The Obfuscation Report

The Great Iraq Oil Grab
By Joshua Holland, AlterNet
Posted on May 22, 2006, Printed on May 23, 2006

There's a story, perhaps apocryphal, that Pentagon planners wanted to name the invasion of Iraq, "Operation Iraqi Liberation." Only when someone realized that the acronym -- O.I.L. -- might raise some uncomfortable questions, was "Operation Iraqi Freedom" born.

[Editor's Note: Apocryphal? I don't think so. Check out Ari Fliescher's press briefing March 24, 2003. Fliescher said " He (the president) began with Prime Minister Blair, where the two discussed the ongoing aspects of Operation Iraqi Liberation.]

Supporters of the Iraq war airily dismiss chants of "no blood for oil" as a manifestation of the antiwar crowd's naïveté. They point out that Iraq's government still controls its oil and argue that we could have simply bought it on the open market.

Both of those claims are true on their face, but bringing Iraq's vast oil wealth under the control of foreign multinationals -- with U.S. firms the best positioned to develop it -- was always central to U.S. plans for Iraq. That Iraq's oil will continue to be "owned" by the "Iraqi people" is what differentiates classical 19th-century colonialism practiced by British officers in pith helmets from the neocolonialism the United States perfected in the second half of the 20th century. The newer brand can be summed up like this: We'll respect your sovereignty and abide by your domestic laws -- as long as we can help you write those laws to guarantee our firms' profits.

That's the central tenet of corporate globalization. Trade deals like NAFTA -- and the agreements implemented by the WTO -- are designed to "harmonize" countries' domestic laws regulating everything from capital flow to food safety to the environment in order to make them friendly to international investment. In Iraq, that philosophy was taken to an extreme, at gunpoint and with disastrous consequences.

Oil -- the engine that drives Iraq's potentially rich economy -- was the prize that made it worth a full-scale commitment of American armed forces.

Oil lust

It was a prize that the first oil presidency -- the president, vice president and national security advisor are all former oil execs -- lusted after long before the attacks of 9/11. The Washington Post reported that even as the Bush transition team prepared to take power in 2001, changing Iraq's regime and seizing its oil were already on the table:

Early discussions among the administration's national security "principals" -- Cheney, Powell, Tenet and national security adviser Condoleezza Rice -- and their deputies focused on how to weaken Hussein diplomatically. But Deputy Defense Secretary Wolfowitz proposed sending in the military to seize Iraq's southern oil fields and establish the area as a foothold from which opposition groups could overthrow Hussein.

Former Treasury Secretary Paul O'Neill told author Ron Suskind that Dick Cheney also supported an invasion of Iraq before Sept. 11, and the New Yorker's Jane Mayer reported on a top secret National Security Council document dating back seven months before the terror attacks that gave some insight into the vice president's thinking:

It directed the N.S.C. staff to cooperate fully with [Cheney's secretive] Energy Task Force as it considered the "melding" of two seemingly unrelated areas of policy: "the review of operational policies towards rogue states," such as Iraq, and "actions regarding the capture of new and existing oil and gas fields."

In her new book, “The Bush Agenda,” Antonia Juhasz detailed how, six months before the invasion, the administration brought in a group of oil executives to advise them on Iraqi oil policy (this occurred as President Bush was telling the American people that he had no intention of going to war). The State Department also set up a consulting group under the "Future of Iraq Project" called the "Oil and Energy Working Group." After some back and forth among the various consultants, a consensus was reached that Iraq's oil "should be opened to international oil companies as quickly as possible after the war."

But they couldn't just say that, or the war's proponents wouldn't be able to sneer at those unruly antiwar types. After the invasion, the administration did a yeoman's job of deflecting the criticism; Bush called Iraq's oil wealth its "patrimony" and promised it would stay in the hands of the Iraqi people. When all of Iraq's state firms were privatized, the administration exempted Iraq's national oil company.

But that was political cover. The administration and the oil execs who consulted on the policy, knowing that fully privatizing Iraq's oil production would give their critics powerful ammunition, took an approach to Iraq's oil that largely flew beneath the media's radar. They decided on writing a new "transitional" oil law that gave foreign companies a far greater cut of the country's oil wealth than they've been able to get anywhere else in the Middle East.

Oily new laws

I recently conducted an interview with Juhasz, who explained the details:

The United States crafted a new oil law for Iraq that provided for production sharing agreements (PSAs), which are contractual terms between a government and a foreign corporation to explore for, produce and market oil. Production sharing agreements are not used by any country in the Middle East or, in fact, by any country that's truly wealthy in oil. They're used to entice investors into an area where the oil is expensive to produce or there isn't a lot of oil.

But Iraq's oil reserves are very easy and cheap to get to. You essentially just stick a pipe in the ground and you get oil. There's absolutely no reason for Iraq to enter into PSAs, but there's every reason for Western oil companies to want them -- they provide the best terms short of full privatization of the oil.

[It's estimated that] Iraq has 80 oil fields. Seventeen of them have been discovered. Under the new oil law -- written into the constitution -- those 17 will be under the control of the Iraqi national oil company.

All undiscovered oil fields are now open to the PSAs. That means, depending on how much oil there is in Iraq, foreign companies will have control over at least 64 percent of Iraq's oil and as much as 84 percent.

PSAs are the worst possible deals for countries; in Latin America some of the worst PSAs gave domestic governments royalties of just one percent of their natural gas revenues.

Iraq's permanent oil law is being written with the help of Bearingpoint Inc. under a contract from USAID. The Virginia-based company (which was KPMG until it changed its name after being embroiled in the Arthur Anderson accounting scandal) prepared a report for the Bush administration in 2003 that concluded "foreign participation [is] the most efficient way of developing the sector," according to Dow Jones. A USAID spokesman said the company "will be providing legal and regulatory advice in drafting the framework of petroleum and other energy-related legislation, including foreign investment."

The principles embedded in the transitional oil law can't be dismissed down the road by Iraq's legislature with a simple vote; they were built into the country's Constitution, a document that Iraqis approved without having a firm grip on its details. (Read more of the interview with Juhasz for some insight into how that happened.)

Chapter 4, Article 109, specifies that all new oil fields will be developed "relying on the most modern techniques of market principles and encouraging investment." While the constitutions of other energy-rich countries lay out principles regarding their resources, Iraq's is unique in specifying that future governments must develop the country's most valuable commodity in tandem with foreign multinationals.

Contrast that with other oil producers; Saudi Arabia's state oil company, Saudi Aramco, has a monopoly on oil production, and it enters into agreements with foreign companies for specific parts of the process. The Saudi government imposes a special tax on foreign energy companies' revenues from those processes and invests the windfall from high oil prices in education and infrastructure.

Under Iraq's new laws, those kinds of policies -- common among oil-producing countries -- are prohibited.

Rewarding the corporations

Saying that Iraq's vast oil reserves -- projected by some analysts to be the largest in the world, greater than Saudi Arabia's -- was the sole motivation for the U.S. invasion of Iraq simplifies a complex issue. Opening Iraq's economy has the potential to reward the Bush administration's corporate allies with enormous windfalls as the country rebuilds after 25 years of war. Iraq has a well-educated work force and is well-positioned on global trade routes. Oil is the cherry on the sundae.

That's why Iraq's new oil laws have to be viewed in a larger context. Gaining control of the bulk of Iraq's oil was a key part of a broader economic invasion of the country, launched by an administration dominated by ideologues who view the agenda of corporate globalization as a vital part of the United States' national, as well as economic, security.

The Coalition Provisional Authority, under L. Paul Bremer (who U.N. envoy Lakhdar Brahimi called the "dictator of Iraq") instituted an infamous set of "100 rules" -- rules that privatized Iraq's state companies, threw open its economy to foreign investment, established a flat tax and instituted a dozen other measures that the big-business right has lobbied for around the world -- largely unsuccessfully -- for decades.

They not only slashed corporate taxes and allowed foreign multinationals to take 100 percent of their profits out of the country, they also gave them -- by law -- the same status as Iraqi firms. That means that all the things countries like Iraq do to direct a portion of their foreign investment income into developing their domestic economies are off the table: Foreign firms can't be asked to invest in the local economy or buy goods from domestic firms or hire a certain number of Iraqi workers or build schools and health clinics or any of the other strategies that are common in poor but resource-rich countries. Saudi Arabia's tax on foreign energy producers would violate Iraqi law.

The same company that's helping draft Iraq's permanent oil law, BearingPoint Inc., planned Iraq's entire economy under a previous contract. All of the Bremer rules worked their way into the Iraqi Constitution as well; Chapter 6, Article 126, specifies that although the rest of the orders issued by the Transitional Authority are canceled, the "100 orders" remain on the books.

Sayonara, Saddam

None of this is a conspiracy theory, as the war's supporters are wont to claim. All of it is well-documented in the public record. The national security arguments about Saddam Hussein's "WMD" and supposed ties to Al Qaeda -- all disproved -- only took centerstage after the attacks of 9/11. In the decade before, industry groups that are now closely tied to the Bush administration issued a string of position papers and op-eds urging the ouster of Saddam specifically in order to open Iraq's economy, and they openly lobbied for war on those terms.

People like Dick Cheney, George Schultz and Henry Kissinger (L. Paul Bremer was a protégé of Kissinger's) warned that American energy firms were at a competitive disadvantage as long as Saddam Hussein remained in power. While more than a third of Iraq's oil ended up in the United States during the years of sanctions against the Hussein regime, it mostly came through foreign middlemen -- Saddam gave few contracts directly to American firms, and that was intolerable to the U.S. business community.

Historians will debate the precise motivations for the American attack on Iraq for years to come. When official explanations don't stand up to scrutiny, it raises the question, cui bono? -- who benefits? After various architects of the war spent a decade pushing an attack on Iraq in order to open its economy, they came to power, and they did, in fact, invade the country and open its economy. Ultimately, that's the most compelling argument that it was, indeed, an invasion of Iraq's oil-rich economy more than anything else. Follow the money.

Joshua Holland is an AlterNet staff writer.