon law was drafted according to US instructions, with input also from the British government and Western oil company lobbyists. Securing its enactment is part of official US policy; it is entrenched in the recommendations of the Iraq Study Group and the President's 'New Way Forward'. The IMF insists that forgiveness of some of Iraq's debt is dependent on the passing of the legislation. While re-establishing a state owned Iraqi National Oil Company and giving it a role in maintaining pipelines and extracting oil from fields which are already being exploited, the law provides for the leasing of the country's vast untapped reserves to foreign companies for periods of up to 35 years, on the basis of licences which are known in the industry as Production Sharing Agreements (PSAs).
The type of contract under which companies can participate in exploiting the oilfields is a key issue. In Saudi Arabia, Kuwait and other Gulf countries, foreign technology is brought in to the petroleum extraction process by means of service contracts with transnational corporations. The oilfields are owned by the state, and production is controlled by state-owned companies.
PSAs are usually permitted by states in areas where it is likely either that oil may not be found, or that the cost of extracting it may be high; thus a company is rewarded by the possibility of a high profit for risking its investment. The corporations which hope to exploit Iraq's easily accesible reserves face risks which are political, rather than geological.
Other provisions of the proposed law add to the weakening of the role of the Iraqi state in relation to the transnational oil firms. The legislation puts a new entity called the Federal Oil and Gas Council in charge of managing hydrocarbon resources and making contracts with companies. This body is to include provincial representatives, who are likely to represent competing local and sectarian interests, and also the chief executives of oil and gas companies. The central state is further undermined by clauses which allow regions to negotiate their own separate deals with foreign oil companies.
But as with other aspects of the US intervention in Iraq, serious difficulties have emerged. Since the draft law was published it has faced resistance from many sectors of Iraqi society. In December 2006, the leaders of Iraq’s five trade union federations, representing half a million organised workers, issued a statement denouncing the draft oil law as privatisation by stealth. They called for the the state owned Iraqi National Oil Company to be given preference in the award of contracts over foreign-owned firms.
While the daily headlines about Iraq cover car bombs, kidnapping and sectarian bloodshed, the struggle against this plunder of the country's resources has not been as widely reported. Oil workers have campaigned against the oil law by going on strike and mobilising street demonstrations.
Anti oil law protests are led by The Iraqi Federation of Oil Unions (IFOU), representing more than half the oil industry’s workforce in the Shia populated provinces of Basra, Maysan, Dhi Qar and Muthana; historically the bedrock of the Iraqi labour movement.
Hundred of Iraqi intellectuals have signed a statement opposing the oil law and proposing that it be put to a referendum. An opinion poll conducted in June and July indicates that the proposed law would be overwhelmingly defeated if a referendum were to be held.
The administration in Baghdad reacted angrily to mass protests, issuing arrest warrants for the president of the IFOU unions, Hassan Jumaa Awad al-Assadi, and his fellow leaders. Iraqi Oil minister Hussain al-Shahristani told UPI: “there are no legal unions in Iraq.” According to a letter written by the general director of the Iraqi oil ministry on 18th July 2007:
"The minister has directed the prohibition of cooperation with any member of any union in any of the committees organised under the name of the Union, as these unions do not enjoy any legal status to work inside the public sector."
The Iraqi government has opted to retain Saddam’s 1987 anti-union decree which deemed all public sector workers to be civil servants, and banned employees of state-owned enterprises from joining trade unions. But union activity has continued.
In July 2007, Hassan Jumaa Awad al-Assadi brought the message of the Iraqi oil workers to London. Speaking in a meeting organised by the UK Support Committee for IFOU, Al Assadi outlined the problems for Iraq’s future if the US backed oil law is approved:
“We will lose control over Iraqi oil. Therefore, the social progress in Iraq will be curtailed substantially, because the private oil companies want huge profits; they are not concerned about the environment, wages or living conditions.”
He added that the US and Britain have put heavy pressure on the Iraqi government to pass the new law in the face of mounting public opposition. Al Assadi noted that after four years of bloody occupation:
“It’s not logical for the US to come out empty-handed: they want their hands full of Iraqi oil.”
Al Assadi called upon Iraqi politicians to learn from the courage of the revolutionary leader and founder of the Iraqi Republic, President Kassem; who in 1961 issued Law No. 80. Under this law, 95.5% of the Iraqi territory that had been under the control of British and American oil companies was expropriated and placed under public ownership.
The Fadhila Party and Muqtada al-Sadr's organisation, which between them dominate street-level reality in much of the south of Iraq, have also declared their opposition to the oil law.
Best laid plans
Another difficulty for the oil law's US sponsors has resulted partly from the success of the USA's own policy of facilitating the emergence, in the words of Peter W. Galbraith, of the "stable, democratic, and pro-Western" government in Iraqi Kurdistan. The Kurdistan Regional Government (KRG) is already allowing five of its oilfields to be drilled by foreign companies, and its representatives have so far been unwilling to accept the majority view in the Iraqi cabinet that the Iraqi National Oil Company should have any substantial role in the Kurdish region. This factor has contributed to the continuing failure to put the legislation before the Iraqi parliament.
In early August, the Kurdish Regional parliament approved its own hydrocarbon law, giving the green light to further oil privatisation on the basis of Production Sharing Agreements. KRG Natural Resources Minister Ashti Hawrami declared:
"I am enjoying seeing a young but fast maturing democracy at work."
This depends on how one defines democracy. The opinion poll carried out by KA Research found that a clear majority of those interviewed in Iraqi Kurdistan, like all the other areas of Iraq, were of the view that their country's oil should be developed and produced by state-owned companies.
As Reuters has reported, the big oil corporations are preparing their takeover bids for the smaller companies, including DNO of Norway, Canada's WesternZagros and the Turkish firm Petoil, which are beginning to pump the crude from Kurdistan. The article explained:
Initially, mid-sized firms were more likely to get involved in buyouts and new contracts in the Kurdish region than majors.
The majors would be more cautious as they have their eyes on potentially much bigger prize of Iraq's largest oilfields in the south.
Corporate security policies ban majors from sending personnel into Iraq, including the Kurdish region. Until security improves, they can't do more than sign deals.
With big oil potentially sidelined for years due to security, a similar pattern could emerge in the south as in the Kurdish region with smaller companies moving in first and becoming buyout targets later.
Facing increasingly blatant signals from the USA that they will be replaced if they fail to deliver on the most important of the benchmarks, Iraqi government ministers are now insisting that the long-delayed oil law will be put before Iraq's parliament and passed during September 2007. But even if that is achieved, it will be no guarantee of long-term success for US policy. Daniel Litvin, an expert on 'corporate social responsibility ' who is a former policy advisor to the transnational mining comany Rio Tinto plc, cautioned in the August issue of Prospect Magazine:
...that the US is widely known to be pushing the current oil legislation, and to favour major involvement by foreign firms, creates the ideal conditions for a domestic backlash against such investment at a later stage, in particular once America has quit the country.
In whatever form the current oil legislation is eventually passed, any future Iraqi government looking to prove to its voters that it is no longer an American puppet would likely seek to rewrite this legislation as a symbolic first step, forcing any foreign firms granted access to renegotiate their contracts or even to surrender them.
Litvin's phrase "once America has quit the country" suggests some kind of clean break which would leave Iraqis in political control of their own resources. Such a scenario does not appear among the various plans for avoiding defeat which the factions of the US elite are considering. But so far in Iraq- as in other parts of the 21st Century world- many things are not going quite according to plan for the United States of America.
Homepage picture: a mural in the Falls Road in Belfast, Northern Ireland.