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Part 3 of 4
Oil Companies in Iraq:
A Century of Rivalry and War
By James A. Paul
Global Policy Forum www.globalpolicy.org
Seven Oil Wars to Control Iraq
Before coming to the Iraq war of 2003, we will review the modern
history of conflicts over Iraq. There have been a total of seven
wars in the past ninety years, all closely related to oil. What
follows is a thumbnail sketch of those conflicts, to suggest the
constant military struggle over this oil-rich territory.
1. Colonial Conquest (1914-18). The first conflict took place
during World War I, when the British captured the area from the
Ottoman Empire during a bloody four-year campaign. Lord Curzon,
a member of the War cabinet who became Foreign Minister
immediately after the war, famously stated that the influence
of oil over British policy in Iraq was nil.
Oil, said Curzon, had not the remotest connection
with my attitude over Mosul, the major city in Iraq’s
northern oil-bearing region.27 Studies by a number of
historians have shown that Curzon was lying and that oil was
indeed the major factor shaping British policy towards Iraq.28
Sir Maurice Hankey, Secretary of the War Cabinet, even insisted
enthusiastically in a private cabinet letter that oil was a
first class war aim.29 London had ordered its forces to
continue fighting after the Mudros Armistice was signed, so as
to gain control of Iraq’s main oil-producing region. Fifteen
days later, the British army seized Mosul, capital of the oil
region, blocking the aspirations of the French, to whom the
area had been promised earlier in the secret Sykes-Picot
agreement.30
2. War of Pacification (1918-1930). To defend its oil interests,
Britain fought a long war of pacification in Iraq, lasting from
1918 throughout the next decade. The British crushed a
country-wide insurrection in 1920 and continued to strike at
insurgents with poison gas, airplanes, incendiary bombs, and
mobile armored cars, using an occupation force drawn largely
from the Indian Army. This carnage killed or wounded thousands
of Iraqis, burning villages and extracting colonial taxes by
brutal means. Winston Churchill, as Colonial Secretary, saw the
defense of Iraq’s lucrative oil deposits as a test of modern
weaponry and military-colonial use of force, enabling Britain
to hold the oil fields at the lowest possible cost.31
3. Re-Occupation (1941). Though Britain granted nominal
independence to Iraq in 1932, it maintained a sizeable military
force and a large air base in the country and continued to rule
indirectly. In 1941, fearful that Iraq might fall into
the hands of the Axis, London again decided to seize direct
control of the country through military force. Broad
geo-strategic wartime goals drove this campaign, but not least
was British concern to protect the Iraqi oil fields and keep
them in British hands, free not only from German but also from
US challenge.32
4. Iran-Iraq War (1980-88). In 1980, Iraq attacked its neighbor,
Iran. A long war ensued through 1988, a savage conflict causing
hundreds of thousands of casualties on both sides, costing tens
of billions of dollars and destroying much of both countries’
oilfields and vital infrastructure. Foreign governments,
interested in gaining geo-strategic advantage over both
nations’ oil resources, promoted, encouraged and sustained the
war, some arming both sides. The US and the UK supplied Iraq
with arms, chemical and biological weapon precursors, military
training, satellite targeting and naval support. Other powers
participated as well, notably France, Germany and Russia.33 The
big oil companies profited mightily, as war conditions kept
Iraqi and Iranian oil off the market, driving worldwide prices
substantially higher. By bankrupting the two governments and
ruining their oil infrastructure, the war also potentially
opened the way for the return of the companies through
privatization in the not-too-distant future. But after the war,
when Iraq and Iran turned to Japanese oil companies for new
private investments, including a Japanese role in Iraq’s
super-giant Majnoun field, the stage was set for yet another
conflict.
5. Gulf War (1991). Following the Iraqi invasion of Kuwait in
August 1990, the US decided to intervene militarily and
Washington assembled a number of secondary military partners,
including the UK and France. As US President George Bush summed
up the oil-centered threat posed by Saddam Hussein at the time:
Our jobs, our way of life, our own freedom and the freedom
of friendly countries around the world would all suffer if
control of the world’s great oil reserves fell into the hands
of Saddam Hussein.34 US forces heavily bombed Iraqi cities
and military installations and then launched a short and
decisive ground war, ending the Iraqi occupation of its
neighbor. The war badly battered Iraq, destroying much of its
electricity and water purification systems and claiming
50-100,000 casualties.
6. Low Intensity Conflict During the Sanction Period
(1991-2003). After the armistice, the UN’s pre-war embargo
continued, because the US-UK used their Security Council vetoes
to block its lifting. The sanctions imposed a choke-hold on
Iraq’s economy, restricted oil sales and kept the country’s oil
industry in a shambles. By blocking foreign investment and
preventing reconstruction, the sanctions further ruined the
country’s economic base. At the same time, with Iraqi supplies
largely off the market, international oil prices were supported
and company profits benefited. The US and the UK declared their
goal to oust Saddam and their intelligence services made many
efforts to assassinate him or to overthrow his government by
military coup. The US-UK also established no-fly zones
in much of Iraqi airspace, using air patrols to launch periodic
attacks on Iraqi military targets. Four times, the US-UK
launched major attacks, using scores of strike aircraft and
cruise missiles in January 1993, January 1996, June 1996
and December 1998. Though oil companies from a number of other
countries negotiated with the Iraqi government for production
deals, none dared to challenge the sanctions (and the
Anglo-American companies) by beginning production under such
risky circumstances.
7. Iraq War (2003). This war, launched by the US in spite of
strong opposition at the UN, overthrew the government of Saddam
Hussein and brought the US-UK coalition into direct rule over
Iraq and in direct control of the oil fields. The war caused
further deterioration of Iraq’s infrastructure, many
casualties, and a chaotic and dysfunctional economy. Though the
coalition rules Iraq, it has faced a tough armed resistance
during many months following the main conflict. War number
eight, the coalition’s war of pacification, has already begun.
The Exceptional Lure of Iraqi Oil
Constant wars hint at the exceptional lure of Iraq’s oil
fields. Iraq’s oil is of good quality, it exists in great
quantity, and it is very cheap to produce, offering the world’s
most extraordinary and profitable oil rents.
Officially, Iraq’s reserves are stated as 112 billion barrels, the
world’s second largest after Saudi Arabia. According to the US
Department of Energy, Iraq’s real reserves may be far greater
as much as 3-400 billion barrels after further prospecting.35
Iraq’s Senior Deputy Oil Minister confirmed high estimates on May
22, 2002, in an interview with Platts, a leading industry
information source. He said: "we will exceed 300 billion
barrels when all Iraq’s regions are explored," and he went on
to affirm that Iraq will [then] be the number one holder of
oil reserves in the world.36
Iraq’s oil is the world’s cheapest to produce, at a cost of only
about $1 per barrel. The gigantic "rent" on Iraq’s oil,
during decades of production, could yield company profits in the
range of $4-5 trillion dollars that is, $4-5 million,
millions. Assuming fifty years of production and 40% royalties,
Iraq could yield annual profits of $80-90 billion per year
more than the total annual profits of the top five companies, even
in the banner year of 2003.37
As the world’s other oilfields seriously deplete during the next
two decades, global production will increasingly depend on the
enormous reserves of the Persian Gulf region. Iraq will then
represent a large and increasing percentage of the world’s
supplies perhaps over thirty percent. An international
company must hold a serious stake in Iraq if it is to retain its
status as a major player in the world’s oil industry. The
Anglo-American giants know they must gain the lion’s share in Iraq
or decline irrevocably.
Shortly before the war, industry experts described Iraq as a
future "gold rush," where the companies would battle to gain
control of key reserves.38 At that time, a well-informed diplomat
at the UN commented bluntly: "Exxon wants Majnoun and they are
determined to get it."39 And a longtime industry observer said:
"There is not an oil company in the world that doesn't have
its eye on Iraq."40
Control of Reserves
Control of Reserves
Oil companies’ future profits and their current share prices
and market capitalization depend to a large degree on their
control of reserves. The 1972 oil nationalizations in Iraq pushed
the US and UK companies completely out of the country. Before that
date, they held a three-quarter share of the Iraq Petroleum
Company, including Iraq’s entire national reserves. After 1972,
all that oil disappeared from their balance sheets.
In the 1980s and 90s, their rivals in France, Russia and even
Japan and China began to make deals that led towards lucrative
production sharing agreements, allowing those competitors to gain
a large potential share of Iraq’s oil reserves. The sanctions
regime, enforced under the United Nations and maintained at the
insistence of the US and UK from 1990 to 2003, prevented these
deals from coming to fruition, thus protecting the future stake of
the US-UK companies.
In recent years, as older fields worldwide have dwindled, the
companies have faced rising replacement costs for their
reserves. According to a 2002 report by energy consultants John
S. Herold, finding costs for new reserves rose 61% in
2001, pushing replacement costs to $5.31 a barrel.41 Finding
new sources of oil has become the industry’s main challenge, as
old fields in North America and Europe are being tapped out,
commented the Wall Street Journal in early 2003.42 Imagine, then,
the lure of the vast Iraqi fields, offering nearly free
acquisition and a huge addition to total reserves. As Fadel Gheit
of Fahnstock & Co. in New York concluded, Iraq "would be a
logical place in the future for oil companies to replace their
reserves."43
New Iraq Contracts and Moves toward War
End of Part 3
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