8 February 2010 By Michael Schwartz
How the mighty have
fallen. Just a few years ago, an overconfident Bush
administration expected to oust Iraqi dictator Saddam
Hussein, pacify the country, install a compliant
client government, privatize the economy, and
establish Iraq as the political and military
headquarters for a dominating US presence in the
Middle East. These successes were, in turn, expected
to pave the way for ambitious goals, enshrined in the
2001 report of Vice President Dick Cheney’s secretive
task force on energy. That report focused on
exploiting Iraq’s monstrous, largely untapped energy
reserves -- more than any country other than Saudi
Arabia and Iran -- including the quadrupling of Iraq’s
capacity to pump oil and the privatization of the
production process. The dream in those
distant days was to strip OPEC -- the cartel
consisting of the planet’s main petroleum exporters --
of the power to control the oil supply and its price
on the world market. As a reward for vastly expanding
Iraqi production and freeing its distribution from
OPEC’s control, key figures in the Bush administration
imagined that the US could skim off a small proportion
of that increased oil production to offset the
projected $40 billion cost of the invasion and
occupation of the country. All in a year or two.
Almost seven years
later, it will come as little surprise that things
turned out to cost a bit more than expected in Iraq
and didn’t work out exactly as imagined. Though the
March 2003 invasion quickly ousted Saddam Hussein, the
rest of the Bush administration’s ambitious agenda
remains largely unfulfilled. Instead of quickly
pacifying a grateful nation and then withdrawing all
but 30,000-40,000 American troops (which were to be
garrisoned on giant bases far from Iraq’s urban
areas), the occupation triggered both Sunni and Shia
rebels, while US counterinsurgency operations led to
massive carnage, a sectarian civil war, the ethnic
cleansing of Baghdad, and a humanitarian crisis that
featured hundreds of thousands of deaths, four million
internal and external refugees, and an unemployment
rate that stayed consistently above 50% with all the
attendant hunger, disease, and misery one would
expect. In the meantime, the
government of Shia Prime Minister Nouri al-Maliki,
fervently supported by the Bush administration and
judged by Transparency International to be the fifth
most corrupt in the world, has morphed into an ever
less reliable client regime. Despite American diktats
and desires, it has managed to establish cordial
political and economic relationships with Iran, slow
the economic privatization process launched by the
neocon administrators sent to Baghdad in 2003, and
restored itself as the country’s primary employer. It
even seems periodically resistant to its designated
role as a possible long-term host for an American
military strike force in the Middle East. This resistance was
expressed most forcefully when Maliki leveraged the
Bush administration into signing a status of forces
agreement (SOFA) in 2008 that included a full US
military withdrawal by the end of 2011. Maliki even
demanded -- and received -- a promise to vacate the
five massive “enduring” military bases the Pentagon
had constructed -- with their elaborate facilities,
populations that reach into the tens of thousands, and
virtually no Iraqi presence, even among the thousands
of unskilled workers who do the necessary dirty work
to keep these “American towns” running. Despite such setbacks,
the Bush administration did not abandon the idea that
Iraq might remain the future headquarters for a US
presence in the region, nor in the 2008 presidential
election did candidate Barack Obama. He, in fact,
repeatedly insisted that the Iraqi government should
be a strong ally of the US and the most likely host
for a 50,000-strong military force that would “allow
our troops to strike directly at al-Qaeda wherever it
may exist, and demonstrate to international terrorist
organizations that they have not driven us from the
region.” Since entering the
Oval Office, Obama has not visibly wavered in the
commitment to establish Iraq as a key Middle East
ally, promising in his State of the Union Address that
the US would “continue to partner with the Iraqi
people” into the indefinite future. In the same
address, however, the president promised that “all of
our troops are coming home,” apparently signaling the
abandonment of the Bush administration’s military
plans. Secretary of Defense Robert Gates, on the other
hand, has recently voiced a contrary vision, hinting
at the possibility that the Iraqis might be interested
in negotiating a way around the SOFA agreement to
allow US forces to remain in the country after 2011.
Iraqi oil, too, has
been a focus of Washington’s unremitting ambition
tempered by failure. Long before the cost of the war
began to lurch toward the current Congressional
estimate of $700 billion, the idea of using oil
revenues to pay for the invasion had vanished, as had
the idea of quadrupling production capacity within a
few years. The hope of doing so someday, however,
remains alive. Speculation that Iraq’s production
could -- in the not too distant future -- exceed that
of Saudi Arabia may still represent Washington’s main
strategy for postponing future severe global energy
shortages. Even before the
attacks of September 11, 2001, the secretive energy
task force Vice President Cheney headed was
tentatively allocating various oil fields in a future
pacified Iraq to key international oil companies.
Before the March 2003 invasion, the State Department
actually drafted prospective legislation for a
post-Hussein government, which would have transferred
the control of key oil fields to foreign oil giants.
Those companies were then expected to invest the
necessary billions in Iraq’s rickety oil industry to
boost production to maximum rates. Not so long after US
troops entered Baghdad, the administration’s
proconsul, L. Paul Bremer III, enacted the State
Department legislation by fiat (and in clear violation
of international law, which prohibits occupying powers
from changing fundamental legislation in the conquered
country). Under the banner of de-Baathification -- the
dismantling of Saddam Hussein’s Sunni ruling party --
he also fired oil technicians, engineers, and
administrators, leaving behind a skeleton crew of
Iraqis to manage existing production (and await the
arrival of the oil giants with all their expertise).
Within a short time,
many of these pariah professionals had fled to other
countries where their skills were valued, creating a
brain drain that, for a time, nearly incapacitated the
Iraqi oil industry. Bremer then appointed a group of
international oil consultants and business executives
to a newly created (and UN-sanctioned) Development
Fund of Iraq (DFI), which was to oversee all of the
country’s oil revenues. The remaining Iraqi
administrators, technicians, and workers soon mounted
a remarkably determined and effective multi-front
resistance to Bremer’s effort. They were aided in this
by a growing insurgency. In one dramatic
episode, Bremer announced the pending transfer of the
control of the southern port of Basra (which then
handled 80% of the country’s oil exports) from a
state-run enterprise to KBR, then a subsidiary of
Halliburton, the company Vice President Cheney had
once headed. Anticipating that their own jobs would
soon disappear in a sea of imported labor, the oil
workers immediately struck. KBR quickly withdrew and
Bremer abandoned the effort. In other Bremer
initiatives, foreign energy and construction firms did
take charge of development, repair, and operations in
Iraq’s main oil fields. The results were rarely
adequate and often destructive. Contracts for
infrastructure repair or renewal were often botched or
left incomplete, as international companies ripped out
usable or repairable facilities that involved
technology alien to them, only to install ultimately
incompatible equipment. In one instance, a $5 million
pipeline repair became an $80 million “modernization”
project that foundered on intractable engineering
issues and, three years later, was left incomplete. In
more than a few instances, local communities sabotaged
such projects, either because they employed foreign
workers and technicians instead of Iraqis, or because
they were designed to deprive the locals of what they
considered their “fair share” of oil revenues.
In the first two years
of the occupation, there were more than 200 attacks on
oil and gas pipelines. By 2007, 600 acts of sabotage
against pipelines and facilities had been recorded.
After an initial
flurry of interest, international oil companies sized
up the dangers and politely refused Bremer’s
invitation to risk billions of dollars on Iraqi energy
investments. After this initial
failure, the Bush administration looked for a new
strategy to forward its oil ambitions. In late 2004,
with Bremer out of the picture, Washington brokered a
deal between US-sponsored Iraqi Prime Minister Iyad
Allawi and the International Monetary Fund. European
countries promised to forgive a quarter of the debts
accumulated by Saddam Hussein, and the Iraqis promised
to implement the US oil plan. But this worked no
better than Bremer’s effort. Continued sabotage by
insurgents, resistance by Iraqi technicians and
workers, and the corrupt ineptitude of the contracting
companies made progress impossible. The international
oil companies continued to stay away. In 2007, under direct
US pressure, virtually the same law was reluctantly
endorsed by Prime Minister Maliki and forwarded to the
Iraqi parliament for legislative consideration.
Instead of passing it, the parliament established
itself as a new center of resistance to the US plan,
raising myriad familiar complaints and repeatedly
refusing to bring it to a vote. It lies dormant to
this day. This stalemate
continued unabated through the Obama administration’s
first year in office, as illustrated by a continuing
conflict around the pipeline that carries oil from
Iraq to Turkey, a source of about 20% of the country’s
oil revenues. During the Bremer administration, the US
had ended the Saddam-era tradition of allowing local
tribes to siphon off a proportion of the oil passing
through their territory. The insurgents, viewing this
as an act of American theft, undertook systematic
sabotage of the pipeline, and -- despite ferocious US
military offensives -- it remained closed for all but
a few days throughout the next five years. The pipeline was
re-opened in the fall of 2009, when the Iraqi
government restored the Saddam-era custom in exchange
for an end to sabotage. This has been only partially
successful. Shipments have been interrupted by further
pipeline attacks, evidently mounted by insurgents who
believe oil revenues are illegitimately funding the
continuing US occupation. The fragility of the
pipeline’s service, even today, is one small sign of
ongoing resistance that could be an obstacle to any
significant increase in oil production until the US
military presence is ended. The entire six-year
saga of American energy dreams, policies, and
pressures in Iraq has so far yielded little -- no
significant increase in Iraq’s oil production, no
increase in its future capacity to produce, and no
increase in its energy exports. The grand ambition of
transferring actual control of the oil industry into
the hands of the international oil companies has
proven no less stillborn. Over the years since
the US began its energy campaign, production has
actually languished, sometimes falling as much as 40%
below the pre-invasion levels of an industry already
held together by duct tape and ingenuity. In the
Brookings Institution’s latest figures for December
2009, production stood at 2.4 million barrels per day,
a full 100,000 barrels lower than the pre-war daily
average. To make matters worse,
the price of oil, which had hit historic peaks in
early 2008, began to decline. By 2009, with the global
economy in tatters, oil prices sank radically and the
Iraqi government lacked the revenues to sustain its
existing expenditures, let alone find money to repair
its devastated infrastructure. As a result, in early
2009, Maliki’s government began actively, even
desperately, seeking ways to hike oil production, even
without an oil law in place. That, after all, was the
only possible path for an otherwise indigent country
with failing agriculture in the midst of a drought of
extreme severity to increase the money available for
public projects -- or, of course, even more private
corruption. In January 2009, the
government opened a new chapter in the history of oil
production in Iraq when it announced its intention to
allow a roster of several dozen international oil
firms to bid on development contracts for eight
existing oil fields. The proposed contracts
did not, in fact, offer them the kind of control over
development and production that the Cheney task force
had envisioned back in 2001. Instead, they would be
hired to finance, plan, and implement a vast expansion
of the country’s production capacity. After repaying
their initial investment, the government would reward
them at a rate of no more than two dollars for every
additional barrel of oil extracted from the fields
they worked on. With oil prices expected to remain
above $70 a barrel, this meant, once initial costs
were repaid, the Iraqi government could expect to take
in more than $60 per barrel, which promised a
resolution to the country’s ongoing financial crisis.
The major
international oil companies initially rejected these
terms out of hand, demanding instead complete control
over production and payments of approximately $25 per
barrel. This initial resistance began to erode,
however, when the Chinese National Petroleum
Corporation (CNPC), a government-owned operation,
induced its partner, BP, the huge British oil company,
to accept government terms for expanding the Rumaila
field near Basra in southern Iraq to one million
barrels a day. The Chinese company,
experts believed, could afford to accept such meager
returns because of Beijing’s desire to establish a
long-term energy relationship with Iraq. This
foot-in-the-door contract, China’s leaders evidently
hoped, would lead to yet more contracts to explore
Iraq’s vast, undeveloped (and possibly as yet
undiscovered) oil reserves. Perhaps threatened by
the possibility that Chinese companies might
accumulate the bulk of the contracts for Iraq’s
richest oil fields, leaving other international firms
in the dust, by December a veritable stampede had
begun to bid for contracts. In the end, the major
winners were state-owned firms from Russia, Japan,
Norway, Turkey, South Korea, Angola, and -- of course
-- China. The Malaysian national company, Petronas,
set a record by participating with six different
partners in four of the seven new contracts the Maliki
government gave out. Shell and Exxon were the only
major oil companies to participate in winning bids;
the others were outbid by consortia led by state-owned
firms. These results suggest that national oil
companies, unlike their profit-maximizing private
competitors, were more willing to forego immediate
windfalls in exchange for long-term access to Iraqi
oil. On paper, these
contracts hold the potential to satisfy one aspect of
Washington’s oil hunger, while frustrating another. If
fully implemented, they could collectively boost Iraqi
production from 2.5 million to 8 million barrels per
day in just a few years. They would not, however,
deliver control over production (or the bulk of the
revenues) to foreign companies, so that Iraq and OPEC
could continue, if they wished, to limit production,
keep prices high, and wield power on the world stage.
Nevertheless, the
centers of resistance to the original US oil policies
have voiced opposition to these new contracts. Members
of parliament immediately demanded that all contracts
be submitted for their approval, which they declared
would be withheld unless ironclad protections of Iraqi
workers, technicians, and management were included.
Iraq’s own state-owned oil companies demanded
guarantees that their technicians, engineers, and
administrators be trained in the new technologies the
foreign companies brought with them, and given
escalating operational control over the fields as
their skills developed. The powerful Iraqi oil
union opposed the contracts unless they included
guarantees that all workers be recruited from Iraq.
Local tribal leaders voiced opposition unless they
guaranteed a full complement of local workers, and
subcontracts for locally based businesses during the
development phase. Then there were the insurgents, who
continued to oppose oil exports until the US fully
withdraws from the country, and expressed their
opposition by the 26 bombing attacks they’ve launched
on pipelines and oil facilities since September 2009.
Some of these same
groups have successfully blocked previous oil
initiatives. Unless they are satisfied, they may
frustrate the government’s latest bid to make oil gush
in Iraq. One warning sign can be seen in the fate of a
contract signed with the CNPC in early 2009 that
called for the development of the relatively small
(one billion barrel) Ahdab oil field near the Iranian
border. The language of the original contract met
conditions demanded by local leaders and workers, but
the work, once begun, generated few local jobs and
even fewer local business opportunities. The Chinese
instead brought in foreign workers, following the
pattern established by US companies involved in Iraqi
reconstruction. Eventually, equipment was sabotaged,
work undermined, and the project’s viability remains
threatened. The end is not in
sight and the outcome still unclear. Will the vast
Iraqi oil reserves be developed and sent into the
hungry world market any time soon? If they are, who
will determine the rate of flow, and so wield the
power this decision-making confers? And once this
ocean of oil is sold, who will receive the potentially
incredible revenues? As with so much else, when it
comes to Iraqi oil, the American war has generated so
many problems and catastrophes -- and so few answers.
--
Michael Schwartz is a professor of sociology at Stony
Brook State University. He is the author of
War
Without End: The Iraq Debacle in Context
(Haymarket Press), which explains how the militarized
geopolitics of oil led the US to dismantle the Iraqi
state and economy while fueling a sectarian civil war.
Schwartz's work on Iraq has appeared in numerous
academic and popular outlets. He is a regular at
TomDispatch.com. His email address is
ms42@optonline.net.
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