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PART 4 OF 4.
Oil Companies in Iraq:
A Century of Rivalry and War
By James A. Paul
Global Policy Forum www.globalpolicy.org
November 2003
Conference in Berlin on Corporate Accountability (November 25-26, 2003)
New Iraq Contracts and Moves toward War
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The big US-UK companies made no secret of their strong desire for
Iraqi oil. BP and Shell conducted secret negotiations with Saddam
Hussein, while Exxon and Chevron took a harder line and waited for
Washington to eliminate Saddam covertly. In 1997, as the sanctions
lost international support, Russia’s Lukoil, France’s Total, China
National and other companies struck deals with the government of
Iraq for production sharing in some of Iraq’s biggest and most
lucrative fields. Lukoil reached an agreement for West Qurna,
Total got Majnoun, while China National signed on for North
Rumaila, near the Kuwaiti border.44 Paris, Moscow and Beijing, as
Permanent Members in the UN Security Council pressed for an easing
of the sanctions, with support from a growing number of other
countries. Grassroots movements, concerned about Iraq’s
humanitarian crisis, called on the UN Security Council to end the
sanctions forthwith.
In 1997-98, the US companies saw the writing on the wall. With
Iranian fields already slipping into the hands of competitors,
such losses in Iraq threatened to reduce them to second rank and
confront them with fierce international competition and downward
profit pressure. The companies stepped up their lobbying in
Washington and made their wishes for Iraq oil crystal
clear. "Iraq possesses huge reserves of oil and gas
reserves I’d love Chevron to have access to," enthused Chevron
CEO Kenneth T. Derr in a speech at the Commonwealth Club of San
Francisco.45
Almost as soon as Iraq signed the new oil agreements, Washington
began to deploy military forces near the country’s borders in a
very threatening forward posture. Operation Phoenix Scorpion and
Operation Desert Thunder in various phases lasted almost
continuously from November 1997 through December 1998. In
Washington, the rhetoric grew increasingly hard-line and
threatening. On January 26, 1998 members of the right-wing Project
for a New American Century sent a letter to President Bill Clinton
warning that the containment policy has been steadily eroding
over the past several month and calling for removing
Saddam Hussein from power.46 CIA sources told journalists and
members of Congress that Saddam was hiding large stocks of deadly
weapons. Congress held hearings and began drafting
legislation. The President asked the Pentagon to plan a variety of
military options, ranging from limited strikes (later designated
Operation Desert Fox) to full-scale war (Operation Desert Lion).
On May 1, President Clinton signed a law that provided $5 million
in funding for the Iraqi opposition and set up "Radio Free
Iraq." That was only the beginning. On May 29, the Project for
a New American Century sent an open letter to Congress on Iraq,
insisting that the US government was not sufficiently firm with
Saddam, attacking what it called the President’s
"capitulation" and warning of severe "consequence" to
US interests. Among the signatories of this high-profile letter
were Donald Rumsfeld, Paul Wolfowitz, Richard Perle, Elliot
Abrams, John Bolton and others who would later take high posts in
the Bush administration.47 The Clinton White House was ready to
oblige. On August 14, the President signed another law (PL
105-235) that accused Iraq of building weapons of mass destruction
and failing to cooperate with UN inspectors, declaring ominously:
"Iraq is in material and unacceptable breach of its
international obligations." Finally, on October 31, the
President signed the "Iraq Liberation Act of 1998" (PL
105-338), a text still more bellicose. "It should be the policy
of the United States to support efforts to remove the regime
headed by Saddam Hussein from power in Iraq," read the key
sentence. In London, government leaders made similar expressions
of determination and a UK Strategic Defence Review of July 1998
affirmed readiness to use force. "Outside Europe," the
Review concluded, "the greatest risks to our national economic
and political interests . . . will remain in the Gulf."48
On December 16-19, 1998, the US-UK launched Operation Desert
Fox. Hundreds of strike aircraft and cruise missiles hit Baghdad
and other major Iraqi targets, including an oil refinery. The
attacks ended the UN arms inspection program, pre-empting any
declaration that Iraq was nearly free of mass destruction
weapons. Following Desert Fox, US-UK air forces patrolled the
"no-fly" zones with new, more aggressive rules of engagement
and regular attacks on Iraqi targets.
This increasingly aggressive policy towards Iraq expressed a
hardening conviction among leaders in the US and the UK that
Saddam Hussein could not be ousted by covert means, and that
invasion and direct control over Iraq’s oil would now be required.
The Bush Administration Heads for War
The new Bush administration came into office in January 2001 at
this critical juncture. Revelations by former Secretary of the
Treasury Paul O’Neill inform us that the new administration
started planning for an invasion of Iraq almost
immediately. According to O’Neill, Iraq was "Topic A" at the
very first meeting of the Bush National Security Council, just ten
days after the inauguration. It was about finding a way to do
it, reports O’Neill, That was the tone of the President,
saying 'Go find me a way to do this.’49 Meanwhile, the
President ordered stepped-up overflights and provocative attacks
on Iraqi targets under a plan, evidently known as Operation Desert
Badger. On February 16, US aircraft bombed Iraqi radar
installations north of the no-fly zone and very close to southern
limits of Baghdad. Readily audible from the Iraqi capital, this
attack drew wide media comment.
Just a few weeks later, the hastily-organized National Energy
Policy Development Group, chaired by Vice President Cheney,
studied the challenge posed by French, Russian and other
companies. One of the documents produced by the Cheney group, made
public after a long court case, is a map of Iraq showing its major
oil fields and a two-page list of "Foreign Suitors for Iraqi
Oilfield Contracts." The list showed more than 40 companies
from 30 countries with projects agreed or under discussion, but
not a single US or UK deal.50 The list included agreements or
discussions with companies from Germany, India, Italy, Canada,
Indonesia, Japan and other nations, along with the well-known
French, Russian and Chinese deals. The Cheney Group’s report,
released in May, warned ominously of US oil shortfalls that might
"undermine our economy, our standard of living, our national
security."
The Bush administration seems to have reached a near-decision on
war with Iraq in the late spring of 2001. The events of September
11, 2001 and the US war on Afghanistan, postponed the timetable of
operations, but may have helped solidify the support of the UK
ally. According to Sir Christoper Meyer, the British ambassador in
Washington at the time, President Bush raised the issue of Iraq
with UK Prime Minister Tony Blair at a private dinner at the White
House just nine days after September 11. Bush asked for British
support for removal of Saddam Hussein from power, a clear
reference to a military operation. According to Meyer's account,
Blair gave his silent assent to the proposal. 52 As the wheels of
policy began to turn in the Pentagon and the While House, oil
industry publications like Platts and Oil and Gas Journal
reflected the growing sense of urgency within the industry that
the time for action had arrived. Early in 2002, more than a year
before the conflict, Bush and Blair affirmed their plans for war
and (while keeping their decision secret) stepped up efforts to
prepare their governments and their publics for the use of force.
As war talk increased in Washington and at the UN, oil issues came
into the open. The influential Heritage Foundation published in
September a report on "The Future of a Post-Saddam Iraq"
which called for the privatization of Iraq’s national company and
warned that competitor companies would lose their Saddam-era
contracts. The companies, the Bush administration and the Iraqi
opposition held many meetings over post-war oil. The Washington
Post reported in September that the big companies were
"maneuvering for a stake" in postwar Iraq and that the war
could cause major "reshuffling" of world petroleum
markets. Former CIA Director James Woolsey told the Post that the
US would use access to post-war oil as a bargaining chip to win
French and Russian support for the war.51 Also at this time, Iraqi
exile leaders said publicly that a post-Saddam government would
"review" all the foreign oil agreements. Ahmad Chalabi,
leader of the Iraqi National Congress, US favorite as heir to the
Iraqi leadership, was quoted as saying: "American companies
will have a big shot at Iraqi oil."53
Russian officials told the London-based Observer newspaper that
they feared a post-war nullification of the large Russian
contracts, with the most lucrative deals given over to US
companies. The Observer quoted one official in Moscow as saying
that the impending conflict could be called "an oil grab by
Washington." In France, it was reported that Total was actually
in negotiations with the US government "about redistribution of
the oil regions between the world’s major companies."54
On October 21, Deutsche Bank added to the war-for-oil speculation
by publishing a major investor-research study entitled:
"Baghdad Bazaar: Big Oil in Iraq?" The report, which noted
that "war drums are beating in Washington" and "Big Oil
is positioning for post-sanctions Iraq," analyzed the upward
stock market potential of the oil industry in light of declining
world reserves and Iraq’s post-war potential. On November 1,
Youssef Ibrahim of the Council on Foreign Relations, warned in the
International Herald Tribune that the coming war was "bound to
backfire," calling it a "a misguided temptation to get more
oil out of the Middle East by turning a 'friendly’ Iraq into a
private American oil pumping station.55
Meetings continued all fall and into the new year in Washington,
London, Houston and elsewhere, between government officials, oil
executives and Iraqi opposition leaders in various
combinations. US envoys held private talks on oil in Moscow,
Paris, Beijing and other capitals. In December, there was a
meeting of oil company figures at a resort near Sandringham in
Scotland, featuring a talk by the former head of Iraq’s Military
Intelligence Agency. Topics on the agenda included Iraq’s future
oil potential and whether post-Saddam Iraq might pull out of
OPEC.56 In the Pentagon, war planners were considering how to
seize Iraq’s oil fields in the first hours and days of the
impending conflict.
The War and After
US-UK forces invaded Iraq on March 20, 2003, seizing the major
oilfields and refineries almost immediately. When coalition forces
later entered Baghdad, they set a protective cordon around the Oil
Ministry, while leaving all other institutions unguarded, allowing
looting and burning of other government ministries, hospitals and
cultural institutions. Looters sacked the National Museum and
burned a wing of the National Library, but the Oil Ministry stood
relatively unscathed, with its thousands of valuable seismic maps
safe for future oil exploration.
President Bush quickly appointed Phil Carroll, a former
high-ranking US oil executive, to assume control of Iraq’s oil
industry and on May 22, Bush issued Executive Order 13303 giving
immunity to oil companies for all activities in Iraq and deals
involving Iraqi oil. On the same day, under pressure from the US
and the UK, the UN Security Council passed Resolution 1483 which
lifted the former sanctions and allowed the occupation authorities
to sell Iraqi oil and put the proceeds in an account they
controlled. Every step in the early post-war period confirmed the
centrality of oil, not as an Iraqi national resource to be
protected, but as a spoil of war to be controlled. Now, many
months after the war, the picture remains the same.
Company Bonanza or Greedy Overreach?
Was the war a bold and successful calculation or a major error,
resulting from official hubris and company greed? The war’s
authors hoped to affirm a New American Century and company
pre-eminence, but the conflict instead could limit US global
ambitions and set back oil company aspirations. It is too early to
be certain of the outcome, but we can make a few preliminary
conclusions.
The companies hoped that the Iraq war would allow them to take
over Iraq’s oil reserves with only a minimum of
difficulty. Self-confident assurances by pro-war ideologues in
Washington reinforced the widely-held conviction that the sole
superpower could easily mobilize international support and that
the people of Iraq would welcome the invaders and applaud the
"liberation" offered by a US occupation government. The
hawks expected that they could rapidly set up a pliant government
and privatize the Iraqi industry or distribute production
agreements speedily to US firms. But these ideas proved
illusory. Instead, Bush and Blair faced enormous worldwide
opposition to the war. And in spite of US forces’ rapid seizure of
the country, they now grapple with economic chaos and an intense
and lethal resistance movement.
The companies, it should be said, are not in a great hurry. They
plan and act on decades-long time horizons. They can wait out the
insecurity of the present if the precious Iraqi oil fields fall
dependably into their hands sometime in the next few years. But it
is by no means certain that the Anglo-American giants will get
their way as easily in Iraq as they did in Washington. As they
wait, the violence of pacification and resistance engulfs the
country. War number eight gets under way.
-----------------------
Notes
1See, for example, Daniel Yergin, The Prize (New York: Simon &
Schuster, 1991).
2The Seven Sister companies arose after the federal anti-monopoly
breakup of the Standard Oil Trust in 1911. They included three
Standard Oil spinoffs, Standard Oil Company of New Jersey,
Standard Oil Company of New York , and Standard Oil Company of
California, as well as Texaco, Gulf, and the UK giants Royal Dutch
Shell and British Petroleum. See Anthony Sampson, The Seven
Sisters: the great oil companies and the world they made (London:
Hodder & Staughton, 1988)
3Data from ExxonMobil web site, announcement of 2003 earnings,
January 29, 2004,
http://www.exxonmobil.com/corporate/files/corporate/earnings_4q03.pdf.
4Data from CIA World Factbook web site
(www.cia.gov/cia/publications/factbook) and Fortune Global 500
(www.fortune.com/fortune/fortune500). Note that we are comparing
company revenue with government revenue, not with national
GNP. The seventh richest government, the Netherlands, had a
revenue in 2001 of $134 billion, far below Exxon’s figure.
5See tables posted on the Global Policy Forum web site, based on
information from Fortune and the CIA Factbook –
www.globalpolicy.org/socecon/tncs/oiltable.htm -
www.globalpolicy.org/socecon/tncs/oiltncs2002.htm -
www.globalpolicy.org/socecon/tncs/tncstat2.htm
6Ordinary citizens worry about having a plentiful supply of gas
for their automobiles, too. On this basis, the US government has
often mobilized its people around aggressive Middle East military
policies.
7John D. Rockefeller, Random Reminiscences of Men and Events (New
York: Doubleday, 1909)
8Yergin,183.
9Michael B. Stoff, Oil, War and American Security: the search for
a national policy on foreign oil 1941-1947 (New Haven: Yale
University Press, 1980), 147-50.
10Wilson D. Muscamble, George F. Kennan and the Making of American
Foreign Policy (Princeton: Princeton University Press, 1992)
11Rents sometimes result from technical advances, patents,
copyrights, and the like, advantages that normally disappear after
a period of time. Oil rents are long-lasting and can yield far
higher spreads between the normal profit rate and the rate
expressed by the rent.
12Virtually all historical studies of the industry provide
evidence of this kind. See Yergin (1991) and Sampson (1988) See
also: Joe Stork, Middle East Oil and the Energy Crisis (New York:
Monthly Review, 1976) and Fiona Benn, Oil Diplomacy in the
Twentieth Century (New York: St. Martin’s Press, 1986).
13Richard Sale, “Saddam Key in Early CIA Plot,” United Press
International, April 10, 2003. Sale quotes a US operative who knew
Saddam at that time saying: “He was a thug – a
cutthroat.” Saddam was 22 years old at the time of the botched
assassination.
14See Kermit Roosevelt, Countercoup, the struggle for the contol
of Iran (New York: McGraw-Hill, 1979), a book written by the CIA’s
coup-maker in Tehran, and Ervand Abrahamian, Iran Between Two
Revolutions (Princeton: Princeton University Press, 1982).
15See, for example, Joseph Fitchett and David Ignatius,
Lengthy Elf Inquiry Nears Explosive Finish, International
Herald Tribune, February 1, 2002 and Nicholas Shaxon, "The Elf
Trial: political corruption and the oil industry," in Transparency
International, Global Corruption Report 2004 (London: Pluto Press,
2004), pp. 67-71. Almost all the world’s oil-producing countries
have suffered from abusive, corrupt and undemocratic governments
and an absence of durable development. Indonesia, Saudi Arabia,
Libya, Iraq, Iran, Angola, Colombia, Venezuela, Kuwait, Mexico,
Algeria these and many other oil producers have a sad record,
which includes dictatorships installed from abroad, bloody coups
engineered by foreign intelligence services, militarization of
government and intolerant right-wing nationalism. On poverty and
war in oil-producing countries see Christian Aid, Fueling Poverty:
Oil, War and Corruption (London, 2003) and Michael Ross,
Extractive Sectors and the Poor (Oxfam America, 2001).
16For a lengthy discussion of the special tax treatment of the
companies see John M. Blair, The Control of Oil (New York: Random
House, 1976), 187-203.
17Blair (1976), 71-76.
18New York Times, January 2, 2004.
19For a discussion of the Central Command as a force designed for
oil-related intervention, see Michael T.Klare, Resource Wars: the
new landscape of global conflict (New York: publisher, 2001)
20Testimony of the senate Armed Services Committee, April 13,
1999.
21See Peter Grose, Gentleman Spy: the life of Allen Dulles
(Boston: Houghton Mifflin, 1994)
22Stoff (1980), 64-68.
23In 2003, for example, while BP had revenues of $233 billion,
British Telecom had revenues of $29 billion, Barclays $26 billion,
Lloyds $22 billion, Unilever $20 billion, BAT $18 billion and ICI
only $10 billion.
24In recent decades in the UK, government ministers have nearly
always been drawn from elected members of parliament, sitting in
the House of Commons. Simon had just been named to the unelected
House of Lords and had no parliamentary experience or popular
constituency.
25On Hunter, see New York Times, August 30, 2003.
26As quoted in Guardian, April 6, 2003.
27Curzon was responding to fierce criticism in parliament and the
press. T. Johnson, MP, had said, for example, that “The trail
of oil was all over the question of Mosul and Iraq.” Curzon
wrote three articles in The Times (London) on August 2, 9 and 16,
1924 in which he set forth his denials.
28See Helmut Mejcher, Imperial Quest for Oil: Iraq 1910-1928
(London: Ithaca Press, 1976) and Peter Sluglett, Britain in Iraq
1914-1932 (London: Ithaca Press, 1976)
29A note the Foreign Secretary Arthur Balfour, as quoted in
Yergin, 188.
30On the seizure of Mosul, see Mechjer (1976), 42. Merchjer notes
that the British also postponed the signing of the armistice to
enable their forces to make more progress towards Mosul. See also
Sluglett (1976).
31See, for example, David E. Omissi, British Air Power and
Colonial Control in Iraq: 1920-1925 (Manchester: Manchester
University Press, 1990), Sluglett, V.G. Kiernan, Colonial Empires
and Armies: 1815-1960 (Stroud: Sutton, 1998).
32Raghid Solh, Britain’s 2 Wars with Iraq, 1941-1991 (Reading:
Ithaca Press, 1996)
33Dilip Hiro, The Longest War: the Iran-Iraq military conflict
(New York: Routledge, 1991)
34As quoted by the New York Times, August 16, 1990
35See US Department of Energy, Energy Information Administration
website at http://www.eia.doe.gov/emeu/cabs/iraq.html
36Platts website.
37I have arrived at this figure based on assumptions about four
variables. I assume 350 billion barrels of reserves, $30 oil rent
average in real terms, 75% recovery rate and 60% company share of
the rent (the remainder going to the government). Different
assumptions would yield different final estimates. For example,
assumptions based on worldwide oil scarcity would drive the number
up, while assumptions based on rapid conversion to sustainable
energy sources would drive the number down. World Energy Outlook
of 2001, published by the International Energy Agency, estimated
that the total value of foreign contracts signed by the Iraqi
government of Saddam Hussein might reach $1.1 trillion, a. number
consistent with mine, since the contracts covered only a fraction
of Iraq’s total oil potential. See Scramble to care up Iraqi
oil reserves lies behind US diplomacy, Observer, October 6,
2002.
38Author’s Interview with an expert, November, 2002.
39Author’s Interview with a UN diplomat, November, 2002.
40Interview with a US-based industry observer, November, 2002
41Platts website www.platts.com/Oil/Resources/
42Susan Warren, Exxon’s Profit Surged in 4th Quarter, Wall
Street Journal, February 12, 2004.
43Platt’s website, www.platts.com/Oil/Resources/f.. A recent
example, not dealing with Iraq, shows the great importance of
company reserves. On January 9, 2004, Shell announced that it had
revaluated its worldwide reserves downward by 20%. The firm’s
stock immediately declined by 7%. Shell had reduced its estimated
reserves by 3.9 billion barrels, bringing the company’s total to
15.4 billion barrels (Exxon’s reserves were 22 billion barrels at
that time). By contrast, Iraq’s single super-giant Majnoun field
(promised pre-war to Total) has estimated reserves of 10- 30
billion barrels, while the super-giant West Qurna field (promised
to Lukoil) has estimated reserves of 15-18 billion barrels. If
Shell could get control of such a field in Iraq, it could more
than double its total company reserves and enjoy an enormous lift
in its share prices. This demonstrates clearly what is at stake in
Iraq, since share valuation brings fifty years or more of future
production immediately into the market capitalization of the firm.
44China had become a major player in the Middle East oil game
because of its rapid economic growth and huge future oil needs,
with Persian Gulf imports estimated to rise from 0.5 million
barrels per day in 1997 to 5.5 million barrels per day in 2020.
45As posted on the company web site at
www.cherontexaco.com/news/archive/chevron_speech/1998/98-11-05.asp
46Project for a New American Century web site
www.newamericancentury.org/iraqclintonletter.htm
47www.newamericancentury.org/iraqletter.htm
48UK Ministry of Defence website, White Paper, July 18, 2002 –
www.mod.uk/issues/sdr/newchapter.htm
49Ron Suskind, The Price of Loyalty: George W. Bush, the White
House and the Education of Paul O’Neill (New York, Simon &
Schuster, 2004) 174-75
50The Cheney documents were curiously made public in response to a
law suit by a conservative organization called Judicial Watch. The
administration fought the Judicial Watch case in court, but
eventually lost. The Foreign Suitors list includes Shell,
but lists no contract results with the company. Exxon, Chevron and
BP are not on the list at all. Two small UK firms, Branch Energy
and Pacific Resources are also to be found on the list.
51Dan Morgan and David B. Ottaway, In Iraqi War Scenario, Oil
is Key Issue as U.S. Drillers Eye Huge Petroleum Pool,
Washington Post, September 15, 2002.
52David Rose, "Bush and Blair Made Secret Pact for Iraq War," The
Observer, April 4, 2004 53Morgan and Ottaway (2002)
54Ed Vulliamy, Paul Webster and Nick Paton Walsh, Scramble to
Carve up Iraqi oil reserves lies behind US diplomacy, The
Observer, October 6, 2002.
55Youssef Ibrahim, Bush’s Iraq adventure is bound to
backfire, International Herald Tribune, November 1, 2002.
56Peter Beaumont and Faisal Islam, Carve-Up of Oil Riches
Begins, Observer, November 3, 2002.
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