Are U.S. Oil Companies Going to "Win" the Iraq War?

Antonia Juhasz
Thursday, March 1, 2007

"The U.S. invasion of Iraq was not preemption; it was ... an avaricious, premeditated, unprovoked war against a foe who posed no immediate threat but whose defeat did offer economic advantages." - Michael Scheuer, the CIA's senior expert on al-Qaeda until he quit in disgust with the Bush administration, in Imperial Hubris.

Remember oil? That resource we didn't go to war for in Iraq?

Well, you'll have a tough time convincing anyone in Iraq of this particular claim if a new oil law set to go before the Iraqi Parliament within weeks (or even days) becomes the law of the land. On Monday, the Bush administration and U.S. oil companies came one step closer to "winning" the war in Iraq when the Iraqi Cabinet passed this new national oil law. The brainchild of the Bush administration and its corporate allies, the law is the smoking gun exposing Bush's war for oil.

The Oil Law

If passed, the law would transform Iraq's oil system from a nationalized model all-but-closed to U.S. oil companies, to a commercialized model, all-but-fully privatized and opened to U.S. corporate control. Before the U.S. invasion of Iraq, U.S. oil companies were shut out of Iraq's oil industry with the exception of limited marketing contracts. As a result of the invasion, if the oil law passes, U.S. oil companies will emerge as the corporate front-runners in line for contracts giving them control over the vast majority of Iraq's oil under some of the most corporate-friendly terms in the world for twenty to thirty-five years. The law grants the Iraq National Oil Company oversight only over "existing" fields, which is about one-third of Iraq's oil. Exploration and production contracts for the remaining two-thirds of Iraq's oil will be opened to private foreign investment. Neither Iraqi public nor private oil companies will receive any preference in contracting decisions.

The contracts allow for foreign companies to take ownership of Iraq's oil fields without actually having to get to work for as long as seven years. Thus, the companies can take advantage of the incredibly weak negotiating position of the Iraqi government at a time of foreign occupation and civil war, while simultaneously being able to "ride out" the current "instability" in Iraq. Foreign companies do not have to reinvest any of their earnings in the Iraqi economy, hire or train Iraqi workers, transfer useful technology, or partner with Iraqi companies. The exact contract model is yet to be determined, but it appears that Production Sharing Agreements (PSAs) are yet again on the table. These are the contract-darlings of international oil companies that grant foreign companies greater control, profits, and longer contract terms than the contracts preferred by the majority of the world's oil countries.

In fact, PSAs are only used in about 12 percent of the world's oil. If the new law passed, Iraq's oil system would be utterly unique in the Middle East and in virtually any oil rich nation. For example, Kuwait, Iran and Saudi Arabia all maintain nationalized oil systems and have outlawed foreign control over oil development. They all hire foreign oil companies as contractors to provide specific services, as needed, for a limited duration, without giving the foreign company any direct interest in the oil produced. Iraq, freed from the pressure of a foreign occupation, would likely do the same.

The Propaganda

Contrary to the Bush administration's claims, Iraq does not need foreign oil corporations in order reap the benefits of its oil. Prior to the U.S. invasion, Iraq produced an average of 2.5 million barrels of oil a day. Since the invasion, the Iraqis have averaged approximately 2.2 million barrels of oil a day. This amount has dropped recently due to the surge in violence to about 1.7 million barrels a day. Because Iraq's oil is the cheapest in the world to produce, only about sixty cents a barrel, and oil is selling today at $61 per barrel - the return on any investment is enormous. At its current low rate of production, Iraq is expected to generate more than $30 billion from its oil this year alone - more than enough to keep the industry running and the economy stable.

The administration has been selling the law as a way to bring increased equality and stability to Iraq. It is correct on one point. The law does introduce a very equitable distribution of Iraq's oil revenues from the central government based on population. However, the benefits of this new provision are dramatically reduced if the majority of Iraq's revenues are going overseas. The law is likely to bring far more instability to Iraq. In fact, many Iraqi oil experts are already referring to the draft law as the "Split Iraq Fund," arguing that it facilitates plans for splitting Iraq into three ethnic/religious regions. The experts believe the law undermines the central government and shifts important decision-making and responsibilities to the regional entities.

This shift could serve as the foundation for establishing three new independent states, which is the goal of a number of separatist leaders. The law opens the possibility of the regions taking control of Iraq's oil, but it also maintains the possibility of the central government retaining control. In fact, the law was written in a vague manner to help ensure passage, a ploy reminiscent of the passage of the Iraqi constitution. There is a significant conflict between the Bush administration and others in Iraq who would like ultimate authority for Iraq's oil to rest with the central government and those who would like to see the nation split in three. Both groups are powerful in Iraq. Both groups have been mollified, for now, to ensure the law's passage. But two very different outcomes are possible.

If the central government remains the ultimate decision-making authority in Iraq, then the newly established Iraq Federal Oil and Gas Council will exercise power over the regions. And if the regions emerge as the strongest power in Iraq, then the Council could simply become a silent rubber stamp, enforcing the will of the regions. The same lack of clarity exists in Iraq's constitution. What is clear, however, is that the foreign oil corporations do have their rights clearly established. They have the right to explore, produce, control, and have guaranteed revenue from the second largest oil reserves in the world. Of course, we would expect very little in increased stability to follow from a U.S. corporate oil-grab of Iraq. The American who will pay the heaviest price are likely to be U.S. troops on the ground in Iraq.

Pre-War Planning

We all know that the Bush administration began planning for the Iraq war well before the September 11 terrorist attacks. In fact, former Treasury Secretary Paul O'Neil has explained that by February 2001, the administration was well passed debating whether or not to attack Iraq, but rather discussing the logistics of how to invade. Few people know that just month later, in March 2001; Cheney's Energy Task Force was working on a series of maps and lists outlining Iraq's entire oil productive capacity and the foreign companies lined-up to cash-in. The task force included representatives from all of the major U.S. oil and energy service companies, including Halliburton, Chevron, and ConocoPhillips. In addition to maps, they compiled two lists entitled "Foreign Suitors for Iraqi Oilfield Contracts as of 5 March 2001" that listed all the companies - none of them American - that were in negotiations with, or had already signed, oil contracts with Saddam Hussein.

Because of the sanctions against Iraq, however, none of the contracts were actually in force. But the writing was on the wall. Global public opinion had turned against the sanctions. If the sanctions were removed while Saddam Hussein was in power, oil companies from China, Russia, France, and elsewhere would get their hands on Iraq's oil, while U.S. companies would be left out. The U.S. State Department's Oil and Energy Working Group began meeting in December 2002. By April 2003, the group recommended that Iraq "should be opened to international oil companies as quickly as possible after the war," using PSAs. Since then, the Bush administration has invaded Iraq, ousted Saddam Hussein, put the pre-existing oil contracts on hold, and has nearly succeeded in a four-year long venture to restructure the Iraqi oil industry for itself and its corporate allies.

Iraqis Shut-Out

Most Iraqis, including, until very recently Iraqi Parliamentarians, have remained in the dark about the new oil law. Iraq's oil workers had to travel to Jordan to learn details of the law from the London-based research organization Platform. As a result, in September 2006, the nation's five trade union federations--between them representing hundreds of thousands of workers--released a public statement rejecting "the handing of control over oil to foreign companies, whose aim is to make big profits at the expense of the Iraqi people, and to rob the national wealth, according to long-term, unfair contracts, that undermine the sovereignty of the state and the dignity of the Iraqi people."

They demanded a delay in consideration of any law until all Iraqis could be included in the discussion. It's simple: the Bush administration and Big Oil are trying to get the best deal and the most oil possible out of a war-ravaged and desperate people. They are holding 25 million Iraqis - and 150,000 American troops -- hostage to their oil agenda. There is time, if we shine enough sunlight, to expose the oil agenda driving the war and support Iraqis who believe that now is not the time for their government to rush into contracts that will lock in the fate of their most valuable resource for a generation.

Oil Change International, Global Exchange, and others organizations and communities across the United States and around the world are coming together in protest events on March 17-19, to mark the 4-year anniversary of the Iraq war. They are urging environmentalists, climate justice, and peace activists to join together in protests at the headquarters and gas stations of the oil companies leading the charge in Iraq: Chevron, ExxonMobil, Marathon, ConocoPhillips, Shell and BP. Learn more at http://www.PriceofOil.org.

In the Bay Area, activists are planning a Rally, Protest, and Nonviolent Direct Action at Chevron's World Headquarters on March 19 from 7:00-11:00am in San Ramon. Visit http://www.myspace.com/ProtestChevron for details.

An international network of groups is organizing protests under the heading "Hands Off Iraq's Oil!" Visit their website http://www.HandsOffIraqiOil.org/.


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