December 13, 2013

The Oil War – Part I

The Oil War – Part I

The Oil WarDeclassified documents now reveal what everybody, especially the Iraqis, always knew: the US invaded Iraq to secure its oil supplies for US and allied companies. It hasn’t quite worked out as planned. | by Jean-Pierre Sereni

The Iraq war was about oil. Recently declassified US government documents confirm this, however much US president George W Bush, vice president Dick Cheney, defence secretary Donald Rumsfeld and their ally, the British Prime Minister Tony Blair, denied it at the time.

When Bush moved into the White House in January 2001, he faced the familiar problem of the imbalance between oil supply and demand. Supply was unable to keep up with demand, which was increasing rapidly because of the growth of emerging economies such as China and India. The only possible solution lay in the Gulf, where the giant oil-producing countries of Saudi Arabia, Iran and Iraq, and the lesser producing states of Kuwait and Abu Dhabi, commanded 60% of the world’s reserves.

For financial or political reasons, producing growth was slow. In Saudi Arabia, the ultra-rich ruling families of the Al-Saud, the Al-Sabah and the Zayed  Al-Nayan were content with a comfortable level of income, given their small populations, and preferred to leave their oil underground. Iran and Iraq hold around 25% of the world’s hydrocarbon reserves and could have filled the gap, but were subject to sanctions- imposed solely by the US on Iran, internationally on Iraq- that deprived them of essential oil equipment and services. Washington saw them as rogue states and was unwilling to end the sanctions.

How could the US get more oil from the Gulf without endangering its supremacy in the region? Influential US neoconservatives, led by Paul Wolfowitz, who had gone over to uninhabited imperialism after the fall of the Soviet Union, thought that had found a solution. They had never understood George Bush senior’s decision not to overthrow Saddam Hussein in the first Gulf war in 1991. An open letter to President Bill Clinton, inspired by the Statement of Principles of the Project for the New American Century, inspires by the Statement of Principles of the Project for the new American Century, a non-profit organization founded by William Kristol and Robert Kagan, had called for a regime change in Iraq as early as 1998: Saddam must be ousted and big US oil companies must gain access to Iraq. Several signatories to the Statement of Principles became members of the new Republican administration in 2001.

In 2002, one of them, Douglas Feith, a lawyer who was undersecretary of defense to Rumsfeld, supervised the work of experts planning the future of Iraq’s oil industry. His first decision was to entrust its management after the expected US victory to Kellog, Brown & Root, a subsidiary of US oil giant Halliburton, of which Cheney had been chairman and CEO. Feith’s plan, formulated at the start of 2003, was to keep Iraq’s oil production at its current level of 2,840 mbpd (million barrels per day), to avoid a collapse that would cause chaos in the world market.

Privatizing Oil
Experts were divided on the privatization of the Iraqi oil industry. The Iraqi government had excluded foreign companies and successfully managed the sector itself since 1972. By 2003, despite wars with Iran (1980-88) and in Kuwait (1990-91) and more than 15 years of sanctions, Iraq had managed to equal the record production levels achieved in 1979-19890.

The experts had a choice- bring back the concession regime that had operated before nationalization in 1972, or sell shares in the Iraqi National Oil Company (INOC) on the Russian Model, issuing transferrable vouchers to the Iraqi population. In Russia, this approach had very quickly led to the oil sector falling into the hands of a few super-rich oligarchs.

Bush approved the plan drawn up by the Pentagon and State Department in January 2003. The much-decorated retired lieutenant general Jay Gardner, was appointed director of the Office of Reconstruction and Humanitarian Assistance, the military administration set up to govern post-Saddam Iraq. Out of his depth, he stuck to short-term measures and avoided choosing between the options put forward by his technical advisers.

Reassuring the oil giants
The international oil companies were not idle. Lee Raymond, CEO of America’s biggest oil company ExxonMobil, was an old friend of Dick Cheney. But were the politicians were daring, he was cautious. The project was a tempting opportunity to replenish the company’s reserve, which had been stagnant for several years, but Raymond had doubts: would Bush really be able to assure conditions that would allow the company to operate safely in Iraq? Nobody at ExxonMobil was willing to die for oil. (Its well-paid engineers do not dream of life in a blockhouse in Iraq.) The company would also have to be sure of its legal position: what would countries signed by a de facto authority be worth when it would be investigating billions of dollars that would take years to recover?

In the UK, BP was anxious to secure its own share of the spoils. As early as 2002 the company had confided in the UK Department of Trade and Industry its fear that the US might give away too much to French, Russian and Chinese oil companies in return for their governments agreeing not to use their veto at the UN Security Council. In February 2003 those fears were removed: France’s president Jacques Chirac vetoed a resolution put forward by the US, and the third Iraq war began without UN backing. There was no longer any question of respecting the agreements Saddam had signed with Total and other companies (which had never been put into practice because of sanctions).

To reassure the British and US oil giants, the US government appointed to the management team Gary Vogler of ExxonMobil and Philip J Carrol of Shell. They were replaced in October 2003 by Rob McKee of ConocoPhillips and Terry Adams of BP. The idea was to counter the dominance of the Pentagon, and the influential neocon approach (which faced opposition from within the administration). The neocon ideologues, still on the scene, had bizarre ideas: they wanted to build a pipeline to transport Iraq’s crude oil to Israel, dismantle OPEC (Organization of the Petroleum Exporting Countries) and even use “liberated” Iraq as a guinea pig for a new oil business model to be applied to all of the Middle East. The engineers and businessmen, whose priorities were profits and results, were more down-to-earth.

In any event, the invasion had a devastating impact on Iraq’s oil production, less because of the bombing by the US air force than because of the widespread looting of government agencies, schools, universities, archives, libraries, banks, hospitals, museums and state-owned enterprises. Drilling rigs were dismantled for the copper parts they were believed to contain. The looting continued from March to May 2003. Only a third of the damage to the oil industry was caused during the invasion; the rest happened after the fighting was over, despite the presence of the RIO Task Force and the US Corps of Engineers with its 500 contractors, specially prepared and trained to protect oil installations. Saddam’s supporters were prevented from blowing up the oil wells by the spread of the invasion, but the saboteurs set to work in June 2003.

Iraq’s one real asset
The only buildings protected were the gigantic oil ministry, where 15,000 civil servants managed 22 subsidiaries of the Iraq National Oil Company. The State Oil Marketing Organization and the infrastructure were abandoned. The occupiers regarded the oil under the ground as Iraq’s one real asset. They were not interested in installation or personnel. The oil ministry was only saved at the last minute because it housed geological and seismic data on Iraq’s 80 known deposits, estimated to contain 115bn barrels of crude oil. The rest could always be replaced with more modern US-made equipment and the know-how of the international oil companies, made indispensable by the sabotage.

Thamir Abbas Ghadban, director-general of planning at the oil ministry, turned up at the office three days after the invasion was over, and, in the absence of a minister for oil( since Iraq had no government), was appointed second in command under Micheal Mobbs, a neocon who enjoyed the confidence of the Pentagon. Paul Bremer, the US proconsul who headed Iraq’s provisional government from May 2003 to June 2004, presided over the most 12 months in the oil sector in 70 years. Production fell by 1 mbpd- more than $13bn of lost income.

The oil installation, watched over by 3,500 under equipped guards, suffered 140 sabotage attacks between May 2003 and September 2004, estimated to have caused $7bn of damage. “There was widespread looting” said Ghadban. “Equipment was stolen and in most cases the buildings were set on fire.” The Daura refinery, near Baghdad, only received oil intermittently, because of damage to the pipeline network.” We had to let all the oil in the damaged sections of the pipeline to burn before we could repair them.” Yet the refinery continued to operate, no mean achievement considering that the workers were no longer being paid.

The senior manager of the national oil company also suffered. Until 1952 almost all senior managers of the Iraq Petroleum Company (IPC) were foreigners, who occupied villas in gated and guarded compounds while the local workforce lived in shanty towns. In 1952 tensions between Iraq and Muhammed Mossadegh’s Iran led the IPC to review its relations with Baghdad, and a clause of the new treaty concerned the training of Iraqi managers. By 1972, 75% of the thousand skilled jobs were filled by Iraqis, which helped to ensure the success of the IPC’s nationalization. The new Iraq National Oil Company gained control of the oilfields and production reached unprecedented level.

Source: Digest August 2013

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