The Iraq Oil Law: In Pursuit of Happiness

But the oil of the Iraqi people belongs to the Iraqi people; it is their wealth, it will be used for their benefit. So we did not do it for oil.

--Colin Powell,
10 July 2003

As follow-on to the previous post, I thought it would be useful to summarize the current state of things surrounding the disposition of the Iraq Oil Law and, not entirely obliquely, the privatization efforts that have been required of Iraq. This was prompted, as stated earlier, by a comment from Mentarch in which he asks,

But how could this even remotely be profitable, when any employees ("foreigners") sent over there gets a target painted on their back the moment they land in Iraq?

The extant chaos and violence that rocks the country is indeed an impediment to extracting Iraqi oil wealth. The petroleum infrastructure in Iraq has suffered almost daily sabotage and attacks while fuel smuggling functions as a profitable business for militants, criminal gangs and insurgents. The keystone of Iraq's oil industry is Basra, the terminus of petroleum export activity for the country and whence British officials have said they would withdraw, a promise that is looking less and less likely as violence there has escalated, with British forces coming under regular attack lately. Basra, of course, has long been under de facto control by various militant factions, which have routinely attacked British forces there, despite the rosy gloss British authorities have tried to rub on the situation. The situation has deteriorated to the point that Prime Minister al-Maliki has just declared a month-long state of emergency in Basra, dashing hopes of any near term British withdrawal.

***

Despite the worsening situation both in the oil hub of Basra and almost everywhere else, the White House-inspired Oil Law is still being pushed by the Bush administration and US Congress. Passage of the law remains the number one benchmark set by the Democratic Congress, which was also a strongly encouraged requirement of the Iraq Study Group, while CENTCOM commander William Fallon said that,

the Iraqi government should aim to complete a law on the division of oil proceeds by next month.

After initial fire storm was created with news that the Oil Law would contain explicit mention of PSAs, something that no neighbouring OPEC nation allows, and that enormous profits of up to 75% could be awarded through these vehicles to participating oil companies, since The Long Game appeared, the Oil Law was leaked and offered a glimpse into just how the potential application of the much-reviled production sharing agreements (PSAs) will be accomplished. Of note is that explicit mention of PSAs disappeared, judiciously buried under the various legal structures contained therein.

The law, as currently written and approved by the Iraqi cabinet, calls for the formation of a Federal Oil and Gas Council (FOGC) on which will sit, among Iraqi officials, a selection of "executive managers of important related petroleum companies." This council will be the final arbiter of the shape and form of all oil contracts:

The FOGC "approves all types of exploration and production contracts and chooses the appropriate contract type for the field nature or exploration area or based on offers."

Initially, it was hard not to imagine just who would comprise this coterie of "executive managers" that would be advising the Iraqi government on how to write up oil contracts. However, and with irony ever present in much of what the Bush administration does, recent courting of the Iraqi government by officials from Russia, China and India indicate that those parties see an opening in Iraq while western oil interests dither about participation "until the violence in Iraq abates." Given what we see happening in Iraq and with the state of emergency declared in Basra, this qualification is leaving the door wide open for non-aligned interests like Russia and China to move in and perhaps acquire some chairs on the FOGC.

With western interests unwilling to commit operations to the violent climate in Iraq and with Russia and China hovering over Baghdad, the Bush administration finds itself in a desperate bid to both quell the violence to an observable degree, making it somewhat palatable for western interests, while also permitting conditions that will justify continued occupation of the country. On this front we have seen Bush's "surge," which really has done nothing to quell violence, spring forth and his administration ramping up the rhetoric about long term occupation, albeit at "reduced levels." None of this is organic, of course, as the many permanent bases on which construction began shortly after the invasion will attest.

I doubt that quelling violence in much of Iraq is of great concern to the White House. Surely they want Baghdad brought under some control, given that that is their base of operations. But with the FOBs already operating as garrisons, which will ultimately be their final form, all that needs to happen is for Baghdad to calm somewhat and then redeploy troops to the FOBs, withdraw the rest and, hopefully, let the oil companies in under US military armed guard.

I know it seems hard to imagine that the US military would be used in so blatant a way, but I'll simply recall General Butler's words. Using the American military to bolster American business interests is hardly anything new.

I helped make Mexico, especially Tampico, safe for American oil interests in 1914. I helped make Haiti and Cuba a decent place for the National City Bank boys to collect revenues in. I helped in the raping of half a dozen Central American republics for the benefits of Wall Street. The record of racketeering is long. I helped purify Nicaragua for the international banking house of Brown Brothers in 1909-1912 (where have I heard that name before?). I brought light to the Dominican Republic for American sugar interests in 1916. In China I helped to see to it that Standard Oil went its way unmolested.

And really, look at what other executive agencies we've seen this White House turn into political arms of their special interests. I suspect that the White House is more than tolerant of ongoing but reduced mayhem in Baghdad since complete calm there -- or anywhere really -- would not serve them well. Because it would then be the case that the locals could actually pay attention to what was going under the auspices of their so-called government. And we certainly can't have any of that.

Interestingly, Bush's initial "surge" plan, or rather the neocon American Enterprise Institute's surge plan, called for the deployment of 5,000 troops to al Anbar province, where the IHS recently announced that the potential of 100+ billion barrels of oil may exist and which effectively doubles Iraq's oil reserves. This is also the region wherein the Pentagon is employing most effectively the tactic of funding local Sunni militias to counter the dominance of al Qaeda in the region. Blowback is sure to be the ultimate result of this but, for now, al Qaeda does seem to be somewhat compromised there.

Key in understanding the import of Iraqi oil is the fact that, unlike other alternative oil sources currently online, such as Alberta tar sands and Venezuela heavy crude, Iraq's light sweet crude can be extracted for as a little as $1/bbl, which, at current and likely never-retreating market prices, ensures that profits will be huge. At just $50/bbl. and 3 million bbls/day (an oft-stated goal), this cheap oil is capable of producing $147 million per day in profit. Further key in this equation, of course, is that western interests and agents thereof are the ones installed on the FOGC and not competitors from Gazprom and the Chinese National Petroleum Company (CNPC). But again, with conditions grim, the calculus of Iraqi oil is seeing some furious and ongoing consideration from all sides.

But the Oil Law has yet to pass. Western media outlets talk about this "problem" as the result of disagreement between factions within the government over whether the "control" of the oil should fall under the auspices of regional or federal governments. At some level this is true, but there is enormous resistance to this law amongst the general population, who rightly view the law as opening the gates of foreign control over the country's major resource and source of revenue. It was only a few weeks ago that the Iraqi Federation of Oil Unions (IFOU) -- held in high esteem by Iraqis in general -- threatened strike action against the Oil Law, with the president of the union, Hassan Jum’a Awwad, saying in an open letter to the US Congress,

Everyone knows that the oil law does not serve the Iraqi people, and that it serves Bush, his supporters and the foreign companies at the expense of the Iraqi people who have been wronged and deprived of their right to their oil despite enduring all difficulties.

We ask our friends not to link withdrawal with the oil law, especially since the USA claimed that it came to Iraq as a liberator and not in order to control Iraq’s resources.

The general public in Iraq is totally convinced that Bush wants to rush the promulgation of the oil law so as to be leaving Iraq with a victory of sorts, because his project is failing every day and the occupation is collapsing in all parts of Iraq.

The Iraqis are not fooled by lofty rhetoric about bringing a viable revenue sharing plan to the country and they know exactly what the Oil Law really represents.

As one might expect from an agent of the Bush administration, Maliki responded promptly to this strike and, on its third day, ordered Iraqi troops, who surely have better things to do, to surround and arrest union trouble makers. Maliki is now acting towards unions much as Saddam Hussein did during that despot's bleak reign. White House generated irony strikes again.

Debt and Privitization

While resistance to the Oil Law remains strong and even more recently the oil unions have further threatened to "mutiny" if the law is passed as is, efforts in the privatization of Iraq's public assets and infrastructure have proceeded with all abandon. After the efforts of L. Paul Bremer and his enormous sell-off of Iraq's public assets, just recently, Iraq's oil refineries were privatized.

Indeed, what has occurred to Iraq's public holdings under the Bush administration putsch follows the decidedly grim and sour prescriptions of "structural adjustments" so oft insisted upon by the likes of the IMF and World Bank. In fact, a mere six months after moving to the World Bank, Wolfowitz's new employer doled out the first World Bank loan to Iraq since 1973, some $500 million, festooned with requirements for reconstruction of infrastructure, infrastructure that is now being sold off at bargain basement prices while Iraq is saddled with heaping mounds of World Bank debt. More loans followed, one for $124 million for a power plant, one among many that will also likely wind up on the auction block and put there by World Bank and IMF strictures. This is the classic scam described in great detail by John Perkins in Confessions of an Economic Hit Man.

This one, though, extends the bounds of what had previously been achieved. The Iraq situation is truly an economic hit an order of magnitude greater than anything attempted previously. Not only is the attendant destruction in Iraq is now funneling World Bank loans into Baghdad, much of which comes from the taxpayers of the US, Britain and other western nations, the same interests now responsible for World Bank loans were the same ones that saddled American taxpayers with the enormous debt of paying for the war, which has fueled the tremendous profits of the defense industry, profits -- it cannot be said enough -- made during the program of lethal destruction, which has now led to US taxpayer money and World Bank loans paying for the reconstruction of that which was destroyed. This destruction/construction tag team has been highly profitable on both ends.

In Iraq, the loans and the associated debt are used as leverage to force sale of some or most of the very things the loans were used to build. Iraq is then burdened with debt, beholden to western interests because of it, and private interests walk off with ownership of Iraq's assets, having acquired them for nickels on the dollar in forced sales required by financial strictures imposed by their creditor, the World Bank. And all of it is skimmed from taxpayers. And a lot of them are Americans.

***

All this movement by the oil oligarchy is predicated on a failing assumption and that is that Iraq will actually exist and will be stable enough for the mulitnationals to operate in the region. Today, that assumption is looking wobbly, at best. How the oil companies plan to operate in this theatre of war is a guess best left to them and their agents in the White House. Given this government's previous record on predicting the future in Iraq, it would appear that their best guesses will be fairly well off the mark.

My suspicion is that, despite plans for long term occupation, they don't know how to operate in such conditions, if they can at all. It seems obvious that the insurgency will continue to harass any remaining US troops, knowing full well exactly why those troops are there. Most of Iraq already knows why the US invaded in the first place. Regardless of the beliefs of the much of the American public, it is plain that the Iraqis are under no delusions as to why US forces are and will likely remain in Iraq.

So don't expect attacks on the oil infrastructure to abate either. If anything, they will likely intensify. This probably wasn't a scenario imagined by Cheney's Energy Task Force, which was then imagining rose pedal showers while they drilled into the easy money oil fields of western Iraq. I would also dispute any notion that the oil company cartel is anywhere near close to cashing in. Actually, they're not even close. But that has nothing to do with the PSAs and the phony Iraq Constitution. It has everything to do with the reality on the ground. No one knows, at this point, whether there will be any place left that will continue to be called Iraq.

Chris Floyd posed an excellent argument awhile back that the entire PNAC neocon philosophy was nothing but an idealogical window dressing for more of the same rapacious economic brinkmanship that American corporations, aided and abetted as always by their government toadies, have been practicing for decades. Too many people, Floyd claimed, were blaming the neocons for what was essentially age-old economic imperialism, with US military backing provided by the Bush administration's oily whores. Admittedly, the Iraq adventure is an order of magnitude more grandiose than anything that has been attempted to date, but the basic mechanisms and familiar justifications were all there. Given what we are now seeing transpire, vis a vis the multinational oil companies and the succulent new oil wealth, oh, so tantalizingly close, it is hard to argue against Floyd's view.

Nonetheless, the harsh and volatile reality in Iraq is likely to damp the wet dreams of the oil executives, at least those unwilling to engage their efforts in a country that will not likely view their presence happily. Despite the White House's firm belief that they create their own reality, the oil companies are a little more pragmatic when it comes to actual reality. And they must know at this point that their dreams and plans for Iraq's untapped oil riches may remain just that for a very long time.

Unless, of course, the Russians and the Chinese, two nations whose oil interests are perhaps weighted a little more heavily against the lives of their workers, move in first. Americans dying for Chinese oil profits. White House irony, strike three.