The Struggle over Iraqi Oil
Eyes Eternally on the Prize
by Michael Schwartz, TomDispatch
http://www.zmag.org/, May 6, 2007
The struggle over Iraqi oil has been going
on for a long, long time. One could date it back to 1980 when
President Jimmy Carter -- before his Habitat for Humanity days
-- declared that Persian Gulf oil was "vital" to American
national interests. So vital was it, he announced, that the U.S.
would use "any means necessary, including military force"
to sustain access to it. Soon afterwards, he announced the creation
of a Rapid Deployment Joint Task Force, a new military command
structure that would eventually develop into United States Central
Command (Centcom) and give future presidents the ability to intervene
relatively quickly and massively in the region.
Or we could date it all the way back to World War II, when British
officials declared Middle Eastern oil "a vital prize for
any power interested in world influence or domination," and
U.S. officials seconded the thought, calling it "a stupendous
source of strategic power and one of the greatest material prizes
in world history."
The date when the struggle for Iraqi oil began is less critical
than our ability to trace the ever growing willingness to use
"any means necessary" to control such a "vital
prize" into the present. We know, for example, that, before
and after he ascended to the Vice-Presidency, Dick Cheney has
had his eye squarely on the prize. In 1999, for example, he told
the Institute of Petroleum Engineers that, when it came to satisfying
the exploding demand for oil, "the Middle East, with two
thirds of the world's oil and the lowest cost, is still where
the prize ultimately lies." The mysterious Energy Task Force
he headed on taking office in 2001 eschewed conservation or developing
alternative sources as the main response to any impending energy
crisis, preferring instead to make the Middle East "a primary
focus of U.S. international energy policy." As part of this
focus, the Task Force recommended that the administration put
its energy, so to speak, into convincing Middle Eastern countries
"to open up areas of their energy sectors to foreign investment"
-- in other words, into a policy of reversing 25 years of state
control over the petroleum industry in the region.
The Energy Task Force set about planning how to accomplish this
historic reversal. We know, for instance, that it scrutinized
a detailed map of Iraq's oil fields, together with the (non-American)
oil companies scheduled to develop them (once the UN sanctions
still in place on Saddam Hussein's regime were lifted). It then
worked jointly with the administration's national security team
to find a compatible combination of military and economic policies
that might inject American power into this equation. According
to Jane Mayer of The New Yorker, the National Security Council
directed its staff "to cooperate fully with the 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.'"
While we cannot be sure that this planning itself was instrumental
in setting the U.S. on a course toward invading Iraq, we can be
sure that plenty of energy was being expended in Washington, planning
for the disposition of Iraq's massive oil reserves once that invasion
was successfully executed. In 2002, just a year after Cheney's
Task Force completed its work, and before the U.S. had officially
decided to invade Iraq, the State Department "established
a working group on oil and energy," as part of its "Future
of Iraq" project. It brought together influential Iraqi exiles,
U.S. government officials, and international consultants. Later,
several Iraqi members of the group became part of the Iraqi government.
The result of the project's work was a "draft framework for
Iraq's oil policy" that would form the foundation for the
energy policy now being considered by the Iraqi Parliament.
The specific prize in Iraq is certainly worthy of almost any kind
of preoccupation. Indeed, Iraq could someday become the most important
source of petrochemical energy on the planet.
According to the U.S. Energy Information Administration, Iraq
possesses 115 billion barrels of proven oil reserves, third largest
in the world (after Saudi Arabia and Iran). About two-thirds of
its known oil reserves are located in Shia southern Iraq, and
the final third in Kurdish northern Iraq. However, in energy terms,
only about 10% of the country has actually been explored and there
is good reason to believe that modern methods -- which have not
been applied since the beginning of the Iraq-Iran War in 1980
-- might well uncover magnitudes more oil. Estimates of the possible
new finds offered by officials of various interested governments
range from 45 billion to 214 billion additional barrels, depending
on the source; but some non-governmental experts see the final
treasure exceeding 400 billion barrels. If the latter figure is
correct, then Iraq would likely become the world's largest source
For the most part, Iraq's petroleum has "attractive chemical
properties"; that is, its oil is considered to be of very
high quality. Moreover, both its current fields and many of the
potential new discoveries would be extremely cheap to access,
if security weren't such a problem today in Iraq. James Paul of
the international policy monitoring group, the Global Policy Forum,
offers this positive view:
"According to Oil and Gas Journal, Western oil companies
estimate that they can produce a barrel of Iraqi oil for less
than $1.50 and possibly as little as $1.... This is similar to
production costs in Saudi Arabia and lower than virtually any
With the price of a barrel of crude oil today above $64 a barrel,
the potential for profits is stupendous and the only question
is: Who will pocket them -- the oil companies or the Iraqi government
-- and, if the former, which oil companies those will be? It is
not inconceivable that any major oil companies able to claim a
large portion of the Iraqi oil spoils could double, triple, or
even quintuple their already gigantic global profits.
Under Saddam Hussein, Iraqi oil never fulfilled the potential
of even its proven oil fields. A modest goal for the country's
oil industry would have been producing 3.5 million barrels per
day, but the temporary disruptions caused by the Iraq-Iran War
and the more permanent ones caused by UN sanctions imposed after
the Gulf War in 1991 severely limited production. From the late
1990s until the American invasion in 2003, Iraq averaged around
2.5 million barrels per day.
Knowledge of this level of underproduction was certainly one factor
in Deputy Secretary of Defense Paul Wolfowitz's pre-war prediction
that the administration's invasion and occupation of Iraq would
pay for itself; he hoped for a quick postwar increase in production
to 3.5 million barrels per day or, at the $30 per barrel price
of oil at that time, close to $40 billion per year in revenues.
An expected expansion in production levels (once the oil giants
were brought into the mix) to perhaps 6.5 million barrels, through
the development of new oil fields or more efficient exploitation
of existing fields, had the potential to more than cover the expected
American short-term military costs and leave the new Iraqi government
flush as well.
This, then, was the allure of melding energy policy and military
policy, as Cheney's energy group and allied administration officials
The Initial Campaign to Capture Iraqi Oil
With all this history, the particular way the U.S. sprang into
action as soon as its forces arrived in Baghdad was hardly surprising.
While American troops simply stood by as unrestrained looting
severely damaged the dawn-of-civilization treasures in the National
Museum, compromised the ability of hospitals to deliver health
care, and destroyed many government offices, large numbers of
American soldiers were deployed to protect the Oil Ministry and
its associated holdings. This effort was certainly emblematic
of the newly established occupation's priorities.
Not long after President Bush declared "major combat operations
in Iraq have ended" under a "Mission Accomplished"
banner on the deck of the aircraft carrier, the USS Abraham Lincoln,
Paul Bremer, the new head of the American occupation, promulgated
a series of laws designed, among other things, to kick-start the
development of Iraqi oil. In addition to attempting to transfer
management of existing oil facilities (well heads, refineries,
pipelines, and shipping) to multinational corporations, he also
set about creating an oil-policy framework, unique in the region,
that would allow the major companies to develop the country's
proven reserves and even to begin drilling new wells.
All these plans were, however, quickly frustrated, both by the
growing Sunni insurgency and by civil resistance. Iraq's oil workers
quickly unionized -- even though Bremer extended Saddam's prohibition
on unions in state-owned companies -- and effectively resisted
the transfer of management duties to foreign companies. In one
noteworthy moment, the oil workers actually refused to take orders
from Bechtel officials in the oil hub of Basra, thus preserving
their own jobs as well as the right of the Iraqi state-owned Southern
Oil Company to continue to control the operation in that region.
Bechtel's management contract was subsequently voided.
At the same time, the growing insurgency, acting on a general
Iraqi understanding that a major goal of the occupation was to
"steal" Iraqi oil, systematically began to attack the
oil pipelines that traveled through the Sunni areas of the country.
Within a few months, all oil exports in the northern part of Iraq
were interrupted -- and the northern export pipelines have remained
generally unusable ever since.
To resistance of various sorts must be added the "contribution"
of the major American corporations involved in "reconstructing"
Iraq, notably Halliburton and Bechtel. These crony corporations,
with close ties to the Bush administration, accepted huge fees
to rehabilitate dilapidated or damaged oil facilities. Almost
without fail, they chose not to repair existing plants locally
or to employ the raft of skilled Iraqi technicians who had used
remarkable ingenuity in maintaining these facilities during a
dozen years of UN sanctions. Working under cost-plus agreements
that guaranteed a fixed profit rate no matter how much an operation
ultimately cost, they preferred instead to install expensive new
proprietary equipment. Then, in the absence of any outside oversight,
they ran up huge expenses and frequently failed to complete their
contracts, leaving the oil facilities they were servicing in states
of disrepair or partial repair -- and equipped with technology
that local technicians could not service.
Meanwhile, the major oil companies refused Bremer's invitation
to invest their own money in Iraqi projects, pointing out the
obvious -- that the insurgency and the spreading chaos made such
investments unwise. In addition, they were well aware that Bremer's
regime in Baghdad lacked clear authority to sign contracts with
them. This, in turn, meant that their investments might be in
jeopardy once a legitimate government took power. When technical
sovereignty was finally handed over to an appointed Iraqi government
headed by the CIA's favorite Iraqi exile, Iyad Allawi, in June
2004, the new premier embraced Bremer's policy, but to no avail.
The international oil companies were no more impressed with his
future than they had been with Bremer's. Like Wolfowitz, they
knew that Iraq "floats on a sea of oil"; unlike him,
they were no dreamers. They weren't willing to risk their capital
in the dangerous and legally ambiguous circumstances then prevailing.
As a result, the first two years of Bush administration efforts
to "access" Iraqi oil failed -- and dismally so at that.
Average production never exceeded the bottom-of-the-barrel 2.5
million barrels Saddam's regime managed to extract on its worst
days. By 2006, production had slipped below 2 million barrels
Dealing with the Iraqi Government
It is difficult to judge how much Bremer's inability to implement
the pre-planned oil policy contributed to the Bush administration
decision to reverse its plans for Iraqi "democracy"
-- which, as Juan Cole has pointed out, involved council-based
elections, an electorate restricted to a small elite, and Bremer
as "a MacArthur in Baghdad for years" -- and push for
an elected Iraqi government. It certainly is true, however, that
this change triggered a campaign aimed at the "capture of
new and existing oil and gas fields."
As soon as the first elections for a temporary Iraqi government
were completed in January 2005 American officials in Iraq began
lobbying forcefully for adoption of the very policy that the State
Department's pre-invasion Future of Iraq project had drafted.
The State Department planners had concluded that Production Sharing
Agreements -- a method that granted multinational oil companies
effective control of oil fields without transferring permanent
ownership to them -- would be the basic instrument through which
a future "independent" Iraq would develop new oil fields.
Wary by now of being seen as the chief advocate of this policy,
which it so desperately wanted in place, the Bush administration
concocted a strategy that would enlist the international community
in pressuring Iraq to adopt its program.
This was done by making the International Monetary Fund (IMF)
a key player in Iraqi oil policy. Through loans in the 1980s and
reparations imposed for his invasion of Kuwait in 1990, Saddam
had accumulated $120 billion in external debt, the largest per
capita debt in the world and a potentially insurmountable obstacle
to economic recovery, even in oil-rich Iraq. One option available
to the new government was to declare this debt "odious,"
a technical term in international law referring to debt accumulated
by authoritarian rulers for their own personal or political aggrandizement.
Saddam's expansionist war against Iran, his use of public funds
to build ostentatious monuments and palaces, his transfer of billions
to his personal accounts, and his failure to maintain the infrastructure
of the country all were excellent evidence that the debt was indeed
odious; and the U.S. claimed as much for almost $40 billion of
it, held by 19 industrialized countries known as the Paris Club.
Instead of seeking to cancel this debt (and the remaining $80
billion) entirely, however, the Bush administration sent James
Baker, former Secretary of State under George H. W. Bush, to the
Paris Club to negotiate conditional forgiveness. The resulting
agreement immediately forgave $12 billion, but left $28 billion
on the books. A second $12 billion would be abrogated when the
Iraqi government signed onto "a standard International Monetary
Fund program," and a further $8 billion three years later,
after the IMF confirmed Iraqi compliance. Even if "successful,"
almost $8 billion would still be outstanding to the Paris Club
-- together with $80 billion not covered by the agreement.
The "standard International Monetary Fund program,"
not surprisingly, included the now familiar American policies
regarding Iraqi oil, as well as the use of Profit Sharing Agreements
and a host of other provisions that would open the Iraqi economy
as a whole, and the oil sector in particular, to investment by
multinational corporations. Among the most punitive of the provisions
was a demand for an end to the economic breadbasket that guaranteed
all Iraqi families low prices for fuel and food staples. In a
country with, by 2005, somewhere between 30% and 70% unemployment,
average wage levels under $100 per month, and escalating inflation,
these Saddam-era subsidies meant the difference between basic
subsistence and disaster for a large proportion of Iraqis.
Independent journalists Basav Sen and Hope Chu summarized the
new agreement thusly:
"A move that appears on the surface to be beneficial for
Iraq -- debt cancellation -- is being used as a tool of control
by the World Bank, the IMF and the wealthy creditor countries.
What is more, it is a tool of control that will last long after
the withdrawal of U.S. combat forces."
Zaid Al-Ali, an international lawyer working on development issues
in Iraq, described the agreement as 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 newly elected Iraqi National Assembly promptly denounced this
agreement as "a new crime committed by the creditors who
financed Saddam's oppression." This forceful expression reflected
the opinions of the Assembly's constituents. After all, 76% of
Iraqis believed that the main reason for the Bush administration's
invasion was "to control Iraqi oil."
As it happened, the protest did not prevent that government from
endorsing the deal. Otherwise, it faced the prospect of the U.S.
-- which still had operational control over Iraqi finances --
simply appropriating most of its revenues for debt service. When
the agreement was announced, interim Oil Minister Thamir Ghadbhan,
a British-trained technocrat, publicly protested the provisions
eliminating fuel and food subsidies. He was subsequently pushed
The U.S. then began pressuring the Iraqi government to draft a
definitive petrochemical law that would conform to the IMF guidelines.
Given the levels of resistance to the very idea, this work was
conducted in secret and took until the end of 2006 to complete.
As independent journalist Joshua Holland described the process:
"Just months after the Iraqis elected their first constitutional
government, USAID sent a BearingPoint adviser to provide the Iraqi
Oil Ministry 'legal and regulatory advice in drafting the framework
of petroleum and other energy-related legislation, including foreign
investment'.... 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 Dr. Al-Shahristani to meet with nine major
oil companies -- including Shell, BP, ExxonMobil, ChevronTexaco
and ConocoPhillips -- for them to comment on the draft.'"
Even the Iraqi Study Group, James Baker's Commission, got into
the act at the end of 2006, devoting three pages of its proposal
for a partial redeployment of American forces from Iraq to exhorting
the Iraqis to enact a petrochemical bill that would place its
oil reserves in the hands of the major oil companies.
The Proposed Petrochemical Bill
When the "Draft Hydrocarbon Law" was finally delivered
to the Iraqi Parliament on February 18, 2007, key provisions had
already been leaked and immediately denounced by the full spectrum
of the Iraqi opposition. Taking turns registering dismay were
the majority of the Parliament, a wide range of government officials,
the leadership of major Sunni political parties, the union of
oil workers, the Sadrists -- the most powerful Shia grouping --
and the visible leadership of the insurgency.
All this led to many changes in the law, including the removal
of all mention of either privatization or Production Sharing Contracts,
which would have given multinational oil companies 15-25 years
of basically unregulated operational control over Iraqi oil facilities.
The amended version in no way excluded the use of PSAs, but it
removed the explosive designation from the actual wording of the
It is worth reviewing the logic of PSAs to understand why the
U.S. was so determined to make them a part of the law, and why
many Iraqis were so ferociously opposed.
Production sharing agreements are generally applied in circumstances
where there is a strong possibility that oil exploration will
be extremely costly or even fail, and/or where extraction is likely
to prove prohibitively expensive. To offset huge and risky investments,
the contracting company is guaranteed a proportion of the profits,
if and when oil is extracted and sold. In the most common of these
agreements, the proportion remains very high until all development
costs are amortized, allowing the investing company to recoup
its investment expenditures (if oil is found), and then to be
rewarded with a larger-than-normal profit margin for the remainder
of the contract which, in the Iraqi case, could extend for up
to 25 years.
This is perhaps a reasonably fair, or at least necessary, bargain
for a country which cannot generate sufficient investment capital
on its own, where exploration is difficult (perhaps underwater
or deep underground), where the actual reserves may prove small,
and/or where ongoing costs of extraction are very high.
None of these conditions apply in Iraq: huge reservoirs of easily
accessible oil are already proven to exist, with more equally
accessible fields likely to be discovered with little expense.
This is why none of Iraq's neighbors utilize PSAs. Saudi Arabia,
Kuwait, Iran, and the United Arab Emirates all pay the multinationals
a fixed rate to explore and develop their fields; and all of the
profits become state revenues.
The advocates of PSAs in Iraq justify their use by arguing that
$20 billion would be needed to develop the Iraqi fields fully
and that favorable PSAs are the only way to attract such heavy
doses of finance capital under the current highly dangerous circumstances.
This assertion seems, however, to be little more than a smokescreen.
No major oil companies are willing to invest in Iraq now, no matter
how sweet the deal. If order is restored, on the other hand, Iraq
would have no trouble attracting vast amounts of finance capital
to develop reserves that could well be worth in excess of $10
trillion and hence would have no need whatsoever for PSAs.
Based on leaked information, journalists reported that the PSAs
envisioned by the Iraqi petrochemical law contained extremely
favorable provisions for the oil companies, in which they would
be entitled to 70% of profits until development expenses were
amortized and 20% afterwards. This would have guaranteed them
at least twice the typical profit margin over the long run and
many times that figure during the initial years.
There are other elements in the law (and the possible PSA contracts)
that have also roused resistance inside Iraq. Among the most controversial:
· Insofar as PSAs or their legal equivalent were
enacted, Iraq would lose control over what levels of oil the country
produced with the potential to substantially weaken the grip of
OPEC on the oil market.
· The law would allow the oil companies to fully
repatriate all profits from oil sales, almost insuring that the
proceeds would not be reinvested in the Iraqi economy.
· The Iraqi government would not have control over
oil company operations inside Iraq. Any disputes would be referred
instead to pro-industry international arbitration panels.
· No contracts would be public documents.
· Contacting companies would not be obliged to
hire Iraqi workers, and could pursue the current policy of employing
American technicians and South Asian manual laborers.
Several African countries with vast mineral riches have been subjected
to these sorts of conditions, with large multinational companies
extracting both minerals and profits while returning only a tiny
fraction of the proceeds to the local population. As the resources
are taken out of the ground and the country, the local population
actually becomes poorer, while the potential for future prosperity
The draft petrochemical law, if enacted and implemented, could
ensure that Iraq would remain in a state of neoliberal poverty
in perpetuity, even if order did return to the country.
The petrochemical law is hardly assured of successful passage,
and -- even if passed -- is in no way assured of successful implementation.
Resistance to it, spread as it is throughout Iraqi society, has
already shown itself to be a formidable opponent to the dwindling
power of the American occupation.
The Parliament itself may be the first line of defense. It challenged
the original IMF agreement and has refused to consider the bill
for two months, already missing a March deadline for passage that
American politicians of both parties had pronounced an important
"benchmark" by which to judge the viability of Prime
Minister Nouri al-Maliki's government.
In addition, the government officials responsible for administering
the oil industry could prove formidable opponents. Rafiq Latta,
a London-based oil analyst, told Nation reporter Christian Parenti,
"The whole culture of the ministry opposes [the law]....
Those guys ran the industry very well all through the years of
sanctions. It was an impressive job, and they take pride in 'their'
Perhaps most formidable of all is the Federation of Oil Unions,
with 26,000 members and allies throughout organized labor. The
oil workers overturned contracts in 2003 and 2004 that would have
placed substantial oil facilities under multinational corporate
control; and they initiated a vigorous campaign against the U.S.
sponsored oil program as early as June 2005 -- calling a conference
to oppose privatization attended by "workers, academics,
and international civil-society groups." In January 2006,
they convened a convention composed of all major Iraqi union groups
in Amman, Jordan, which issued a manifesto opposing the entire
neo-liberal U.S. program for Iraq, including any compromise on
national control of oil production.
At a second Amman labor meeting in December of 2006, the Federation
of Oil Unions announced its opposition to the pending law even
before it was released. Iraq's trade unions, speaking in a single
voice, declared that:
"Iraqi public opinion strongly opposes the handing of authority
and control over the oil to foreign companies, that aim to make
big profits at the expense of the people. They aim to rob Iraq's
national wealth by virtue of unfair, long term oil contracts that
undermine the sovereignty of the State and the dignity of the
When the bill was made public, oil union president Hassan Jumaa
denounced it before yet another protest meeting, stating:
"History will not forgive those who play recklessly with
our wealth.... We consider the new law unbalanced and incoherent
with the hopes of those who work in the oil industry. It has been
drafted in a great rush in harsh circumstances."
He then called on the government to consult Iraqi oil experts
(who had not participated in drafting the law) and "ask their
opinion before sinking Iraq into an ocean of dark injustice."
If the oil workers and their union allies decide to organize protests
or strikes, they are likely to have the Iraqi public on their
side. Fully three-quarters of Iraqis believe that the United States
invaded in order to gain control of Iraqi oil, and most observers
believe they will surely agree with the oil workers that this
law is a vehicle for that control. Even Iyad Allawi has now publicly
taken a stand opposing it, perhaps the best indication that opposition
will be virtually unanimous.
Finally -- and no small matter -- the armed resistance is also
against the oil law. The Sunni insurgency underscored its opposition
by assassinating Vice President Adel Abdul Mahdi, a major advocate
of the pending law, on the day the bill was made public. The significance
of the opposition of the Sunni insurgency is amplified by the
stance of the Sadrists, the most rebellious segment of the Shia
majority. Sadr spokesman Sheikh Gahaith Al Temimi warned journalist
Christian Parenti that while the Sadrists would "welcome"
foreign investment in oil, they would do so only "under certain
conditions. We want our oil to be developed, not stolen. If a
bad law were to be passed, all people of Iraq would resist it."
It seems clear that what the oil law has the power to do is substantially
escalate the already unmanageable conflict in Iraq. Active opposition
by the Parliament alone, or by the unions alone, or by the Sunni
insurgency alone, or by the Sadrists alone might be sufficient
to defeat or disable the law. The possibility that such disparate
groups might find unity around this issue, mobilizing both the
government bureaucracy and overwhelming public opinion to their
cause, holds a much greater threat: the possibility of creating
a unified force that might push beyond the oil law to a more general
opposition to the American occupation.
Like so many American initiatives in Iraq, the oil law, even if
passed, might never be worth more than the paper it will be printed
on. The likelihood that any future Iraqi government which takes
on a nationalist mantel will consider such an agreement in any
way binding is nil. One day in perhaps the not so distant future,
that "law," even if briefly the law of the land, is
likely to find itself in the dustbin of history, along with Saddam's
various oil deals. As a result, the Bush administration's "capture
of new and existing oil and gas fields" is likely to end
as a predictable fiasco.
Michael Schwartz, Professor of Sociology and Faculty Director
of the Undergraduate College of Global Studies at Stony Brook
University, has written extensively on popular protest and insurgency,
and on American business and government dynamics. His books include
Radical Protest and Social Structure, and Social Policy and the
Conservative Agenda (edited, with Clarence Lo). His work on Iraq
has appeared on numerous Internet sites including Tomdispatch,
Asia Times, Mother Jones, and ZNet, and in print in Contexts,
Against the Current, and Z Magazine. His email address is Ms42@optonline.net.
[This article first appeared on Tomdispatch.com, a weblog of the
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news, and opinion from Tom Engelhardt, long time editor in publishing,
co-founder of the American Empire Project and author of Mission
Unaccomplished (Nation Books), the first collection of Tomdispatch