Struggle Against ISIS Shields US Oil Grab
30 September 2014
By Jean Shaoul
Seven years ago, US Senator Chuck Hagel, now Obama’s defence secretary, said of
the occupation of Iraq, “People say we're not fighting for oil. Of course we
are. They talk about America's national interest. What the hell do you think
they're talking about? We're not there for figs.”
President Barack Obama and Hagel’s talk of going after the Islamic State of Iraq
and Syria (ISIS), which its regional allies have financed as a proxy force to
topple the Syrian regime of President Bashar al-Assad, is a cover for their
plans to overthrow Assad. But an additional issue at stake is the control of
Iraq’s vast energy resources and the supply routes through its territory.
Iraq has the fifth largest proven oil reserves in the world and Washington and
its allies have no intention of surrendering the oil contracts now controlled by
Western companies. The US is seeking to preserve its unimpeded access to oil and
gas, while determining how much of these vital energy resources are available to
other countries—especially to its rivals China and Russia.
ISIS has taken control of vast swathes of eastern Syria and north-western Iraq,
including Iraq’s second city Mosul, and their oil infrastructure. It now
threatens Erbil, the capital of the autonomous Kurdistan Regional Government (KRG),
whose reserves, were it a separate country, would position it tenth in the
world, and the Iraqi capital Baghdad.
The ISIS advance into western Iraq and the Sunni Triangle means that it controls
parts of two main pipelines. The first, the 500-mile Kirkuk-to-Banyas (a port in
Syria), was largely destroyed by US airstrikes during the 2003 war, although the
stretch between Ain Zalah and Suweidiva is operational. The second pipeline runs
from Kirkuk to Ceyhan, Turkey. While ISIS has stopped the flow through to Syria,
it has allowed the flow to Turkey to continue.
US air strikes on ISIS and its Sunni tribal allies, alongside the KRG’s
Peshmerga forces and Kurdish fighters from Syria and Turkey on the ground,
prevented ISIS from taking control of one of Iraq’s largest oil fields in Kirkuk,
which the KRG had earlier seized from the Iraqi forces. The Iraqi Army drove
ISIS out of Baiji, home to Iraq’s largest oil refinery and power plant. The US
also provided air cover to enable Iraqi security forces to regain control of the
K3 Refinery in Haditha, northwest of Ramadi in Anbar province, and the site of a
key dam downstream of the recently recaptured Mosul dam.
Energy companies such as Genel, the British-Turkish company run by former BP CEO
Tony Hayward, and Oryx Petroleum, a Canadian firm, said that their Taq Taq,
Tawke and Hawler oilfields were now secure, and it was safe for staff to return.
As yet, the giant oilfields in southern Iraq, a largely Shiite area, controlled
by BP, Exxon-Mobil, Shell, the Russian Lukoil, Angola’s Sonangol, Italy’s ENI
and the Norwegian Statoil, as well as other smaller companies, have not been
affected by fighting, although there have been attacks on pipelines. This has
led a number of the firms and their contractors to sell at least part of their
stakes, while others have turned their attention to the KRG’s oilfields.
Following the defeat of the regime of Saddam Hussein in the 2003 war, US oil
bosses moved in to run Iraq’s oil industry. While they were unable to ensure the
passage of the hydrocarbon law that would have given them complete control of
Iraq’s oil, they were able to open up Iraq’s oil to Western companies, after an
absence of three decades, on very favourable terms.
These have included long-term concessions and large ownership stakes. There are
no restrictions on the export of oil or the remittance of profits overseas and
no requirements that the companies hire a majority of Iraqi workers or invest in
the local economy.
The industry is now run by international corporations such as BP, Exxon-Mobil,
Shell, Chevron, the French company Total as well as Russian, Chinese and
Malaysian and a raft of smaller companies.
Earlier this year, Russian oil giant Lukoil started production at the giant oil
field of West Qurna-2, south of Basra, which is possibly the world’s largest
untapped field, with oil reserves believed to be about 20 billion barrels. While
initial production is 120,000 bpd, this is set to rise to 400,000 bpd next year
and possibly 1.2 million bpd in a few years’ time.
Exploitation of the oil field, discovered by the Russians in the 1980s, was
blocked first by US sanctions in the 1990s and later by the occupying forces,
despite a 2004 agreement in exchange for Russia’s forgiving Iraq’s $13 billion
debt. After the Iraqi government, under pressure from Washington, was forced to
cancel the original deal, Lukoil beat BP for development rights in 2007.
Lukoil’s CEO Vagit Alekperov, who is close to President Vladimir Putin, has so
far escaped US sanctions over Ukraine.
In the Kurdish autonomous region, the oil fields that were largely neglected
before 2003 have come into play. The corrupt regional government--dominated by
the rival Barzani and Talabani families who in turn control the two main Kurdish
parties--has awarded contracts that permit it to sell up to 25 percent of its
stake in the oil projects to private companies in defiance of the federal
government. As well as Genel and Oryx Petroleum, four big oil companies–Chevron,
Exxon-Mobil, Hess and Total–and 30 smaller companies have signed deals with the
KRG. Production in KRG, which is set to rise further, accounts for 10 percent of
The KRG has sought to use a newly opened pipeline within KRG territory to link
to the pre-existing pipeline to Ceyhan and export oil directly. This is deemed
illegal by Baghdad. As a result, Kurdish oil is used in Turkey and not sold on
the world markets for fear of lawsuits brought by the Iraqi government. The KRG
has also allowed Genel to send 700 tanker trucks a day to Turkey, thereby
avoiding the pipeline whose throughput is monitored at Mosul. The US is opposed
to the KRG’s sale of oil independently of Baghdad, but it is using the KRG as a
pawn to bully the federal government into acceding to its dictates.
The oil industry has now largely recovered from the 2003 war and the deliberate
destruction carried out during the US occupation. Oil production has reached
about 3.3 million bpd, just below the 3.5 million bpd under the state-owned
enterprises in 1979, making Iraq the world’s seventh largest producer.
About half of all Iraqi oil is exported to China, which recently became the
world’s largest oil importer. Last year, PetroChina, one of China’s four
state-owned energy corporations, bought a stake from Exxon in the southern Iraqi
oil field West Qurna and bought into three other large fields. Sinopec and CNOOC
also have concessions in Iraq. The Chinese typically partner with the major
Western oil companies or take low-margin contracts. China has built its own
airport in the south near the border with Iran to transport 10,000 workers to
the oil fields.
The Iraqi people have seen little benefit from the oil boom. The oil and gas
industry employs less than 2 percent of the employed workforce, because the
international companies bring in their own staff. Eighty percent of the oil (2.7
million bpd) is exported, leaving little for the domestic market. Fuel shortages
and power shutoffs are rife. According to the World Bank, poverty is on the
rise, with 28 percent of families--more than 9.5 million Iraqis--living below
the poverty line. Thousands of families look for food in the garbage and live in
landfills and slums.
The government has failed to pass social security legislation to provide
unemployment benefits, despite revenues rising from $50 billion in 2010 to more
than $100 billion in 2013. The $50 billion increase, if used for the benefit of
the Iraqi people, could have provided benefits and services worth $10,000 for
each of the 5 million families. Such infrastructure and service improvements
that did take place were in Shiite not Sunni areas. This was one of the factors
driving Sunni militants who have, since December 2012, targeted the local Shiite
and oil facilities in the Sunni areas, in order to gain control of some of
Iraq’s oil proceeds.